Mills v. Murray

• Decision Date: 04 October 1971
• Docket Number: No. 25512,25512
• Citation: 472 S.W.2d 6
• Parties: Millard K. MILLS et al., Plaintiff-Respondents, v. Robert K. MURRAY et al., Defendants-Appellants.
• Court: Missouri Court of Appeals

Page 6

472 S.W.2d 6

Millard K. MILLS et al., Plaintiff-Respondents, v. Robert K. MURRAY et al., Defendants-Appellants.

No. 25512.

Kansas City Court of Appeals, Missouri.

Oct. 4, 1971.

Brown, Wright & Willbrand, H. C. Willbrand, Columbia, for defendants-appellants.

Lathrop, Koontz, Righter, Clagett, Parker & Norquist, Thomas J. Wheatley, Maurice J. O'Sullivan, Jr., Kansas City, Smith, Lewis & Rogers, Columbia, for plaintiffs-respondents.

SHANGLER, Presiding Judge.

Plaintiffs, a co-partnership doing business as Professional Management Midwest (PMM), sued defendants Robert K. Murray, Richard F. Rudolph, Jr. and Professional Consulting Services, Inc. (PCS) for an injunction to enforce the restrictive covenants in contracts of employment and to recover damages for their breach and for an accounting.

Plaintiffs provide business and management services for medical, osteopathic and dental practitioners in eleven states, including Missouri. Defendants Murray and Rudolph were formerly employed by PMM as business consultants to a number of such professional practitioners. As an incident to employment, each had agreed by the restrictive covenant provisions, paragraph 13, of his contract of employment with PMM that:

'(b) * * * if his employment terminates for any cause after he has been employed for ninety (90) days, he will not, for a period of three (3) years thereafter solicit, contract for or render the same or similar services to any individual, firm, partnership, association or corporation who or which has been, within one (1) year prior to the date of such termination, a client of PMM serviced either by Employee or by a Consultant supervised by Employee.'

Defendant PCS commenced its corporate life as a competitor of PMM on the very day Murray left plaintiffs' employ. Murray was the sole incorporator of PCS, its sole stockholder, and its President. Within weeks, Rudolph was hired away from PMM by Murray to work as a consultant with PCS.

Plaintiffs' action proceeded on the theory that despite its corporate guise, defendant PCS was actually the alter ego of defendant Murray and was the vehicle whereby all three defendants gave full scope to their conspiracy to breach the restrictive covenants of defendant Murray's contract with PMM by the artifice of hiring defendant Rudolph as a corporate employee who, then, at Murray's direction, was to solicit certain of PMM's clients formerly serviced by Murray and contract with them in the corporate name, all within the proscribed contractual periods. The issues were tried to the court which explicitly found the restrictive covenant provisions of Murray's (and Rudolph's) contract(s) reasonable, and therefore enforceable, and that the defendants had wilfully and maliciously conspired to breach the restrictive provisions of Murray's contract. No breach of Rudolph's contract was found, nor, apparently, was the need for an accounting established. Defendants were permanently enjoined from further violation of the Murray covenant and plaintiffs were awarded actual and punitive damages against all the defendants. From this judgment defendants appeal.

PMM is among the oldest, and is now the largest, concern engaged in offering business management services for practitioners of medicine and dentistry. The management consultation services it provides relate principally to the business aspects of the doctors' practices and include advice on taxation, insurance, credit and collection, office procedure and management, and generally, all matters which bear on their professional and personal financing. These services are furnished through management consultants, such as Murray and Rudolph, who are employed by PMM to solicit, contract with, and personally consult with clients on a periodic and continuing basis. These consultants were chosen with some care and only after testing, screening and personal interviews with PMM management. A newly-employed consultant submits to a regimen of supervised field training before he may service clients and is furnished an instructional manual devised by PMM to accelerate learning and productivity. Once engaged, the management consultant tends to become intimately acquainted with the doctors whom he serves and with the details of their professional and, at times, personal lives as well. It is not unusual for consultants to gather with clients for social events. And only when requested by a consultant does a supervisor of PMM call on a client for any purpose. As it was aptly put by plaintiff Glenn Kreamer, PMM field manager: 'The Consultant in the field is Professional Management Mid-west. * * * He is our company.'

