Kross Acquisition Co., L.L.C. v. Groundworks Ohio, L.L.C. ( 2024 )

[Cite as Kross Acquisition Co., L.L.C. v. Groundworks Ohio, L.L.C., 2024-Ohio-592.]
IN THE COURT OF APPEALS
FIRST APPELLATE DISTRICT OF OHIO
HAMILTON COUNTY, OHIO
KROSS ACQUISITION CO., LLC, : APPEAL NO. C-230272
TRIAL NO. A-2201033
Plaintiff-Appellant, :
vs. : O P I N I O N.
GROUNDWORKS OHIO LLC, et al., :
Defendants, :
and :
ROGER KIEF, :
Defendant-Appellee. :
Civil Appeal From: Hamilton County Court of Common Pleas
Judgment Appealed From Is: Affirmed
Date of Judgment Entry on Appeal: February 16, 2024
Yocum & Neuroth, LLC, Thomas R. Yocum, Cors & Bassett, LLC, and Patrick M.
O’Neill, for Plaintiff-Appellant,
Moore & Van Allen PLLC, Sarah Negus, Paul J. Peralta, Caroline F. Savini, Eberly
McMahon Copetas LLC, and David A. Eberly, for Defendant-Appellee.
OHIO FIRST DISTRICT COURT OF APPEALS
CROUSE, Judge.
{¶1} Plaintiff-appellant Kross Acquisition Co., LLC, (“Kross”) is a basement
waterproofing contractor. Kross brought this action to enforce a “Confidentiality and
Non-Competition Agreement” (the “NCA”) against its former salesperson, defendant-
appellee Roger Kief. In contravention of the terms of the NCA, Kief left Kross to work
in a virtually identical sales position for competitor Groundworks Ohio, LLC,
(“Groundworks”). The trial court granted summary judgment in favor of Kief on the
basis that the NCA was unenforceable. For the following reasons, we affirm the
judgment of the trial court.
I. Procedural and Factual History
{¶2} Kross is a renovation contractor that specializes in foundation and crawl
space waterproofing, repair, and related work. Kross provides service in southwestern
Ohio, southeastern Indiana, and northern and eastern Kentucky. Groundworks is a
direct competitor of Kross that is engaged in substantially the same business. Through
its various affiliated companies, Groundworks serves the entire state of Ohio, as well
as substantial portions of Kentucky, Indiana, and many other states.
{¶3} Kief began working for Kross as a salesperson and estimator in July
2012. In May 2017, Kief signed the NCA with Kross. The NCA prohibits Kief from
“disclos[ing] any of such confidential information, trade secrets or other proprietary
information” belonging to Kross. The NCA also prohibits Kief from working anywhere
in Ohio or Kentucky “directly or indirectly” for any company engaged in “the business
of inspections, estimating/pricing, and repair work relating to basement
waterproofing, foundation repair, crawl space vapor barrier installation, other work
relating to wet, leaky basements, moisture problems in crawl spaces, mold, bowed,
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cracked, settling or sinking foundation walls or other business engaged in by” Kross
for two years following the end of Kief’s employment with Kross.
{¶4} In February 2022, Groundworks offered Kief a virtually identical
position, with a start date of March 2022. In its offer letter, Groundworks
acknowledged that Kief was subject to the NCA, but stated its belief that the NCA was
unenforceable and offered to cover any legal expenses necessary to challenge the NCA.
{¶5} In late March 2022, Kross filed the instant suit against Groundworks
and Kief. In its first amended complaint, Kross sought injunctive relief and damages
against Groundworks and Kief. Kross claimed breach of contract, tortious interference
with business relations, violation of the Ohio Trade Secret Act, and civil conspiracy
against Kief. Kross also claimed tortious interference with contractual relations,
violation of the Ohio Trade Secret Act, and civil conspiracy against Groundworks. In
February 2023, Kross voluntarily dismissed its claims against Groundworks without
prejudice.
{¶6} Kross alleges that Kief attended a trade show on its behalf during the
waning days of his employment with Kross in early March 2022. Kross alleges that
Kief appropriated potential business contacts from that trade show for his use after
starting work for Groundworks. Kross also alleges that Kief copied “hundreds of files”
containing sales proposals from Kross’s computer system to a thumbdrive. Kross
alleges that Kief has used the information copied to solicit Kross’s customers and
potential customers.
{¶7} Kross filed a motion for partial summary judgment as to the injunctive
relief sought, as well as a finding of liability against Groundworks and Kief. Kief filed
his own motion for summary judgment asking for judgment in his favor on all claims.
