Allen, Gibbs & Houlik v. Ristow

• Decision Date: 30 July 2004
• Docket Number: No. 90,879.,90,879.
• Parties: ALLEN, GIBBS & HOULIK, L.C., Appellant, v. KIMBERLY A. RISTOW, Appellee.
• Court: Kansas Court of Appeals

32 Kan.App.2d 1051

94 P.3d 724

ALLEN, GIBBS & HOULIK, L.C., Appellant, v. KIMBERLY A. RISTOW, Appellee.

No. 90,879.

Court of Appeals of Kansas.

Opinion filed July 30, 2004.

Terry L. Malone and Greg A. Drumright, of Martin, Pringle, Oliver, Wallace & Bauer, L.L.P., of Wichita, for appellant.

Eric B. Metz and Jerald W. Rogers, of Triplett, Woolf & Garretson, LLC, of Wichita, for appellee.

Before RULON, C.J., PIERRON and HILL, JJ.

HILL, J.

In this appeal we are asked to determine if the district court erred when it granted summary judgment in favor of Kimberly A. Ristow after her former employer, Allen, Gibbs & Houlik, L.C., attempted to enforce a noncompetition clause in its employment agreement. Because there was no legitimate business purpose for AGH that was protected by the covenant not to compete, under the facts of this case, we hold that enforcing the covenant would be unreasonable. Therefore, we affirm the district courts' grant of summary judgment to Ristow.

BACKGROUND

Ristow was hired in 1994 by AGH, a certified public accounting firm, to work in its employee benefits group. When Ristow began working for AGH as a record-keeping administrator, she was responsible for organizing records for qualified retirement plans and converting those types of records when they were transferred to AGH from other record keepers. Ristow subsequently assumed a supervisory position in 1997. When she left AGH, Ristow's responsibilities included daily administration of various employee benefit plans and supervision of three teams of administrators.

With her promotion in 1997, the parties executed a new employment contract that contained several clauses that were the foundation of AGH's lawsuit. The noncompetition clause states:

"During the Employee's employment with Employer, and within six (6) months thereafter, the Employee agrees not to negotiate for or accept a position with any client or center of influence of the Employer, or Koch Industries, Inc. and its affiliated companies without the express written consent of the Chief Executive or the Chief Executive's designate."

This clause was added because AGH had previously lost employees who worked in the employee benefits area because they were lured away by Intrust Bank, N.A. and NestEgg Consulting, Inc.

While employed at AGH, Ristow became acquainted with Troy Jordan, president of NestEgg and vice-president of Wealth Management Services for Intrust. Jordan contacted Ristow and made a subsequent offer of employment. Near the end of August 2001, Ristow accepted a position with Intrust and NestEgg and provided her 2-week resignation notice to AGH.

Shortly thereafter, Paul Allen, owner and CEO of AGH, informed Ristow that she would violate the agreement should she accept the position with Intrust/NestEgg. Ristow's last day of work at AGH was September 11, 2001. On September 27, 2001, Ristow began working for NestEgg. AGH formally notified Ristow's counsel of her breach of the employment agreement on October 1, 2001.

On February 14, 2002, AGH filed a petition seeking liquidated damages based on Ristow's alleged breach of the agreement. The matter was submitted to the court upon motions for summary judgment.

STANDARD OF REVIEW AND RULES OF INTERPRETATION

Since this case was decided by summary judgment motions and it centers upon the interpretation of an employment agreement, some legal fundamentals must be established. Summary judgment is appropriate when reasonable and all procedures are followed:

"Summary judgment is appropriate when the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law. The trial court is required to resolve all facts and inferences which may reasonably be drawn from the evidence in favor of the party against whom the ruling is sought. When opposing a motion for summary judgment, an adverse party must come forward with evidence to establish a dispute as to a material fact. In order to preclude summary judgment, the facts subject to the dispute must be material to the conclusive issues in the case. On appeal, we apply the same rules and where we find reasonable minds could differ as to the conclusions drawn from the evidence, summary judgment must be denied. [Citation omitted.]" Bracken v. Dixon Industries, Inc., 272 Kan. 1272, 1274-75, 38 P.3d 679 (2002).

