Whelan Sec. Co. v. Kennebrew

• Decision Date: 30 October 2012
• Docket Number: No. SC 92291.,SC 92291.
• Citation: 379 S.W.3d 835
• Parties: WHELAN SECURITY CO., Appellant, v. Charles KENNEBREW, Sr., and W. Landon Morgan, Respondents.
• Court: Missouri Supreme Court

379 S.W.3d 835

WHELAN SECURITY CO., Appellant,

v.Charles KENNEBREW, Sr., and W. Landon Morgan, Respondents.

No. SC 92291.

Supreme Court of Missouri, En Banc.

Aug. 14, 2012.

Rehearing Denied Oct. 30, 2012.

Mark W. Weisman and Bradley G. Kafka of Polsinelli Shughart PC, St. Louis, for Whelan.

Jonathan Sternberg, Kansas City, and Crystal Moody of The Moody Law Firm, Houston TX, for Kennebrew.

William A. Wooten of the Law Office of J. Houston Gordon, Covington, TN, for Morgan.

PATRICIA BRECKENRIDGE, Judge.

Whelan Security Company appeals a trial court's grant of summary judgment in favor of Charles Kennebrew, Sr., and W. Landon Morgan on its action to enforce the non-compete agreements it had with Mr. Kennebrew and Mr. Morgan. On appeal, Whelan claims that the trial court erred in concluding that the non-competition and non-solicitation clauses were invalid as overbroad and unreasonable as to time and space. This Court granted transfer after opinion by the court of appeals. Mo. Const. art. V, sec. 10. This Court determines that the non-compete agreements were unreasonable as written but modifies the terms of the agreements to give effect to the intent of the parties in entering the non-compete agreement. The case is remanded for determination of genuine issues of material fact.

Factual and Procedural History

Whelan is a Missouri corporation that provides security guard services nationwide. It has 38 branches in 23 states. In December 2006, Whelan executed an employment agreement with Mr. Morgan to employ him as a branch manager for its Nashville, Tennessee, office. As a branch manager, Mr. Morgan was responsible for handling operations, sales, and marketing, which required him to meet with clients and gave him access to client records and employee files. In November 2007, Whelan also executed an employment contract with Mr. Kennebrew. Whelan hired Mr. Kennebrew in part because of his reputation in the security business in Houston, Texas, and assigned him to work as the director of quality assurance for Whelan's Dallas, Texas, office.¹ Mr. Kennebrew's duties included managing the operations, clients, and customers of the office. With his position, Mr. Kennebrew had access to employee and financial records of the company. He was in contact with Whelan's customers in various parts of Texas, but the parties dispute whether Mr. Kennebrew provided services for Whelan in Houston. Both Mr. Kennebrew's and Mr. Morgan's employment contracts contained non-competition and employee non-solicitation clauses.

The non-competition and employee non-solicitation clauses in Mr. Kennebrew's employment contract stated:

During the term of this Agreement, and for a period of two (2) years thereafter, whether the termination of this Agreement is initiated by EMPLOYER or EMPLOYEE, EMPLOYEE shall not, without the prior written consent of EMPLOYER, in any manner, directly or indirectly, either as an employee, employer, lender, owner, technical assistant, partner, agent, principal, broker, advisor, consultant, manager, shareholder, director, or officer, for himself or in behalf of any person, firm, partnership, entity, or corporation, or by any agent or employee:

(a) Solicit, take away or attempt to take away any customers of EMPLOYER or the business or patronage of any such customers or prospective customer(s) whose business was being sought during the last twelve (12) months of EMPLOYEE'S employment; or (b) Solicit, interfere with, employ, or endeavor to employ any employees or agents of EMPLOYER.

(c) Work for a competing business within a fifty (50) mile radius of any location where EMPLOYEE has provided or arranged for EMPLOYER to provide services.

(d) Work for a customer of EMPLOYER or prospective customer(s) whose business was being sought during the last twelve (12) months of EMPLOYEE'S employment, if the work would included providing, or arranging for, services the same as, or similar to, those provided by EMPLOYER.

“Competing business” means any business engaged in providing guard and/or security services the same as, or similar to, those offered by EMPLOYER.

The non-competition and employee non-solicitation clauses in Mr. Morgan's employment contract were similar, except that Mr. Morgan's employee non-solicitation clause had a one-year prohibition instead of a two-year prohibition.

Mr. Morgan and Mr. Kennebrew resigned from Whelan in December 2008 and March 2009, respectively, although Mr. Kennebrew continued to work for Whelan at its request until August 2009. Whelan was aware that Mr. Kennebrew intended to start his own security company, called Elite Protective Services LLC, but Whelan did not believe that Elite would be in direct competition with its services. Mr. Morgan joined Elite a short time after it started.

