General Medical Corp. v. Kobs, 92-2857

• Decision Date: 23 September 1993
• Docket Number: No. 92-2857,92-2857
• Citation: 507 N.W.2d 381,179 Wis.2d 422
• Parties: , 8 IER Cases 1409 GENERAL MEDICAL CORPORATION, Plaintiff-Appellant, v. James KOBS, Defendant, Badger Medical Supply Company, a Wisconsin corporation, Defendant-Respondent.
• Court: Wisconsin Court of Appeals

Page 381

507 N.W.2d 381

179 Wis.2d 422, 8 IER Cases 1409

GENERAL MEDICAL CORPORATION, Plaintiff-Appellant, v. James KOBS, Defendant Badger Medical Supply Company, a Wisconsin corporation Defendant-Respondent.

No. 92-2857.

Court of Appeals of Wisconsin.

Submitted on Briefs July 9, 1993.

Opinion Released Sept. 23, 1993.

Opinion Filed Sept. 23, 1993.

Before EICH, C.J., GARTZKE, P.J., and SUNDBY, J.

OPINION

EICH, Chief Judge.

General Medical Corporation sued Badger Medical Supply Company for tortious interference with a contract. General claimed that when Badger, one of its competitors in the medical supply business, hired a former General employee, James Kobs, it wrongly interfered with a restrictive covenant in Kobs's employment contract prohibiting him from competing with General for a period of time after leaving his job. ¹

The trial court granted Badger's motion for summary judgment dismissing the action, ruling that the covenant was invalid per se under sec. 103.465, Stats. ² General appeals claiming that summary judgment was inappropriate and that the covenant was reasonable and enforceable under Wisconsin law.

We conclude that, under Rollins Burdick Hunter of Wisconsin, Inc. v. Hamilton, 101 Wis.2d 460, 304 N.W.2d 752 (1981), absent a trial of material disputed facts in the case, we are unable to determine whether the covenant was reasonable. We therefore reverse and remand to the trial court for further proceedings.

Kobs was employed by General to sell medical supplies in the La Crosse area. His employment contract contained the clause we have briefly described above. It provided, in its entirety, as follows:

I [Kobs] will not, for a period of 18 months after the end or termination of my employment, irrespective of the time, manner or cause of such termination, directly or indirectly, either as principal, agent, employee, employer, stockholder, partner or in any other individual or representative capacity whatsoever, solicit, sell or render services to, or engage, assist, be interested in or connected with any other person, firm, or corporation soliciting or servicing, any of the customers solicited, sold to or serviced by me at any time during the 18 months immediately preceding termination of my employment with [General], with respect to any product or service similar to or competitive with any product or service sold or offered for sale by [General].

Unhappy with his employment situation at General, Kobs contacted Badger about a sales position with that company. When discussions began with Badger, Kobs sought the opinion of an attorney regarding the validity of the covenant in his contract with General. The attorney informed him that there was a "favorable likelihood that a court would ... refuse to enforce [the] covenant." He cautioned Kobs, however, that his opinion was "subject to further research." Kobs did not contact the attorney again.

Kobs informed Badger of the covenant and told them he had been advised by an attorney that it was unenforceable. Aware that General had not enforced similar covenants in the past, Badger hired Kobs. When Kobs resigned from General, indicating that he had accepted a position with Badger, he was reminded, in writing, of the noncompetition provisions in his contract. However, when he began working for Badger, Kobs continued to call on approximately thirty of his former customers. While Badger claims to have established accounts with some of these customers prior to employing Kobs, General asserts that several of its customers followed Kobs to Badger.

General sued Kobs for violating the employment agreement and Badger for inducing him to do so. Kobs was eventually dismissed from the action pursuant to his agreement not to solicit his former accounts for a specified time, and General pursued its case against Badger.

Badger moved for summary judgment on grounds that the provisions of the covenant were overly broad and thus unenforceable. The trial court granted Badger's motion, concluding that the covenant was invalid per se because it was not limited to a specific geographical territory.

I. Choice of Law

Before reaching the merits of the contract issue, we must ascertain the applicable law. General is a Virginia corporation and Kobs's employment contract provides that Virginia law should control its interpretation. The trial court concluded that Wisconsin law applies ³ and General disagrees. The issue is one of law, which we decide independently. Ondrasek v. Tenneson, 158 Wis.2d 690, 694, 462 N.W.2d 915, 917 (Ct.App.1990).

