North Pac. Lumber Co. v. Moore

• Decision Date: 24 June 1976
• Citation: 275 Or. 359,551 P.2d 431
• Parties: NORTH PACIFIC LUMBER CO., an Oregon Corporation, Respondent and Cross-Appellant, v David R. MOORE, Appellant, and Deep South Lumber Co., a Louisiana Corporation, Defendant.
• Court: Oregon Supreme Court

Page 431

551 P.2d 431

275 Or. 359

NORTH PACIFIC LUMBER CO., an Oregon Corporation, Respondent and Cross-Appellant, v David R. MOORE, Appellant and Deep South Lumber Co., a Louisiana Corporation, Defendant.

Supreme Court of Oregon.

Argued and Submitted April 5, 1976.

Decided June 24, 1976.

[275 Or. 360-A] Stephen R. Miller, of Robeson & Miller, Lake Oswego, argued the cause and filed briefs for appellant.

Robert L. Allen, of Morrison, Dunn, Cohen, Miller & Carney, Portland, argued the cause for respondent and cross-appellant. Also on the briefs was G. Kenneth Shiroishi, Portland.

Before O'CONNELL,* C.J., and McALLISTER, DENECKE,** HOLMAN, HOWELL and BRYSON, JJ.

O'CONNELL, Justice,

This is a suit to enjoin defendants from violating a covenant not to compete contained in a contract of employment entered into between defendant Moore and plaintiff, his former employer. Plaintiff also sought damages from Moore and his new employer, Deep South, for the harm suffered by plaintiff as a result of the breach of the covenant. Moore counterclaimed for commissions earned while he was employed by plaintiff. The trial court granted the relief prayed for against Moore but entered judgment in favor of defendant Deep South. The trial court found in favor of Moore on his counterclaim. Moore appeals and plaintiff cross-appeals from that part of the decree allowing Moore his commissions and from the decree in favor of Deep South.

Plaintiff, a wholesaler of lumber products, hired defendant, David R. Moore, in May of 1969. At this time, Moore had no prior experience in the wholesale lumber industry. It was the policy of North Pacific to hire inexperienced personnel in order to facilitate training and to best effectuate company policies regarding the purchase and sale of lumber products. Accordingly, Moore was hired and trained as a lumber trader specializing in hardwoods.

On May 15, 1969, Moore and North Pacific executed the employment contract here in question, the relevant portions of which are set out in the margin. ¹ Summarized, defendant Moore agreed that in the event of the termination of his employment, he would refrain from engaging in or associating with others in competition with North Pacific for a period of two years within the state of Oregon or within 200 air miles of Portland, Oregon. In addition, Moore agreed that during this period he would not become employed by or associated with, or purchase from, or sell to North Pacific's 'regular suppliers or customers,' a term which the contract specifically defined.

During Moore's tenure as a hardwood trader he made numerous business trips on behalf of North Pacific in order to purchase number, develop new sources of supply, and to generally affirm or establish good relationships with existing or potential customers and suppliers. Sometime during one of these trips, in July or August of 1972, Moore personally contacted co-defendant, Deep South Lumber, a hardwood supplier, located in Baton Rouge, Louisiana. Subsequently, Deep South began supplying hardwood to North Pacific on a regular basis, principally through the efforts of Moore. As this relationship between Deep South and Moore continued, discussions transpired which led to negotiations in late 1972 or early 1973 for Moore's employment by Deep South. By September 16, 1973, Deep South and Moore had reached a written agreement. In consideration of Moore's acceptance of its offer of employment, Deep South promised, among other things, to give Moore a substantial ownership interest in Deep South. Deep South was aware of the employment agreement between North Pacific and Moore.

Pursuant to the Deep South-Moore agreement, Moore voluntarily terminated his employment with North Pacific in October of 1973 and commenced his employment with Deep South. Immediately thereafter, Moore began soliciting North Pacific customers on behalf of Deep South from an office which he established in Milwaukie, Oregon. Such activity included the solicitation of customers which were previously handled by the hardwood division of North Pacific including, but not limited to, those customers specifically handled by Moore himself. The hardwood Moore sold those customers was Deep South hardwood which Moore had previously bought from Deep South and sold to the same customers on behalf of North Pacific.