In November and December 2009, Mr. Kennebrew solicited the business of Park Square Condominiums, a client of Whelan in Houston. On behalf of Elite, Mr. Kennebrew signed a contract to provide security services for Park Square on December 17, 2009. The next day, Mr. Morgan provided employment packets for Elite to Whelan's employees at Park Square. Park Square terminated its relationship with Whelan in January 2010, and Elite retained several of Whelan's employees at Park Square.

Whelan brought action seeking to enjoin Mr. Kennebrew and Mr. Morgan from violating the terms of their employment contracts. It also sought damages for breach of contract, unjust enrichment, and civil conspiracy. After a hearing, the trial court denied Whelan's request for a preliminary injunction. Whelan filed a motion to modify the agreement, followed by each party filing motions for summary judgment. The trial court granted summary judgment in favor of Mr. Kennebrew and Mr. Morgan and overruled Whelan's alternative motions for summary judgment or modification of the agreement. The trial court stated that “the employment agreements at issue in this case, as written, are overbroad, not reasonable as to time and space and therefore are not valid.” Whelan appeals the trial court's grant of summary judgment.

On appeal, Whelan asserts five points of error. It claims that the trial court erred in granting summary judgment for Mr. Kennebrew and Mr. Morgan because: (1) the non-competition and non-solicitation clauses are not overly broad and are reasonably limited as to time and geographic scope under Missouri law; (2) Mr. Kennebrew violated a reasonable covenant not to compete by operating a competing company within 50 miles of Whelan's office in Houston and within two years of his resignation; (3) Mr. Kennebrew and Mr. Morgan violated a reasonable covenant not to solicit Whelan's customers by soliciting Park Square within two years of their resignations; (4) Mr. Kennebrew and Mr. Morgan violated a reasonable covenant not to solicit Whelan's employees by soliciting its employees at Park Square; and (5) the trial court failed to modify the agreement to restrict Mr. Kennebrew from competing with Whelan in a 50–mile radius of Houston.

Standard of Review

Summary judgment is appropriate only when the moving party demonstrates that “there is no genuine dispute as to the facts” and that “the facts as admitted show a legal right to judgment for the movant.” ITT Commercial Fin. Corp. v. Mid–Am. Marine Supply Corp., 854 S.W.2d 371, 380 (Mo. banc 1993). The movant bears the burden of establishing both a legal right to judgment and the absence of any genuine issue of material fact required to support the claimed right to judgment. Id. at 378. The propriety of summary judgment is purely an issue of law, and this Court's review is essentially de novo. Id. at 376. “As the trial court's judgment is founded on the record submitted and the law, an appellate court need not defer to the trial court's order granting summary judgment.” Id.

Discussion

In its first point on appeal, Whelan claims that the trial court erred in granting summary judgment in favor of Mr. Kennebrew and Mr. Morgan because the non-compete agreements ² in the employment contracts were not overbroad and unreasonable as to time and geographic scope. Specifically, it contends that its customer non-solicitation clause is reasonable because it is limited to two years and only to customers and prospective customers that Whelan sought within the last 12 months. It further contends that its employee non-solicitation clause is reasonable under section 431.202.³ Lastly, Whelan contends that the clause preventing Mr. Kennebrew from competing with Whelan is reasonable because it is limited to 50 miles from any location where, as Whelan's employee, he arranged for services to be provided.⁴

The law of non-compete agreements in Missouri seeks to balance the competing concerns between an employer and employee in the workforce. On one hand, employers have a legitimate interest in engaging a highly trained workforce without the risk of losing customers and business secrets after an employee leaves his or her employment. Copeland, 198 S.W.3d at 609–10. On the other hand, employees have a legitimate interest in having mobility between employers to provide for their families and advance their careers. Id. at 610. Furthermore, although the law favors the ability of parties to contract freely, contracts in restraint of trade are unlawful. Id.

In balancing these competing interests, Missouri courts generally enforce a non-compete agreement if it is demonstratively reasonable. Id. “A non-compete agreement is reasonable if it is no more restrictive than is necessary to protect the legitimate interests of the employer.” Id. A non-compete agreement must be narrowly tailored temporally and geographically and must seek to protect legitimate employer interests beyond mere competition by a former employee. Accordingly, a non-compete agreement is enforceable “only to the extent that the restrictions protect the employer's trade secrets or customer contacts.” Id. The employer has the burden to prove that the...