Transportation Executive Summary: Appellate Court Finds Cause of Action for Driver Poaching
CASE SUMMARY:
The United States Court of Appeals for the Eighth Circuit recently reversed a district court’s order granting summary judgment in favor of TransAm Trucking (“TransAm”), finding that CRST Expedited (“CRST”) presented sufficient evidence of its intentional interference with a contract claim and its unjust enrichment claim to preclude summary judgment. Additionally, the Court affirmed the district court’s holding that the drivers were not indispensable parties to the action. CRST Expedited, Inc. v. TransAm Trucking, Inc., 960 F.3d 499 (8th Cir. 2020).
BACKGROUND:
CRST implemented its own commercial driver’s license (CDL) program in which the drivers agreed that the costs of training were to be an advance, and the drivers must accept an employment contract with CRST, if offered. Under the employment contract, the drivers agreed to work for CRST for at least ten months (Restrictive Term), and agreed to a non-compete provision stating the drivers will not work for any CRST competitor for the remainder of the Restrictive Term if he or she is discharged or leaves employment prior to the end of the Restrictive Term. Furthermore, the drivers agreed to compensation at a reduced rate so CRST could partially recoup the costs of their driver-training program. For each of the 167 drivers at issue, TransAm sent employment verification requests to CRST to which CRST responded noting that the drivers were under agreement with CRST. The issues on appeal were whether a genuine issue of material fact precluded summary judgement on the claims that (1) TransAm intentionally interfered with CRST employment contracts and (2) whether TransAm was unjustly enriched.
PROCEDURAL HISTORY AND COURT RULINGS:
CRST brought suit against TransAm in the United States District Court for the Northern District of Iowa, alleging TransAm wrongfully recruited and hired several long-haul truck drivers who were under contract with CRST. The claims included intentional interference with a contract, intentional interference with a prospective economic advantage, and unjust enrichment. TransAm moved to dismiss the complaint under Federal Rule of Civil Procedure 19(b) arguing the drivers were necessary and indispensable parties. The district court denied the motion, finding the drivers were not indispensable parties, and subsequently denied TransAm’s motion for reconsideration of that ruling. TransAm later moved for summary judgment, and the district court granted its motion. In regard to the intentional interference with a contract claim, the district court held CRST failed to provide sufficient evidence to preclude summary judgment as to the causation element. As to the unjust enrichment claim, the district court ruled that TransAm received no benefit from CRST. The district court further noted that even if there had been a benefit, a claim of unjust enrichment depended upon tortious conduct by TransAm, which the district court already ruled out.
ANALYSIS:
The appellate court first addressed whether TransAm intentionally interfered with CRST’s contracts by determining if TransAm’s interference caused the drivers not to perform their contracts with CRST. The Court analyzed the Restatement (Second of Torts), which states: “The question whether the actor’s conduct caused the third person to break his contract with the other raises an issue of fact.” Restatement (Second) of Torts § 766. One method of inducement includes “inducement by offer of better terms.” Id. CRST presented substantial evidence that TransAm had knowledge that the drivers were under contract with CRST and that its driver agreements provided for a higher rate of pay than provided for under the CRST contracts. While TransAm attempted to argue they did not knowingly offer superior contract terms, the knowledge element was separate and not in dispute on appeal. The specific question was whether TransAm intentionally induced the drivers to work for them with an offer of superior terms which caused the drivers to violate their non-compete agreements with CRST. The Court stated, “But for the decision made by TransAm, to extend offers and employ the drivers, the drivers would not be in breach of the non-compete provision.” The Court found that a reasonable fact finder could conclude that the drivers would not have violated their contracts with CRST had TransAm not sought their employment. Although not every driver was contacted and hired by TransAm under the same circumstances, CRST presented sufficient evidence to create a genuine issue of material fact with regard to the causation element, such that summary judgment was inappropriate.
The appellate court next determined whether the non-compete provision was an enforceable restrictive covenant. The Iowa Supreme Court has recognized that non-compete contracts are “always subject to the test of whether their purpose is contrary to public policy, and if there is any credible evidence to sustain a finding that they are deliberately unreasonable and oppressive, such covenants must be held invalid whether severable or not.” Ehlers v. Iowa Warehouse Co., 188 N.W.2d 368, 374 (Iowa) (citations omitted). CRST’s non-compete agreement limited the driver from working for a competitor for a period equal to the Restrictive Term, which was 10 months. The Court determined this period to be both short and reasonable. Therefore, the district court correctly determined the CRST employment contract was valid for the purposes of its intentional interference with a contract claim.
Finally, the appellate court found a genuine issue of material fact precluding summary judgment on the claim for unjust enrichment. To recover under a theory of unjust enrichment, the plaintiff must establish: “(1) defendant was enriched by the receipt of a benefit; (2) the enrichment was at the expense of the plaintiff; and (3) it is unjust to allow the defendant to retain the benefit under the circumstances.” State Dep’t of Human Servs. ex rel. Palmer v. Unisys Corp., 637 N.W.2d 142, 154-55 (Iowa 2001). Benefits are any form of an advantage. Handlos v. Intercreditor Comm., 838 N.W.2d 870 (Iowa Ct. App. 2013). CRST invested in each driver by developing its own CDL-training program. As a result, TransAm received fully licensed employees at the expense of CRST. Therefore, whether it is unjust depends on the circumstances. As mentioned, the appellate court found sufficient evidence to create a factual dispute as to whether TransAm intentionally and improperly interfered with the contracts between CRST and the drivers. As there was sufficient evidence to show that TransAm engaged in tortious conduct, the appellate court found sufficient evidence to create a factual dispute as to whether TransAm unjustly retained a benefit. Consequently, the case was remanded for further proceedings.
Contact John F. Fatino for more information about trucking and transportation matters at (515) 288-6041 or fatino@whitfieldlaw.com. Logan E. Namanny, J.D. Candidate, Drake University Law School, assisted in the preparation of these materials.