In late August or early September 1974, Moore moved to Louisiana and continued his operations from Deep South's Baton Rouge office. Plaintiff's prayer for damages is limited to those activities of defendants Moore and Deep South which occurred prior to Moore's move to Louisiana.

Plaintiff filed the present suit on November 15, 1973. Moore admits that he breached the employment contract, but he contends that the non-competition clause of the contract is not enforceable because plaintiff failed to prove a 'protectible interest.'

The law governing this issue is stated in Eldridge et al. v. Johnston, 195 Or. 379, 403, 245 P.2d 239, 250 (1952):

'Three things are essential to the validity of a contract in restraint of trade; (1) it must be partial or restricted in its operation in respect either to time or place; (2) it must be on some good consideration; and (3) it must be reasonable, that is, it should afford only a fair protection to the interests of the party in whose favor it is made, and must not be so large in its operation as to interfere with the interests of the public.' ²

Moore contends that plaintiff has failed to establish that the restriction 'afford(ed) only a fair protection to the interests' of plaintiff.

[1,2] To be entitled to the protection which a noncompetition covenant purports to provide, the employer must show that he has a 'legitimate interest' entitled to protection. That interest need not be in the form of a trade secret or a secret formula; it may consist of nothing more than valuable 'customer contacts.' ³ The principle is stated in Kelite Prod., Inc. v. Brandt et al., 206 Or. 636, 656, 294 P.2d 320 (1956), adopting the following quotation from 9 ALR 1468:

"It is clear that if the nature of the employment is such as will bring the employee In personal contact with the patrons or customers of the employer, or enable him to acquire valuable information as to the nature and character of the business and The names and requirements of the patrons or customers, enabling him, by engaging in a competing business in his own behalf, or for another, to take advantage of such knowledge of Or acquaintance with the patrons or customers of his former employer, and thereby gain an unfair advantage, equity will interfere in behalf of the employer and restrain the breach of a negative covenant not to engage in such competing business, either for himself or for another, providing the covenant does not offend against the rule that as to the time during which the restraint is imposed, or as to the territory it embraces, it shall be no greater than is reasonably necessary to secure the protection of the business or good will of the employer."

In the present case the evidence demonstrates the importance of developing a personal relationship between the trader and the supplier or customer. Plaintiff established a company policy of encouraging its traders to make personal contact with its customers and to develop a close business relationship with them so that they would turn to plaintiff's employees in seeking to sell or buy lumber. Plaintiff also accumulated data with respect to the particular features of various suppliers of lumber and the type of lumber which filled the special needs of the various buyers. ⁴ For the most part, the only relationship which the plaintiff had with its customers was through the traders. As pointed out in Blake, Employee Agreements Not to Compete, 73 Harv.L.Rev. 625, 658--59 (1960), 'the extent to which the employee is likely to be identified in the customer's mind with the product or service being sold' is an important element in determining the validity of a non-competition agreement. The author goes on to say more specifically that:

'* * * The most important factors seem to be (1) the frequency of the employee's contacts with customers and whether they are the employer's only relationships with those customers, (2) the locale of the contact, and (3) perhaps most important, the nature of the functions performed by the employee (the nature of the product or service involved, and the degree of authority and responsibility of the employee).'

Plaintiff has, therefore, established a 'protectible interest,' based upon upon customer contacts and knowledge of customer and supplier names and requirements.

Moore contends that even if a legitimate interest is shown, no damages could be awarded absent proof that he knew which of plaintiff's former customers were covered by the formula set out in the contract. He points to the complexity of the contract formula for determining what customers and suppliers Moore would be enjoined from becoming associated with outside the state of Oregon and to the large number of plaintiff's customers. ⁵ This contention is without merit. The contract restricts Moore from engaging in transactions with a certain class of suppliers and buyers. The restrictions are not limited to situations where Moore knew that the supplier fell within the formula. Absent such a limitation in the contract, it is immaterial that Moore did not know that his conduct constituted a violation.

[5,6] Moore's final contention is the damage award was speculative. It is well settled that plaintiff is not required to prove the amount of his damages with mathematical certainty. He need only establish the fact of damage and evidence from which a satisfactory conclusion as to the amount of damage can be reached. ⁶ From the record it appears that Moore, in breach of his contract with plaintiff, made sales to plaintiff's former customers which would otherwise have been made by plaintiff and that plaintiff...