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HCTEC Partners, LLC v. James Prescott Crawford
Citation: Not availableDocket: M2020-01373-COA-R3-CV
Court: Court of Appeals of Tennessee; February 23, 2022; Tennessee; State Appellate Court
Original Court Document: View Document
In the case HCTec Partners, LLC v. James Prescott Crawford et al., the Court of Appeals of Tennessee upheld the trial court's decision to grant HCTec's motion for summary judgment against Crawford and his new employer, The Rezult Group, Inc. The dispute centers on a 2012 employment agreement that prohibited Crawford from disclosing HCTec’s confidential information and competing with HCTec for one year post-employment. After Crawford left HCTec to join a competitor in 2019, HCTec sued for breach of contract and for inducing that breach under Tennessee law. The employment agreement included provisions that prohibited the use or disclosure of trade secrets and outlined the consequences for breaching the agreement, including the recovery of legal costs. The court confirmed that the agreement was enforceable and that HCTec had shown no error in the trial court's judgment, affirming the ruling in favor of HCTec. HCTec provided Crawford with a week of training on HIT recruiting best practices upon his hiring. He excelled in his role, leading to promotions as Recruiting Team Lead in 2016, Recruiting Manager in 2017, and eventually to Interim and then permanent HIT Recruiting Delivery Manager. In this capacity, he managed the recruiting team's operations, including production, training, and oversight, while utilizing TalentRover, a proprietary software configured for HCTec, where he was recognized as a "super user." In June 2019, Crawford was approached by Rezult, a staffing company that also recruits for industries outside of HIT, and received an offer to become Director of their Healthcare IT Division. Despite Rezult being in close proximity to HCTec, Crawford believed his new role would differ primarily by adding oversight of a sales team. He informed HCTec of his intention to leave and agreed to remain until the end of August 2019. Although Rezult was aware of the non-compete Agreement binding Crawford, its CEO did not review it before extending the offer. Crawford testified that he believed the Agreement no longer applied to him since he was not in a "production role" maintaining client relationships. However, he acknowledged to HCTec's CEO that Rezult's HIT recruiting team would compete directly with HCTec. Following his notice, HCTec expressed concerns about his new position, and communications ensued regarding the Agreement. HCTec clarified that while it did not prohibit Crawford from working at Rezult, he could not compete directly with HCTec for one year as stipulated in the Agreement. HCTec's HR officer suggested collaborating on guidelines to ensure compliance, while Rezult argued that Crawford's non-outward-facing role would not harm HCTec. Rezult communicated its position regarding Mr. Crawford's role, stating he is internally focused on building and leading the Healthcare IT group without direct interaction with customers, consultants, or permanent employees. His responsibilities involve strategic planning and internal management, with no role in soliciting business. Rezult emphasized that Mr. Crawford did not take any proprietary information from HCTec and has been transparent about his new position. HCTec threatened legal action if Rezult did not cease Crawford's employment, leading to HCTec filing a verified complaint for breach of contract and inducement against Rezult, claiming compensatory damages and injunctive relief. HCTec alleged that Crawford had extensive knowledge of its confidential information and had received significant training from the company. HCTec sought a temporary injunction, arguing it had a protectable business interest and was likely to succeed in its claims. Rezult and Crawford opposed the injunction, asserting that HCTec's claims did not meet the necessary standards and that Crawford's skills were not solely derived from HCTec. Despite these arguments, the trial court granted HCTec's motion for an injunction on October 21, 2019, preventing Crawford from working in the HIT sector at Rezult. Efforts by Rezult and Crawford to lift the injunction through an extraordinary appeal and a motion to dissolve were unsuccessful. Discovery proceedings were conducted, leading the Appellants to file a counterclaim against HCTec for wrongful injunction. On March 13, 2020, HCTec submitted a motion for summary judgment, asserting that there were no genuine disputes over material facts related to its claims against the Appellants. HCTec supported its motion with the declaration of Mr. Grana and depositions from Crawford and Mr. Carrico, arguing that the Agreement had adequate consideration and that HCTec possessed a protectable business interest due to Crawford’s specialized training and access to confidential business strategies. HCTec contended that the restrictions in the Agreement were legally appropriate for safeguarding its interests. In addressing the inducement of breach claim against Rezult, HCTec claimed that Rezult was aware of the Agreement, induced Crawford to breach it, and