Mid-States Paint & Chemical Co. v. Herr, MID-STATES

• Decision Date: 01 March 1988
• Docket Number: MID-STATES,No. 53279,53279
• Citation: 746 S.W.2d 613
• Parties: 3 IER Cases 270 PAINT & CHEMICAL CO., Plaintiff-Respondent, v. Dwight A. HERR, Defendant-Appellant.
• Court: Missouri Court of Appeals

Page 613

746 S.W.2d 613

3 IER Cases 270

MID-STATES PAINT & CHEMICAL CO., Plaintiff-Respondent, v. Dwight A. HERR, Defendant-Appellant.

No. 53279.

Missouri Court of Appeals,

Eastern District,

Division Two.

March 1, 1988.

Stefan J. Glynias, Thomas K. Lammert, Jr., St. Louis, for defendant-appellant.

William Mark Rasmussen, Clayton, for plaintiff-respondent.

DOWD, Judge.

Former employee appeals from the judgment of the trial court enjoining appellant from accepting employment in the industrial coatings industry or for a competitive employer within a radius of 125 miles of Crestwood, Missouri or from soliciting existing or potential customers of respondent employer within that 125 mile radius, for two years from the date of termination. We affirm.

Appellant is a former salesman of Mid-States Paint & Chemical Company (hereinafter respondent). Respondent develops, manufactures and sells industrial coatings. The industrial coatings industry is a highly competitive and technical field that involves the painting of manufacturers' products before they are sold. The industrial paints are specially designed for the individual needs of the manufacturers. Sales in the industrial coatings industry requires the technical understanding of the particular product of the manufacturer and the manufacturer's method of application.

At the time appellant was hired in July 1985, he had no prior experience in the coatings industry or in outside sales. Appellant's employment as a salesman involved extensive customer contact and access to sensitive business information regarding respondent's operations. In the course of his employment appellant had access to confidential information including customer lists, formula books, pricing information, and information regarding the method of application utilized by respondent's customers.

As a condition of employment, appellant voluntarily signed a noncompete agreement in which he agreed not to accept employment in the coatings industry or from a competitive employer within a radius of 350 miles from respondent's headquarters in Crestwood, Missouri and would not accept work for any competitive employer selling within this area, for a period of three years from the date of termination. Appellant acknowledged he understood the contents and requirements of the agreement.

Respondent has approximately 1400 customers from coast-to-coast, with the majority of them being located within a 125 mile radius of St. Louis. Appellant had responsibility for approximately 250 of respondent's customers. All of appellant's customers were located within the State of Missouri.

In January 1987, appellant accepted employment with Jordan Paint Manufacturing Company, a direct competitor of respondent. Jordan Paint is a national company that was seeking to expand into a new territory that covered Missouri and Illinois. Appellant was hired as an outside salesman to develop into the new territorial manager.

In February 1987, after notifying respondent of his intention to terminate, appellant signed a letter of resignation in which he represented to respondent that he would honor the covenant not to compete. Appellant admitted he knew the representation he was making was false and did so to induce respondent to award appellant a $1,500.00 discretionary bonus. Respondent relied on appellant's representation that he would honor the agreement and awarded the bonus.

On February 16, 1987, appellant commenced working for Jordan Paint. Appellant immediately began soliciting respondent's customers and on occasion made derogatory remarks about respondent's quality control.

Respondent brought suit seeking a temporary restraining order and a permanent injunction to enforce the covenant not to compete. On April 17, 1987, the trial court entered a temporary restraining order prohibiting appellant from competing within 350 miles of respondent's headquarters. On May 18, 1987, the trial court entered judgment in favor of respondent and granted permanent injunctive relief. The court determined the three year, 350 mile restrictions were not more restrictive than reasonably necessary and thus that the noncompete agreement was reasonable as written. The court, however, chose to exercise its equitable powers and limited the restrictions to two years in duration and a 125 mile radius.

Our standard of review in this court tried case is governed by Murphy v. Carron, 536 S.W.2d 30, 32 (Mo. banc 1976), and accordingly we sustain the judgment of the trial court unless there is no substantial evidence to support it, unless it is against the weight of the evidence, or unless it erroneously declares or applies the law. The trial court, in its findings on the evidence, is given due regard for having the opportunity to judge the credibility of the witnesses. Rule 73.01(c)(2).

In his first point appellant contends the trial court erred in granting a permanent injunction in that the trial court exceeded its authority by modifying both the geographical and time restrictions of the covenant. This, appellant contends, was contrary to fundamental contract law and was tantamount to making a contract for the parties.

"The ordinary rules of contractual construction and enforcement are not necessarily applicable to non-compete agreements." Continental Research Corp. v. Scholz, 595 S.W.2d 396, 399 (Mo.App.1980). This court in prior cases has itself limited and affirmed modifications by the trial court of covenants not to compete where the restrictions were broader than necessary. Orchard Container Corp. v. Orchard, 601 S.W.2d 299 (Mo.App.1980); R.E. Harrington, Inc. v. Frick, 428 S.W.2d 945 (Mo.App.1968); see also, Sigma Chemical Co. v. Harris, 794 F.2d 371 (8th Cir.1986) (modification of noncompetition covenant and nondisclosure agreement). Moreover, in this case the court specifically found the covenant's restrictions were reasonable but chose to exercise its equitable powers to modify the extent of the restrictions. The issuance and terms of an injunction rest "largely in the sound discretion of the trial court, which is vested with a broad discretionary power to shape and fashion the relief it grants to fit particular facts, circumstances, and equities of the case before it." May Dept. Stores Co. v. County of St. Louis, 607 S.W.2d 857, 870 (Mo.App.1980).

Appellant contends Missouri courts have refused to follow the "blue pencil" doctrine and thus the court had no authority to modify the covenant not to compete. Appellant is correct that we do not follow the "blue pencil" doctrine but appellant misconstrues the meaning of that doctrine. Under the blue pencil doctrine, if a restrictive covenant contains words which are unreasonable limitations and if stricken would leave a reasonable contract the court may "blue pencil" or strike those words out, while if the contract contains no specifically expressed time or geographical limitations the court may not write into the contract any such limitations but must declare the entire provision void. R.E. Harrington, Inc., supra, at 951; Annot. 61 A.L.R.3d 397, 416 (1975).

In R.E. Harrington, Inc., supra, this court rejected the blue pencil rule in construing a nonspecific geographical limitation of a covenant not to compete to encompass a limited three state area. In so doing the court noted:

"[T]he courts of this state, and the better reasoned authorities in other states have never allowed the usages and meaning of equity to be drowned in a murky pool of meaningless form, but have decreed enforcement as against a defendant whose breach occurred within an area in which restriction would clearly be reasonable, even though the terms of the agreement imposed a larger and unreasonable restraint....

... It is true that our courts have always refused to enforce totally unreasonable contracts, but they have done so for the reasons of equity and common sense, and not because of some archaic rule of draftmanship."

Id. at 951. Thus, this court recognized that an unreasonable restriction against competition in a contract may be modified and enforced to the extent that it is reasonable, regardless of the covenant's form of wording.

More recently, in Orchard Container Corp., supra, this court modified the territorial restriction and affirmed the enforcement of a covenant not to compete. The geographical restriction was modified from 200 miles to a 125...