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Following a hearing, the trial court granted summary judgment in favor of Kief and
denied Kross’s motion.
{¶8} This appeal timely followed.
II. Analysis
{¶9} In a single assignment of error, Kross argues that the trial court erred in
granting summary judgment in favor of Kief and denying its motion for partial
summary judgment. Within its assignment of error, Kross presents several issues for
our review. Specifically, Kross asks us to review the trial court’s findings that the NCA
is unenforceable, that Kross’s trade-secrets claim fails as a matter of law, and that the
NCA’s liquidated-damages provision is unenforceable.
{¶10} Because the appeal challenges the court’s decision on a motion for
summary judgment, this court’s review is de novo. Environmental Solutions &
Innovations, Inc. v. Edge Eng. & Science, LLC, 1st Dist. Hamilton No. C-220634,
2023-Ohio-2605, ¶ 6. Under Civ.R. 56(C), summary judgment is appropriate when the
moving party establishes (1) there are no genuine issues of material fact, (2) the
moving party is entitled to judgment as a matter of law, and (3) construing the
evidence most strongly in favor of the nonmoving party, “reasonable minds can come
to but one conclusion and that conclusion is adverse to the party against whom the
motion for summary judgment is made.” Id., quoting Civ.R. 56(C).
Validity of the NCA
{¶11} The parties agree as to the existence of the NCA and its terms. The
bedrock case for evaluating the enforceability of noncompetition agreements is
Raimonde v. Van Vlerah, 42 Ohio St.2d 21, 325 N.E.2d 544 (1975).
{¶12} A noncompetition agreement “is enforceable only if the restraint ‘is no
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greater than is required for the protection of the employer, does not impose undue
hardship on the employee, and is not injurious to the public.’ ” Wigton v. Univ. of
Cincinnati Physicians, Inc., 2021-Ohio-3576, 179 N.E.3d 241, ¶ 6 (1st Dist.), quoting
Raimonde at 26. Cases involving noncompetition agreements must be decided on the
facts of the specific case. Raimonde at 25. Courts consider the following factors in
determining enforceability:
(1) whether the agreement contains time and space limitations; (2)
whether the employee is the sole contact with the customer; (3) whether
the employee has confidential information or trade secrets; (4) whether
the covenant seeks to limit only unfair competition or is designed more
broadly to eliminate ordinary competition; (5) whether the agreement
seeks to stifle the employee’s inherent skill and experience; (6) whether
the benefit to the employer is disproportional to the detriment to the
employee; (7) whether the agreement bars the employee’s sole means of
support; (8) whether the skills that the agreement seeks to restrain were
actually developed during the employment; and (9) whether the
forbidden employment is merely incidental to the main employment.
Wigton at ¶ 6, citing Raimonde at 25.
{¶13} Kief’s NCA specifies that Kief is restricted from working in the specified
field for two years and throughout Ohio and Kentucky. However, the evidence before
the trial court showed that Kross’s service area covers only a portion of southwestern
Ohio and about half of Kentucky, as well as a small portion of Indiana. And even
though Kross services areas of Ohio, Kentucky, and Indiana, the parties do not dispute
that the areas where Kief actually worked with clients is only a portion of that service
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area.
{¶14} At the summary-judgment hearing, and again at oral argument on
appeal, counsel for Kross admitted that the geographic and temporal limitations
exceed what is necessary to protect Kross’s legitimate business interests. We agree.
Accordingly, the NCA as written is unenforceable.
{¶15} However, that the NCA as written is unenforceable does not end our
analysis. Kross argues that the trial court should have modified or amended the scope
of the NCA rather than finding it unenforceable. In support of its argument that
modification of the NCA is mandatory, Kross relies on the syllabus in Raimonde which
states, “A [covenant] not to compete which imposes unreasonable restrictions upon
an employee will be enforced to the extent necessary to protect an employer’s
legitimate interests.” Raimonde, 42 Ohio St.2d 21, 325 N.E.2d 544, at paragraph one
of the syllabus.
