McCallister Company v. Kastella

Arizona Court of Appeals · 1992 · Corporations

825 P.2d 980 (1992)

Updated August 22, 2026

Corporationsfiduciary dutyemployee loyaltycompetition by former employeesduty of loyaltyagencyemployee solicitationcustomer solicitation

Facts

Lynn Kastella was McCallister's vice president, designated broker, and head of its commercial property division. She gave thirty days' notice of resignation and sent letters to McCallister's commercial clients informing them she was leaving to start her own business, stating that the letter was not a solicitation. Afterward, several clients terminated their management agreements with McCallister and later hired Kastella, and several at-will employees resigned and later went to work for her. McCallister, however, produced no testimony or other specific evidence showing that Kastella had actually solicited either clients or employees before leaving.

Issue

Whether McCallister presented sufficient evidence to create a factual issue that Kastella breached her fiduciary duty of loyalty by improperly soliciting McCallister's clients or employees before her employment ended. The appeal also asked whether summary judgment for Kastella on the related implied-covenant and racketeering claims was proper.

Rule

In Arizona, an employee-agent owes the employer-principal a fiduciary duty and, unless otherwise agreed, a duty not to compete with the principal concerning the subject matter of the agency. Before termination, the employee may make arrangements to compete after leaving and may advise customers that she is departing, but she may not solicit the employer's customers or engage in similar acts of direct competition before the employment ends. Summary judgment should be granted when the evidence supporting a claim has so little probative value that reasonable people could not agree with the claimant's conclusion.

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One of 10 multiple-choice questions for this case. Pick an answer to see why.

Nina Porter managed the commercial leasing unit of Desert Mesa Realty, a fictional brokerage in Phoenix, Arizona. While still employed, she rented office space, formed a new entity, and ordered business cards for a company she planned to open after resigning, but she did not contact any current clients about moving their accounts before her last day.

If Desert Mesa sues Nina for breach of fiduciary duty based only on these facts, which is the best result?

Explanation. The majority adopted the rule that an employee-agent owes a fiduciary duty, but may prepare to compete before termination. Forming the new business, leasing space, and arranging future operations are permissible preparations. The line is crossed only if the employee solicits the employer's customers or engages in similar direct competition before employment ends.