Thursday, May 1, 2014

Central Trust & Investment Co. v. SignalPoint Asset Management, LLC [1]

Opinion handed down February 25, 2014

I.        Facts and Holding

Troy Kennedy was a director and executive officer for Springfield Trust & Investment Company (“STC”) until Central Trust and Investment Company (“Central Trust”) purchased STC on November 20, 2009.[2] When Central Trust purchased STC, Kennedy left his job and formed his own corporation, ITI Financial Management, LLC (ITI).[3] While the sale was still being negotiated, Kennedy placed a list of clients and client information in a safety deposit box.[4]  Kennedy started soliciting Central Trust’s clients, and, as of six months later, 85 of ITI’s 90 customers were former customers of Central Trust.[5]

In February of 2010, Kennedy signed an agreement with SignalPoint Asset Management, LLC (SignalPoint) to be an Independent Advisor Representative.[6] All of Kennedy’s emails go through SignalPoint, and Kennedy tells his clients he is affiliated with SignalPoint.[7] The agreement states that Kennedy is an independent contractor of SignalPoint and has no right to bind SignalPoint.[8]

Central Trust filed a petition against Kennedy, ITI, and SignalPoint alleging three claims: (1) misappropriation of trade secrets, (2) tortious interference with business relations, and (3) civil conspiracy.[9] SignalPoint filed for summary judgment for all three claims.[10]  The circuit court sustained SignalPoint’s motion, finding there was no genuine issue of material fact and that SignalPoint was entitled to judgment as a matter of law as to all three claims asserted against it.[11]  Central Trust appealed, and while the appeal was pending, dismissed the claims against Kennedy and ITI.[12]

The Court found there was no misappropriation by Signal Point and thus did not consider whether Central Trust’s client list was a trade secret.[13] The Court considered two different arguments.[14]  First, the Court considered whether SignalPoint itself misappropriated the client list.[15] SignalPoint denied ever receiving a copy of Central Trust’s client list from Kennedy and supported this assertion with an affidavit.[16]  Central Trust’s only support for a denial of this fact was Kennedy’s affidavit.[17]  However, Kennedy’s affidavit stated nothing about whether SignalPoint had ever been given the client list.[18]  Since SignalPoint did not have access to the client list, it could not have acquired, disclosed, or used it.[19]

The second argument the Court considered was whether SignalPoint was vicarious liable for Kennedy’s misappropriation.[20]  However, Central Trust did not plead the existence of a principal-agent or employer-employee relationship between Kennedy and SignalPoint.[21] While Kennedy signed an agreement with SignalPoint, the agreement specifically stated that Kennedy was an independent contract, disclaimed the existence of an employer-employee relationship, and stated the Kennedy had no right to bind SignalPoint by his actions.[22] Thus, the Court concluded that Kennedy’s actions could not be imputed to SignalPoint.[23]

The Court next considered Central Trust’s tortious interference with a business relation claim.[24]  Central Trust conceded in its appellate brief that SignalPoint had a legitimate economic interest in Central Trust’s clients because the two companies were competitors.[25]  Central Trust alleged SignalPoint used improper means to further its own interest.[26]  The alleged improper means was the misappropriation of the client list.[27]  However, since the Court found no genuine issue of material fact as to Central Trust’s misappropriation claim against SignalPoint, Central Trust could not prove improper means.[28]  Thus the Court upheld the circuit court’s granting of summary judgment.[29]

Finally the Court considered Central Trust’s civil conspiracy claim.[30]  The Court found that since Central Trust voluntarily dismissed its claims against Kennedy and ITI, the civil conspiracy claim was moot.[31] Therefore, the Supreme Court upheld the circuit court’s findings.[32]

II.      Legal Background

a.       Misappropriation

A claim for misappropriate of trade secrets under the Missouri Uniform Trade Secrets Act (MUTSA) has three elements: (1) a trade secret exists, (2) the defendant misappropriated the trade secret, and (3) the plaintiff is entitled to either damages or injunctive relief.[33]

Misappropriation is defined as:

(a) Acquisition of a trade secret of a person by another person who knows or has reason to know that the trade secret was acquired by improper means; or
(b) Disclosure or use of a trade secret of a person without express or implied consent by another person who:
a. Used improper means to acquire knowledge of the trade secret; or
b. Before a material change of position, knew or had reason to know that it was a trade secret and that knowledge of it had been acquired by accident or mistake; or
c. At the time of disclosure or use, knew or had reason to know that knowledge of the trade secret was:
i. Derived from or through a person who had utilized improper means to acquire it;
ii. Acquired under circumstances giving rise to a duty to maintain its secrecy or limit its use; or
iii. Derived from or through a person who owed a duty to the person seeking relief to maintain its secrecy or limit its use;…

[34] Thus by definition, misappropriation occurs only in three scenarios:  “(1) when a person acquires a trade secret while knowing or having reason to know that he or she is doing so by improper means; (2) when a person who has acquired or derived knowledge of the trade secret discloses it without the owner’s consent; or (3) when a person who has acquired or derived knowledge of the trade secret uses it without the owner’s consent.”[35]

b.       Agency Liability

Under Missouri law, the wrongful acts of an agent can be imputed to the principal where an agency relationship exists.[36]  Agency is a “fiduciary relationship [that results] from the manifestation of consent by an agent to a principal that the agent will act on the principal’s behalf and subject to his or her control.” [37] When an employer-employee relationship exists, the doctrine of respondeat superior allows the employer to be found vicariously liable for the injury-causing conduct of an employee done within the course and scope of employment.  [38]

However, an employer is not held vicariously liable, generally, for the acts of its independent contractors. [39] Independent contracts are not considered employees for purposes of respondeat superior.  [40] “For a principal-agent or employer-employee relationship to exist, the principal or employer must have the ‘right to control’ the agent or employee.” [41]

c.       Tortious Interference with Business Relations

Under Missouri Law, to prove a claim for tortious interference with a contract or a business expectancy, the plaintiff must prove the following: “(1) a contract or a valid business expectancy; (2) defendant’s knowledge of the contract or relationship; (3) intentional interference by the defendant inducing or causing a breach of the contract or relationship; (4) absence of justification; and (5) damages resulting from defendant’s conduct.”[42] The fourth element cannot be proven if the defendant has a legitimate economic interest in the business expectancy, “unless the plaintiff proves the defendant employed ‘improper means.’” [43] “Improper means” are any independently wrongful act recognized by statute or the common law. [44]

III.   Comment

The Supreme Court did not make any changes to the law with this opinion.  It simply restated well-established law across various topics.  However, the Supreme Court did seem to emphasize one point: the plaintiff must show the defendant had some type of knowledge as to the “trade secret” in question.

- Kaci Peterson

[1] 2014 WL 712970 (Mo. 2014) (en banc).
[2] Id. at *1.
[3] Id.
[4] Id.
[5] Id. at *1.
[6] Id.
[7] Id.
[8] Id.
[9] Id.
[10] Id.
[11] Id.
[12] Id.
[13] Id. at *4.
[14] Id. at *4-6.
[15] Id. at *4.
[16] Id. The affidavit was of an officer of SignalPoint. Id.
[17] Id. at *5.
[18] Id.
[19] Id.
[20] Id.
[21] Id.
[22] Id. at *6.
[23] Id.
[24] Id.
[25] Id.
[26] Id.
[27] Id.
[28] Id.
[29] Id.
[30] Id. at *7.
[31] Id.  The court also considered Central Trust’s motion for reconsideration and for a new trial.  Id. at *8.  However, the Court concluded that the newly discovered evidence by Central Trust would not have produced a different outcome, and thus the denial was proper.  Id.
[32] Id. at *8.
[33] V.A.M.S. §§ 417.453; 417.455; 417.457
[34] V.A.M.S. § 417.453(2)
[35] Central Trust, 2014 WL 712970 at *4 (citing V.A.M.S. § 417.453(2))
[36] See Bach v. Winfield-Foley Fire Protection Dist., 257 S.W.3d 605, 608 (Mo. 2008) (en banc).
[37] Id.
[38] Cluck v. Union Pac. R.R. Co., 367 S.W.3d 25, 29 (Mo. 2012) (en banc).
[39] Kaplan v. U.S. Bank, N.A., 166 S.W.3d 60, 66 (Mo. Ct. App. 2003).
[40] Id.
[41] Bach, 257 S.W.3d at 608; Kaplan, 166 S.W.3d at 66.
[42] Western Blue Print Co. v. Roberts, 367 S.W.3d 7, 19 (Mo. 2012) (en banc).
[43] Id. at 20.
[44] Id.