{¶16} Despite this seemingly mandatory language in the Raimonde syllabus,
the court stated later in the opinion, “[T]his court holds, for the first time, that a trial
court may enforce a covenant ‘to the extent necessary to protect an employer’s
legitimate interests * * *.’ ” (Emphasis added.) Id. at 28. In Professional
Investigations & Consulting Agency, Inc. v. Kingsland, 69 Ohio App.3d 753, 760, 591
N.E.2d 1265 (10th Dist.1990), the Tenth District held, “The use of permissive language
in the Raimonde decision implies that modification is within the discretion of the trial
court.” See also Facility Servs. & Sys., Inc. v. Vaiden, 8th Dist. Cuyahoga No. 86904,
2006-Ohio-2895, ¶ 54 (“[T]he trial court was not mandated to modify the provisions
to render them enforceable.”); LCP Holding Co. v. Taylor, 158 Ohio App.3d 546,
2004-Ohio-5324, 817 N.E.2d 439, ¶ 61 (11th Dist.) (“Although a trial court may modify
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an unreasonable restrictive covenant to make it reasonable and enforceable, it is not
required to do so.”).
{¶17} We agree that it is within a trial court’s discretion to modify a
noncompetition agreement, and so we review its decision not to modify such an
agreement for an abuse of discretion. “Abuse of discretion occurs when ‘a court
exercis[es] its judgment, in an unwarranted way, in regard to a matter over which it
has discretionary authority.’ ” State v. Austin, 1st Dist. Hamilton Nos. C-210140 and
C-210141, 2021-Ohio-3608, ¶ 5, quoting Johnson v. Abdullah, 166 Ohio St.3d 427,
2021-Ohio-3304, 187 N.E.3d 463, ¶ 35. An abuse of discretion “implies that the court’s
attitude is unreasonable, arbitrary or unconscionable.” Blakemore v. Blakemore, 5
Ohio St.3d 217, 219, 450 N.E.2d 1140 (1983).
{¶18} In the case at bar, the parties dispute what a reasonable geographic
restriction would look like: whether Kross can protect its entire service area, or
whether the agreement should cover only the areas where Kief personally visited
clients. Further, Kross could not state with certainty what a reasonable temporal
limitation would be. In a deposition of Kross’s co-owner and Civ.R. 30(B)(5)
representative, Robert Miles, Miles agreed that an 18-month restriction would be just
as effective as the 24-month restriction contained in the NCA. When asked if a 12-
month restriction would be just as effective, Miles answered, “Maybe, maybe not.”
{¶19} Additionally, the NCA prohibited Kief from engaging in a broad scope
of potential employment. The NCA prohibited Kief from working “directly or
indirectly” for any company engaged in “the business of inspections,
estimating/pricing, and repair work relating to basement waterproofing, foundation
repair, crawl space vapor barrier installation, other work relating to wet, leaky
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basements, moisture problems in crawl spaces, mold, bowed, cracked, settling or
sinking foundation walls or other business engaged in by” Kross. Kross argued that the
legitimate business interests to be protected were its customer lists and pricing
methods. While we agree that such information can constitute legitimate business
interests that may be protected by a noncompetition agreement, the scope of work
prohibited to Kief exceeds what is necessary to protect those interests. In particular,
the restriction on working “directly or indirectly” for any competing company, and
apparently in any role, does not bear a sufficiently direct relationship to the interests
Kross seeks to protect.
{¶20} With so many factors and considerations necessary to rewrite the NCA
to comport with Raimonde’s rule of reasonableness, we hold that the trial court did
not abuse its discretion by refusing to modify Kief’s NCA. See Professional
Investigations, 69 Ohio App.3d at 760, 591 N.E.2d 1265 (“To bring [plaintiff’s] non-
competition clause into compliance with the rule of reasonableness, the trial court
could not easily modify existing provisions but might be required to rewrite the entire
covenant. * * * We have found no case which states that a trial court must totally
rewrite a provision in order to carry out its discretionary powers.”); S & S, Inc. v. Kuret,
8th Dist. Cuyahoga Nos. 62478 and 63042, 1993 Ohio App. LEXIS 2442, 9 (May 13,
1993) (“It is not mandatory for this court to modify the covenant to make it a
reasonable restraint and it is not an abuse of discretion for us to decline to modify the
time and space restrictions of the covenant as it is unenforceable on its face.”).
Kross’s Trade-Secrets Claim
{¶21} Kross argues that the trial court erred by granting summary judgment
on its trade-secrets claim because there are genuine issues of material fact that
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preclude a decision on summary judgment.
{¶22} Under the Ohio Uniform Trade Secrets Act, R.C. 1333.61 to 1333.69,
misappropriation of a trade secret may be prevented by injunction, R.C. 1333.62(A),
or compensated by recovery of damages, R.C. 1333.63(A).
