Star Direct, Inc. v. Dal Pra

• Decision Date: 14 July 2009
• Docket Number: No. 2007AP617.,2007AP617.
• Citation: 2009 WI 76,767 N.W.2d 898
• Parties: STAR DIRECT, INC. d/b/a Star Distributing, Plaintiff-Appellant-Petitioner, v. Eugene DAL PRA, Defendant-Respondent.
• Court: Wisconsin Supreme Court

767 N.W.2d 898

2009 WI 76

STAR DIRECT, INC. d/b/a Star Distributing, Plaintiff-Appellant-Petitioner, v. Eugene DAL PRA, Defendant-Respondent.

No. 2007AP617.

Supreme Court of Wisconsin.

Argued September 12, 2008.

Decided July 14, 2009.

For the plaintiff-appellant-petitioners there were briefs by Robert E. Shumaker and DeWitt Ross & Stevens S.C., Madison, and oral argument by Robert E. Shumaker.

For the defendant-respondent there was a brief by Gregory P. Seibold and Murphy Desmond S.C., Madison, and oral argument by Gregory P. Seibold.

¶ 1 MICHAEL J. GABLEMAN, J

This is a review of an unpublished decision of the court of appeals, which affirmed in part a judgment and order of the Circuit Court for Rock County, Daniel T. Dillon, Judge.¹ Star Direct, Inc. d/b/a Star Distributing ("Star Direct") sued a former employee, Eugene Dal Pra ("Dal Pra"), for breach of two non-compete clauses. The "business clause" non-compete provision prohibited Dal Pra's engagement in a "substantially similar or competitive" business within his prior assigned sales territory. The "customer clause" non-compete provision barred Dal Pra from interfering with or endeavoring to entice away current and recent past customers for whom he had performed services, with whom he had dealt, or about whom he had obtained special knowledge over the course of his employment. The contract also contained a "confidentiality clause" that barred Dal Pra from disclosing or using certain information such as confidential marketing techniques, customer lists, and trade secrets.

¶ 2 Both Dal Pra and Star Direct moved for summary judgment. The circuit court denied Star Direct's motion and granted Dal Pra's motion, concluding that all three restrictive covenants were unreasonable and therefore unenforceable. The circuit court also concluded that each one of the clauses was indivisible from the others.

¶ 3 The court of appeals agreed with the circuit court that the business clause was unenforceable. It also agreed that the business clause was indivisible from the customer clause, and thus both clauses were unenforceable. The court of appeals did not separately address the reasonableness of the customer clause, nor did it address the reasonableness of the confidentiality clause or its divisibility from the other clauses. Star Direct, Inc. v. Dal Pra, No.2007AP617, unpublished slip op., 2007 WL 4259201 (Wis.Ct.App. Dec. 6, 2007).

¶ 4 The issues in this case fall into two categories. The first set of issues relates to the enforceability of each of the three clauses—the business clause, the customer clause, and the confidentiality clause. The question for each is whether it is "reasonably necessary for the protection of the employer." Wis. Stat. § 103.465² (2007-08).³ The second set of issues relates to the divisibility of the clauses. We must determine whether the otherwise reasonable and enforceable clause or clauses are divisible from the unenforceable clause or clauses and therefore independently enforceable.

¶ 5 We conclude that the customer and confidentiality clauses are reasonably necessary to protect Star Direct and therefore enforceable. The business clause, however, is overbroad and unenforceable. We also hold that the customer and confidentiality clauses are divisible from the business clause and enforceable on their own terms. We thus affirm in part and reverse in part the decision of the court of appeals, and remand this cause to the circuit court for further proceedings consistent with this opinion.

I. FACTUAL AND PROCEDURAL BACKGROUND

¶ 6 Star Direct engages in the business of distributing assorted novelties and sundries⁴ to convenience stores, service stations, truck stops, and travel centers throughout the Midwest. This business is competitive, and its business model is premised on the relationship between route salespeople and their customers. The route salespeople regularly visit customers and potential customers, work to understand their customer's business, and endeavor to build long-term personal and professional relationships with them.

¶ 7 Dal Pra was a route salesperson employed by CB Distributors until his route was purchased, along with one other route, by Star Direct. Star Direct wished to retain the business on these routes, so it offered Dal Pra what he admitted was a "very good package." This employment offer included servicing a nearly identical route—the area within a 50-mile radius of Rockford, Illinois—as well as a $30,000 bonus upon the completion of 30 months of service. Dal Pra accepted the offer.

