Arkansas Business Litigation Blog

District Court Predicts Eighth Circuit Would Apply Application Approach to Filing a Copyright Lawsuit

kmlemley@allenlawfirmpc.com (Kevin Lemley) — Wed, 10 Jun 2009 07:49:27 -0600

The District Court of Minnesota denied a motion to dismiss for lack of jurisdiction in Tri-Marketing, Inc. v. Mainstream Marketing Services, Inc., 2009 U.S. Dist. LEXIS 42694 (5/19/09).

Tri-Marketing filed suit for copyright infringement. Tri-Marketing had submitted its copyright application and fees but had not yet received the registration. Mainstream moved to dismiss for lack of jurisdiction. The court noted the circuit split on this issue--some courts permit the lawsuit to proceed once the application is filed, while other courts require the plaintiff to get the registration first.

The court noted that the Eighth Circuit has not decided this issue. However, the Eighth Circuit cited language that indicated it would adopt the application approach in Action Tapes, Inc. v. Mattson, 462 F.3d 1010 (2006) (previously posted 1/10/07). The court adopted the application approach and denied the motion to dismiss.

In Eighth Circuit, Attorneys are Assumed to Receive ECF Notice

kmlemley@allenlawfirmpc.com (Kevin Lemley) — Tue, 09 Jun 2009 12:05:39 -0600

The Eighth Circuit affirmed summary judgment in American Boat Co., Inc. v. Unknown Sunken Barge, No. 08-2166 (6/4/09).

The district court granted summary judgment to the United States. Plaintiffs failed to timely appeal because they claim not to have received the ECF notice of the summary judgment. An evidentiary hearing was held, and both parties had a computer forensics expert investigate the computer of Plaintiffs' counsel. Plaintiffs' expert was unable to provide an opinion as to why the notice failed to reach plaintiffs.

Although there was no evidence of the notice on Plaintiffs' counsel's server, there was evidence that Plaintiffs' counsel used a POP account to remotely check email. The court affirmed summary judgment, holding that denial of receipt cannot overcome the presumption that an ECF notice is received.

Preliminary Injunction Denied in Trade Secret Case After TRO Granted

kmlemley@allenlawfirmpc.com (Kevin Lemley) — Fri, 05 Jun 2009 13:20:32 -0600

The Eighth Circuit affirmed denial of a preliminary injunction in CDI Energy Services, Inc. v. West River Pumps, Inc., No. 08-1031 (5/29/09).

CDI sells oilfield equipment. It had one location in North Dakota with three employees. Those employees left CDI to form West River, a competing business. CDI's customers went to West River, and the CDI office went out of business. After obtaining a TRO for trade secret misappropriation and other counts, the district court dissolved the TRO and denied the preliminary injunction.

The Eighth Circuit affirmed, with two interesting holdings. First it held the customer lists were not trade secrets. Because the potential CDI customers was a small number of local oilfield companies, the information would be readily obtainable. Second, the court held no irreparable harm because, since CDI's office was closed, an injunction would do nothing to help them. In other words, CDI had been harmed to such a degree that the harm was no longer irreparable.

Tacit Contract Created From Practice of Using Fax for Orders

kmlemley@allenlawfirmpc.com (Kevin Lemley) — Thu, 04 Jun 2009 16:07:15 -0600

The Arkansas Court of Appeals affirmed creation of a tacit contract in Crown Custom Homes, Inc. v. Buchanan Services, Inc., No. 09-20 (5/27/09).

The parties had a long history where Crown would send a request for work via fax. Buchanan would perform the work and then send a bill. The parties had conducted over $100,000 of business in this manner. Crown brought Cunningham to a meeting at Buchanan's office regarding some work. Cunningham faxed a work order to Buchanan from Crown's office. Buchanan performed the work, but Crown refused to pay, arguing the contract for that work was with Cunningham.

The trial court held a contract existed between the parties and entered judgment for Buchanan. The court of appeals affirmed, stating that course of dealing is properly considered to determine if a tacit contract is created.

Effective July 1, Official Arkansas Reports Will be Electronic Only

kmlemley@allenlawfirmpc.com (Kevin Lemley) — Thu, 04 Jun 2009 11:25:44 -0600

The Arkansas Supreme Court made a drastic change to Rule 5-2 in In re: Arkansas Supreme Court and Court of Appeals Rule 5-2, No. 09-540 (5/28/09).

Effective July 1, 2009, the electronic version of appellate decisions posted on the Arkansas Judiciary website will be the official reports. See Rule 5-2(d) for proper citation format to these decisions Additionally, the Reporter of Decisions will create a searchable database for all opinions issued after February 14, 2009. We believe Arkansas is the first jurisdiction to adopt electronic official reports.

