Continental Research Corp. v. Scholz

• Decision Date: 13 February 1980
• Docket Number: No. 41484,41484
• Citation: 595 S.W.2d 396
• Parties: CONTINENTAL RESEARCH CORPORATION, Plaintiff-Appellant, v. Allen G. SCHOLZ et al., Defendants-Respondents.
• Court: Missouri Court of Appeals

Page 396

595 S.W.2d 396

CONTINENTAL RESEARCH CORPORATION, Plaintiff-Appellant, v. Allen G. SCHOLZ et al., Defendants-Respondents.

No. 41484.

Missouri Court of Appeals, Eastern District, Division Two.

Feb. 13, 1980.

Susman, Stern, Heifetz, Lurie, Sheehan, Popkin & Chervitz, Richard J. Sheehan, Pat L. Simons, Clayton, for plaintiff-appellant.

Paskal, Sweney & Kelley, Robert M. Paskal, St. Louis, Byron Cohen, Clayton, for defendants-respondents.

GUNN, Presiding Judge.

Plaintiff-appellant-employer Continental Research Corporation has appealed from its unsuccessful injunction and damages action to enforce a non-compete covenant against defendant-respondent-employee Allen G. Scholz. The trial court limited the application of the non-compete restrictive covenant of the employment contract to the territory which had been assigned to the employee. The time frame for application of the restrictive covenant was restricted to an 18-month period subsequent to the termination of employment, which, in this case, had passed prior to the trial court's decision. Asserting that the trial court's decision was at best only a pyrrhic victory for it, the employer has appealed alleging that the decision was not supported by substantial evidence and that it totally eviscerated the purport of the covenant by failing to give effect to its terms. We affirm.

In December, 1971, the employee executed an employment contract to work as a salesman for the employer, who was in the business of selling and distributing chemical supplies generally associated with industrial maintenance. Pursuant to the contract, the employee was assigned certain counties in central and southwestern Missouri as his sales territory. The agreement provided that for a period of eighteen months following any termination of his employment, the employee would not compete with the employer in the following geographical areas: (a) within his assigned territory, (b) within seventy (70) miles of the corporate headquarters in Clayton, Missouri, and (c) within a seventy (70) mile radius of his assigned territory. The contract also contained the following provision, purporting to automatically extend the duration of the covenants under certain contingencies:

In the event of violation by Representative of any one or more of the covenants contained in this paragraph, it is agreed that the term of each such covenant so violated shall be automatically extended for a period of eighteen (18) months from the date on which Representative permanently ceases such violation or for a period of eighteen (18) months from the date of the entry by a court of competent jurisdiction of a final order or judgment enforcing such covenant(s), whichever period is later.

After approximately five years of what apparently was a mutually beneficial arrangement, the employee became dissatisfied due to certain developments in his relationship with the employer and determined to venture into business for himself. On March 24, 1977 he submitted, and the employer accepted, his resignation. He immediately began soliciting the sale of competitive products for himself both within and without his former assigned territory, doing business and incorporating as Dynamic Research Corporation.

Early in April, 1977, the employer filed suit seeking recovery of certain sums alleged to have been advanced to the employee. Counterclaim was filed for commissions claimed due and unpaid. On the last day of June, 1977, more than three months after the employee embarked on his course of competition, the employer amended its petition to include counts seeking to enjoin the employee from competing as specified in the employment contract and to recover damages allegedly occasioned by the employee's breach of its terms. The original count and counterclaim were severed for separate trial. Although the amended petition also requested preliminary injunctive relief, there is no indication that this request was ever called for hearing or that such relief was otherwise ever pursued or granted.

After hearing on the issues before it, the trial court refused to enforce the restrictive covenants other than within the employee's assigned territory or for more than the initial 18 month period following termination of employment. As the 18 month period had passed, enforcement of the non-compete time limitation has provided the employer no benefit or protection.

