Kessler-Heasley Artificial Limb v. Kenney

• Decision Date: 28 October 2002
• Docket Number: No. 24201.,24201.
• Citation: 90 S.W.3d 181
• Parties: KESSLER-HEASLEY ARTIFICIAL LIMB COMPANY, INC., d/b/a Ozark Prosthetics, Appellant, v. Michael KENNEY and Kenney Fabrication, Inc., Respondents.
• Court: Missouri Court of Appeals

90 S.W.3d 181

KESSLER-HEASLEY ARTIFICIAL LIMB COMPANY, INC., d/b/a Ozark Prosthetics, Appellant, v. Michael KENNEY and Kenney Fabrication, Inc., Respondents.

No. 24201.

Missouri Court of Appeals, Southern District, Division One.

October 28, 2002.

Motion for Rehearing or Transfer Denied November 19, 2002.

Application for Transfer Denied December 24, 2002.

COPYRIGHT MATERIAL OMITTED

Bryan O. Wade, Husch & Eppenberger, LLC, Springfield, for Appellant.

Evelyn Gwin Mangan, Springfield, for Respondent.

ROBERT S. BARNEY, Judge.

Ozark Prosthetics ("Employer") appeals from the judgment of the Circuit Court of Christian County which refused to permanently enjoin Michael Kenney and Kenney Fabrication, Inc., (collectively, "Employee") from violating the terms of an employment agreement containing a non-competition clause ("non-compete" clause).¹

In its first point, Employer maintains that it had a protectable interest in its stock of customers, namely, patients, doctors and insurance companies. It argues that "a non-compete agreement reasonably limited in geographic scope and duration may be used to protect an employer's interest in `customer contacts,'" and that the court erred in refusing to grant equitable relief prohibiting Employee from actively pursuing its customers, i.e., engaging in "customer contacts."

In its second point, Employer asserts court error on the basis that the noncompete clause was "a valid means ... to protect its patient files and fabrication procedures, which [Employer claims are] trade secrets," and that the court erred in refusing to enforce the agreement protecting its legitimate interest in these trade secrets.

"This Court will affirm an injunction unless it is unsupported by substantial evidence, it is against the weight of the evidence, or it erroneously declares or applies the law." Washington Cty. Mem'l Hosp. v. Sidebottom, 7 S.W.3d 542, 544 (Mo.App.1999). "Because the circuit judge is in a superior position to assess credibility, deference is given to the circuit court's findings of fact, however, an independent evaluation of conclusions of law is made." Id. at 545.

The record shows that in 1992, Employee was hired as a "prosthetist" by Employer to work at its business located in Springfield, Missouri. As part of his day-to-day duties, Employee worked with individual patients, conducting initial consultations, fitting patients with prostheses (artificial limbs) and orthotics (braces), and conducting follow-up visits. Employee also handled patient referrals from insurance companies, insurance network providers and doctors related to the prosthetic and orthotic needs of referred patients.

During his tenure with Employer, Employee signed at least three employment agreements, each containing a restrictive covenant promising not to compete with Employer. In particular, the last employment agreement read, in pertinent part:

During Employee's Term of Employment, and for a period commencing after the termination of the Term of Employment, and ending on the earlier of (i) five (5) years after the termination of the Term of Employment ... the Employee shall not, directly or indirectly, either as an individual for his own account ... enter into competition with the Company or engage in a similar or related business in competition with the Company within a fifty (50) mile radius of the corporate limits of Springfield, Missouri.

On January 18, 1999, Employee resigned. Approximately one month later, Employee formed Kenney Fabrication, Inc. Initially, Employee began fabricating prostheses in his garage for out-of-state retail prosthetic companies. As a wholesale fabricator, Employee did not see patients.

Employee later leased an office in Nixa, Missouri, which the record shows is within the restricted 50-mile radius of Springfield, Missouri. At the Nixa location, Employee fabricates artificial limbs and braces, and bills all of his new patients. Although Employee admitted that he began seeing patients at his Nixa office in May or June of 1999, Employee testified that he did not intend to see patients in Nixa, nor did he have a phone number for patients to call after he left Employer. Employee testified that Employer's former patients sought him out at his home.

Subsequently, Employee purchased a prosthetic company in Harrison, Arkansas, which the record reveals is outside of the restricted 50-mile radius as set out in the contract. Employee testified that he no longer sees patients at the Nixa location and that the Nixa location is now strictly a wholesale fabrication center.² However, at trial, Employee admitted that he built prostheses in Nixa for his own patients, some of which were former patients of Employer.