The new rule also abandons the distinction between published and unpublished opinions. Every opinion issued after July 1, 2009, will be precedent.

Reference to a Non-Testifying Expert at Trial is Reversible Error

kmlemley@allenlawfirmpc.com (Kevin Lemley) — Thu, 28 May 2009 11:56:15 -0600

The Arkansas Supreme Court reversed a $689,526 judgment in Western Sizzlin Corp. v. Parks Land Co., LLLP, No. 08-1199 (May 14, 2009).

Parks filed suit for claimed violations of a lease agreement. Western Sizzlin hired an expert to calculate the cost of repair to the property. Western Sizzlin decided not to call this expert to testify. During the trial, Parks' counsel questioned Western Sizzlin's CFO about this expert. During closing argument, Parks' counsel made reference to this non-testifying expert.

In its reversal, the court stated: "Reference to the original employment of the non-testifying expert constitutes prejudicial error and requires a new trial." The case was remanded for a new trial.

Arbitration Provision Prohibiting Class Actions is Upheld

kmlemley@allenlawfirmpc.com (Kevin Lemley) — Wed, 29 Apr 2009 09:17:10 -0600

An arbitration provision that prohibited a class action was upheld in Smith v. Comcast Corp., 2009 U.S. Dist. LEXIS 25348 (E.D. Ark. 3/17/09).

Plaintiff filed a class action alleging fraud and deceptive trade practices. However, Plaintiff's contract contained an arbitration clause. The arbitration clause prohibited Plaintiff from bringing a class action claim. The court clearly had misgivings about the clause but found it was enforceable. The court granted Comcast's motion to compel arbitration.

Dismissal Affirmed for Failure to Strictly Comply with Service Rules

kmlemley@allenlawfirmpc.com (Kevin Lemley) — Fri, 17 Apr 2009 11:27:48 -0600

The Arkansas Supreme Court affirmed dismissal in Trusclair v. McGowan Working Partners, No. 08-769 (4/16/09).

Trusclair voluntarily dismissed his first complaint. On the second complaint, the summons incorrectly stated that McGowan, a foreign corporation, had 20 days to answer. Otherwise, service was appropriate. Trusclair failed to cure this defect within 120 days. The trial court found it did not have jurisdiction to amend the summons and dismissed the second complaint with prejudice.

On appeal, Trusclair argued that Ark. R. Civ. P. 4(h) permits the trial court to amend the summons at any time. The court rejected this argument and held the trial court cannot amend the summons once the 120 day time limit has expired for strict compliance with Ark. R. Civ. P. 4. The court affirmed the dismissal with prejudice.

Holding of Contempt Reversed When Trial Court did not Provide Specific Instructions

kmlemley@allenlawfirmpc.com (Kevin Lemley) — Thu, 16 Apr 2009 10:46:03 -0600

The Arkansas Supreme Court reversed a holding of contempt in Holifield v. Mullenax Tax Financial and Tax Advisory Group, No. 08-955 (4/15/09).

Holifield was a former employee of Mullenax. When he left, Mullenax filed suit alleging trade secret misappropriation. The trial court entered an ex parte order compelling Holifield to preserve any information he took and to submit to discovery on an expedited basis. At his deposition, Holifield agreed to provide files to the plaintiff, but the plaintiff never submitted a formal discovery request. Holifield provided some of the information in an unusable format and did not provide the rest until almost a year later. The trial court found Holifield in contempt and ordered a $500 sanction.

The supreme court reversed because the trial court's order to "submit to discovery on an expedited basis" was not specific enough. This order was not definite or clear as to the duties it imposed. Without a specific order, there can be no contempt.

Decision of Alcoholic Beverage Control Board Affirmed

kmlemley@allenlawfirmpc.com (Kevin Lemley) — Fri, 10 Apr 2009 11:00:23 -0600

The Arkansas Supreme Court affirmed a decision by the Alcoholic Beverage Control Board (the "Board") in Arkansas Beverage Retailers Association v. Langley, No. 08-287 (4/9/09).

The dispute stems around a liquor store opened by Sam's Club. To do this, Sam's Club created a separate corporate entity to operate the store. Although it was next to Sam's Club, the liquor store had a separate address, entrance, and loading areas from Sam's Club. The Board approved the application. The Arkansas Beverage Retailers Association (the "Association") objected because Arkansas law prohibits department stores from selling liquor on their premises. See Ark. Code Ann. § 3-4-218.

The case came down to one issue: what is meant by premises? The Board held that the separate corporate entity was not on the premises of Sam's Club, even though it was next door. Again noting the deference given to decisions of administrative agencies, the supreme court found substantial evidence existed to support this decision and affirmed the Board.