Contract questions are often subject to summary judgment. Where there are no disputed material facts, the determination of whether a party breached a contract is a question of law and is appropriate for summary judgment. City of Topeka v. Watertower Place Dev. Group, 265 Kan. 148, 154, 959 P.2d 894 (1998). This court is not restricted by the interpretation of the employment agreement rendered by the district court. Unrau v. Kidron Bethel Retirement Services, Inc., 271 Kan. 743, 763, 27 P.3d 1 (2001) (an appellate court may construe written contract and determine its legal effect regardless of construction given a written contract by district court).

COVENANTS NOT TO COMPETE IN KANSAS LAW

Under Kansas law, covenants not to compete which are contained in employment contracts are strictly construed against employers. Therefore, we must construe this agreement strictly against AGH. An important case on this issue is Weber v. Tillman, 259 Kan. 457, 913 P.2d 84 (1996). It teaches us that we must consider the circumstances of the parties as well as public concerns when evaluating such contract provisions:

"A noncompetition covenant ancillary to an employment contract is valid and enforceable if the restraint is reasonable under the circumstances and not adverse to the public welfare. [Citations omitted.] The rationale for enforcing a noncompetition covenant is based on the freedom of contract. [Citation omitted.]" Weber, 259 Kan. at 462.

In Weber, the Supreme Court examined four factors in determining whether to enforce a covenant not to compete in an employment contract setting. In addition to questioning the reasonableness of the time and territory restrictions in the covenant, the court considered whether the contract protected a legitimate business interest, imposed an undue burden on the employee, or injured the public. 259 Kan. at 461-75.

We turn first to AGH's legitimate business interests. "[I]t is well settled that only a legitimate business interest may be protected by a noncompetition covenant. If the sole purpose is to avoid ordinary competition, it is unreasonable and unenforceable. [Citations omitted.]" Weber, 259 Kan. at 462. Prior Kansas cases have held that legally sufficient interests in the setting of an employment agreement include trade secrets and customer contacts or relationships. See Heatron, Inc. v. Shackelford, 898 F. Supp. 1491, 1500 (D. Kan. 1995); Eastern Distributing Co., Inc. v. Flynn, 222 Kan. 666, 671-74, 567 P.2d 1371 (1977).

Ristow responds that AGH is precluded from raising this issue on appeal as it did not make this argument before the district court. Ristow also maintains that this particular issue was not the subject of discovery completed by the parties. AGH counters that it has consistently maintained that Ristow violated paragraph 1 of the agreement. The district court found that paragraph 1 was not supported by a legitimate business purpose.

AGH claims that the covenant not to compete sought to protect AGH's business interest in the specialized training provided to Ristow. The facts provide that AGH revised its agreement, in part, to deal with the problem it had with Intrust hiring AGH employees from the employee benefits area to work for Intrust and NestEgg. According to AGH, the language concerning "centers of influence" and "key personnel" was added to address the problem.

The district court found the training and knowledge provided by AGH to Ristow did "not rise to the level of specialized knowledge which constitutes a legitimate business purpose which would support the restrictions on subsequent employment contained in Paragraph 1 of the Employment Agreement." In a separate finding, the district court added that Ristow's knowledge "was not in the category of client lists or trade secrets, and that [Ristow] was clearly not a key employee of plaintiff, not like one of the accountants."

For support of its contention that Kansas law recognizes that specialized training is a legitimate business interest, AGH turned solely to Weber, where our Supreme Court stated:

"Other jurisdictions have recognized, in addition to customer contacts, that an employer has a legitimate business interest to protect in the special training of employees, trade secrets, confidential business information, loss of clients, good will, reputation, seeing that contracts with clients continue, and referral sources. [Citations omitted.]" (Emphasis added.) 259 Kan. at 467.

AGH does not offer any Kansas law recognizing a legitimate business purpose in the special training of employees; however, it maintains an analogous factual situation was present in Borg-Warner Protective Services v. Guardsmark, Inc., 946 F. Supp. 495 (E.D. Ky. 1996), aff'd 156 F.3d 1228 (6th Cir. 1998).

We are not persuaded that Borg-Warner advances AGH's cause. Borg-Warner and Guardsmark were competitors in the private security guard industry; each company was slotted within the five largest private security guard firms in the country. Guardsmark recruited and placed security guards at a client's facility. Guardsmark employees were required to enter into a covenant not to compete by either performing or hiring others to perform security services at the "site, place or location" where the employee performed security services within the preceding 12 months.

Subsequently, Borg-Warner obtained the contract for the facility where Guardsmark had security guards in place and sought to hire the Guardsmark security...