American Rim & Brake, Inc. v. Zoellner, s. 14982 and 15006

• Decision Date: 26 February 1986
• Docket Number: Nos. 14984 and 15008,Nos. 14982 and 15006,Nos. 14983 and 15007,Nos. 14982,s. 14982 and 15006,s. 14983 and 15007,s. 14984 and 15008,s. 14982
• Citation: 382 N.W.2d 421
• Court: South Dakota Supreme Court
• Parties: AMERICAN RIM & BRAKE, INC., Plaintiff and Appellant, v. James R. ZOELLNER, Defendant and Appellee. () AMERICAN RIM & BRAKE, INC., Plaintiff and Appellant, v. Douglas R. NORGAARD, Defendant and Appellee. () AMERICAN RIM & BRAKE, INC., Plaintiff and Appellant, v. James F. BUKREY, Defendant and Appellee. () to 14984, 15006 to 15008.

Page 421

382 N.W.2d 421

AMERICAN RIM & BRAKE, INC., Plaintiff and Appellant, v. James R. ZOELLNER, Defendant and Appellee. (Nos. 14982 and 15006)

AMERICAN RIM & BRAKE, INC., Plaintiff and Appellant, v. Douglas R. NORGAARD, Defendant and Appellee. (Nos. 14983 and 15007)

AMERICAN RIM & BRAKE, INC., Plaintiff and Appellant, v. James F. BUKREY, Defendant and Appellee. (Nos. 14984 and 15008)

Nos. 14982 to 14984, 15006 to 15008.

Supreme Court of South Dakota.

Argued Feb. 12, 1986.

Decided Feb. 26, 1986.

James R. Myers of Simons, Gibbs, Feyder & Myers, Sioux Falls, for plaintiff and appellant.

William C. Garry of Cadwell, Sanford & Deibert, Sioux Falls, for defendants and appellees.

MORGAN, Justice.

Plaintiff American Rim & Brake (American) appeals from a judgment entered by the circuit court on its plea for injunctive relief in which it asked that defendants James R. Zoellner (Zoellner), Douglas R. Norgaard (Norgaard), and James F. Bukrey (Bukrey) be permanently enjoined for a period of one year from accepting or continuing employment with any business that is in competition with American, and that defendants be enjoined from divulging confidential information obtained during the course of their employment with American. We reverse and remand.

Defendants were all employed as sales personnel by American. During their employment with American, defendants as part of their employment signed an agreement which contained the following restrictive covenant:

During the term of this Agreement and for a period of twelve (12) months from the date of the termination of this Agreement, for any cause whatsoever, the Salesman shall not, directly or indirectly, own, manage, operate, join, control, be employed by or otherwise participate or be connected in any manner with, any business that is in competition with the Company within any Territory assigned to the Salesman or within fifty (50) miles of the perimeter of any Territory assigned to the Salesman at any time within twelve (12) months from the termination of this Agreement. The parties acknowledge that the Company has invested substantially in the training of the Salesman and in the development of. (sic) The Salesman agrees that during the term of this Agreement and for a period of one (1) year from the date of the termination of this Agreement, for any cause whatsoever, the Salesman shall not directly or indirectly canvass, solicit or advise any customer or customers on whom he has called in behalf of the Company during the term of this Agreement. This restrictive covenant shall be construed as an agreement independent of any other provision contained herein and shall be enforceable in both law and equity[.]

In addition to its restrictive covenant, the employment agreement contained, in pertinent part, the following nondisclosure clause:

The Salesman agrees not to retain copies of any such information, papers, documents or records for any purpose whatsoever following the termination of his employment and will not, during his employment or thereafter, divulge to anyone confidential information obtained by him during the course of his employment without the prior written consent of the president of the Company. The Salesman agrees that the use of or divulging of any such information, papers, documents or records or knowledge of Company policies or procedures for any purpose whatsoever would constitute an unfair trade practice and misuse of confidential information due to the disclosures and confidences involved in employment of the nature provided for herein ... The foregoing acknowledgments and agreement relating to confidential information received by the Salesman shall be construed as an agreement independent of any other provisions contained herein and shall be enforceable in both law and equity[.]

In March and April of 1985, defendants voluntarily terminated their employment with American and all entered employment with Power Brake & Wheel Inc. (P.B. & W.), a direct competitor of American. American then filed this action for injunctive relief. After a hearing, the trial court found, inter alia, (1) that none of the customers called upon by defendants while employed by American were exclusive customers of American. Some of these customers were also customers of American's competitors. (2) Since terminating their employment with American, defendants have not divulged to anyone confidential information obtained by them during the course of their employment with American. (3) American requires only its outside parts salesmen to sign employment agreements containing a covenant not to compete. American's managers have considerably more knowledge about documents and information considered confidential but are not required to sign such covenants.

Based upon these findings, the trial court concluded, inter alia, (1) that American demonstrated that the customer relationship developed by defendants is a legitimate business interest. (2) American failed to meet its burden of proving that enforcement of the restrictive covenant so as to bar defendants completely from employment with P.B. & W. is reasonably necessary to protect its business interests. (3) American's business interests would be adequately protected if defendants do not solicit or otherwise contact any customer that they contacted during their course of employment with American. (4) The covenant not to compete is unreasonable and unenforceable as a contract in restraint of trade to the extent that it would completely bar defendants from employment. (5) Defendants remain under a duty not to disclose to others or use for their own benefit confidential information obtained during the course of employment with American.

During oral argument before this court, counsel for all defendants and American admitted that defendant Zoellner was no longer employed by P.B. & W. Counsel conceded that Zoellner's present employer is not in competition with American. Thus, the noncompetition clause in the employment agreement is inapplicable. American seeks injunctive relief to prohibit Zoellner from continuing employment with a business competitor. Because of the change in circumstances, this relief cannot be granted. "If.... circumstances have changed so that the appellate court...