Bendinger v Marshalltown Trowell Co.

• Decision Date: 15 July 1999
• Docket Number: 98-611
• Citation: 994 S.W.2d 468
• Parties: Fred S. BENDINGER v. MARSHALLTOWN TROWELL COMPANY 98-611 ___ S.W.2d ___ Opinion delivered
• Court: Arkansas Supreme Court

Fred S. BENDINGER v MARSHALLTOWN TROWELL COMPANY

98-611 ___ S.W.2d ___

Opinion delivered July 15, 1999

Supreme Court of Arkansas

Appeal from Washington Chancery Court; John Lineberger, Chancellor; reversed and remanded on direct appeal; affirmed on cross appeal.

1. Trade regulation -- postemployment covenants -- not in restraint of trade if reasonable. -- Reasonable postemployment restrictive covenants are not in restraint of trade.

2. Trade regulation -- covenants not to compete -- when unreasonable. -- A party challenging the validity of a covenant must show that it is unreasonable and contrary to public policy; without statutory authorization or some dominant policy justification, a contract in restraint of trade is unreasonable if it is based on a promise to refrain from competition that is not ancillary to a contract of employment or to a contract for the transfer of goodwill or other property; however, the law will not protect parties against ordinary competition.

3. Master & servant -- covenants not to compete -- subject to stricter scrutiny. -- Covenants not to compete in employment contracts are subject to stricter scrutiny than those connected with a sale of a business.

4. Appeal & error -- review of cases involving covenants not to compete -- review of chancery cases. -- The supreme court reviews cases involving covenants not to compete on a case-by-case basis; the court reviews chancery cases de novo and does not reverse a finding of fact by the chancery court unless it is clearly erroneous; a finding is clearly erroneous when, although there is evidence to support it, the reviewing court on the entire evidence is left with a definite and firm conviction that a mistake has been committed.

5. Contracts -- must be valid as written -- court will not enforce only reasonable parts of contract. -- A contract must be valid as written, and the court will not apportion or enforce a contract to the extent that it might be considered reasonable; the court will not vary the terms of a written agreement between the parties; to do so would mean that the court would be making a new contract and this will not be done.

6. Master & servant -- employment agreement overbroad -- failure of restrictive covenant to contain geographic limitation was unreasonable. -- The term "competitor," by itself, did not provide a reasonable restriction in the restrictive covenant; where appellant was precluded from any work within the trowel industry under appellee's definition of "competitor", the supreme court found that the chancellor clearly erred in finding that the failure of the parties' restrictive covenant to contain a geographic limitation was reasonable; the chancellor's order was reversed because the employment agreement was overbroad.

7. Trade regulation -- inevitable-disclosure rule -- adopted by supreme court. -- The supreme court has adopted the inevitable-disclosure rule, which states that a plaintiff may prove a claim of trade-secrets misappropriation by demonstrating that a defendant's new employment will inevitably lead him to rely on the plaintiff's trade secrets.

8. Trade regulation -- finding of inevitable disclosure -- how determined. -- A finding of inevitable disclosure is determined largely by the evidence and testimony before the chancellor; the mere fact a person assumes a similar position at a competitor does not, without more, make it inevitable that he will use or disclose trade secrets.

9. Master & servant -- right of individual to pursue occupation for which he is best trained is fundamental -- restraints cannot be lightly placed upon employee's right to compete. -- The right of an individual to follow and pursue the particular occupation for which he is best trained is a most fundamental right; our society is extremely mobile, and our free economy is based upon competition; one who has worked in a particular field cannot be compelled to erase from his mind all of the general skills, knowledge, and expertise acquired through his experience; restraints cannot be lightly placed upon an employee's right to compete in the area of his greatest worth.

10. Trade regulation -- no evidence of any actual, threatened, or inevitable misappropriation under Ark. Code Ann. § 4-75-604 --chancellor's holding not clearly erroneous. -- The chancellor was not clearly erroneous when he determined that there was no evidence of any actual, threatened, or inevitable misappropriation under § 4-75-604(Repl. 1996); in the chancellor's judgment, appellant's vast general knowledge of the trowel industry, as opposed to his engineering expertise, was of far greater value to his new employer than any knowledge of the four trade secrets he purportedly had; because appellant was only using his general knowledge gained through his education and his twenty-seven years of experience in the trowel industry, he posed no threat to appellee's trade secrets; the chancellor's refusal to issue appellee an injunction permanently enjoining appellant from working for any competitor was affirmed.