Arbitration Compelled for Claims Under Arkansas Deceptive Trade Practices Act

kmlemley@allenlawfirmpc.com (Kevin Lemley) — Thu, 09 Apr 2009 10:15:16 -0600

The Arkansas Court of Appeals compelled arbitration of claims that sounded in contract in CEI Engineering Associates, Inc. v. Elder Construction Co., No. 08-601 (4/8/09).

Elder hired CEI to provide engineering services on two projects, and the contract contained an arbitration clause. After both projects encountered significant problems, Elder filed suit alleging 8 counts, including violation of the Arkansas Deceptive Trade Practices Act ("ADTPA"). The trial court held the ADTPA claims sounded in tort and denied the request to compel arbitration.

On appeal, the court held that the ADTPA claims were complaints about how CEI performed the contract. These claims sounded in contract, not tort, and the court reversed to compel arbitration on the ADTPA claims.

Emotional Distress Cannot Form the Basis of a Breach of Fiduciary Duty Claim

kmlemley@allenlawfirmpc.com (Kevin Lemley) — Fri, 03 Apr 2009 11:16:48 -0600

The Arkansas Supreme Court reversed a judgment based on emotional distress in Rees v. Smith, No. 08-293 (4/2/09).

Smith alleged that Rees represented her in a lawsuit, demanded sexual favors for continued representation, and that she engaged in sex with Rees based on these demands. Smith alleged this conduct was a breach of fiduciary duty, and the jury returned a verdict of $10,000 for emotional distress.

The supreme court reversed, holding that emotional distress cannot form the basis of a breach of fiduciary duty claim. This claim must be supported by an economic loss. The case is not over; the court also reversed the grant of summary judgment to Rees on Smith's outrage claim for the same alleged conduct.

Deadlines for Appeal From District Court are Different From the Circuit Court Counterpart

kmlemley@allenlawfirmpc.com (Kevin Lemley) — Thu, 19 Mar 2009 17:13:41 -0600

A hard lesson regarding appellate deadlines was learned in Arkansas State Univ. v. Professional Credit Management, Inc., No. 08-672 (3/19/09).

Professional Credit obtained a judgment against ASU in state district court. The Supreme Court dismissed the appeal for lack of subject matter jurisdiction because ASU failed to file the district court record with the circuit court within 30 days of the judgment. Unlike the Rules of Appellate Procedure, District Court Rule 9(a) expressly states that the 30-day period is not extended by post-trial motions.

Had the appeal been timely filed, the court would have addressed an issue of first impression: whether an employer may be compelled to manage multiple garnishments when an employee's wages are already subject to a previous garnishment to the maximum extent allowed by the Consumer Credit Protection Act.

Contract Rescinded for Unilateral Mistake When Purchase Price was 20% of the Property Value

kmlemley@allenlawfirmpc.com (Kevin Lemley) — Thu, 12 Mar 2009 09:20:36 -0600

The Arkansas Court of Appeals affirmed rescission of contract based on unilateral mistake in T-1 Construction, Inc. v. Tannenbaum Development Co., LLC, No. 08-889 (March 11, 2009).

Tannenbaum signed a contract to sell five lakefront lots to T-1. The total value of the lots was $325,000 - $400,000. However, the contract stated the total price for all five lots was $70,000; Tannenbaum believed this was the price per lot. Tannenbaum noticed the mistake the day before closing and backed out of the deal. When T-1 sued for breach of contract, the trial court rescinded the contract due to the unilateral mistake.

The court of appeals affirmed, stating that no one would knowingly sell this property for $70,000. As to Tannenbaum's reasonable care in reviewing the contract, the court just held that T-1 failed to prove the trial court's finding was clearly erroneous.

Even When Purchase Order Has Integration Clause, Course of Dealing Evidence Admissible to Interpret Contract

kmlemley@allenlawfirmpc.com (Kevin Lemley) — Thu, 12 Mar 2009 09:07:33 -0600

The Arkansas Court of Appeals affirmed a $1.3 million judgment in L.F. Brands Marketing, Inc. v. Dillard's, Inc., No. 07-1210 (March 11, 2009).

L.F. Brands sold clothing to Dillard's. When Dillard's would make a purchase, it would submit a purchase order that included an integration clause saying the purchase order represented the entire agreement. However, for years the parties agreed on a gross margin for Dillard's to achieve each fashion season. During the season, L.F. would process allowances and chargebacks so Dillard's would achieve this margin.

