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American Semiconductor., Inc. v. Sage Silicon Solutions, LLC

Supreme Court of Idaho

April 28, 2017

AMERICAN SEMICONDUCTOR., INC., an Idaho Corporation, Plaintiff-Appellant,
v.
SAGE SILICON SOLUTIONS, LLC, an Idaho corporation; ZILOG, INC., a Delaware corporation; DAVID ROBERTS; GYLE YEARSLEY; and WILLIAM TIFFANY, Defendants-Respondents.

         2017 Opinion No. 40

         Appeal from the District Court of the Fourth Judicial District of the State of Idaho, in and for Ada County. Hon. Thomas F. Neville, District Judge.

         The judgment of the district court is affirmed.

          Steven B. Andersen, Andersen, Schwartzman, Woodard, Brailsford, PLLC, Boise, argued for appellant.

          Gary L. Cooper, Cooper & Larson Chartered, Pocatello, argued for respondents Sage Silicon Solutions, LLC, David Roberts; Gyle Yearsley, and William Tiffany.

          Andrea Jo Rosholt, Moffatt Thomas, Boise, argued for respondent Zilog, Inc.

          EISMANN, JUSTICE.

         This is an appeal out of Ada County from a judgment in an action brought by American Semiconductor, Inc., to recover damages arising out of Zilog, Inc., contracting with Sage Silicon Solutions, LLC, to perform engineering services for it, where that entity was formed by, and the services were provided by, employees of American Semiconductor, Inc. American Semiconductor, Inc., obtained a jury verdict awarding damages against the engineers and the entity they had formed, but it did not recover against Zilog, Inc. American Semiconductor, Inc., appeals, challenging the dismissal of one of its claims against Zilog, Inc., and seeking a new trial on damages against the engineers and their entity. We affirm the judgment of the district court.

         I. Factual Background.

         David Roberts, Gyle Yearsley, William Tiffany, Russell Lloyd, and Evelyn Perryman were all engineers who worked for Zilog, Inc. ("Zilog"), at its facility in Meridian, Idaho, and they constituted the design team at that facility. They were all laid off in 2009 as part of a reduction in force and were later hired by American Semiconductor, Inc. ("American Semiconductor" or "ASI"). This layoff left only two design engineers employed by Zilog, both of whom were in California.

         Mr. Roberts had been the design engineering manager when they were employed by Zilog, and he had been hired by David Staab, one of Zilog's two remaining design engineers. On October 21, 2009, Mr. Roberts e-mailed Mr. Staab to inform him that he and Messrs. Yearsley, Tiffany, and Lloyd had formed Sage Silicon Solutions to perform design work and that they would like to make a quote if Zilog had any design work. On January 28, 2010, Messrs. Roberts, Yearsley, Tiffany, and Lloyd and Ms. Perryman formed Sage Silicon Solutions, LLC ("Sage"), to provide those engineering services.

         In 2009, Zilog began looking into the development of a microcontroller. By the end of 2010, the project was defined as developing a low-power microcontroller by enhancing an existing processor core that had been developed by Mr. Yearsley when he had been employed by Zilog. Mr. Staab was lead for that project. He contacted Mr. Roberts, and on February 15, 2011, Zilog entered into a contract with Sage to provide services in designing the microcontroller.

         On September 23, 2011, American Semiconductor learned that the engineers were working on the project for Zilog, and it made a demand to Zilog that it cease using the engineers. Zilog ceased doing so around September 25, 2011, and two days later American Semiconductor terminated its relationship with all of the engineers except Mr. Lloyd. Zilog completed the project using its resources and engineering resources from its sister company.

         On December 2, 2011, American Semiconductor filed this action against the five engineers, Sage, and Zilog. It alleged two claims for damages against only the engineers, six claims for damages against the engineers and Sage, and claims for declaratory and injunctive relief against all Defendants. Sage and the engineers filed a four-count counterclaim. On July 2, 2013, American Semiconductor filed a second amended complaint dropping Mr. Lloyd and Ms. Perryman as named defendants and adding claims against Zilog for intentional interference with economic expectancy, for intentional interference with contract, for violation of the Idaho Trade Secrets Act, and for unjust enrichment.

         By the time of trial, American Semiconductor had two claims against Zilog: intentional interference with a contract and intentional interference with an economic expectancy. The district court dismissed the second claim after the close of the evidence, and the jury found no liability on the first claim.

         By the time of trial, American Semiconductor had two claims that were only against Messrs. Roberts, Yearsley, and Tiffany: breach of their contractual duty not to compete with American Semiconductor and breach of their fiduciary duty to American Semiconductor. The jury found them liable on both of those claims, but did not award damages on those claims. American Semiconductor also had a claim of intentional interference with its economic expectancy of contracting with Zilog that was asserted against the three engineers and Sage, and the jury found all four of them liable on that claim and awarded damages in the sum of $195, 175. Two of the counterclaims filed by Sage and the engineers were submitted to the jury. The jury found that American Semiconductor intentionally interfered with Sage's contract with Zilog, but awarded no damages, and it found no liability on the remaining counterclaim.