The record shows that during the course of litigation the court entered a temporary injunction, prohibiting Employee from engaging in customer contacts with Employer's customers. Since the entry of that order certain of Employer's former patients sought follow-up care with Employee and drove to Employee's facility in Harrison, Arkansas. Employee testified that 9 of his 54 patients are former patients of Employer.

Even after Employee bought the prosthetic practice in Harrison, Arkansas, he has continued to do fabrication work in Nixa, both for the Harrison office and for the out-of-state retail prosthetic companies. In addition, Employee continued doing billings in Nixa, maintaining separate account records for the respective wholesale and retail portion of his business.

In the case at bar, the trial court did not make a direct finding regarding whether Employer had a protectable interest in its customer contacts. However, where, as here, the trial court does not make a finding of fact with regard to each issue raised by the parties, the appellate court will "consider all factual issues to have been found in accordance with the result reached and will sustain the judgment if the result is correct on any tenable basis." Orthotic & Prosthetic Lab, Inc. v. Pott, 851 S.W.2d 633, 639 (Mo.App.1993).

In our review of Employer's first point, premised on the court's refusal to impose a permanent injunction against Employee prohibiting Employee from engaging in customer contacts with its customers, we initially make the following observations regarding non-compete clauses or covenants not to compete.

Covenants by employees not to compete with their employers after termination of employment are no longer contrary to public policy in Missouri, yet they still are not favored in this state. Such covenants are carefully restricted because they deal with restraints on commerce and limit an employee's freedom to pursue his or her trade. The following general rule still attends: An employer cannot extract an enforceable restrictive covenant merely to protect himself from the competition of an employee. Accordingly, even when restrictive covenants on future employment are reasonable spatially and temporally, they are enforceable only if a legitimate protectable interest of the employer is served.

An assessment of the reasonableness of a covenant not to compete requires a thorough consideration of surrounding circumstances, which includes the subject matter of the contract, the purpose to be served, the situation of the parties, the extent of the restraint, and the specialization of the business. The issue of reasonableness is one of law according to the subject matter of the agreement and the existing circumstances.

West Group Broad., Ltd. v. Bell, 942 S.W.2d 934, 937 (Mo.App.1997) (citations omitted).

Missouri courts limit the granting of equitable protection to two narrowly defined and well-recognized interests, namely an employer's trade secrets and its stock in customers. See Continental Research Corp. v. Scholz, 595 S.W.2d 396, 400 (Mo.App.1980); Easy Returns Midwest Inc. v. Schultz, 964 S.W.2d 450, 453 (Mo. App.1998).

Stock in customers, also referred to as customer contacts, are a legitimate protectable interest. See Deck and Decker Pers. Consultants, Ltd. v. Pigg, 555 S.W.2d 705, 707 (Mo.App.1977). "Customer contacts derive from the influence an employee acquires over the employer's customers through personal contact." Easy Returns, 964 S.W.2d at 453. In the sales industry, the rationale for protecting "customer contacts" is that "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 in the customer's mind with that representative." Id. As a result, the sales employee is "placed in a position to exert a special influence over the customer and entice that customer's business away from the employer." Id. Since "the employee's opportunity to influence customers justifies enforcement of the covenant not to compete ... the quality, frequency, and duration of an employee's exposure to an employer's customers are crucial in determining the covenant's reasonableness." Sidebottom, 7 S.W.3d at 545.

Employer argues that it established a protectable interest in its customer contacts with patients, doctors, and insurance companies. We will examine each group in turn.

Existing and Future Patients/Customers Base

Before an employer can claim to have a protectable interest in its customer contacts, the employer must have a stock of customers who regularly deal with the employer. See Empire Gas Corp. v. Graham, 654 S.W.2d 329, 330-31 (Mo.App. 1983). If the employer has a group of customers who regularly patronize the business of the employer, there is a stock of customers and a protectable interest. Silvers, Asher, Sher & McLaren M.D.s Neurology, P.C. v. Batchu, 16 S.W.3d 340, 345 (Mo.App.2000). A customer is one who repeatedly has business dealings with a particular tradesman or business. Id.; Empire Gas, 654 S.W.2d at 330.

Missouri courts have enforced physician and health care provider covenants not to compete similar to that of the instant case. Armstrong v. Cape Girardeau...