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Johnston v. Castles and Crowns, Inc.

Supreme Court of Alabama

November 3, 2017

Jami Johnston
Castles and Crowns, Inc., and Delaire Tibbetts

         Appeal from Mobile Circuit Court (CV-11-900883)

          WISE, JUSTICE.

         Jami Johnston, the defendant, counterclaim plaintiff, and third-party plaintiff below, appeals from a judgment in favor of Castles and Crowns, Inc. ("Castles"), the plaintiff and counterclaim defendant below, and Delaire Tibbetts, the third-party defendant below. We reverse and remand.

         Facts and Procedural History

         Castles is a children's clothing company formed by Julie Vickers and Amy Bowers. Vickers and Bowers designed the clothes, which were then manufactured at a factory in El Salvador. Castles had two clothing seasons -- fall/winter and summer/spring. At the beginning of each season, Castles would submit a purchase order with the factory, which would then produce clothing for that season. Castles' clothing was sold by representatives who would host home parties to sell the clothing. The representatives would receive trunks that included samples of the fashions for that season. Customers would then place orders that would be shipped from the factory directly to the customer. At the end of each season, any unsold inventory was shipped from the factory to Castles' office. Castles would sell some of its leftover inventory through certain liquidators and consignment companies. At one time, Castles operated a factory-outlet store where it would sell some of its leftover inventory. Subsequently, Castles closed the factory-outlet store and opened a boutique store at which it would sell some of its leftover inventory.

         Brandi Stuart, Johnston's sister, worked for Castles from 2006 until 2011. Stuart was initially a representative who sold Castles' clothing at home shows. Vickers subsequently offered Stuart a job working in Castles' office. Ultimately, Stuart became the operations manager for Castles. Stuart received a salary from Castles; she was allowed to purchase Castles' clothing at a discount; and she received a bonus each season based on the gross sales for that season. Stuart testified that the bonus was originally 1%, but it was increased to 3% at some point. However, Castles presented evidence indicating that Stuart received a 1% bonus the entire time she worked for Castles. Vickers testified that, on one occasion, Stuart was allowed to take her bonus in Castles' clothing but that every other bonus was in cash. However, Stuart testified that she was allowed to take her bonuses in cash, clothing, or a combination of cash and clothing.

         In 2009, Stuart contacted Johnston and asked her if she was interested in selling children's clothing. Subsequently, Johnston formed Children's Liquidations, a consignment company that would provide children's clothes to other consignment companies for sale. Castles presented evidence indicating that, from 2009 to 2010, while she was working with Castles, Stuart had 7, 149 pounds of Castles' clothing shipped either to Johnston or to consignment companies used by Johnston. Stuart used Castles' FedEx shipping account to ship the clothing. Tibbetts, who worked at Castles' boutique store, testified that, on one occasion, Johnston came to the store and picked up multiple boxes of Castles' clothing. Vickers testified that she was aware that, during the time Stuart worked for Castles, some clothes were being sent to Johnston from Castles. When asked about her understanding as to what was occurring with those clothes, Vickers replied that, on a couple of occasions, Stuart had asked her if it was okay if she sent some clothes to Johnston, just as she would to other liquidators; that Vickers was aware that Johnston was receiving those clothes; and that Vickers was expecting to receive a check from Johnston upon the sale of the clothes, just as she did from the other liquidators. The evidence at trial established that neither Stuart nor Johnston paid Castles for those clothes or remitted any of the proceeds from Johnston's sales of the clothes to Castles. However, Stuart maintained that the clothes sent to Johnston were part of her bonuses that she had taken in clothing. Additionally, Johnston testified that Stuart told her that she had either received the clothes as part of her bonus or that she had purchased the clothing.

         Evidence was presented indicating that Johnston had sent some of the Castles' clothing she had received from Stuart to consignment companies. Johnston did not use the same consignment companies as Castles used. On some occasions, Johnston took some of the items and sold them at a warehouse sale. For the items Johnston had sent to other consignment companies, the consignee would retain a portion of the sales proceeds as a fee and remit the remaining amount to Johnston. Of that amount, Johnston would keep 30% and give Stuart 70%. For items Johnston sold at the warehouse sale, Johnston would retain the original consignee's fee. Of the amount remaining after the deduction of that fee, Johnston would receive 30% and Stuart would receive 70%.