         The district court awarded Zilog court costs and attorney fees and as between American Semiconductor and the Sage defendants, it determined that there was no prevailing party in the litigation. American Semiconductor then timely appealed.

         II. Did the District Court Err in Granting a Directed Verdict Dismissing the Claim Against Zilog of Intentional Interference with an Economic Expectancy?

The elements for a claim of intentional interference with an economic expectancy are:
(1) The existence of a valid economic expectancy; (2) knowledge of the expectancy on the part of the interferer; (3) intentional interference inducing termination of the expectancy; (4) the interference was wrongful by some measure beyond the fact of the interference itself (i.e. that the defendant interfered for an improper purpose or improper means) and (5) resulting damage to the plaintiff whose expectancy has been disrupted.

Highland Enterprises, Inc. v. Barker, 133 Idaho 330, 338, 986 P.2d 996, 1004 (1999). The knowledge requirement may be satisfied by proving either actual knowledge or knowledge of facts that would cause a reasonable person to believe that the economic expectancy exists. Wesco Autobody Supply, Inc. v. Ernest, 149 Idaho 881, 894, 243 P.3d 1069, 1082 (2010). The wrongful requirement may be established by proving either: "(1) the defendant had an improper objective or purpose to harm the plaintiff; or (2) the defendant used a wrongful means to cause injury to the prospective business relationship." Idaho First Nat'l Bank v. Bliss Valley Foods, Inc., 121 Idaho 266, 286, 824 P.2d 841, 861 (1991). However, Zilog could not interfere with American Semiconductor's expectancy of contracting with Zilog. Cantwell v. City of Boise, 146 Idaho 127, 138, 191 P.3d 205, 216 (2008). The interferer would have to be a third party to the expected economic relationship. Id.

         In its second amended complaint, American Semiconductor alleged that "by soliciting or accepting services from the Individuals [engineers] and Sage, Zilog tortiously interfered with American Semiconductor's prospective economic advantage, including depriving American Semiconductor of the opportunities to earn income from the Individuals' design services." The word Individuals was defined to mean Messrs. Roberts, Yearsley, Tiffany, and Lloyd and Ms. Perryman. In its brief opposing Zilog's motion for summary judgment, American Semiconductor explained:

ASI's tortious interference with prospective economic advantage claim concerns the economic expectancy ASI had for Roberts, Yearsley, Tiffany, Lloyd, and Perryman's continued employment and loyalty and, as such, is not based upon ASI's prospective relationship with Zilog. Therefore, Zilog cannot defeat ASI's tortious interference claim by attempting to characterize itself as a party to the subject economic relationship.

(Emphases added.)

         Even though American Semiconductor asserted that the alleged interference was "not based upon ASI's prospective relationship with Zilog, " that was the only evidence of damages offered by American Semiconductor at trial. Its expert testified that he was asked to determine "what ASI has suffered if the jury determines that they would have otherwise gotten the project that's at issue in this case." He calculated that had Zilog contracted with American Semiconductor, it would have received $1, 182, 488 in revenues and that the loss of that contract resulted in damages from lost profits totaling $1, 025, 088. The total lost profits included $547, 670 that would have been charged for computer-aided-design software ("tools") that American Semiconductor already had the right to use under the license with its vendor. The expert's calculations were based upon what American Semiconductor would have charged to perform all of the work necessary for the project from the beginning through completion of the design of the chip, using the tools that American Semiconductor was licensed to use from its vendor. Much of that work was in addition to the work that Zilog had contracted with Sage to perform. The expert testified that the additional work would have produced $740, 182 in revenues for American Semiconductor and that the loss of that work caused American Semiconductor $582, 782 in lost profits.

         American Semiconductor completed its case in chief during the eighth day of trial, and Zilog moved for a directed verdict. With respect to the claim of intentional interference with a prospective economic advantage, Zilog argued that the economic expectancy had to be with a third party other than Zilog and that the only evidence of an economic expectancy presented during the trial was with Zilog. In response, American Semiconductor stated that "the expectancy, and the relationships at issue are ASI's relationships with its own employees, " and it argued the evidence showed that Zilog knew that the engineers were employed by American Semiconductor and that Zilog intentionally interfered with that relationship. Zilog then argued that the evidence showed that it would not have contracted with American Semiconductor because it would have cost too much to do so. American Semiconductor responded to that argument by stating that Zilog hired the engineers through Sage rather than through American Semiconductor. The district court denied the motion, based upon its understanding that "ASI is alleging that Zilog interfered with ASI's economic expectancy with-with Zilog."

