Easy Returns Midwest, Inc. v. Schultz

• Decision Date: 27 January 1998
• Docket Number: No. 71747,71747
• Citation: 964 S.W.2d 450
• Parties: 13 IER Cases 1240 EASY RETURNS MIDWEST, INC., Plaintiff/Respondent, v. Michael SCHULTZ and Pharmaceutical Return Services, Defendants/Appellants.
• Court: Missouri Court of Appeals

Page 450

964 S.W.2d 450

13 IER Cases 1240

EASY RETURNS MIDWEST, INC., Plaintiff/Respondent, v. Michael SCHULTZ and Pharmaceutical Return Services Defendants/Appellants.

No. 71747.

Missouri Court of Appeals,

Eastern District,

Division Two.

Jan. 27, 1998.

Motion for Transfer to Supreme

Court Denied March 11, 1998.

Grant C. Gorman, Chesterfield, for defendants/appellants.

Michael A. Becker, Philip C. Graham, St. Louis, for plaintiff/respondent.

CRANE, Presiding Judge.

Defendants appeal from the trial court's entry of summary judgment enjoining them for a ten-month period from competing with plaintiff in the pharmaceutical distribution and return business in twenty-four states and the District of Columbia and ordering them to pay $16,400.00 in damages and the costs of the action, including $2,000.00 in attorney's fees. Defendants contend that the noncompetition clause in the employment agreement is not reasonable and, therefore, unenforceable and that summary judgment was inappropriate because material fact issues remain in dispute. We reverse and remand on the grounds that the facts set out or incorporated in the motion for summary judgment were insufficient to show that plaintiff had a protectable interest in customer contacts in the geographic area claimed.

We recite the facts as set out in plaintiff's motion for summary judgment. Plaintiff, Easy Returns Midwest, Inc., is engaged in the pharmaceutical distribution and return business and has its principal place of business in St. Louis County, Missouri. Defendant Michael Schultz began employment with plaintiff on October 9, 1988 as a representative. His duties included contact with customers, development of new business for plaintiff, and learning certain confidential information and trade secrets. On the same day he began employment, Schultz entered into a covenant not to compete which provided:

For a period of thirty (30) months following the termination for any reason whatsoever of Representative's engagement with ER, whether such termination is voluntary or involuntary, with cause or without cause, with or without notice, as the case may be, Representative shall not in any manner whatsoever, directly and/or indirectly, either as an employee, owner, partner, join[t] venturer, agent, stockholder, director, officer, consultant, independent contractor or in any other capacity whatsoever, engage in the pharmaceutical return goods business within the states of: Missouri, Illinois, Iowa, Wisconsin, Indiana, Michigan, Kansas, Arkansas, Ohio, Massachusetts, Kentucky, Tennessee, New York, New Jersey, Pennsylvania, Connecticut, Florida, California, Georgia, Texas, Arizona, Colorado, Minnesota, North Carolina, Iowa, District of Columbia, and any other states which the parties may further agree to, Nevada[.]

On April 1, 1994 Schultz voluntarily left his position with plaintiff and formed defendant Pharmaceutical Return Services (PRS), a California corporation engaged in the pharmaceutical return business. Schultz took plaintiff's customer lists and other confidential and proprietary materials. PRS, through Schultz, has competed with plaintiff by soliciting clients serviced by Easy Returns in California and other areas of the western United States. Plaintiff has lost business in California and other states.

Plaintiff filed a five-count action against defendants alleging causes of action based on quantum meruit, conversion, breach of contract, and tortious interference with contract, in which it sought damages and injunctive relief. Defendants did not file an answer to plaintiff's original or amended petition. On May 23, 1995 the court issued a temporary restraining order against defendants enjoining them from further participating in the pharmaceutical distribution and return business in the states enumerated in the covenant. The court ordered a preliminary injunction on June 8, 1995, after a hearing in which Schultz testified. Plaintiff served a request for admissions on defendants in August, 1995 to which defendants did not timely respond.

Plaintiff then filed a motion for summary judgment in November, 1995. The motion was supported by the affidavit of plaintiff's president, David Mogil, a copy of the covenant, and plaintiff's request for admissions. Defendants filed an untimely response to plaintiff's motion for summary judgment, which did not conform to Rule 74.04(c)(2).

The trial court entered summary judgment in favor of plaintiff. The court subsequently entered a modified damage award because the judgment had erroneously awarded liquidated damages which were not in the contract. Defendants filed a timely notice of appeal from this judgment which became final after the modified judgment was entered.

Both of defendants' points on appeal challenge the trial court's entry of summary judgment. When we consider an appeal from summary judgment, we review the record in a light most favorable to the party against whom the judgment was entered. ITT Com. Fin. Corp. v. Mid-Am. Marine Supply Corp., 854 S.W.2d 371, 376 (Mo. banc 1993). The criteria on appeal for testing the propriety of summary judgment are no different from those which should be employed by the trial court in sustaining the motion originally. Id. Review is essentially de novo. Id. A response which fails to comply with the rules leaves the summary judgment motion unchallenged. However, even if uncontradicted, the facts alleged by the movant must still establish an entitlement to judgment as a matter of law in order for the court to grant the summary judgment motion. E.O. Dorsch Electric Co. v. Plaza Construction Co., 413 S.W.2d 167, 170 (Mo.1967); Hornbeck v. All American Indoor Sports, Inc., 898 S.W.2d 717, 720 (Mo.App.1995).

In their two points on appeal, defendants assert that the trial court erred in entering summary judgment because the covenant not to compete was unreasonable and unenforceable and material facts remain in dispute, thereby precluding plaintiff's recovery as a matter of law. ¹ Specifically, defendants argue that the geographic area covered by the clause is too broad and that there were no facts to support plaintiff's claim that Schultz had frequent client contact or was in possession of trade secrets.

Generally, because covenants not to compete are considered to be restraints on trade, they are presumptively void and are enforceable only to the extent that they are demonstratively reasonable. Orchard Container Corp. v. Orchard, 601 S.W.2d 299, 303 (Mo.App.1980). An employer may only seek to protect certain narrowly defined and well-recognized interests, namely its trade secrets and its stock in customers. Id. The enforcing party must also show that the agreement is reasonable in scope, both as to place and as to time. Osage Glass, Inc. v. Donovan, 693 S.W.2d 71, 74 (Mo.1985); Continental Research Corp. v. Scholz, 595 S.W.2d 396, 400 (Mo.App.1980). The burden of demonstrating the covenant's validity is on the party seeking to enforce it. Continental Research, 595 S.W.2d at 400.

Plaintiff argues that it established a protectable interest in its customer contacts. Customer contacts derive from the influence an employee acquires over the employer's customers through personal contact. Id. The rationale for protecting "customer contacts" is that, in the sales industry, a customer's goodwill toward a company is often attached to the employer's individual sales representative, and the employer's product or service becomes associated...