11. Attorney & client -- appellee no longer prevailing party --award of attorney's fees reversed. -- Because the supreme court concluded that the chancellor erred in enforcing the restrictive covenant, appellee was no longer the prevailing party and entitled to attorney's fees under Ark. Code Ann. § 16-22-308 (Repl. 1996); hence, the attorney's fee award to appellee was reversed.

12. Appeal & error -- bond money & salary recoverable only if appellee prevailed on merits -- argument moot. -- Where the temporary restraining order relied on by appellee provided that the company could recover its bond money and salary paid to appellant if it prevailed on the merits, and the supreme court held that the restrictive covenant was unreasonable, and affirmed the chancellor's determination that no violation of the Arkansas Trade Secrets Act occurred, appellee did not prevail on the merits of its claim, and its argument was therefore moot.

13. Trade regulation -- Ark. Code Ann. § 4-75-505 -- decision to hold in camera proceeding discretionary with trial judge. -- The decision to hold an in camera proceeding under Ark. Code Ann. § 4-75-505 (Repl. 1996) is discretionary with the chancellor.

14. Trade regulation -- failure to hold preliminary injunction proceeding in camera -- not abuse of discretion. -- Where the substantial steps taken by the chancellor adequately protected appellee's trade secrets and fully complied with § 4-75-605, the failure to hold the preliminary injunction proceeding in camera was not an abuse of discretion.

Pettus Law Firm, P.A., by: Donna C. Pettus, for appellant.

Davis, Cox & Wright, by: Constance G. Clark and William Jackson Butt, II, for appellee.

Tom Glaze, Justice.

This case involves an action alleging a violation of the Arkansas Trade Secrets Act, Ark. Code Ann. §§ 4-75-601 et seq. (Repl. 1996), and, alternatively, a violation of a covenant not to compete, both claims arising from Fred S. Bendinger's employment contract with Marshalltown Trowel Company ("Marshalltown"). The chancellor enforced the restrictive covenant, thereby prohibiting Bendinger from working for Marshalltown's competitor, Kraft Tool Company, for two years. Nonetheless, the chancellor refused to permanently enjoin Bendinger under the Act from employment with Kraft or any other competitor. Both parties appealed the chancellor's order to the Arkansas Court of Appeals, which certified the case to us because it presents an issue of first impression that is of significant interest in an area in need of clarification. We accepted jurisdiction to decide the merits of the appeal. Ark. Sup. Ct. R. 1-2(b)(1), (4)-(6) and (d) (1999).

We first offer a recitation of the facts needed for determination of the questions presented to the court. Marshalltown is an Iowa corporation with its principal place of business in Fayetteville, Arkansas. Its primary trade is the production and sale of trowels and related merchandise. Bendinger is an industrial engineer who was hired to work for Marshalltown beginning July 15, 1970, when he graduated from college in Iowa. When he began his employment, no written employment document was executed, but on March 22, 1978, at Marshalltown's request, he signed the following agreement:

Without [Marshalltown's] prior written consent, [Bendinger] shall not use or disclose at any time, either during or subsequent to his employment hereunder, any secret or confidential information, whether patentable or not, which is disclosed or known to [Bendinger], as a consequence of his said employment except as may be required in the performance of [Bendinger's] duties to [Marshalltown].

[Bendinger], shall not, for a period of two years following the termination of [his] employment with [Marshalltown], directly or indirectly render service to a business competitor of [Marshalltown].

On October 22, 1984, after Marshalltown expanded its business facilities and opened a new plant in Fayetteville whose construction Bendinger was transferred to oversee, Bendinger was asked to execute a second employment agreement. That agreement contains provisions identical to the 1978 agreement set out above,and provided that it is to be construed in accordance with Arkansas law.

In 1993, Marshalltown advised Bendinger by memoranda that he was being replaced as factory manager and being demoted to the position of facilities manager. His demotion was purportedly due to his lack of motivation and imagination, as well as his inability to deal effectively with those employees he supervised. Also at this time, Marshalltown was consistently failing to meet its delivery objectives. Displeased with Marshalltown's actions, Bendinger began looking for other employment opportunities. He responded to a blind newpaper advertisement in the Northwest Arkansas Times. The ad, placed by Kraft Tool Company of Kansas, sought an individual highly qualified in the...