National Starch and Chemical Corp. v. Newman

• Decision Date: 27 December 1978
• Docket Number: No. KCD,KCD
• Parties: NATIONAL STARCH AND CHEMICAL CORPORATION, Plaintiff-Appellant, v. Theodore A. NEWMAN, Defendant-Respondent. 29633.
• Court: Missouri Court of Appeals

Page 99

577 S.W.2d 99

NATIONAL STARCH AND CHEMICAL CORPORATION, Plaintiff-Appellant, v. Theodore A. NEWMAN, Defendant-Respondent.

No. KCD 29633.

Missouri Court of Appeals, Kansas City District.

Dec. 27, 1978.

Motion for Rehearing and/or Transfer Denied Jan. 31, 1979.

Application to Transfer Denied March 13, 1979.

Byron J. Beck, W. Anthony Feiock, Mark E. Johnson, Morrison, Hecker, Curtis, Kuder & Parrish, Kansas City, for plaintiff-appellant.

Howard F. Sachs, Spencer, Fane, Britt & Browne, Kansas City, for defendant-respondent.

Before HIGGINS, Special Judge, Presiding, PRITCHARD, J., and WELBORN, Special Judge.

ANDREW JACKSON HIGGINS, Special Judge.

Action for injunction and damages for breach of employment contract restriction against postemployment competition. Counterclaim for bonuses and termination and vacation pay. Appeal from summary judgment for defendant on plaintiff's petition, final for purpose of appeal under Rules 81.05 and 81.06. For determination is whether Missouri law, as opposed to Georgia or New York law, applies with respect to the restrictive covenant; and, if so, whether the covenant is valid and enforceable under Missouri law. Reversed.

National Starch and Chemical is a Delaware corporation with its home office and principal place of business in New Jersey. It is engaged in nationwide manufacture and sales of industrial adhesives and has, among others, an established market in states comprising its sales district administered from offices in Kansas City, Missouri.

Theodore A. Newman commenced employment with National as a sales representative in New York in December, 1958. As a condition precedent to employment, he executed an employment agreement similar to the one in dispute. Shortly thereafter he was transferred to a sales district centered in Baltimore, Maryland, including surrounding states. In February, 1961, he was transferred to a sales district centered in Atlanta, Georgia, including Alabama, Florida, Georgia, Mississippi, North Carolina, South Carolina, and Tennessee. He executed a second similar employment agreement on or about September 18, 1961.

The Employment Agreement (Sales Staff) in dispute, dated April 1, 1965, was executed by Mr. Newman in Atlanta, Georgia, and by National in New York, New York. It provides:

"SECOND : The employment hereunder shall be for one month from the date of this Agreement and thereafter until terminated by written notice given by either party to the other not less than two weeks prior to the date of termination specified in such notice. * * *

"FOURTH : A. The Employee agrees that for a period of two years after the termination of his employment (whether such termination be by the Employee or by National, and whether with or without cause) he will not for himself, or as a partner, agent or employee of any person, firm or corporation, solicit or accept any business or order for a competitive product (as hereinafter defined) from any customer of National with whom he dealt or transacted business on behalf of National, or with whom a salesman of National dealt or transacted business under his supervision or with his assistance. A competitive product shall mean any product competitive with or useable for substantially the same purposes as a product manufactured, sold or offered for sale by National during his employment with National. * * *

"NINTH : Any employment agreement heretofore made by the parties hereto is hereby terminated. Any reference, however, to dealing or transacting business with customers of National, or to inventions or improvements made or conceived during the employee's employment, shall include dealings and transactions and inventions and improvements made or conceived during any period of his employment, whether prior to or subsequent to the date of this agreement."

Mr. Newman's sales territory as of April 1, 1965, included Alabama, Georgia, South Carolina, and Tennessee.

In November, 1965, Mr. Newman was promoted to district sales supervisor and transferred to the sales district centered in Kansas City, Missouri, including Colorado, Illinois, Iowa, Kansas, Missouri, Montana, Nebraska, South Dakota, Wisconsin, and Wyoming. Sales in Missouri constitute approximately one half the sales in the district. National had eight salesmen in the district under Mr. Newman's supervision. In February, 1968, Mr. Newman was promoted to district sales manager for the Kansas City District, a position he held until his termination. Since the transfer to Kansas City, Mr. Newman has lived, and still lives, in Kansas City, Missouri.