L.F. Brands filed suit, claiming the terms of the purchase orders were the final terms and course of dealing evidence was inadmissible. The trial court disagreed and admitted the course of dealing evidence. The jury rendered a verdict for Dillard's. On appeal, the court of appeals held the course of dealing evidence supplemented rather than contradicted the parties' agreement. The court also said that merger clauses do not apply to subsequent modifications. The judgment was affirmed.

Summary Judgment Affirmed for Outrage Claim in Employer Dispute

kmlemley@allenlawfirmpc.com (Kevin Lemley) — Wed, 04 Mar 2009 15:16:25 -0600

Under Arkansas law, it is difficult to make a claim for outrage in an employer dispute. The most recent example is Cesena v. Gray, No. 08-830 (March 4, 2009).

The employee complained that his supervisor at Blue Cross threatened to beat him up and tried to have him terminated. In a brief opinion affirming summary judgment, the court said that even assuming these facts are true, they are not enough to state a claim for outrage. The result was not much of a surprise, considering actual violence and actual termination has been held not to amount to outrage. See Smith v. American Greetings Corp., 304 Ark. 596 (1991).

Cities Can Raze Private Homes if They are Detrimental to Public Welfare

kmlemley@allenlawfirmpc.com (Kevin Lemley) — Sat, 28 Feb 2009 12:09:53 -0600

A case that has been in litigation since 1996 has finally come to an end. Kearney v. City of Little Rock, No. 07-1317 (Ark.App. 2/25/09).

The city determined that Kearney's house was unfit for human habitation. The home was in such disarray and had so many code violations that it posed an immediate fire hazard. Kearney never made the appropriate repairs. Before the house could be razed, Kearney filed this lawsuit. The trial court granted summary judgment to the city, and the court of appeals affirmed. Under their police power, cities have the right to raze structures that have become detrimental to public welfare.

Fraud Allegations Cannot Create a Private Class Action Challenging Cable Rates

kmlemley@allenlawfirmpc.com (Kevin Lemley) — Fri, 27 Feb 2009 12:56:01 -0600

The Eighth Circuit affirmed dismissal of a class action in Crumley v. Time Warner Cable, Inc., No. 08-2212 (2/25/09).

Crumley alleged that Time Warner Cable overcharged its customers in the Minneapolis area for network upgrades. She filed a class action under Minnesota's Consumer Fraud Act. The problem is that cable rates are governed by the Cable Act of 1992, which vests regulatory authority over these rates into local franchising authorities.

The filed rate doctrine prohibits a party from recovering damages measured by comparing the filed rate to a rate that might have been approved. The court observed that, no matter how Crumley styled her claims, she was seeking this type of damage. It affirmed dismissal because, if the case proceeded, any decision would impact agency rate determinations.

Eighth Circuit Awards Former Employee Damages Under Noncompete Agreement

kmlemley@allenlawfirmpc.com (Kevin Lemley) — Thu, 26 Feb 2009 07:34:38 -0600

It is rare that a former employee wins damages based on a noncompete agreement, but that is what happened in Bannister v. Bemis Co., Inc., No. 08-1634 (2/25/09).

Bemis had a noncompete agreement with Bannister that prohibited him from working for a Bemis competitor for 18 months after his employment with Bemis ended. The contract stated that, if he was unable to get employment because of these provisions, Bemis would pay him his monthly base salary during the 18-month period. After Bannister quit, he applied for the monthly payments. Bemis refused, saying it had released him from the contract as to all competitors except Mondi Packaging. Bemis had a separate contract with Mondi that prohibited them from hiring away Bemis employees.

The Eighth Circuit held that the contract does not provide for the partial release that Bemis attempted. Once Bemis chose to enforce the contract as to Mondi, it was obligated to pay Bannister his monthly salary. The court affirmed the judgment of $81,051.36.

Two Computer Fraud Cases Reach Opposite Results on Motions to Dismiss

kmlemley@allenlawfirmpc.com (Kevin Lemley) — Mon, 16 Feb 2009 13:53:42 -0600

Employees accessed computer files of their employer, and they later set up their own competing firm. This was the situation in Ervin & Smith Advertising v. BTM, Inc., 2009 U.S. Dist. LEXIS 8096 (Feb. 3, 2009) and Lasco Foods, Inc. v. Hall and Shaw Sales, 2009 U.S. Dist. LEXIS 4241 (E.D. Mo. Jan. 22, 2009). Both former employers brought claims under the Computer Fraud and Abuse Act, and the former employees moved to dismiss.

In Ervin, the court recognized that employees exceed their authorization when they access files for personal gain and denied the motion to dismiss. However, in Lasco, the former employer failed to allege that the former employees exceeded their authorized access. The court granted the motion to dismiss.