acted with malice. HCTec also sought dismissal of the Appellants’ counterclaim. In response, the Appellants, on April 13, 2020, contended that the Agreement was unenforceable, citing that Crawford's promotion included new job offers that did not reference the Agreement, and argued that Crawford's training was general and he did not take proprietary information with him. They maintained that disputes of material fact persisted regarding HCTec’s legitimate business interest and the confidentiality of the information held by Crawford. Regarding the claim against Rezult, Appellants argued that whether Rezult acted with malicious intent was a jury question. The trial court held a Zoom hearing on HCTec’s motion and granted it on May 26, 2020, concluding that HCTec had a legitimate business interest. The court noted Crawford’s comprehensive training, including specialized healthcare industry courses and extensive mentorship from HCTec leaders, which contributed to his development as a valuable employee. The training encompassed industry best practices and specific recruitment methodologies, enabling Crawford to later lead training sessions within the company. Crawford, as Recruiting Manager at HCTec, managed a team of 15 to 20 employees and was involved in various operational aspects, including training, hiring, and performance management. The record shows no material fact dispute regarding the lack of specialized training from HCTec that would justify a non-competition agreement. During his employment, Crawford had access to sensitive proprietary information, including HCTec’s client lists, financial data, strategic goals, and compensation structures, all of which he acknowledged as proprietary and confidential. He participated in executive meetings and was responsible for compiling and presenting key performance metrics. Crawford created internal guidelines for recruiting and was the subject matter expert on Talent Rover, HCTec’s customized applicant tracking system. His contributions included developing the Sourcer training program for new recruiters and collaborating with executives to secure a vendor selection by Cerner Corporation for a major EMR software implementation. HCTec retained a proprietary interest in all data and processes related to its customized systems and operations. Crawford gained significant knowledge of federal requirements, attended critical meetings, and interacted with subcontracting partners while employed at HCTec, which established a confidential client list. Despite claims that HCTec failed to demonstrate harm from Crawford's move to Rezult, the court found that Crawford's extensive access to HCTec's valuable information created a legitimate business interest protectable by a non-competition agreement. Tennessee law does not require physical theft of company property for enforceability, and HCTec's measures to maintain confidentiality indicated potential harm if competitors accessed its information. The court ruled that Crawford's agreement not to compete for one year was valid, as it aimed to prevent unfair advantage from his knowledge gained during employment. Upon joining Rezult, Crawford took an active management role that posed a substantial danger of unfair competition to HCTec. The trial court determined that Crawford's employment letters did not rescind the non-compete agreement, as they addressed only compensation without mentioning non-competition or non-disclosure terms. The court also found no genuine issues of material fact regarding Crawford's breach of the agreement by working for Rezult and disclosing HCTec's gross profit information. Consequently, HCTec was entitled to recover attorney's fees based on the prevailing party clause in the agreement. Crawford was prohibited from working with Rezult in HIT recruiting until October 21, 2020. The trial court ruled in favor of HCTec regarding its claim that Rezult induced Crawford's breach of contract, determining that Rezult was aware of the Agreement before hiring Crawford and intentionally acted to benefit itself at HCTec's expense. Despite Appellants’ argument that HCTec’s attorney’s fees should not be the sole measure of damages, the trial court applied the “independent tort theory,” allowing HCTec to recover its attorney’s fees as compensatory damages. Furthermore, under Tennessee Code Annotated section 47-50-109, HCTec was entitled to treble the awarded damages. Appellants filed a timely appeal, raising several issues, including the legitimacy of HCTec’s business interest under the Agreement, its enforceability after Crawford received promotion letters that did not mention the Agreement, whether Crawford breached the Agreement, and whether HCTec could recover attorney’s fees as damages. HCTec, as Appellee, also sought attorney’s fees for the appeal. The appellate court will review the trial court's grant of summary judgment de novo, assessing if there are any genuine issues of material fact. Appellants contended that HCTec failed to show a legitimate business interest and that the Agreement was invalidated by subsequent promotions offered to Crawford. The trial court found that the promotion letters did not abrogate the Agreement, referencing a similar case (Tompkins v. Federal Express