Defendant Murray was employed by PMM as a management consultant on April 1, 1965 and executed the employment contract containing the post-employment restrictive covenant provision with which we deal on November 20, 1965. After the customary period of training he was assigned to solicit and service clients in central, eastern and northeastern Missouri. Murray became a skilled consultant, highly regarded by his clients and so valued by his employer that when a vacancy occurred in St. Louis, he was offered the position of supervisor but declined it because it would require him to leave Columbia. There were thirty-six doctors and dentists for whom Murray, as an employee of PMM, had performed consulting services within the year of the termination of his employment with PMM. Murray consulted with each of them during his monthly visits on the range of subjects we have described and on other specific matters as investments, public relations and training office personnel. By the Spring of 1968, Murray had determined to leave PMM and establish a competing business to be known as 'Professional Consulting Service, Inc.' While still in the employ of PMM, he executed Articles of Incorporation as sole incorporator. The Articles issued from the Secretary of State of Missouri on May 31, 1968, and on that date Murray left PMM.

Appellant Rudolph was employed by PMM as a management consultant for the Topeka, Kansas area on December 1, 1967 and then terminated his employment on July 15, 1968. He read and executed an employment contract which contained the identical post-employment restrictive covenant as appears in Murray's contract and which, he was told, all management consultants were obliged to execute. Although plaintiffs pleaded that Rudolph had breached the restrictive covenant of his contract, none was proved. The judgment taken against Rudolph, and from which he appeals, is for his participation in the conspiracy to breach the Murray restrictive covenant. In mid-May of 1968, Murray telephoned Rudolph, told him he had resigned from PMM, that he was starting his own competing firm, that he needed an additional man, and asked Rudolph if he would be interested in discussing it further. They arranged to meet in Kansas City on May 31, 1968. At that meeting Murray depicted the want of adequate consulting services in central and eastern Missouri and the large number of doctors needful of them, laid out his plans for a competing business in that area and their promise for success. Murray then told Rudolph he intended to solicit for business and that he was going to call on clients he had previously serviced for PMM to advise them he was starting his own competing business but that he felt he was 'restricted by contract with his previous employer from working these clients'. Rudolph began working for Murray and PCS the day after he left PMM.

During May of 1968, while still in the employ of PMM, Murray personally had called on each but one of the thirty-six clients he was then servicing for PMM and solicited their business for PCS. He told each he was leaving PMM and was 'setting up (his) own company'. They were made to understand that although he, himself, could not service them thereafter because of the restrictive provisions of his contract with PMM, PCS would provide the same service and that he would have a representative of his company, PCS, call on them. Further solicitation by brochure and on PCS letterhead personally signed by Murray as 'business consultant' followed.

Within thirteen days of the start of his employment with PCS, Rudolph had signed seventeen doctors formerly serviced by Murray for PMM, within the year of his leaving, to contracts with PCS. Rudolph, in turn, knew that Murray had 'set up' appointments with doctors whom Murray had serviced previously as clients of PMM within the year of his leaving PMM, and thus within the stricutres of the restrictive covenant provision of his employment contract, PCS entered into service contracts with twenty-one of them.

Defendants contend, first of all, that plaintiffs failed to sustain their burden of proving that the restraint imposed by Murray's employment contract was reasonable in that there was no explicit testimony that the prescribed three-year, or any other, period of time was essential to protect the employer's interest. The courts recognize that a restrictive covenant which limits a person in the pursuit of his occupation is in restraint of trade, is not to be favorably regarded, and that the burden of establishing its validity by showing it is reasonable rests upon the party claiming its benefit. Prentice v. Rowe, Mo.App., 324 S.W.2d 457, 461(2, 3.) However, the question of reasonableness of such a covenant not to compete is not one of fact but of law for the court according to the subject matter of the covenant and the circumstances shown to exist. American Pamcor, Inc. v. Klote, Mo.App., 438 S.W.2d 287, 290(2); Mallinckrodt Chemical Works v. Nemnich, 83 Mo.App. 6, 28. 'There are certain elements which should always be considered in ascertaining the reasonableness of such agreements in employment cases, among which are the consideration supporting the agreements, ¹ the threatened danger to the employer in the absence of such an agreement, the economic hardship imposed on the...