Eastern Distributing Co., Inc. v. Flynn

• Decision Date: 11 July 1977
• Docket Number: No. 48471,48471
• Citation: 222 Kan. 666,567 P.2d 1371
• Parties: EASTERN DISTRIBUTING CO., INC., Appellee, v. Terry A. FLYNN, Appellant.
• Court: Kansas Supreme Court

Page 1371

567 P.2d 1371

222 Kan. 666

EASTERN DISTRIBUTING CO., INC., Appellee, v. Terry A. FLYNN, Appellant.

No. 48471.

Supreme Court of Kansas.

July 11, 1977.

SYLLABUS BY THE COURT

1. Antidisclosure and anticompetition covenants, ancillary to a contract of employment freely entered into with full knowledge, are valid and enforceable if the restraint contained therein is reasonable under the facts and circumstances of the particular case.

2. Only a legitimate interest may be protected by a covenant not to compete. A restrictive covenant is unreasonable if the real object is merely to avoid ordinary competition.

3. A covenant not to compete contained in a contract of employment is to be strictly construed against the employer.

4. Where the territory designated in a covenant not to compete ancillary to a contract of employment is found to be more extensive than necessary to protect the interest of the employer, courts of equity have the power to reduce such territory to the extent reasonably necessary to insure the contemplated protection and to enforce the contract to that extent.

5. It is the duty of the courts to sustain the legality of contracts in whole or in part when fairly entered into, if reasonably possible to do so, rather than seek loopholes and technical legal grounds for defeating their intended purpose.

6. In an action to enforce antidisclosure and anticompetition covenants, ancillary to a contract of employment, the record is examined and it is held : The trial court did not err (1) in finding the employer had a legitimate interest to protect; and (2) in reducing the area restrictions of the covenants to only that area which was reasonably necessary to protect the employer's interest.

Alexander B. Mitchell and James W. Sargent, Sargent, Klenda & Glickman, Wichita, argued the cause and were on the brief for the appellant.

Merle E. Parks, Kansas City, argued the cause, and J. F. Steineger, Kansas City, was with him on the brief for the appellee.

KAUL, Justice:

This is an action for injunctive relief brought by Eastern Distributing Co., Inc., plaintiff-appellee, (hereafter referred to as Eastern or plaintiff), a wholesale liquor distributor, against one of its former route salesmen, Terry A. Flynn, defendant-appellant, to enforce certain antidisclosure and anticompetition covenants contained in a written contract of employment executed by the parties. Trial was to the court at the conclusion of which defendant was enjoined for one year after April 29, 1976, from disclosing the list of Eastern's customers or any information relative thereto, and from engaging in a route salesman position or any such similar position for any competitor of Eastern in the counties of Atchison, Douglas, Leavenworth and Wyandotte, for the same one-year period.

Previous to his employment under the contract here in question, defendant had worked for Eastern as an office employee. In 1969 defendant left Eastern for a job with Hiram Walker Distilling Company. After two and one-half years with Hiram Walker defendant sought reemployment with Eastern as a route salesman. After negotiations with Gene Baird, president of Eastern, an agreement was reached and the contract in question was submitted to defendant. After consulting with his attorney, defendant signed the contract. Defendant was assigned certain territory and customers who had been serviced by another Eastern salesman who accompanied defendant on the route for a week.

Early in 1976 defendant became dissatisfied with his employment. He sent out numerous resumes and interviewed for jobs in and out of the liquor industry, within and without the Kansas City area. On April 29, 1976, he left Eastern and took a position as a route salesman with Grant-Billingsley; a liquor distributor and competitor of Eastern. Defendant immediately began to service the same customers which he had previously served for Eastern. This litigation was then initiated by Eastern.

The contract recited in detail the duties and benefits of the employee, the various terms of employment, and set out the mutual obligations of the parties. Concerning the employer's interest the contract reads:

"WHEREAS, the employer has a substantial investment in the employee by way of training, maintenance of sales proficiency, sales aids and information; and

"WHEREAS, the employee represents the employer and by virtue of his sales position has been designated as official representative to the retailers and customers in his area for employer and the resultant personal contact with customers has established a valuable asset for the employer through the employee, which valuable personal relationship will be, or has been, established over a long period of time during which the employee has received compensation from the employer; and "WHEREAS, the employer feels that this asset developed over a period of time at the expense of the employer should belong to and be the sole property of the employers. . . ."