Corp.) where a promotion did not void the original employment agreement. Subsequent contracts addressing the same subject matter as earlier contracts do not invalidate the prior agreements unless they explicitly rescind them, comprehensively cover the subject matter, or are inconsistent to the point of irreconcilability. The 2000 acceptance letter neither explicitly rescinds the Employment Agreement nor addresses employment terms comprehensively enough to imply a rescission or create inconsistency. HCTec argues that Crawford's promotions do not affect the Agreement, while Appellants reference Sodexo Operations, LLC v. Abbe, which involved changing job responsibilities impacting a non-compete agreement. However, the court finds Sodexo inapplicable since it relies on the changed circumstances doctrine under Massachusetts law, whereas the Agreement is governed by Tennessee law. The Agreement clearly states it applies to Crawford's employment with HCTec in general, not limited to a specific role, supporting the trial court's conclusion that the Agreement remains valid despite any changes in Crawford's position. The interpretation of contract language follows the usual and ordinary meanings, and Tennessee courts uphold the enforceability of non-compete agreements regardless of salary increases or promotions. The key issue in the case centers on whether sufficient consideration supports the non-compete agreements signed by employees after their hiring. Although the Central Adjustment Bureau case is not directly applicable, its affirmation of the agreement despite changed circumstances undermines the Appellants' request for the adoption of a different approach from the Sodexo case. Crawford's letters, which only updated his title and compensation without altering or referencing the Agreement, do not affect its enforceability. The Appellants contend that HCTec failed to prove it had a legitimate business interest that warranted a non-compete clause. Tennessee law generally disfavors non-compete agreements but allows enforcement if the restrictions are reasonable. Factors influencing this determination include the support for the agreement, potential harm to the employer without it, economic hardship to the employee, and public interest concerns. The primary consideration of support is not disputed on appeal. To establish a protectable business interest, an employer must demonstrate unique conditions that would give an employee an unfair competitive advantage absent the covenant, which could arise from specialized training, access to confidential information, or customer associations. In this instance, the Appellants do not claim the Agreement lacks consideration. HCTec does not assert that Crawford was the primary representative of the company in customer interactions. The primary contested factors involve the nature of Crawford's training and his access to confidential information. The Appellants argue that Crawford's training was general and his access to confidential information was minimal, and they further claim he does not recall any such information. An employer can claim a protectable interest in the unique knowledge and skills gained by an employee through specialized training. However, general knowledge and skills do not qualify for protection. The distinction lies between skills specific to the employer's business and those obtainable elsewhere. The training must be unique to the industry; for instance, training that is widely accessible does not confer a protectable interest. An employer's investment in training is protectable only if the acquired skills provide an unfair competitive advantage when used by the employee in a competing context. Additionally, employers have a legitimate interest in preventing former employees from exploiting trade secrets or confidential information. A trade secret encompasses any formula, process, or information that provides a competitive edge. The determination of whether information qualifies as a trade secret involves several factors, including its exposure outside the business, the measures taken to maintain its secrecy, its value to the business, and the difficulty of acquiring or replicating it. Customer identities are not considered confidential, and information that is publicly accessible cannot be protected. However, if an employee has received specialized training and has access to confidential information, these factors together can create a protectable business interest. In this context, the training received by Crawford at HCTec was deemed sufficiently unique to provide an unfair advantage, supporting the employer's claim to a protectable interest. Crawford received a week of training upon his initial hire at HCTec, which included role-playing and instruction on the company's internal processes. Prior to this, Crawford had no experience in the health information technology (HIT) staffing industry. HCTec operates exclusively within this competitive niche, allowing it to develop intimate knowledge of its clients' needs, as testified by Crawford's supervisor, Mr. Knight. HCTec employs a specialized pricing strategy that includes various discounts, and Crawford was trained in this strategy, acknowledging he learned numerous lessons during his