R.K. Enterprise, LLC v. Pro-Comp Management, Inc.

158 S.W.3d 685, 356 Ark. 565, 70 U.S.P.Q. 2d (BNA) 1953, 2004 Ark. LEXIS 186
CourtSupreme Court of Arkansas
DecidedApril 1, 2004
Docket03-409
StatusPublished
Cited by23 cases

This text of 158 S.W.3d 685 (R.K. Enterprise, LLC v. Pro-Comp Management, Inc.) is published on Counsel Stack Legal Research, covering Supreme Court of Arkansas primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
R.K. Enterprise, LLC v. Pro-Comp Management, Inc., 158 S.W.3d 685, 356 Ark. 565, 70 U.S.P.Q. 2d (BNA) 1953, 2004 Ark. LEXIS 186 (Ark. 2004).

Opinion

Ray Thornton, Justice.

This case presents an issue of first Jmpression whether a determination of damages on the basis of tortious conversion and conspiracy to convert and to use trade secrets and confidential information is displaced or preempted by the language of the Arkansas Trade Secrets Act (“Trade Secrets Act”), codified at Ark. Code Ann. § 4-75-601 et seq. (Repl. 2001). Because we conclude that the Trade Secrets Act prescribes an exclusive remedy for damages for misappropriation of trade secrets, we hold that the trial court’s award of damages for tortious conversion and conspiracy was reversible error, and we reverse and remand.

Appellees, Pro-Comp Management, Inc., an Arkansas corporation, together with DLJ Wright Industries, Inc., an Oklahoma corporation, and Amedistaff, LLC, a Delaware limited liability company, owned and controlled by Diana Wright, were each doing business as The Right Solutions (“TRS”). TRS had commenced nurse-staffing services in 1996, and entered the business of providing travel nurses to facilities in Arkansas, Oklahoma, and adjacent states in August of 2000.

Appellant, Katherine Hefley, was designated as manager of TRS’s Harrison office in April, 2000, and appellant, Mary Burks, was hired by TRS on October 20, 2000. Both Ms. Hefley and Ms. Burks resigned their positions on April 20, 2001. Ten days later, they were hired by appellant, R.K. Enterprise, LLC, a Nevada limited liability company formed in April of 2001 by appellant, Raymond Hefley, for the purpose of providing travel nurses under the name, Nationwide Nurses, LLC (“Nationwide”). Before Nationwide was formed, appellant, Traca Lane, had been fired by TRS onMarch 15, 2001, and was hired by Nationwide in late May of2001.

During the time that Ms. Hefley, Ms. Burks, and Ms. Lane were TRS’s employees, each of them had access to confidential information of TRS. Each of them executed separate confidentiality and non-compete agreements with TRS.

On April 25, 2001, Diana Wright, TRS president, became aware that Ms. Hefley and her ex-husband, appellant Raymond Hefley, were starting a medical staffing agency in Marble Falls under the name of Nationwide. Shortly thereafter, Ms. Wright learned that the office of Nationwide was located in Mr. Hefley’s apartment. A TRS employee obtained the phone number of Nationwide, called the office, and learned that Ms. Burks and Ms. Lane worked for them.

Upon investigation, TRS learned that a number of confidential documents had been removed from the TRS offices in Tontitown and Harrison, including original documents from the individual nurse employee files, other files containing social-security numbers and bank account numbers, pre-paid phone cards, travel packets and travel folders, tests developed by TRS to be administered to potential nurse employees, and a computer program generated by and for the exclusive use of TRS. Additionally, it was discovered by TRS that appellants Hefley, Burks, and Lane had individually solicited TRS employees to become the employees of Nationwide.

Ms. Wright, as president of TRS, filed complaints with the Washington County prosecuting attorney for theft of property, a class B felony, in violation of Ark. Code Ann. § 5-36-103 (Repl. 1997), against Ms. Hefley and Ms. Burks. On May 23, 2001, those arrest warrants were issued.

On May 30, 2001, the Newton County Sheriffs Department executed a search warrant for Nationwide’s office. The search was conducted in the presence of appellants, and many documents, such as numerous lists of nurses, and Nationwide’s computer, were seized. All material, including any confidential information, was impounded, and was not available for any of the parties until it was returned to Nationwide by a court order dated December 11, 2001. Criminal charges against Ms. Hefley and Ms. Burks were subsequently dismissed.

Nationwide had its first travel nurse in the field on June 27, 2001, and did not regain access to the seized material until December 14, 2001, when it was returned by court order.

On January 22, 2002, TRS filed an amended complaint against all appellants, alleging fraud, breach of noncompetition/confidentiality contracts, misappropriation of trade secrets in violation of the Arkansas Theft of Trade Secrets Act, conversion, and civil conspiracy. In its complaint, TRS made allegations against appellants Hefley, Burks, and Lane for breach of fiduciary duty and for breach of duty of loyalty. TRS requested both actual and punitive damages, as well as injunctive relief.

Following three days of a bench trial, the trial court concluded that appellants, Katherine Hefley, Mary Burks, and Traca Lane did not breach the non-competition provision of their contract with TRS, but found that they breached the confidentiality and trade-secret provisions of the contracts by removing from TRS confidential information, property, and trade secrets of TRS, and disclosing that information to Nationwide and its agents.

The trial court ruled that appellants had misappropriated trade secrets in violation of the Trade Secrets Act, and required appellees to elect whether to seek recovery under the provisions of the Trade Secrets Act or to seek recovery for misappropriation of trade secrets on the basis of tort claims of conversion and conspiracy for misappropriation of trade secrets. Appellees did not contest or perfect an appeal or cross-appeal from the trial court’s order requiring the election of remedies, but chose to rely upon the evidence of damages under tort claims of conversion and conspiracy. The abstract before us does not reflect that TRS established its lost profits or Nationwide’s gain resulting from misappropriation of trade secrets. The trial court awarded damages of $262,303.00 based upon the market value of the trade secrets, including databases, tests, lists, and computer programs, and appellants bring this appeal from that order.

On appeal, appellants argue that the trial court erred in awarding damages based on tort claims, a remedy that appellants contend is displaced or preempted by the plain language of the Trade Secrets Act. Appellants also raise additional points on appeal, arguing that the trial court erred in finding that the items found in appellants’ possession were trade secrets, that the trade secrets were misappropriated by appellants, that appellants Hefley, Burks, and Lane had breached a contract with appellee, and that a conspiracy was established.

With regard to the trial court’s finding that the items at issue are trade secrets that were misappropriated, we note that our standard of review is whether the judge’s findings were clearly erroneous or clearly against the preponderance of the evidence. Finagin v. Arkansas Development Finance Authority, 355 Ark. 440, 139 S.W.3d 797 (2003). In this instance, we cannot say that the trial court was clearly erroneous. Accordingly, based upon our standard of review, we affirm the trial court’s finding that there was a misappropriation of trade secrets.

We turn to appellant’s first point on appeal, namely that the trial court erred in allowing the recovery of damages for tort claims of conversion and conspiracy.

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Bluebook (online)
158 S.W.3d 685, 356 Ark. 565, 70 U.S.P.Q. 2d (BNA) 1953, 2004 Ark. LEXIS 186, Counsel Stack Legal Research, https://law.counselstack.com/opinion/rk-enterprise-llc-v-pro-comp-management-inc-ark-2004.