         Some of Castles' FedEx records indicated that some packages had been shipped from Castles directly to the consignment companies used by Johnston. There were also some FedEx records that listed Johnston as the sender and Johnston's consignment companies as the recipients.

         In January 2011, Vickers terminated Stuart's employment based on issues with her performance. After Stuart's employment was terminated, Tibbetts, who was working at Castles' boutique store, received a telephone call from a woman who asked for "Jami." When told that no one named Jami worked for Castles, the woman asked for Stuart. When told that Stuart was no longer with the company, the woman asked if Castles' clothing was going to be sent for a consignment sale. Tibbetts told the woman she would have to get back with her, and Tibbetts contacted Vickers. Vickers testified that they subsequently started going through Castles' records. Castles' FedEx records showed the shipments to Johnston. Tibbetts also testified that her 2010 end-of-the-year inventory showed a large amount of missing inventory. Additionally, Vickers discovered credit-card statements for Castles that included personal charges made by Stuart. Johnston testified that, at the time of the trial, she still had boxes of Castles' clothing in her home.

         Michelle Cox was the owner of New 2 U, a consignment company that put on events in the fall and spring in various locations in Mississippi. From September 2009 to March 2011, Cox and Johnston had an ongoing relationship pursuant to which Johnston shipped Castles' clothing to Cox; Cox sold the clothing at New 2 U consignment events; Cox retained 30% of the sales proceeds; and the remaining 70% of the sales proceeds were sent to Johnston. Cox's business relationship with Johnston ended at the conclusion of the March 2011 event. Cox testified that, during the March 2011 event in Tupelo, she received a telephone call from Tibbetts, who identified herself as working for Castles. Tibbetts asked Cox if they had any Castles' inventory. When Cox replied that they did, Tibbetts told Cox that she needed to pull those items from the sales floor. Cox testified that, when she asked why, Tibbetts asked her how she had obtained Castles' clothing and that she told Tibbetts that Johnston had shipped the items to her. She further testified that Tibbetts told her that Castles was conducting an internal audit; that some discrepancies had come to light; and that Castles wanted to look into it further. Cox testified that she did not know what Tibbetts meant; that Tibbetts never used the word "stolen"; and that she had asked Tibbetts specifically if the items that had been shipped to her had been stolen. Cox went on to testify that

"[i]t was definitely implied that they were saying that [Johnston] wasn't the rightful owner of those items and did not have the right to send them to me."

         Cox testified that Tibbetts asked her to pull Castles' items from the sales floor; to return the items to Castles; and to send any proceeds from Castles' items that had been sold up to that point to Castles. Cox refused to pull the items from the sales floor, refused to send the items to Castles, and refused to send the proceeds from the items that had been sold to Castles. Ultimately, Cox remitted 70% of the proceeds from that event to Johnston. At the conclusion of the March 2011 event, Cox stopped selling Castles' items on consignment for Johnston. However, Cox testified that, about one year later, Johnston contacted her and asked her to sell another line of children's clothing that Johnston was representing. Cox said that she started selling that line of clothing.

         On April 22, 2011, Castles sued Stuart and Johnston. The complaint alleged claims of conversion; civil conspiracy; "willfulness, negligence, and wantonness"; trespass to chattel; and unjust-enrichment against Johnston and Stuart. It also asserted fraudulent-misrepresentation and suppression claims against Stuart.

         On May 26, 2011, Johnston filed her answer. She also asserted a counterclaim against Castles and a third-party complaint against Vickers and Tibbetts. In her counterclaim and third-party complaint, Johnston alleged claims of defamation; "negligence, wantonness, and willfulness"; conspiracy; and tortious interference with business and contractual relations. She also sought recovery against Castles under the theory of respondeat superior.

         On June 28, 2011, Castles filed its "Answer to Jami Johns[t]on's Counterclaims and Third-Party Complaint."

