Missouri Court of Appeals Provides Guidance on Employee Duties Under Non-Compete Clauses in a Breach of Contract and Business Interference Case
ABSTRACT: The appellate court decision in this breach of employment agreement and tortious business interference suit provides guidance to practitioners, businesses, and employees on Missouri law relating to non-compete clauses, employee’s fiduciary and loyalty duties, and pleading requirements.
In CIBC Bank USA and CIBC National Trust Company v. Christopher Williams et al., the Missouri Court of Appeals for the Eastern District overruled the trial court’s dismissal of claims alleging breach of an employment contract, breach of a fiduciary duty, breach of a duty of loyalty, tortious interference, unjust enrichment, and a request for a permanent injunction, at the pleading stage.
The lawsuit was brought by plaintiffs CIBC Bank USA and CIBC National Trust Company against two former managing directors, Christopher Williams and Brian Landzaat. CIBC alleged the employees violated employment agreements and used their positions to solicit CIBC customers and employees into a new competing venture (Vista) started by Williams and Landzaat. This appeal concerns the dismissal of all claims asserted by CIBC for failure to state claims upon which relief could be granted. The trial court held Appellants did not sufficiently plead the terms of the employment agreement or the elements of their claims.
CIBC is a financial institution that provides commercial and personal financial solutions and wealth management services. Williams and Landzaat were longtime employees for CIBC who served in Managing Director roles until they left to form Vista, a competing financial and wealth management venture. CIBC alleged Williams violated his employment agreement, which included a non-compete clause and restrictions on the use and disclosure of CIBC’s confidential information, and that both Williams and Landzaat violated CIBC’s Code of Conduct during their employment. CIBC alleged Williams and Landzaat engaged in improper conduct during their employment summarized below:
- Williams and Landzaat solicited, induced, or attempted to solicit one or more CIBC employees to quit CIBC to be employed by Vista;
- Williams and Landzaat solicited, induced, or attempted to solicit one or more CIBC customers not to do business with CIBC;
- Williams and Landzaat solicited, induced, or attempted to solicit one or more CIBC customers to do business with Vista;
- Williams appropriated CIBC confidential information regarding customers and employees for his personal use; and
- Williams and Landzaat improperly used CIBC confidential information for personal use.
Dismissal of Claims
The plaintiffs’ amended petition contained six separate counts: (1) Breach of Williams’ Employment Agreement; (2) Breach of Fiduciary Duties; (3) Breach of Duty of Loyalty; (4) Tortious Interference with a Business Expectancy; (5) Unjust Enrichment; and (6) a request for injunctive relief. Defendants jointly filed a motion to dismiss all six counts of CIBC’s petition. The trial court granted the dismissal of all claims.
The Court of Appeals emphasized the applicable legal standard: if the petition alleges any set of facts that, if proven, would entitle the plaintiffs to relief, then the petition states a claim for relief under Missouri law, and is legally sufficient.
Appellants argued seven points on appeal, that the trial court erred in dismissing each of the claims against Williams and Landzaat plus one of the claims which were also asserted against Vista.
Breach of the Employment Agreement
The Court of Appeals stated the familiar standard that, in order to plead a claim for breach of contract, Appellant must have alleged facts showing: (1) the existence and terms of a contract, including certain rights and obligations between the parties; (2) the defendant breached his obligation under the contract; and (2) the plaintiff suffered damages from the breach.
Reviewing the Petition, Appellants plainly pled Williams entered into an employment contract with CIBC, which precluded Williams from soliciting customers not to do business with CIBC and stealing CIBC employees. Furthermore, CIBC alleged that Williams breached the agreement in several specific ways, and that CIBC suffered damages as a result of those breaches.
In contesting the appeal, Defendants argued the employment agreement should be narrowly construed such that “pitching” (i.e. soliciting) customers to use Vista, or reduce their investments with CIBC, was not a breach of the agreement. The Court of Appeals found that a reasonable inference from CIBC’s allegation that Williams pitched customers to use Vista included a request to reduce the assets invested through CIBC.
Accordingly, the Court of Appeals overruled the trial court’s dismissal, finding CIBC properly stated a breach of contract claim.
Breach of Fiduciary Duty and Duties of Loyalty
The Court of Appeals next set forth the requirements to state a claim for Breach of Fiduciary Duty and Breach of the Duty of Loyalty. For a breach of fiduciary duty claim, a plaintiff must allege: (1) a fiduciary duty existed between the parties; (2) the defendant breached the duty; and (3) the breach caused the plaintiff to suffer harm. For a breach of the duty of loyalty, a plaintiff must allege: (1) the employee, while employed, acted contrary to the employer’s interests; and (2) the employee went beyond mere planning and preparation and acted in direct competition with the employer.
The Court of Appeals found that CIBC alleged Williams and Landzaat were officers of the company; under Missouri law officers of a corporation occupy a fiduciary relationship to the corporation and that all employees have a duty of loyalty to their employer. Coupled with their allegation that Williams and Landzaat’s meetings with CIBC customers to solicit them to transfer assets to Vista, Appellants sufficiently pled the breach of duty claims, and their claims were improperly dismissed.
Tortious Interference and Other Claims
The elements of a tortious interference claim are: (1) a contract or valid business relationship or 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) the absence of justification; and (5) damages resulting from the defendants’ conduct. Under Missouri law, a regular course of prior dealings suggests a valid business expectancy.
CIBC alleged approximately twenty-eight accounts transferred assets from CIBC to Vista after Defendants resigned. Having found that Appellants met the threshold requirements to state claims that Williams and Landzaat had breached employment duties and agreements, there was sufficient allegations to support the tortious interference, unjust enrichment, and injunctive requests for relief.
This case serves as an important reminder that employment may create a relationship between the employee and employer where fiduciary obligations and a duty of loyalty exist. This is especially true when the employee holds a high-level management position.
This case also serves as a reminder to employers, and all parties to any contract, not to rely on broad, vague or general contractual provisions. Rather, employers should review their employment agreements to ensure the protections sought are specifically and concisely included in every employment agreement.