         All parties rested during the ninth day of trial, and the following day the court held a jury instruction conference. During that conference, American Semiconductor explained that it was not contending that the economic expectancy was contracting with Zilog. It stated that the expectancy was the future economic benefits that American Semiconductor would receive based upon its relationships with the engineers. After that explanation, Zilog responded by pointing out that American Semiconductor did not present any evidence of damages other than interference with the expectancy of contracting with Zilog. The district court then stated that it would reconsider its denial of the motion for a directed verdict and grant it because there was no evidence to support the claim as characterized by American Semiconductor.

         By the time of the trial, American Semiconductor had two remaining claims against Zilog: intentional interference with a contract and intentional interference with an economic expectancy. The district had proposed a special verdict form, with Question No. 6 dealing with interference with an economic expectancy and Question No. 8 dealing with interference with a contract.

         The discussion of those two proposed questions began with Mr. Zarian, counsel for American Semiconductor, asking to discuss Question No. 6, and explaining that the economic expectancy was not contracting with Zilog. It was the future benefits that would come to American Semiconductor from it relationships with the engineers. The dialogue was as follows:

MR. ZARIAN: And may I speak to, then, to Question 6?
THE COURT: Question No. 6 in the Special Verdict?
MR. ZARIAN: Yes, Your Honor.
So, ASI is not-not-not arguing that Zilog interfered with its-its own relationship that was part of an expectancy. The-the claim has been, consistently throughout, that the-the expectancy in the case, with respect to this claim against Zilog, is with ASI's employees and the future benefits that would come from-from those relationships with its own employees, in particular the individual defendants. But that-that's been the claim throughout, Your Honor.
. . . .
THE COURT: Okay. Your problem is with Question 6?
MR. ZARIAN: Yes, Your Honor.
THE COURT: And the question is: Did Zilog intentionally interfere with American Semiconductor's economic expectancy of contracting with Zilog? You're saying that's not the question?
MR. ZARIAN: No, Your Honor - that's right, Your Honor.
The-the way we defined that claim is-is expectancy of future pecuniary gain from its relationships with its employees, separate and apart, distinct from the Employee Confidentiality Agreement, which is the subject of Question 8.
. . . .
MR. ZARIAN: Well, our-our claim, with respect to the economic expectancy of contracting with Zilog, is against Sage and the individual defendants, Your Honor.

(Emphases added.)

         The district court sought further clarification. It apparently thought that if the economic expectancy with respect to contracting with Zilog was only against Sage and the engineers, then American Semiconductor's claim against Zilog must only be its claim of intentional interference with contract. Mr. Zarian again explained that it had two claims against Zilog, but the interference with economic expectancy claim against Zilog was interfering with "an economic expectancy in the future benefit of the relationships with our employees." The dialogue was as follows:

THE COURT: So, you're saying 6-
MR. ZARIAN: So-
THE COURT: -you-you're-you only have one claim against Zilog then?
MR. ZARIAN: We have two at the moment, Your Honor. But-but I think, perhaps, the question we're discussing together here is 4, Question 4, which is, indeed, an economic expectancy of contracting with Zilog, but-but that's a claim against the Sage defendants.
And so, the claim against Zilog is-is-has always been, Your Honor-I mean, the way we've articulated it, is an economic expectancy in the future benefit of the relationships with our employees.

(Emphases added).[1]

         The district court expressed surprise as to this characterization of the economic expectancy claim against Zilog. The proposed jury instructions submitted by American Semiconductor regarding that claim did not identify the economic expectancy at issue. The court stated that it had received two versions of the special verdict form, and both of them had asked whether Zilog had intentionally interfered with American Semiconductor's economic expectancy of contracting with Zilog. Mr. Zarian explained that it had sent over a special verdict form that deleted the reference to Zilog and that the economic expectancy was, as alleged in its second amended complaint, "depriving ASI of the opportunities to earn income from the individuals' design services." The dialogue was as follows:

THE COURT: Did-did Zilog intentionally interfere with American Semiconductor's economic expectancy of contracting with Zilog?
We-we had-I've seen two versions of this proposed Special Verdict Form, and I haven't had-and this has been in both of them, and I haven't-I haven't heard this until now.
MR. ZARIAN: The comments we sent that deleted, Your Honor, did make that change; the-the ones that Mr. Luvai sent.
But, Your Honor, paragraph 90 of our Second Amended Complaint, which is the operative complaint, I-I think we do articulate the theory we've adhered to throughout, you know, summary judgment briefing and-and other briefing in this case.
And-and it reads, Your Honor, that-that Zilog tortiously interfered with ASI's prospective economic advantage, including depriving ASI of the opportunities to earn income from the individuals' design services.
MS. ROSHOLT: For Zilog.
MR. ZARIAN: No. It doesn't say that; it just says individuals' ...

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