¶ 8 One condition of Dal Pra's employment was the inclusion of three restrictive covenants in his employment contract prohibiting Dal Pra from certain post-termination activities. Two of the restrictive covenants are contained in separate paragraphs of Section II.D. of the employment contract, entitled "Non-Compete." A third restrictive covenant is contained in the immediately succeeding Section II.E., labeled "Confidentiality."

¶ 9 The first paragraph of Section II.D. contains what has been called the "customer clause." It begins by restricting Dal Pra from becoming "engaged in the business of the Employer, that being the distribution of consumer products to service stations and/or convenience stores" while employed with Star Direct. The paragraph then continues with the following post-termination stricture:

[F]or twenty-four (24) months, after termination of Employee's employment with Employer, Employee shall not interfere with, or endeavor to entice away from Employer any person, firm, corporation, partnership or entity of any kind whatsoever which is a customer of Employer or CB Distributors, or which was a customer of Employer or CB Distributors within a period of time of one year prior to the termination of Employee's employment with Employer, for which Employee performed services or otherwise dealt with on behalf of Employer or CB Distributors or relative to which Employee obtained special knowledge as a result of his position with Employer; and Employee shall not approach any such customer or past customer for any such purpose or knowingly cooperate with the taking of any such action by any other person, firm, corporation, or entity of any kind.

¶ 10 The next paragraph in Section II.D. contains what has been called the "business clause":

[F]or a period of twenty-four (24) months after termination of Employee's employment with Employer, Employee shall not, directly or indirectly ... become engaged in any business which is substantially similar to or in competition with the business of the Employer, within a fifty (50) mile radius of Rockford, Illinois.

¶ 11 Section II.E. contains the "confidentiality clause," providing as follows:

Independent of any obligation under any other Paragraph of this Contract, Employee shall not, at any time during the term of his employment with Employer and for a period of twenty-four (24) months following the termination of his employment with Employer, regardless of who initiated the termination, communicate, divulge or disclose for use by himself or any other person, firm, corporation, partnership, joint venture, association or other entity whatsoever, any information or knowledge, known, disclosed or otherwise obtained by him during his employment by Employer or CB Distributors, including but not limited to information and knowledge conceived, discovered or developed by Employee or CB Distributors and including but not limited to any of Employer's or CB Distributors proprietary products or procedures, any of Employer's or CB Distributors trade secrets, any of Employer's or CB Distributors customer lists, or any of Employer's or CB Distributors marketing techniques which are not generally known in the business community, and which relate to the business of the Employer or CB Distributors or are in the nature of trade or business secrets of Employer or CB Distributors. Employee shall not at any time, during the period of his employment with Employer or at any time thereafter, copy, reproduce, retain, communicate, divulge or disclose to any other party the contents of the mailing list(s) of any of Employer's or CB Distributors customers.... Employee will have special pricing information and information regarding how Employer prices various products. This information is specifically held by both parties to be confidential. In no event shall Employee reveal this information to any other employer or other entity.

¶ 12 Dal Pra worked for Star Direct for roughly four years, receiving the $30,000 bonus after 30 months of service. Dal Pra voluntarily quit his employment with Star Direct on August 11, 2006, and immediately began his own distribution company. It is undisputed, at least for purposes of our review on summary judgment, that Dal Pra's new company sold various products to convenience stores, gas stations, and truck stops within 50 miles of Rockford, Illinois, and that some of the convenience stores Dal Pra sold to were past and/or current customers of Star Direct. We also take as true Star Direct's claims that it lost customers as a result of Dal Pra's competing business.

¶ 13 Star Direct sued Dal Pra on September 5, 2006, for breach of the business and customer clauses, seeking both damages and injunctive relief to prevent Dal Pra's continued alleged breach.

¶ 14 On cross motions for summary judgment, the circuit court concluded that the business, customer, and confidentiality clauses were all unreasonable and therefore unenforceable.⁵ The circuit court also concluded that each of the three clauses was indivisible from and "inextricably entwined" with the other two under Streiff v. Am. Family Mut. Ins. Co., 118 Wis.2d 602, 348 N.W.2d 505 (1984).

¶ 15 The court of appeals agreed with the circuit court that the business clause was unreasonable because it barred Dal Pra from engaging in a "substantially similar" business whose products are not competitive with Star...