{¶23} “Trade secret” means:
information, including the whole or any portion or phase of any
scientific or technical information, design, process, procedure, formula,
pattern, compilation, program, device, method, technique, or
improvement, or any business information or plans, financial
information, or listing of names, addresses, or telephone numbers, that
satisfies both of the following:
(1) It derives independent economic value, actual or potential, from not
being generally known to, and not being readily ascertainable by proper
means by, other persons who can obtain economic value from its
disclosure or use.
(2) It is the subject of efforts that are reasonable under the
circumstances to maintain its secrecy.
R.C. 1333.61(D).
{¶24} To prevail on a claim of misappropriation of a trade secret, the plaintiff
must “show by a preponderance of the evidence: (1) the existence of a trade secret; (2)
the acquisition of a trade secret as a result of a confidential relationship; and (3) the
unauthorized use of a trade secret.” Tomaydo-Tomahhdo L.L.C. v. Vozary,
2017-Ohio-4292, 82 N.E.3d 1180, ¶ 9 (8th Dist.). In analyzing such a claim, the court
must consider:
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(1) The extent to which the information is known outside the business;
(2) the extent to which it is known to those inside the business, i.e., by
the employees; (3) the precautions taken by the holder of the trade
secret to guard the secrecy of the information; (4) the savings effected
and the value to the holder in having the information as against
competitors; (5) the amount of effort or money expended in obtaining
and developing the information; and (6) the amount of time and
expense it would take for others to acquire and duplicate the
information.
Id. at ¶ 11, quoting Salemi v. Cleveland Metroparks, 145 Ohio St.3d 408,
2016-Ohio-1192, 49 N.E.3d 1296, ¶ 25.
{¶25} Kross alleges that Kief (1) retained and used customer lists to solicit
Kross customers while working for Groundworks and (2) downloaded customer
proposals from Kross’s computer system in the days prior to his resignation and used
those proposals in soliciting Kross customers.
{¶26} The Ohio Supreme Court has held that:
Customer lists have been held to constitute trade secrets. However, to
be a trade secret, a customer list must contain more than a list of names,
when the identity of the customers is “readily ascertainable through
ordinary business channels or through classified business or trade
directories.” Rather, it must contain information not generally known
to or readily ascertainable by the public.
(Citations omitted.) Salemi at ¶ 26.
{¶27} In the case at bar, Kross does not allege that Kief downloaded a master
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customer list from its computer database. Rather, Kross alleges that Kief retained
customer contact information on his personal mobile phone after he resigned from his
employment. The record shows that Kross was aware that Kief used his personal
phone for company business, even though he was provided with a company phone and
directed on multiple occasions that he should only use the company-supplied phone
for conducting business. Kief was not subject to discipline for his consistent refusal to
use the company phone, as directed. Kross also did not undertake any efforts, despite
this knowledge, to ensure that Kief removed customer contact information from his
phone following his resignation.
{¶28} Because of the limited nature of the customer contact information Kross
alleges Kief retained, and because of the lack of effort put forth by Kross to maintain
confidentiality of the customer contact information stored on Kief’s phone, we hold
that there is no genuine issue of material fact that would support Kross’s claim that
the customer contact information retained by Kief constitutes a trade secret.
{¶29} Kross also alleges that Kief misappropriated the customer proposals
that Kief downloaded in the days prior to his resignation. Kief argues that the customer
proposals cannot constitute trade secrets because the proposals are given to customers
with no requirement that the customers keep the proposals confidential. On the
contrary, customers are encouraged to share the proposals freely with competitors
when comparing prices. Because Kross does not undertake efforts to keep the
customer proposals confidential, the customer proposals cannot be trade secrets.
{¶30} Because Kross has failed to show that the customer contact information
or customer proposals constitute trade secrets, the trial court did not err in granting
summary judgment in favor of Kief on Kross’s trade-secrets claim.
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Liquidated Damages
{¶31} Finally, Kross argues that the trial court erred in holding that Kross
cannot recover damages under the NCA’s liquidated-damages provision because Kross
failed to show that it suffered any actual damages. Because we have held that the NCA
is unenforceable, Kross is not entitled to seek damages under the NCA’s liquidated-
damages provision.
III. Conclusion
{¶32} Kross’s sole assignment of error is overruled, and the judgment of the
trial court is affirmed.
Judgment affirmed.
BOCK, P.J., and KINSLEY, J., concur.
Please note:
The court has recorded its entry on the date of the release of this opinion.
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