tenure. Crawford's training encompassed HIT recruiting best practices, HCTec’s specific methodologies, resume screening, rate negotiation, recruitment protocols, and the use of recruitment technology tailored to HCTec's needs. He recognized the proprietary nature of the client and consultant information organized in TalentRover, where he acted as a "super user." HCTec facilitated specialized training in TalentRover through a company representative, reflecting the uniqueness of the training in the context of the HIT staffing industry. On appeal, Appellants argue that HCTec did not demonstrate that its training was unique, contrasting it with Rezult’s different training approach. They reference the case of Corbin v. Tom Lange Co., where the court found the training not specialized enough to enforce a non-compete covenant. However, it is concluded that Crawford's training was indeed more specialized and multifaceted, focusing on recruiting qualified healthcare IT personnel, a specific skill set that distinguishes it from the general training received by the employee in Corbin. Crawford received specialized training from HCTec that is considered unique to the staffing industry, and he had access to trade secrets and confidential information. The law does not require HCTec to prove that Crawford physically took documents; instead, it only necessitates that he had access to proprietary information. Evidence shows that Crawford regularly accessed HCTec’s confidential processes, data compilations, and financial information, including consultant compensation, recruiting models, and strategic goals. He admitted in deposition that this information was confidential and acknowledged sharing HCTec’s gross profits and his compensation details with a headhunter before joining Rezult, which was corroborated by email evidence and testimony. Despite Appellants' claims that the trial court improperly relied on unreferenced quotes in HCTec's motion for summary judgment, the court was justified in considering deposition evidence that was part of the record. The trial court's analysis was consistent with legal standards for summary judgment, which allow for reliance on admissible evidence present in the record. Appellants' argument that Rezult was unaware of the confidentiality of HCTec’s information lacks merit, as Mr. Carrico, CEO of Rezult, did not dispute that Crawford shared confidential information. Rezult's ability to testify regarding the confidentiality of HCTec's gross profit information is challenged due to Mr. Carrico's uncertainty about its accuracy. Mr. Carrico's testimony indicates that while he considers "key performance indicators" confidential, he is unaware of HCTec's specific KPIs. Appellants contest the trial court's conclusion that Rezult acknowledges much of the information as confidential, arguing this reasoning is flawed. However, Mr. Carrico's statements support that HCTec has taken measures to maintain the secrecy of its business practices, with prior case law highlighting that the extent of information known outside a business is critical in determining trade secrets. Crawford had extensive access to and involvement in HCTec's processes, and he has not disputed that the data in TalentRover is proprietary to HCTec and vital to its recruiting operations. Even if some information is publicly available, its integration into a cohesive process may still be confidential. Crawford's specialized training and access to confidential information establish a legitimate protectable business interest under the Agreement. The inquiry continues to assess the balance between the threatened danger to HCTec's interests without a non-competition covenant, Crawford's economic hardship, and the public interest. Rezult and HCTec operate as direct competitors in the highly competitive HIT industry, and Rezult hired Crawford to develop its recruiting team. Although HCTec has not lost clients since Crawford's departure, this point is weakened by the timing of the injunction, which occurred shortly after he joined Rezult. Additionally, Crawford previously disclosed confidential financial information to Rezult. While his job remains secure, he has missed out on bonuses due to the Agreement. There is no indication that the Agreement contradicts public interest, and Appellants have not clarified how it may be harmful. The Appellants did not contest the reasonableness of the Agreement's scope, leading to the conclusion that the Agreement is enforceable. They challenged the trial court's finding of no genuine disputes regarding whether Crawford breached the non-disclosure clause. The Agreement prohibits the disclosure of the Company's Trade Secrets, which include financial information and customer data. Crawford admitted to sharing HCTec’s gross profits and his compensation with Mr. Mintz, a headhunter, who subsequently relayed this information to Rezult. Despite Crawford's acknowledgment of the confidentiality of the information, Appellants argued that disputes about the accuracy of the disclosed figures created a material fact issue. However, the trial court found no genuine issue of material fact regarding the breach, as Crawford admitted to the disclosure which violated the Agreement. The Appellants’ assertion that incorrect financial information cannot be deemed confidential was deemed unpersuasive, with the testimony indicating that Mr. Mintz could not have obtained the information without direct input from Crawford. Thus, the court upheld the trial court's conclusion that Crawford breached the non-disclosure provision of the Agreement. Crawford, who was managing the business at the time in question, has not verified specific details but believes the information is generally accurate. The trial court determined that Crawford breached the non-disclosure section of the Agreement, which the Appellants contest, arguing that since HCTec did not incur monetary damages, it cannot claim a breach. They assert that attorney’s fees should not be awarded if there were no actual losses. However, the Agreement stipulates that the prevailing party in a judicial action concerning breaches is entitled to recover attorney’s fees and costs. Despite Appellants’ claims, HCTec successfully demonstrated the enforceability of the Agreement and that no genuine material disputes existed regarding the breach. Consequently, HCTec is deemed the “prevailing party” under the Agreement, as defined by Tennessee law, which emphasizes the material alteration of the parties’ legal relationship rather than complete success. The term "prevailing party" encompasses those who achieve some judicial relief, even if not all desired outcomes are met, as evidenced by case law. In this case, HCTec's successful enforcement of the non-compete and non-disclosure provisions, despite the absence of monetary damages, qualifies it for attorney’s fees. HCTec is recognized as the "prevailing party" in the legal dispute because it successfully enforced the non-compete clause of the Agreement and received a ruling that Crawford breached both the non-compete and non-disclosure terms. This success altered the legal relationship between the parties and achieved some benefits HCTec sought through litigation, despite HCTec's admission of incurring no additional monetary damages, which is not a requirement under the relevant contractual provision. The case law cited supports HCTec's entitlement to attorney’s fees as the prevailing party, as the Agreement also allows recovery of fees incurred from “threatened breach.” The trial court correctly concluded that HCTec’s attorney’s fees qualify as compensatory damages, affirming HCTec's right to these fees. Regarding the inducement of breach claim against Rezult, Tennessee law prohibits inducing a breach of contract, allowing for treble damages if proven. To succeed, the plaintiff must establish the existence of a legal contract, knowledge of that contract by the wrongdoer, intent to induce the breach, malicious conduct, actual breach of the contract, proximate cause, and resulting damages. The Agreement has been determined enforceable, and it was breached; Rezult’s knowledge of the Agreement is undisputed. However, the Appellants challenge the trial court's finding on the intent and malice elements, arguing that these should not be resolved at the summary judgment stage. HCTec contends that the evidence is so compelling that reasonable minds cannot differ on the case's outcome, justifying summary judgment. The Appellants argue that the trial court erred by removing questions of malice, intent, and proximate cause from the jury's consideration; however, they fail to substantively challenge the finding of proximate cause in their brief. While intent is typically a factual question, the record clearly demonstrates Rezult's intent to induce Crawford's breach of contract and supports the trial court's conclusion that Rezult acted with legal malice, defined as a willful violation of a known right rather than malice in the emotional sense. The evidence shows that Rezult's actions were intentional and unjustified, meant to harm HCTec or benefit itself at HCTec's expense. Tennessee courts differentiate between factual and legal malice, reinforcing that malicious intent can be established when a new employer knowingly hires an employee in violation of a valid non-compete agreement. In this case, it is undisputed that Rezult: 1) actively recruited Crawford while he was still employed at HCTec; 2) was aware of Crawford's contractual obligations; 3) informed Crawford about the potential for HCTec to sue him while offering to cover his legal expenses; and 4) insisted on placing Crawford in a position that directly conflicted with the Agreement's terms. The evidence indicates that Rezult intentionally hired Crawford to perform similar duties to those at HCTec, fully aware it would breach the Agreement. Rezult believed that HCTec would not pursue legal action, arguing there would be no damages without stolen clients. Rezult's actions demonstrated a clear intent to induce Crawford to breach his contract with HCTec, based on the false assumption that HCTec would not enforce the agreement. The trial court concluded that Rezult's conduct was intentional and constituted a willful violation of HCTec’s rights. The court found no reasonable basis for different conclusions, affirming that Rezult acted to benefit itself at HCTec's expense. Regarding damages, the trial court ruled that HCTec could recover attorney's fees