Leonard v. Sunset Mortgage

Opinion

F I L E D United States Court of Appeals Tenth Circuit UNITED STATES CO URT O F APPEALS January 12, 2007 FO R TH E TENTH CIRCUIT Elisabeth A. Shumaker Clerk of Court

ANGELA M . LEONARD, Personal Representative of the Estate of Roy F. Leonard; A ETN A MO R TG A G E CONSULTANTS, INC., a D elaw are corporation,

Plaintiffs-Appellees, Nos. 04-4310 & 05-4116 (D.C. No. 1:03-CV-92-J) v. (D. Utah)

SUN SET M OR TGA GE, a Pennsylvania limited partnership,

Defendant-Appellant.

OR D ER AND JUDGM ENT *

Before H E N RY, BR ISC OE, and M U RPH Y, Circuit Judges.

Plaintiffs Angela M . Leonard, as personal representative for the estate of

her deceased husband, Roy F. Leonard, and Aetna M ortgage Consultants, Inc., the

couple’s wholly-owned mortgage corporation, (Leonard Parties) sued defendant

* After examining the briefs and appellate record, this panel has determined unanimously that oral argument would not materially assist the determination of these appeals. See Fed. R. App. P. 34(a)(2); 10th Cir. R. 34.1(G). The cases are therefore ordered submitted without oral argument. This order and judgment is not binding precedent, except under the doctrines of law of the case, res judicata, and collateral estoppel. It may be cited, however, for its persuasive value consistent w ith Fed. R. App. P. 32.1 and 10th Cir. R. 32.1. Sunset M ortgage for breach of contract, alleging that Sunset M ortgage owed

M r. Leonard unpaid commissions. Upon consideration of cross-motions for

summary judgment, the district court granted the Leonard Parties’ motion,

holding that Sunset M ortgage ow ed the Leonard Parties the unpaid commissions,

and denied Sunset M ortgage’s motion for summary judgment. Sunset M ortgage

appealed. 1 (Appeal No. 04-4310.) It also appealed the district court’s order

granting attorney’s fees to the Leonard Parties. (Appeal No. 05-4116.) W e

reverse both decisions and remand for further proceedings.

I. Background

M r. Leonard, doing business as Aetna M ortgage Consultants, worked as

marketing director, an independent contractor position, for Sunset M ortgage

recruiting persons to establish Sunset M ortgage branch offices. M r. Leonard’s

and Sunset M ortgage’s duties and obligations were set forth in an Independent

Contractor Agreement (Agreement). Under the terms of that Agreement,

M r. Leonard received commissions based on the productivity of the branches.

The Agreement set forth provisions for terminating the Agreement with or

1 The district court denied the Leonard Parties’ claim for death benefits. By failing to file a cross-appeal, the Leonard Parties have not preserved that claim. See M ontgomery v. City of Ardm ore, 365 F.3d 926, 944 (10th Cir. 2004) (requiring cross-appeal where appellee seeks to enlarge own rights or lessen rights of adversary); Trigalet v. Young, 54 F.3d 645, 647 n.3 (10th Cir. 1995) (noting that where plaintiffs did not cross-appeal on issue, this court lacked jurisdiction to consider district court’s grant of summary judgment to defendants on that issue).

-2- without cause. Aplt. App. at 80-81. If Sunset M ortgage terminated without

cause, it was obligated to pay M r. Leonard commissions for twelve months. If it

terminated with cause, “all compensation . . . terminate[d] and cease[d] to

accrue.” Id. at 81. The Agreement defined “cause” to include “willful violation

of any Sunset policy.” Id. Also, the Agreement set forth confidentiality

provisions:

It is understood and agreed by [Leonard], as a condition of the payment of fees to [Leonard], that the nature of Sunset’s business . . . require[s] confidentiality be maintained throughout the process, and therefore, [Leonard] agrees as follows:

(a) [Leonard] understands and agrees that all conversations, records, correspondence, files, customer and supplier lists, data and other information pertaining to or concerning Sunset, its affiliates, and their customers and suppliers are confidential information, and therefore, during the term of this agreement and for a period of two (2) years thereafter, [Leonard] shall not divulge or communicate any such confidential information to any person or organization without the express written authorization of Sunset. [Leonard] agrees that, upon the termination of this agreement, he/she will immediately surrender to Sunset any and all files, memoranda, forms, customer and supplier lists, other business service data and everything in his/her possession pertaining to Sunset and/or its affiliates and their businesses, it being distinctly understood that all such lists, books and records and any copies thereof, whether prepared by [Leonard] or by others, are the property of Sunset;

(b) [Leonard] shall disclose information to those persons who have a need to receive information and that such disclosure shall be limited to only so much of the information as is necessary for the performance of [Leonard’s] services; and

(c) Disclosure of any such confidential information shall require the express written consent of Sunset.