The covenants, which are the crux of this litigation, are contained in paragraphs six and seven of the contract and read as follows:

"6. Disclosure of Information. The employee recognizes and acknowledges that the list of the employer's customers, and the personal relationship established with them, as it may exist from time to time, are valuable, special, and unique assets of the employer's business. The employee will not, during or after his employment, solicit or disclose the list of the employer's customers or any part thereof to any person, firm, corporation, association or other entity for any reason or purpose whatsoever. In the eventof (sic) a breach or threatened breach by the employee of the provisions of this paragraph, the employer shall be entitled to an injunction restraining the employee from disclosing, in whole or in part, the list of the employer's customers, or from rendering any services to any person, firm, corporation, association, or other entity to whom such list has been disclosed, whole or in part, directly or indirectly, or is threatened to be so disclosed. Nothing herein contained shall be construed as prohibiting the employer from pursuing any other remedies available to the employer for such breach or threatened breach, including recovery of damages from the employee.

"7. Restrictive Covenant. For a period of one (1) year after any termination of employment under this agreement, (except if employment is terminated by employer under paragraph (a) of Section 2 of this agreement), the employee will not, within a radius of fifty (50) miles from the boundaries of any sales territory designated for the employee and serviced by the employee within one year preceding such termination, directly or indirectly, own, operate, manage, control, be employed by, participate in, or be connected in any manner with the ownership, operation, management, or control of any business in this State, similar to the type of business conducted by the employer at the time of the termination of employment under this agreement, and that he will not either, directly or indirectly, on his own account or in the service of others, engage in the sale, distribution, or promotion of the sale or products of the same or similar type which he has been selling, distributing, and promotion for sale for the employer within a radius of fifty (50) miles from the boundaries of the sales territory designated for the employee and serviced by the employee within one year preceding termination hereunder. It is understood that in the event of any breach or threatened breach of the provision of this paragraph, the employer may assert his rights hereunder by enjoining activities of the employee in breach or threatened breach hereof, or by an action for damages or by both, and that nothing contained herein shall be construed as prohibiting the employer from pursuing any other remedy available to the employer for any such breach or threated (sic) breach of the provisions of this paragraph."

After hearing the evidence, which consisted primarily of the testimony of defendant and Mr. Baird, president of Eastern, the trial court made extensive findings of fact and conclusions of law. The court found the facts to be generally as recited herein. In findings number nine and ten the court specifically found:

"9. The business of plaintiff involves no secret list or information on retail establishments. Prices are controlled and no monetarily valued services can be performed by a wholesaler for a retailer. No advertising is allowed and sales are by cash.

"10. Plaintiff's projected loss if the restrictions are not enforced amounted to $30,000 gross profit. Net loss was not determined."

The trial court's conclusions of law read as follows "1. Jurisdiction and venue are proper.

"2. The contract negotiated between the parties with advice of counsel is mutually enforceable and there is mutuality of obligation. It likewise is to be strictly construed against the employer as set forth in the Lovelace case (H & R Block, Inc. v. Lovelace ), 208 Ks. 538 (493 P.2d 205), being an employment contract. Contracts should also be enforced if freely and voluntarily entered into with full knowledge, with the presumption favoring legality. 'Reasonableness' the criteria.

"3. The Court concludes that a wholesale liquor dealer, having little or nothing to set him apart from any other because of State regulation and public knowledge must build his reputation through personal contacts by his route salesmen. Though retail store ownership is readily available among the industry, the location of the owners, their other employment, hours of availability, and peculiarities, vis-a-vis the store manager and operator, would constitute information obtainable by a competitor but not without difficulty. This knowledge, developed over a period of years, is what plaintiff bargained for and is entitled to protect.

"4. The one-year restriction the Court does not find...