from Rezult under the "independent tort theory," an exception to the American Rule, which typically prohibits recovery of attorney's fees unless specified by contract or statute. Appellants contested this ruling, arguing that attorney's fees should not be considered consequential damages and that allowing such recovery promotes litigation. However, HCTec maintained that the independent tort theory, as established in Tennessee jurisprudence, justified this recovery. The trial court referenced the precedent set in Pullman Standard, Inc. v. Abex Corp., where recovery of attorney's fees was permitted under similar circumstances, reinforcing the legitimacy of the independent tort theory in allowing such claims. Where a tortious act by a defendant results in the plaintiff being drawn into litigation with a third party, the plaintiff may recover reasonable attorneys' fees as damages. This principle is supported by the Restatement (Second) of Torts and established case law. Specifically, it allows a party to recoup costs incurred in defending against or bringing a lawsuit due to another's tortious actions. Notably, this exception to the American Rule—where a prevailing party typically cannot collect attorneys' fees from the losing party—applies under circumstances where the plaintiff incurs such costs as a direct result of the defendant's actions. In the case of Edwards Moving Rigging, Inc. v. Lack, the court addressed a situation where Edwards sought to enforce a non-compete agreement against its former employee, Lack. After obtaining a temporary restraining order against Lack's employment with a competitor, Barnhart, Edwards sought to recover its attorneys’ fees. Barnhart contested the recovery of fees, arguing that Edwards had not demonstrated actual damages beyond the fees incurred. However, the court, relying on established Tennessee law, affirmed that Edwards was entitled to recover fees, emphasizing that the American Rule does not preclude compensation for consequential damages arising from a separate tort. The court concluded that Edwards was required to act to protect its interests, validating its claim for attorneys' fees incurred in the litigation against Lack. The enforcement action against Lack is not relevant under Tennessee law in the tortious interference case. The court finds no genuine dispute regarding damages from Barnhart's interference. HCTec and the Appellants contest the trial court's application of the independent tort theory. While both parties acknowledge that Tennessee courts have not previously applied this theory in this context, they disagree on its implications. The Appellants argue that employing this theory could lead to unjust outcomes, encouraging litigation without actual damages. HCTec counters that the trial court's approach aligns with Tennessee Code Annotated section 47-50-109, which aims to deter interference with employee contracts. HCTec asserts that failing to apply this theory would leave them without recourse when faced with a temporary restraining order (TRO) in non-compete cases. Although Appellants claim Edwards Moving lacks binding authority, the court finds it persuasive. The court concludes HCTec is entitled to recover attorney's fees as compensatory damages under the independent tort theory, as Rezult's actions forced HCTec into litigation to protect its interests. The awarded fees are seen as compensatory for actions necessitated by Rezult's tortious inducement, not as a reward for prevailing. This decision aligns with the American Rule regarding attorney's fees and supports the intent of the statute aimed at preventing wrongful interference with contractual relationships, thereby protecting business interests. HCTec's position in the case asserts that Rezult lacks a valid defense without the presence of additional damages. Rezult claims the Agreement is ineffective unless clients are outright stolen from HCTec. However, the record indicates that Rezult intentionally induced a breach of the Agreement, disregarding the intent of Tennessee Code Annotated section 47-50-109, which prohibits such inducement. The court affirms that under these circumstances, HCTec is entitled to attorney’s fees and litigation expenses as compensatory damages based on the independent tort theory. The trial court's decision to grant summary judgment on HCTec's inducement of breach claim against Rezult is upheld. The statute mandates treble damages when a breach is induced, confirming that HCTec is entitled to such damages due to Rezult's actions. HCTec also requests additional attorney’s fees incurred during the appeal, referencing the Agreement's "prevailing party" clause that allows for recovery of reasonable fees and expenses related to any appeal. The court agrees that HCTec qualifies as the prevailing party and that appellate attorney's fees should be included in the compensatory damages. Thus, HCTec is entitled to recover both trial and appellate attorney’s fees, and these amounts will be subject to trebling. The judgment of the Chancery Court for Williamson County is affirmed, and the case is remanded for further proceedings consistent with this opinion, with costs of the appeal taxed to the appellants, The Rezult Group, Inc. and James Prescott Crawford.