Reynolds and Reynold v. Hardee ( 1997 )

UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
THE REYNOLDS AND REYNOLDS
COMPANY,
Plaintiff-Appellant,
No. 96-2077
v.
THOMAS P. HARDEE,
Defendant-Appellee.
Appeal from the United States District Court
for the Eastern District of Virginia, at Norfolk.
Rebecca B. Smith, District Judge.
(CA-96-327-N)
Argued: December 3, 1997
Decided: December 30, 1997
Before WILKINSON, Chief Judge, MOTZ, Circuit Judge,
and WILSON, Chief United States District Judge for the
Western District of Virginia, sitting by designation.
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Affirmed by unpublished per curiam opinion.
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COUNSEL
ARGUED: Patrick John Stewart, VENABLE, BAETJER, HOWARD
& CIVILETTI, L.L.P., Washington, D.C., for Appellants. Dean Tay-
lor Buckius, VANDEVENTER, BLACK, MEREDITH & MARTIN,
L.L.P., Norfolk, Virginia, for Appellee.
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Unpublished opinions are not binding precedent in this circuit. See
Local Rule 36(c).
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OPINION
PER CURIAM:
This case arises out of a diversity action asserting breach of con-
tract and violation of trade secrets brought by The Reynolds and
Reynolds Company against Thomas P. Hardee. Reynolds appeals
from an order of the district court dismissing one claim and granting
summary judgment in favor of Hardee on the other. We affirm.
On March 9, 1988, Hardee signed an employment agreement with
Jordan Graphics, Inc., as a sales representative for the area surround-
ing Virginia Beach, Virginia. Jordan manufactured and supplied busi-
ness forms. The employment agreement contained a covenant not to
compete that stated:
Sales Representative agrees that during the period of one (1)
year next following the date of the termination for any rea-
son of his employment with [Jordan], he will not ... engage
in or become financially interested in the business of manu-
facturing, buying, selling, trading and dealing in business
forms, including printed matter, stationery, manifolding
forms, books of account and pressure sensitive labels in the
Territory; and it is hereby provided that if Sales Representa-
tive shall violate or attempt to violate any provision of this
paragraph, he may be enjoined in an action to be brought in
any court of competent jurisdiction and such action shall not
be subject to the defense that there exists an adequate rem-
edy at law.
The agreement also contained a provision restricting Hardee's use
of Jordan's proprietary information. Hardee agreed that
all sales files, customer records, and reports used, prepared
or collected by him are the property of [Jordan] and agrees
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that in the event of the termination of his employment with
[Jordan] for any reason, he will return and make available
to [Jordan] prior to the last day of his employment all sales
files, customer records reports in his possession.
Reynolds, like Jordan, manufactures and supplies business forms.
On January 23, 1996, Reynolds and Jordan executed an acquisition
agreement whereby Reynolds purchased substantially all of Jordan's
assets and goodwill, including the employment agreements between
Jordan and its sales representatives, among them Hardee. On the day
of the sale Hardee was terminated. Simultaneously, Reynolds offered
to rehire Hardee under a different employment agreement. This new
agreement contained a more restrictive non-competition covenant that
extended both the duration and the territory covered. Hardee rejected
the new agreement, but offered to work for Reynolds under the terms
of his prior agreement with Jordan. Reynolds would not accept those
terms, and informed Hardee that it intended to enforce the original
covenant.
Reynolds filed this diversity suit in federal district court on March
29, 1996, asserting that Hardee breached this covenant and misappro-
priated trade secrets. Specifically, Count I of the complaint alleges
that in late January 1996, Hardee breached his employment contract
by engaging in the supply and sale of business forms in the Virginia
Beach area in violation of the non-competition covenant, and by tak-
ing proprietary customer artwork with him upon his termination.
Count II alleges that Hardee misappropriated the artwork and used it
to attract his former Jordan clients, in violation of the Virginia Uni-
form Trade Secrets Act. See Va. Code Ann.§ 59.1-336 et seq.
(Michie 1992 Repl. Vol.).
Reynolds sought to enjoin Hardee from engaging in the business
of buying, selling, trading, or dealing in business forms within a sixty-
mile radius of Virginia Beach. Reynolds also sought to enjoin Hardee
from using any trade secrets that he took from Jordan, including any
artwork of his former Jordan clients. Additionally, Reynolds asked for
compensatory damages in excess of $50,000 plus costs.
Hardee asserted several grounds before the district court for dis-
missal or summary judgment. The grounds relevant to this appeal are:
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(1) Reynolds lacked standing to sue under the employment agreement
because Jordan could not assign the agreement, or the non-
competition covenant therein, to Reynolds; and (2) Reynolds failed to
produce evidence sufficient to prove that Hardee actually misappro-
priated any artwork.
As to the breach of contract claim, the district court acknowledged
two lines of case law that reflect the conflicting policy considerations
underlying the assignability of non-competition covenants that arise
in the context of employment agreements. The court reasoned, how-
ever, that Hardee's covenant not to compete arose as part of a per-
sonal services employment contract. Because personal services
contracts are not assignable under Virginia law absent mutual con-
sent, the court concluded that Virginia would most likely follow the
line of precedent holding that such non-competition covenants may
also not be assigned. Thus, the court held that Jordan could not assign
the covenant to Reynolds.
With regard to the remaining count, for violation of the state trade
secrets act, the court reviewed the affidavits submitted by both parties
and granted Hardee's motion for summary judgment. The court con-
cluded that Reynolds failed to meet its evidentiary burden under Rule
56 to show that a genuine issue of material fact existed with regard
to whether Hardee actually took any artwork.
This appeal followed.* Having reviewed the record, briefs, and rel-
evant statutes and case law, and having had the benefit of oral argu-
ment, we conclude that the district court did not err. Accordingly, we
affirm on the reasoning of the district court. See Reynolds and Reyn-
olds Co. v. Hardee, 932 F. Supp. 149 (E.D. Va. 1996).
AFFIRMED
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*Shortly after filing this appeal, Reynolds, who had originally brought
this diversity case in federal court and lost, asked us to certify the ques-
tion of assignability of the non-competition covent to the Supreme Court
of Virginia. We declined to do so.
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