         Stuart subsequently filed an answer and an amended answer. Stuart included a counterclaim against Castles alleging libel and slander and tortious interference with Stuart's business relationships.

         On January 21, 2013, Castles filed its first amended complaint, asserting the same claims as it did in the original complaint. Count one alleged conversion and stated, in pertinent part:

"25. [Stuart and Johnston] appropriated to their own use and benefit pieces of clothing belonging to Castles without lawful justification. The pieces of clothing converted by [Stuart and Johnston] had a value which will be proven at trial.
"26. [Stuart and Johnston] appropriated to their own use and benefit shipping labels belonging to Castles and the use of Castles' shipping account. The appropriated shipping labels and use of Castles' shipping account had a value which will be proven at trial."

         Count two asserted a claim of civil conspiracy and stated, in pertinent part:

"31. At all times material, [Stuart and Johnston] did knowingly combine with each other and others, known and unknown, to accomplish by concert the unlawful purpose of appropriating Castles' property as described above, and [Stuart and Johnston] did cause Castles to suffer damage in the form of substantial financial loss, including loss of income, loss of past and future profits, and injury to business reputation."

         Count seven alleged unjust enrichment and stated:

"[Stuart and Johnston] hold monies and other property improperly received, appropriated, converted, or usurped from Castles as set forth above. [Stuart and Johnston] were thereby unjustly enriched and secured benefits in the form of those monies, property and/or assets. It would be unconscionable and unjust for [Stuart and Johnston] to retain those benefits.
"WHEREFORE, Castles demands judgment against [Stuart and Johnston] requiring them to disgorge all funds, profits, gain, unjustified expenses, and all other monies and/or property that are rightfully the property of Castles, and pay damages and/or restitution as equitable relief appropriate under Alabama law, and award Castles' costs, expenses and attorneys' fees. Castles demands the imposition of a constructive trust in favor of it as to all money received by [Stuart and Johnston] from the sale of Castles' property, and such other relief as it may be entitled."

         Castles, Vickers, and Tibbetts filed a motion for a summary judgment as to the counterclaims filed by Stuart and Johnston and the third-party claims filed by Johnston. The trial court granted the motion "as to Brandi Stuart and Jami Johnston's claims for libel, negligence, wantonness, and willfulness." However, it denied the motion as to the remaining claims.[1]

         Trial of this case started on August 29, 2016. After the close of the evidence, Castles and Johnston each filed a motion for judgment as a matter of law. The trial court entered a judgment as a matter of law as to Johnston's remaining third-party claims against Vickers and Stuart's remaining counterclaims against Castles. Johnston did not pursue her conspiracy claim against Tibbetts and Castles. Castles did not pursue its willfulness, negligence, and wantonness claim and its trespass-to-chattel claim against Johnston and Stuart. It also did not pursue its fraudulent-misrepresentation claim, its suppression claim, and its unjust-enrichment claim against Stuart. Castles' conversion and civil-conspiracy claims against Johnston and Stuart; Castles' unjust-enrichment claim against Johnston; and Johnston's defamation claim and tortious-interference-with-business-and-contractual-relations claim against Castles and Tibbetts were submitted to the jury. During its oral charge, the trial court stated:

"Castles and Crowns also has a claim for unjust enrichment against Defendant Jami Johnston only. In the event you find in favor of Ms. Johnston on the conversion, conspiracy claims."

         (Emphasis added.) It also stated:

"All right. In the event you find in favor of Defendant Jami Johnston on the claims of conversion, conspiracy, Castles also then asserts a claim that Jami Johnston was unjustly enriched. And to prevail on the unjust enrichment, Castles must then prove by a preponderance of the evidence that Jami Johnston knowingly accepted, knowingly accepted and retained a benefit provided by Castles and Castles had a reasonable expectation of compensation."

         (Emphasis added.)

         The verdict form provided, in pertinent part:

"We, the jury, find in favor of the Plaintiff, Castles and Crowns, Inc., and against Defendant Brandi Stuart ___(check if applicable) and Defendant Jami Johnston ...

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