Emerson Electric Co. v. Guy Rogers

United States Court of Appeals
FOR THE EIGHTH CIRCUIT
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No. 05-1441
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Emerson Electric Co., *
*
Plaintiff - Appellee, *
* Appeal from the United States
v. * District Court for the Eastern
* District of Missouri.
Guy Rogers; Guy Rogers Sales, Inc., *
*
Defendants - Appellants. *
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Submitted: June 21, 2005
Filed: August 8, 2005
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Before MURPHY, RILEY, and SMITH, Circuit Judges.
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MURPHY, Circuit Judge.
Guy Rogers worked as a manufacturer's representative for Emerson Electric
Co. (Emerson), selling its ceiling fans to retailers in the southeast. When he left
Emerson to begin selling the fans of a competitor, Minka Lighting Company,
Emerson filed this lawsuit, alleging that Rogers misappropriated trade secrets and
violated the covenant not to compete in their Sales Representation Agreement. The
district court1 granted Emerson's motion for a preliminary injunction, and Rogers
appeals. We affirm.
1
The Honorable E. Richard Webber, United States District Judge for the
Eastern District of Missouri.
Guyan T. Rogers has worked as a manufacturer's representative for various
manufacturers since 1969. As a manufacturer's representative, Rogers markets and
sells products to retailers who then market the products to the general public. He is
currently the president and sole shareholder of Guy Rogers Sales, Inc., an
incorporated entity that represents lighting and fan manufacturers to retailers in
Georgia, Alabama, Tennessee, and Florida. The company pays three independent
contractors to serve as representatives, and Rogers himself continues to visit and
make sales calls to customers on a regular basis. He is presently 69 years old.
Rogers started selling Emerson's ceiling fans in 1988, and he began selling
Minka lighting products in 1987. Minka became his largest account, generating
approximately three million dollars annually in gross sales and $200,000 in annual
commissions. When Minka started manufacturing fans in 1994, it attempted to
persuade Rogers to sell its fans instead of Emerson's, but Rogers declined. Before
leaving Emerson in the fall of 2004, Rogers was selling approximately one million
dollars annually of its ceiling fan products, generating approximately $50,000 in
annual commissions.
Emerson first asked Rogers to sign a covenant not to compete in 1997 and then
asked him to sign another copy of the covenant in 1999. In their standard Sales
Representation Agreement, which contained the entire covenant, the parties
acknowledged that "customer relationships can often be difficult to develop and
require a significant investment of time and effort." Emerson agreed to engage and
compensate Rogers based upon his promise "not to divert [its] customer contacts,
loyalty and goodwill." If the parties were to end their relationship, Emerson "would
need certain protections to prevent its competitors from gaining an unfair competitive
advantage," loss of its goodwill, and misuse of proprietary information. By entering
into the agreement, Rogers would be obliged not to sell competitive products for a
period of one year after their relationship ended and during that period he would not:
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(a) in the Territory, enter the employment of, or act as a sales
representative, manufacturer's representative or agent for, any
person or entity which is engaged in the manufacture, supply or
sale of ceiling fans and accessories . . . which are competitive
with those products manufactured, supplied or sold by
Manufacturer ("Competitive Product"), or
(b) sell or provide any Competitive Product to any Customer with
whom Sales Representative dealt, for which Sales Representative
was responsible, or with respect to which Sales Representative
was provided or had access to Confidential Information . . . .
In the fall of 2004, Rogers terminated his relationship with Emerson. He
believed Minka was going to hire a new representative to represent its lighting
products unless he agreed to discontinue his relationship with Emerson and begin to
sell Minka's ceiling fans. On October 11 Rogers sent his resignation to Emerson to
be effective November 1, 2004; the letter was dated October 1, 2004. Rogers also
called his supervisor, Ed Springer, and informed him of his decision to leave Emerson
and to begin selling Minka fans. Springer did not warn Rogers that he was
contractually bound to wait one year before he began working for Minka or remind
Rogers of any other contractual obligations after he left Emerson.
Rogers took measures contrary to Emerson's interests almost immediately after
he terminated his relationship with it. After giving Emerson his resignation, Rogers
visited his contacts at Georgia Lighting. Georgia Lighting has been a valuable
customer for both Rogers and Emerson; it has been one of Rogers' top two accounts
and one of Emerson's top five national accounts. During this visit Rogers talked with
Roxanne Todd and Mary Hardy, who influence the types and quantities of fan
products purchased by Georgia Lighting. He told them that he was leaving Emerson
and would be representing Minka's ceiling fan products and would like to continue
doing business with them. Rogers did not return any of Emerson's materials until after
its attorney sent him a "cease and desist" letter demanding immediate return of all
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Emerson materials. Even after he received the letter, Rogers did not return all of the
materials; he claims he did not understand the breadth of materials which Emerson
deemed confidential.
At the time Rogers left Emerson, the parties suspected that Georgia Lighting
was going to go out of business. The district court found that a notice had been
circulated that Georgia Lighting would no longer operate its retail stores as of January
25, 2005, and the record indicates that Georgia Lighting is no longer operational.
There is evidence that its employees would likely remain in the ceiling fan and home
lighting industries, however.
