Dyson Conveyor Maintenance, Inc. v. Young & Vann Supply Co., s. 87-30

• Decision Date: 10 June 1988
• Docket Number: Nos. 87-30,87-31,s. 87-30
• Parties: 1988-2 Trade Cases P 68,165 DYSON CONVEYOR MAINTENANCE, INC. v. YOUNG & VANN SUPPLY COMPANY James C. MARTIN v. YOUNG & VANN SUPPLY COMPANY.
• Court: Alabama Supreme Court

Page 212

529 So.2d 212

1988-2 Trade Cases P 68,165

DYSON CONVEYOR MAINTENANCE, INC. v. YOUNG & VANN SUPPLY COMPANY

James C. MARTIN v. YOUNG & VANN SUPPLY COMPANY.

Nos. 87-30, 87-31.

Supreme Court of Alabama.

June 10, 1988.

Lee H. Zell and Susan Salonimer Wagner of Berkowitz, Lefkovits, Isom, & Kushner, Birmingham, for Dyson Conveyor Maint., Inc.

Michael L. Edwards and Martha F. Petrey of Balch & Bingham, Birmingham, for James C. Martin.

Macbeth Wagnon, Jr., and Adam K. Peck, Bradley, Arant, Rose & White, Birmingham, for Young & Vann Supply Co.

ALMON, Justice.

These appeals challenge a judgment enjoining the defendant, Dyson Conveyor Maintenance, Inc. ("Dyson Conveyor"), from "continuing to breach the confidentiality agreement" between it and Young & Vann Supply Company ("Young & Vann"). At a preliminary stage of negotiations by which the two companies explored the possibility of one company's buying the other's assets, representatives of the two companies signed an agreement not to disclose confidential information and not to hire each other's employees for a specified period. The effect of the judgment is to prevent Dyson Conveyor from employing James C. Martin for the time specified in the agreement.

After Young & Vann filed this action against Dyson Conveyor, Martin filed a petition to intervene. ¹ The trial court denied Martin's petition and proceeded to judgment against Dyson Conveyor. In his appeal, Martin contends that the trial court erred in refusing to allow him to intervene. By separate appeal, Dyson Conveyor contends that the agreement is invalid and unenforceable insofar as it prohibits one company from hiring persons formerly employed by the other.

The basic facts are succinctly set forth in the trial court's opinion:

"[Young & Vann] is an industrial supply company with its headquarters in Birmingham, Alabama. [Young & Vann] has four divisions, one of them being the Power Transmission Division which engages, among other things, in the sales and servicing of conveyor belts to industrial users. The Power Transmission Division has annual sales and revenues of approximately $6,000,000.00 of which approximately $2,500,000.00 comes from the conveyor belt business.

"[Dyson Conveyor] has its headquarters in Birmingham, Alabama, and engages in conveyor belt sales and servicing. [Dyson Conveyor]'s business has historically been the service and repair of the conveyor belts but it is now getting more deeply into conveyor belt sales. In 1986, [Dyson Conveyor]'s gross sales and revenues were approximately $2,600,000.00.

"[Young & Vann] and [Dyson Conveyor] are competitors and have a substantial number of customers in common.

"In January 1987, Coy Dyson ("Dyson"), who is President of [Dyson Conveyor], called William O. Vann ("Wm. Vann"), who is the Chairman of the Board of [Young & Vann], and set up a lunch meeting. James C. Martin ("Martin"), the Division Manager of the Power Transmission Division of [Young & Vann], also attended the lunch meeting. After lunch, Dyson and Wm. Vann met privately and Dyson suggested that [Dyson Conveyor] and [Young & Vann] investigate the possibility of one of them buying the other's conveyor belt sales and service business. A meeting was scheduled to be held in the office of [Young & Vann]'s attorneys on February 12, 1987.

"The meeting on February 12, 1987, was attended by Gene Sellers ("Sellers"), who was attorney for the Defendant, [by] Robert D. Vann ("R. Vann"), who was then the Vice President-Finance (and who is currently the President) of [Young & Vann], and [by] Tom Carruthers ("Carruthers"), who was an attorney for [Young & Vann]. The meeting was held in Carruthers' office and before any information was exchanged Carruthers required that the parties enter into a confidentiality agreement ("[the] Agreement"). The Agreement was discussed by the attorneys, changes were made in Carruthers' initial draft, and it was then executed by Sellers on behalf of [Dyson Conveyor] and R. Vann on behalf of [Young & Vann]."

No sale took place, but Dyson Conveyor hired Martin. We shall set forth the remainder of the pertinent facts later in this opinion.

Most of the agreement relates to maintaining the confidentiality of information, and Dyson Conveyor does not challenge those provisions of the agreement. Dyson Conveyor does take exception to the following portion of the agreement:

"3. For the period beginning this day and ending March 1, 1990, neither of us will offer employment to any person at the time, or who was within six (6) months before, employed by the other. Neither of us will do anything to encourage any employee of the other to leave the employment of the other."