During the course of his employment, Mr. Newman acquired knowledge of National's activities and methods of operation, including sales methods and procedures. He was introduced to and became acquainted with many of National's customers and their requirements and problems. While in Kansas City, he received salary, bonuses, and other benefits including training and experience.

In 1975, National audited its employment agreements and found a number of employees under agreements which did not best reflect their current assignments and responsibilities. Mr. Newman was among such employees; and, on June 10, 1975, an Employment Agreement (Managerial Personnel) dated July 1, 1975, was forwarded to him for execution. He was requested in August and September, 1975, to execute the agreement but did not do so. It would have protected against disclosure of National's trade secrets as there defined. On April 19, 1976, Mr. Newman gave notice of termination of his employment with National. National responded by letter of April 23, 1976, to advise Mr. Newman of the postemployment covenant in the 1965 employment agreement.

On April 21, 1976, Theodore A. Newman and Merle L. Houck, as general partners, and Metro Metals, Inc., Western Adhesives, Inc., and Wilson M. Liggett, as limited partners, formed the Missouri River Company, a Missouri limited partnership doing business as Western Adhesives of Missouri, with express purpose to engage in the manufacture and distribution of adhesive materials at wholesale and related activities. Mr. Newman holds the position of general manager-president. The Missouri River Company has employed five persons in addition to Mr. Newman and Mr. Houck. Western Adhesives of Missouri has a sales territory composed of Missouri, Kansas, Ohio, Illinois, and Colorado. Its business is conducted primarily in the Kansas City area. As a partner, agent, and employee of Western Adhesives of Missouri, Mr. Newman, his partners, agents, and employees are selling products in competition with National, and intend to continue to solicit and accept business and orders for competitive products from National's customers. National has about fifteen or twenty per cent of the market in the Kansas City area. In numbers, National has some 640 customers in the area and sought protection over some 275 of them.

The court sustained defendant's motion for summary judgment, and entered summary judgment against plaintiff on grounds: (1) The agreement in dispute was invalid and unenforceable under the applicable laws of New York and Georgia, and, consequently, invalid and unenforceable in Missouri; (2) the agreement was inapplicable to the managerial position held by defendant; (3) in any event, the agreement was so suppressive of postemployment competition and harsh as to be invalid under Missouri law.

Appellant contends the court's judgment was erroneously entered for the reason that Missouri law, instead of Georgia or New York law, applies with respect to the restrictive covenant in the 1965 agreement because Missouri has the most significant relationship to the transaction and parties, and the covenant is enforceable under Missouri law. Appellant contends also that the restrictive covenant was binding on Mr. Newman after his promotions because no notice of termination was given until April 19, 1976, and there was no superseding agreement in force.

Respondent supports the trial court in its theory that the restrictive covenant was invalid and unenforceable under Georgia law and did not become enforceable by employee's change of job and residence to Missouri situs. He asserts the judgment must be affirmed because there is neither reason nor authority for selecting Missouri law to test validity of the 1965 agreement. He contends also that the sales contract did not apply to him after his promotions and was not a proper subject for enforcement against him following his termination. Finally, he asserts the agreement is too restrictive for Missouri enforcement.

The trial court entered its summary judgment on the theory that the law of the place where the contract was made normally determines the validity of the contract, and determined that it was "made" in either New York or Georgia and was invalid under the law of either, and could not be "reincarnated" in Missouri.

The Restatement (Second) of Conflicts of Law (1971) applies in Missouri to both tort and contract actions. Kennedy v. Dixon, 439 S.W.2d 173 (Mo. banc 1969); American Institute of Marketing Sys., Inc. v. Brooks, 469 S.W.2d 932 (Mo.App.1971); Havenfield Corporation v. H & R Block, Inc., 509 F.2d 1263 (8th Cir. 1975). The Restatement promulgates rules which apply to particular contract situations and general principles which apply when none of the particular contract rules are suitable.

The court recognized the Restatement, albeit erroneously, in its determination that Georgia law applied under Section 196, which deals particularly with contracts for rendition of services. It provides that validity of such a contract is determined by the local law of the state where the contract requires that the services, or major portion, be rendered, unless, with respect to the particular issue, some other state has a more significant relationship to the transaction and the parties, in which event the local law of the other state will be applied.

The error in the court's...