-3- Id. at 84-85.

In July 2002, Sunset M ortgage exercised its right to terminate the

Agreement without cause. By doing so, it was obligated under the Agreement to

pay M r. Leonard commissions for twelve months after termination. After making

six payments, Sunset M ortgage determined that M r. Leonard had violated the

confidentiality provisions and breached the Agreement by maintaining a website

under the domain name www.sunsetmortage.biz, w hich disseminated allegedly

confidential proprietary information both before and after termination of the

Agreement. On January 31, 2003, Sunset M ortgage sent a letter to M r. Leonard,

who had passed away on January 19, stating that it had suspended any of its

requirements under the Agreement and that he should “cease and desist”

disseminating its proprietary information through the website within ten days. Id.

at 125.

After Sunset M ortgage denied the Leonard Parties’ requests for the

remaining six commission payments, they brought suit in Utah state court alleging

that Sunset M ortgage breached the Agreement when it failed to make the

remaining six payments. Sunset M ortgage removed the case to federal court

based on diversity jurisdiction and defended, in part and as relevant now, on the

ground that M r. Leonard did not perform all of his obligations under the

Agreement and had materially breached the confidentiality provision of the

Agreement. The parties filed cross-motions for summary judgment. The district

-4- court granted the Leonard Parties’ motion for summary judgment, directing that

Sunset M ortgage make the six remaining payments, totaling $77,088.43, plus

pre- and post-judgment interest and costs. The court denied Sunset M ortgage’s

motion for summary judgment. Sunset M ortgage appealed. (Appeal

No. 04-4310.)

Thereafter, the Leonard Parties filed a motion for attorney’s fees. The

district court granted the motion in the amount of $39,620.00. Sunset M ortgage

again appealed. (Appeal No. 05-4116.)

II. Appeal No. 04-4310

A. Standard of Review

W e review the district court’s grant or denial of summary judgment

de novo, applying the same legal standard that the district court applied. M ontero

v. M eyer, 13 F.3d 1444, 1446 (10th Cir. 1994). Under that standard, summary

judgment is appropriate “if the pleadings, depositions, answ ers to interrogatories,

and admissions on file, together with the affidavits, if any, show that there is no

genuine issue as to any material fact and that the moving party is entitled to a

judgment as a matter of law .” Fed. R. Civ. P. 56(c). “A n issue of fact is

‘genuine’ if the evidence allows a reasonable jury to resolve the issue either way

and is ‘material’ when it is essential to the proper disposition of the claim.”

Haynes v. Level 3 Commc’ns, LLC, 456 F.3d 1215, 1219 (10th Cir. 2006)

(quotation omitted), petition for cert. filed, 75 U.S.L.W . 3266 (U.S. Nov. 3, 2006)

-5- (N o. 06-638). “O n an appeal from cross-motions for summary judgment, we

construe all factual inferences in favor of the party against whom summary

judgment was obtained.” NISH v. Rumsfeld, 348 F.3d 1263, 1266 (10th Cir.

2003).

Although federal law controls our review of w hether the district court

properly granted the Leonard Parties’ motion for summary judgment,

Pennsylvania law, the law designated by the Agreement, governs the analysis of

the substantive breach-of-contract claims. See Kaiser-Francis Oil Co. v.

Producer’s Gas Co., 870 F.2d 563, 565 (10th Cir. 1989) (applying Oklahoma

substantive law, consistent with contracts’ choice-of-law provisions).