The parties refer to this as the "no switching" provision, and so shall we.

Among other arguments, ² Dyson Conveyor contends that the no switching provision violates Ala.Code 1975, § 8-1-1, which reads:

"(a) Every contract by which anyone is restrained from exercising a lawful profession, trade or business of any kind otherwise than is provided by this section is to that extent void.

"(b) One who sells the good will of a business may agree with the buyer and one who is employed as an agent, servant or employee may agree with his employer to refrain from carrying on or engaging in a similar business and from soliciting old customers of such employer within a specified county, city or part thereof so long as the buyer, or any person deriving title to the good will from him, or employer carries on a like business therein.

"(c) Upon or in anticipation of a dissolution of the partnership, partners may agree that none of them will carry on a similar business within the same county, city or town, or within a specified part thereof, where the partnership business has been transacted."

The trial court held that "the issue in this case does not fall within the proscriptions" of § 8-1-1, stating that the case does not involve "covenants not to compete or non-competition agreements with employees," but raises an issue of "whether or not two competitors may contract to protect their legitimate interests while divulging to each other the confidential information necessary to enable one to evaluate the business of the other for potential acquisition purposes."

We disagree with the trial court's conclusion that the agreement is not governed by § 8-1-1 simply because it is not a non-competition agreement between an employer and an employee. On the contrary, the fact that it does not fit within a listed exception to § 8-1-1 tends to indicate that, if it is in restraint of trade, it should be prohibited by that section.

The agreement, on its face, appears to violate § 8-1-1, because, by it, Young & Vann's and Dyson Conveyor's employees are "restrained from exercising a lawful profession, trade, or business." James Martin introduced an affidavit stating that the only other company in Alabama that conducts a similar business is in Mobile, and he testified that there was no opening at that company for a job similar to his position at Young & Vann. Thus, the agreement, if enforceable, effectively limits the two companies' employees to their present employment if they are to continue in their trade. This result conflicts with the policy embodied in § 8-1-1 of disfavoring contracts restraining employment. See Chavers v. Copy Products Co., 519 So.2d 942 (Ala.1988); Calhoun v. Brendle, Inc., 502 So.2d 689 (Ala.1986); Greenlee v. Tuscaloosa Office Products & Supply, Inc., 474 So.2d 669 (Ala.1985); DeVoe v. Cheatham, 413 So.2d 1141 (Ala.1982); Cullman Broadcasting Co. v. Bosley, 373 So.2d 830 (Ala.1979); Burkett v. Adams, 361 So.2d 1 (Ala.1978); Robinson v. Computer Servicenters, Inc., 346 So.2d 940 (Ala.1977); White Dairy Co. v. Davidson, 283 Ala. 63, 214 So.2d 416 (1968); Hill v. Rice, 259 Ala. 587, 67 So.2d 789 (1953).

We recognize that this Court has often said that contracts in partial restraint of trade may be allowed. Tomlinson v. Humana, Inc., 495 So.2d 630 (Ala.1986); Hoppe v. Preferred Risk Mutual Ins. Co., 470 So.2d 1161 (Ala.1985); Famex, Inc. v. Century Ins. Services, Inc., 425 So.2d 1053 (Ala.1982); Hibbett Sporting Goods, Inc. v. Biernbaum, 391 So.2d 1027 (Ala.1980); Terre Haute Brewing Co. v. McGeever, 198 Ala. 474, 73 So. 889 (1916). This statement has always come in the context where the one who is restrained from engaging in some aspect of a trade or business has entered into a contract, for a consideration, with the party seeking to enforce the contract. We do not see how the principle that allows "partial restraints" can apply to restrain employees from competing with their former employers without the employees' having entered into such an agreement.

This does not mean that there is no field of operation for agreements such as that involved here. They can be enforceable, however, only to the extent that they supplement employer/employee contracts that are valid under Ala.Code 1975, § 8-1-1. Thus, if Martin had validly agreed with Young & Vann not to compete with that company after he left its employ, and Young & Vann and Dyson Conveyor had appropriately entered into an agreement like the one at issue, then, when Dyson Conveyor hired Martin, Young & Vann could have sued not only Martin for breach of his contract, but also Dyson Conveyor for breach of its contract. In such a case, the no switching agreement would not restrain trade, because the employer/employee agreement, which is valid under § 8-1-1, would have already imposed the restraint. That is, once an employee enters with his employer into a partial restraint of his trade that would be allowed under § 8-1-1 and the cases cited above, a no switching agreement would add no further restraint on that employee, and so would not violate § 8-1-1, at least with respect to him.

The parties have cited no authority from Alabama, and we have found none, dealing specifically with this problem. There are some federal cases applying the antitrust...