Wisconsin law permits parties to a contract to agree that the law of a particular jurisdiction will control their contractual relationship. Bush v. National School Studios, Inc., 139 Wis.2d 635, 642, 407 N.W.2d 883, 886 (1987); see also RESTATEMENT (SECOND) OF CONFLICT OF LAWS § 187 (1988). However, the supreme court has held that parties cannot, by contract, override fundamental policies of the state whose law would be applicable absent the choice of law provision. Bush, 139 Wis.2d at 642, 407 N.W.2d at 886. Thus, if an important public policy in Wisconsin will be negated or contravened by applying Virginia law to determine the validity of the parties' agreement, we will apply Wisconsin law despite their agreement to the contrary.

In Wisconsin, a covenant not to compete is valid if it meets five requirements. Pollack v. Calimag, 157 Wis.2d 222, 236, 458 N.W.2d 591, 598 (Ct.App.1990). It must: (1) be necessary for the protection of the employer or principal; (2) provide a reasonable time restriction; (3) provide a reasonable territorial limit; (4) not be harsh or oppressive to the employee; and (5) not be contrary to public policy. Id. at 237, 458 N.W.2d at 598.

Virginia law also applies "reasonableness" criteria in judging the validity of restrictive covenants:

(1) Is the restraint, from the standpoint of the employer, reasonable in the sense that it is no greater than is necessary to protect the employer in some legitimate business interest? (2) From the standpoint of the employee, is the restraint reasonable in the sense that it is not unduly harsh and oppressive in curtailing his [or her] legitimate efforts to earn a livelihood? (3) Is the restraint reasonable from the standpoint of a sound public policy? Paramount Termite Control Co. v. Rector, 238 Va. 171, 380 S.E.2d 922, 924 (1989).

Given that similarity, General contends that this case fits the general rule that choice of law provisions in a contract will be enforced where the two jurisdictions differ only in degree concerning the enforceability of covenants not to compete, and that the parties' choice of law will be disregarded only where application of that law would seriously conflict with a fundamental policy of the law of the state which would otherwise apply. Barnes Group, Inc. v. C & C Prods., Inc., 716 F.2d 1023, 1031 (4th Cir.1983). ⁴ According to General, because both Virginia and Wisconsin employ similar "reasonableness" standards in determining the validity of covenants not to compete, there is no violation of Wisconsin policy and the parties' choice of law provision should be enforced.

There is, however, a critical difference between sec. 103.465, Stats., and the law of Virginia. General suggests in its brief that Virginia law will enforce otherwise invalid agreements to the extent of such terms as may be said to be reasonable. ⁵ Wisconsin law, however, as plainly stated in sec. 103.465, is that "[a]ny ... restrictive covenant imposing an unreasonable restraint is illegal, void and unenforceable even as to so much of the covenant ... as would be a reasonable restraint." (Emphasis added.)

Section 103.465, Stats., was enacted as a direct response to Fullerton Lumber Co. v. Torborg, 270 Wis. 133, 70 N.W.2d 585 (1955), where the effect of the supreme court's decision was to redraft an invalid provision of an employment agreement to make it enforceable. ⁶ In superseding Fullerton Lumber, sec. 103.465 established the policy in Wisconsin--unlike that in Virginia--that courts would no longer be permitted to give effect to an overall unreasonable covenant to the extent some portions thereof might be considered reasonable. Streiff v. American Family Mut. Ins. Co., 118 Wis.2d 602, 608, 348 N.W.2d 505, 509 (1984).

General also contends that where, as here, the contract provides that each of its provisions is severable from the rest, both Wisconsin and Virginia law will allow courts to selectively enforce such of its terms as may be considered reasonable. As we have indicated, we believe the language of sec. 103.465, Stats., negates any such assertion. ⁷

It follows that applying Virginia law to the parties' contract would contravene a fundamental policy of the law of Wisconsin; as a result, we cannot enforce their choice of law provision.

II. Summary Judgment

Summary judgment is appropriate when there is no genuine issue of material fact and only questions of law remain for decision. Bantz v. Montgomery Estates, Inc., 163 Wis.2d 973, 978, 473 N.W.2d 506, 508 (Ct.App.1991). In reviewing a motion for summary judgment, we apply the standards set forth in sec. 802.08, Stats., in the same manner as the trial court, Bantz, 163 Wis.2d at 977, 473 N.W.2d at 508, and will reverse where the trial court has incorrectly decided the legal issue. Germanotta v. National Indem. Co., 119 Wis.2d 293, 297, 349 N.W.2d 733, 735 (Ct.App.1984).

After hearing arguments in this case, the trial court ruled that the covenant not to compete was invalid per se because it did not include a specified territory, as required by sec. 103.465, Stats. Specifically, the trial court determined that the absence of a geographical restriction precluded Kobs from working "anywhere in the world with any firm that competed selling medical supplies in any area with his employer." The court also noted that the restriction "blanket[ed] the country" and prohibited Kobs from working "for any...