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Stonebridge Collection, Inc. v. Carmichael

United States Court of Appeals, Eighth Circuit

June 26, 2015

The Stonebridge Collection, Inc., Plaintiff - Appellant
v.
Keith Carmichael; Glenna Carmichael; Steven Massey; John Mark Taylor; Cutting-Edge USA, LLC; Taylormade Unlimited, LLC, Defendants - Appellees

Submitted: February 12, 2015.

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[Copyrighted Material Omitted]

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Appeals fro United States District Court for the Western District of Arkansas - Hot Springs.

For The Stonebridge Collection, Inc., Plaintiff - Appellant (14-1514): Gary D. Marts Jr., Wright & Lindsey, Little Rock, AR; Perry Y. Young, Baxter Law, Benton, AR.

For Keith Carmichael, Glenna Carmichael, Cutting-Edge USA, LLC, Defendants - Appellees (14-1514): Derek Scott Hickam, D. Scott Hickam Law Firm, Hot Springs, AR.

For Steven Massey, Defendant - Appellee (14-1514): John Howard, Hot Springs, AR.

For John Mark Taylor, Taylormade Unlimited, LLC, Defendants - Appellees (14-1514): Philip Maxwell Clay, Wood & Smith, Hot Springs, AR.

For The Stonebridge Collection, Inc., Plaintiff - Appellee (14-1601): Gary D. Marts Jr., Wright & Lindsey, Little Rock, AR; Perry Y. Young, Baxter Law, Benton, AR.

For Keith Carmichael, Glenna Carmichael, Cutting-Edge USA, LLC, Defendants - Appellants (14-1601): Derek Scott Hickam, D. Scott Hickam Law Firm, Hot Springs, AR.

For Steven Massey, Defendant - Appellant (14-1601): John Howard, Hot Springs, AR.

For John Mark Taylor, Taylormade Unlimited, LLC, Defendants - Appellants (14-1601): Philip Maxwell Clay, Wood & Smith, Hot Springs, AR.

Before RILEY, Chief Judge, LOKEN and SMITH, Circuit Judges.

OPINION

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RILEY, Chief Judge.

The Stonebridge Collection, Inc., an engraver of promotional pocket knives, sued (1) former distributor Cutting-Edge USA, LLC and its members, Keith and Glenna

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Carmichael; (2) competitor knife engraver Taylormade Unlimited, LLC (TaylorMade) and its sole member and manager John Mark Taylor, a former Stonebridge employee; and (3) Steven Massey, a TaylorMade employee and former Stonebridge employee (collectively, defendants), on ten counts arising from Massey's copying Stonebridge's computer files. Relevant to this appeal, Stonebridge brought claims under the Racketeer Influenced and Corrupt Organizations Act (RICO), 18 U.S.C. § § 1961-1968; the Arkansas Deceptive Trade Practices Act (ADTPA), Ark. Code Ann. § § 4-88-101 et seq.; and Arkansas common law. After a four-day bench trial, the district court[1] partially found for Stonebridge on its fraud and conversion claims, dismissed the remaining eight claims, and denied the parties' motions for attorney fees. Having appellate jurisdiction under 28 U.S.C. § 1291, we affirm in part and remand for further proceedings.

I. BACKGROUND

A. Facts

Stonebridge[2] engraves and sells personalized pocket knives, both directly to end-use customers and to distributors. End-use customers who order directly from Stonebridge are referred to as " inside" customers--over 50% of Stonebridge's inside-customer orders are reorders. End-use customers who order knives from a distributor like Cutting-Edge are " outside" customers.

From late 2004 through January 2011, Cutting-Edge distributed Stonebridge's engraved knives to outside customers, who paid Cutting-Edge directly. From late 2004 through March 2010, Stonebridge provided Cutting-Edge free engraved knife samples. Stonebridge delivered over 125,000 sample knives to Cutting-Edge and over 8,000 sample knives to Cutting-Edge's distributors. Stonebridge delivered 6,476 of these sample knives after July 2009.

Once Cutting-Edge represented to Stonebridge it had received an order, Stonebridge provided Cutting-Edge free " proofs," which included the customer's logos and computer generated art depicting the customer's logo to be placed on the customer's knives. Stonebridge sent to Cutting-Edge the proofs, contained on " proof selection forms," and " final proof pages," used for final proof approval and ordering. Both the proof selection forms and the final proof pages generally included an order number, customer contact information, and, if applicable, a note indicating the order was a reorder. Stonebridge also sent proof selection forms and final proof pages directly to inside customers. Stonebridge created the art in Corel Draw (CDR) file format and converted it to Adobe PDF file format for customer approval. Defendants claim Stonebridge's proof selection forms and final proof pages usually were sent to customers in PDF format and rarely in CDR format.

From 2005 until he quit on July 23, 2009, Taylor was Stonebridge's general manager. Five days after quitting his job with Stonebridge, Taylor formed TaylorMade, a knife engraver. Around this time, the Carmichaels purchased two laser engraving machines for TaylorMade and loaned TaylorMade $25,000. Like Stonebridge's machines, TaylorMade's machines used computer generated art stored in CDR files. Around September 2009, Cutting-

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Edge started placing some of its engraved knife orders with TaylorMade. After that time, Cutting-Edge continued to place orders with Stonebridge, paying Stonebridge over $165,000. Cutting-Edge placed its last order with Stonebridge in January 2011.

From 2005 through September 14, 2009, Massey was Stonebridge's graphic artist, creating art for the engraving machines. Around September 9, 2009, unbeknownst to Stonebridge, Massey downloaded from Stonebridge's computer system, onto a flashdrive, (1) forms and templates; (2) more than 20,000 CDRs and PDFs with proof selection forms, final proof pages, and art for Cutting-Edge outside customers; and (3) more than 2,000 CDRs and PDFs with proof selection forms, final proof pages, and art for other customers, including inside customers.

By September 18, 2009, four days after Massey quit Stonebridge, Massey started working for TaylorMade. Massey uploaded the Stonebridge files from the flashdrive to his home computer and his TaylorMade work computer. TaylorMade and Cutting-Edge consulted these files to solicit Stonebridge customers. From November 2010 through March 2011, Massey sent Carmichael emails with attached images of Stonebridge proof pages for Stonebridge customers who were not yet Cutting-Edge's or ...


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