The substance of the relevant evidence is as follows. The employer does business and assigns salesmen to every area covered by the proscriptions in the employee's contract. When the employee left his employment, it appeared that he utilized many of the employer's sales materials and techniques to further his own interests. These materials included "technical data sheet" listing specifications and applications of the products sold by the parties; business forms such as invoices adapted by the employer to suit its needs; "daily analysis sheets" helpful in evaluating and improving sales performance; promotional novelty materials; and lists of general categories of possible customers together with the respective product requirements of each category. The employee also had been given a customer list containing the names of between 100 and 300 customers located within his assigned territory, of which only 50 names were active customers at the time it was given to him. The employee testified that he developed the territory until it contained approximately 500 customers of the employer's products.

After he had become a productive salesman, on occasion the employee accompanied other less experienced salesmen on sales trips outside his assigned territory for training purposes. The record reflects that after terminating his association, the employee had conducted business with two of the employer's customers within his former assigned territory and with one customer outside the area covered by the contract. The evidence was inconsequential that he had successfully consummated any post-employment sales with the employer's customers located within the 70 mile radius areas. It was the employee's testimony that 95-100% of his business activity was outside his former assigned territory. The trial court found that the only customers of the employer solicited by the employee following his termination were located within his assigned territory during employment with the exception of the one customer located entirely outside any of the areas covered in the contract. It further found that none of the materials employee appropriated from employer constituted trade secrets and that whatever exposure the employee had had to customers of the employer located outside his assigned territory did not constitute "customer contacts". The court concluded that the employer had no protectable interest vis-a-vis the employee in any area outside the assigned territory or for any period of time beyond 18 months from his employment termination. Accordingly, it ordered injunctive enforcement of the non-compete covenant only as to the assigned territory and for 18 months from termination, although that period had already expired at the time the decree was entered.

Initially, the employer complains that the trial court impermissibly rewrote the employment agreement by limiting the effect of the competition strictures to 18 months from the employment termination date rather than 18 months from the date of judgment or the date the competition violation ceased. As a result of the trial court's order so argues the employer the specific intendment of the parties, as expressed in the non-competition provisions, was vitiated.

The employer misconceives the implication of the trial court's action in this regard. The issue is not whether the trial court had the power or authority to "rewrite" the agreement of the parties but whether the court had the power to fully enforce the agreement as written.

The ordinary rules of contractual construction and enforcement are not necessarily applicable to non-compete agreements. And the evolution of the law relating to such contracts has been substantial since the indignant exclamation of the hackle-raised court in Dyer's Case, Y.B.Mich. 2 Hen. 5, f.5, pl. 26 (C.P. 1414), the earliest reported case involving such restrictive agreements: ¹ "Per Dieu si le plaintiff fuit icy il irra al prison, tanque il ust fait fyne au Roye." ² Today, the courts are somewhat more moderate in their approach to such provisions and will enforce certain restrictive covenants under appropriate circumstances. See, e. g., National Starch and Chemical Corp. v. Newman, 577 S.W.2d 99 (Mo.App.1978); USAchem, Inc. v. Lewis, 557 S.W.2d 15 (Mo.App.1977); Long v. Huffman, 557 S.W.2d 911 (Mo.App.1977); Deck and Decker Per. Consultants, Ltd. v. Pigg, 555 S.W.2d 705 (Mo.App.1977); Chemical Fireproofing Corp. v. Bronska, 542 S.W.2d 74 (Mo.App.1976); Reed, Roberts Associates, Inc. v. Bailenson, 537 S.W.2d 238 (Mo.App.1976); House of Tools and Engineering, Inc. v. Price, 504 S.W.2d 157 (Mo.App.1973). See also : Schnucks Twenty-Five, Inc. v. Bettendorf, 595 S.W.2d 279, (Mo.App.E.D. 1979). But the fundamental rule regarding restrictive covenants remains as stated in Prentice v. Williams 324 S.W.2d 466, 470 (Mo.App.1959), that "(a) restrictive covenant limiting an individual in the exercise or pursuit of his occupation is in restraint of trade (cites omitted), and the burden of establishing its validity, by showing that it is reasonable, rests upon the party claiming its benefit." Accord : Prentice v. Rowe, 324 S.W.2d 457 (Mo.App.1959). It is therefore beyond cavil that to the extent a non-compete agreement is not demonstrably reasonable, a court may not decree enforcement of its terms. Refusing to give effect to unreasonable terms does not constitute an impermissible "re-writing" of such an agreement. The purpose of the restrictive covenant is to protect an employer from unfair competition by a former employee...