B. Analysis

Sunset M ortgage argues that the district court erred in denying its motion

for sum mary judgment and in granting the Leonard Parties’ motion for summary

judgment because M r. Leonard breached the Agreement by publishing Sunset

M ortgage’s confidential information on an unauthorized website bearing its trade

name. It contends that the Leonard Parties did not prove that M r. Leonard

performed his obligations under the Agreement, that M r. Leonard’s right to

receive compensation was conditioned upon his compliance with the

confidentiality provisions, and that M r. Leonard’s breach was material.

There are genuine issues of material fact whether M r. Leonard actually

breached the confidentiality provisions of the Agreement by publishing

-6- confidential information concerning Sunset M ortgage on the website. Sunset

M ortgage maintains that it first learned of the website in January 2003, after it

had made six commission payments. To support this assertion, Sunset M ortgage

relies on the declaration of its President and Chief Operating Officer, Samuel B.

M orelli. In that declaration, M r. M orelli first stated that he was “familiar with

the ‘sunsetmortage.biz’ web site that was once used by M r. Leonard during the

life of the Agreement and which [M r. Leonard] continued to use, without

authorization, after the Agreement was terminated.” Aplt. A pp. at 121.

According to M r. M orelli, the website published the following confidential

information: a list of branches, a sample branch manager agreement, Sunset

M ortgage’s application to become a branch manager, and compensation

information for branch managers. Id. M r. M orelli further stated that there was no

written authorization to disseminate this information, as was required by the

Agreement. Id. at 121-22. M r. M orelli also stated that upon learning

that M r. Leonard, M rs. Leonard and/or AETNA were publishing vast amounts of Sunset’s confidential information via the web site, Sunset demanded that they immediately cease and desist from any and all dissemination of such confidential information. This demand w as made by letter on January 31, 2003. This letter noted that M r. Leonard was in direct violation of the Agreement and that because of the violations, Sunset was suspending any and all of its requirements under the Agreement, thus terminating the Agreement for cause.

Id. at 122; see also id. at 125 (letter of January 31, 2003, directing M r. Leonard to

cease and desist disseminating information and using Sunset M ortgage trade name

-7- within ten days, notifying him Agreement had been violated thereby causing

Sunset M ortgage harm, and suspending Sunset M ortgage’s requirements under

Agreement). 2

The Leonard Parties counter that Sunset M ortgage was aware of the website

earlier than M r. M orelli’s declaration suggests. M s. Leonard testified at her

deposition that she did not remember showing the website to anyone at Sunset

M ortgage or asking anyone at Sunset M ortgage to look at the website, but she

thought that she told someone at Sunset M ortgage that there was a website or that

she was working on one. Id. at 94. Based on this testimony, the Leonard Parties

contend that Sunset M ortgage knew of the website and did nothing about it, and

the website was either authorized or the information on the website was not

confidential or proprietary.

W hen Sunset M ortgage learned about the website and whether it acquiesced

in its existence are questions of fact appropriate for a jury to decide. W e cannot

say that the underlying facts are undisputed or that we can hold as a matter of law

that M r. Leonard breached the contract. Instead, we conclude that there is a

genuine question of fact whether M r. Leonard breached the Agreement and, if so,

2 On summary judgment, Sunset M ortgage did not provide copies of the pages of the website to prove what was on the website or if the website contained confidential information. See Aplt. App. at 323 (admission by Sunset M ortgage’s attorney that it did not have copy of website). It provided only the declaration of M r. M orelli.

-8- whether Sunset M ortgage had a duty to continue to make the final six commission

payments. 3 Accordingly, we conclude that the district court erred in granting

summary judgment in favor of the Leonard Parties. Correspondingly, the district

court properly denied Sunset M ortgage’s summary judgment motion.

III. Appeal No. 05-4116

Sunset M ortgage also appeals the district court’s award of attorney’s fees to

the Leonard Parties. Because we reverse the district court’s decision in favor of

the Leonard Parties, we must also reverse the district court’s award of attorney’s

fees to them.

IV. Conclusion

The district court’s judgment and its order granting attorney’s fees are

REVERSED, and the case is REM ANDED for further proceedings.

Entered for the Court

M ichael R. M urphy Circuit Judge

3 If a factfinder finds that M r. Leonard breached the Agreement, that factfinder must also decide whether that breach was material. See Forest City Grant Liberty Assocs. v. Genro II, Inc., 652 A.2d 948, 951 (Pa. Super. Ct. 1995) (recognizing that materiality of breach is question of fact).

-9-