On November 8, 2004, Emerson filed this action in state court, alleging that
Rogers had breached his agreement and misappropriated trade secrets under
Missouri's Uniform Trade Secrets Act. Emerson sought both monetary and injunctive
relief. After Emerson moved for a temporary restraining order and a preliminary
injunction, Rogers successfully petitioned to remove the case to federal court. Minka
has paid for his defense in this action.
The federal district court granted Emerson's motion for a temporary restraining
order and then held two evidentiary hearings before granting Emerson's motion for
a preliminary injunction. It also permitted Emerson to amend its pleadings to add
Guy Rogers Sales, Inc. as a defendant. The injunction enjoined Guy Rogers and all
agents of Guy Rogers Sales, Inc. from engaging in the sale of ceiling fans competitive
with those manufactured by Emerson Electric Company for a period of one year from
November 1, 2004, in the territory of Georgia, Alabama, and the panhandle of
Florida.
Rogers appeals, arguing that the district court abused its discretion when it
issued the injunction. Although the injunction only restricts Rogers from selling
ceiling fans in competition with Emerson in the defined territory, he maintains that
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we should look at the broader language of the covenant which would prevent him and
his company from working in any capacity for a competitor of Emerson. He argues
that the covenant is unenforceable in any respect because of its breadth. He also
argues that the district court should not have barred him from selling ceiling fans to
all potential customers in the geographic region, but only to customers of Emerson.
Rogers also maintains that the district court erred by applying Missouri law in
deciding whether the covenant is enforceable and by issuing an injunction without
considering whether to impose a bond.
In determining whether to grant a preliminary injunction a court considers (1)
the probability of the movant's success on the merits; (2) the threat of irreparable
harm to the movant; (3) the balance between this harm and the injury that granting the
injunction will inflict on other interested parties; and (4) whether the issuance of the
preliminary injunction is in the public interest. See Dataphase Sys., Inc. v. C L Sys.,
Inc., 640 F.2d 109, 114 (8th Cir. 1981). A district court has broad discretion when
ruling on preliminary injunction requests, and we will reverse only for clearly
erroneous factual determinations, an error of law, or an abuse of discretion. United
Indus. Corp. v. Clorox Co., 140 F.3d 1175, 1179 (8th Cir. 1998).
In Missouri there are two primary considerations governing the enforceability
of covenants not to compete: the parties' agreement must protect well recognized
employer interests, and the terms must be reasonable in geographic and temporal
scope. Furniture Mfr. Corp. v. Joseph, 900 S.W.2d 642, 647 (Mo. Ct. App. 1995).
Emerson argues that its covenant not to compete is necessary to protect its trade
secrets and its customer contacts, both of which have been recognized as legitimate
employer interests in Missouri. See Armstrong v. Cape Giradeau Physician Assoc.,
49 S.W.3d 821,k 825 (Mo. Ct. App. 2001).
Rogers responds, arguing that Emerson is not likely to prevail on the merits
because Emerson does not have a cognizable interest in customers he had before he
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started to work with Emerson and in customers who had never before purchased
Emerson products. He asserts that the parties' agreement can not be enforced because
he did not have special influence over Emerson's customers. Since Rogers
represented more than one manufacturer at a time, he also argues that customers never
associated him with only one manufacturer.
Under Missouri law, covenants not to compete may be enforced, for "an
employer has a proprietary right in his stock of customers and their good will." Mills
v. Murray, 472 S.W.2d 6, 12 (Mo. Ct. App. 1971). Customer contacts may be
protected under a restrictive covenant since sales personnel may "exert a special
influence over [a] customer." Zemitsch v. Harrison, 712 S.W.2d 418, 422 (Mo. Ct.
App. 1986). "An express agreement not to compete may be enforced as to employees
having substantial customer contacts. It is not necessary to show that there is a secret
customer list." Osage Glass, Inc. v. Donovan, 693 S.W.2d 71, 75 (Mo. 1985) (en
banc).
Although Rogers represented the products of different manufacturers, his
success as a representative shows that he has had special influence over Emerson's
customers. Emerson's interest in protecting its relationships with customers to whom
Rogers sold products prior to his relationship with it is now as important to Emerson
as is its ability to sell to new customers. Emerson has a legitimate business interest
in restraining Rogers from violating the terms of their agreement by unfairly using the
relationships he developed or strengthened while working with it. During the course
of Rogers' affiliation with Emerson, he has acquired knowledge regarding its sales
practices, pricing strategies, and marketing mechanisms, and Emerson has a
legitimate interest in restraining him from using that knowledge in the immediate
future to lure away its customers. The district court did not abuse its discretion by
finding that the agreement protected a recognizable interest.
Rogers also attempts to argue that he was unaware of the covenant not to
compete and that Emerson has failed to enforce the covenant as to other employees
and in other situations. The district court found that while Rogers claimed to be
unaware of the covenant not to compete, his testimony was "not believable" because
of correspondences between Emerson and Rogers in January of 2003 that explicitly
referenced the covenant. This finding is not clearly erroneous, and there is no dispute
that Rogers voluntarily signed the agreement and that the covenant was clearly
written in the main text of the agreement. While Emerson may not have exercised its
rights under the covenant on every occasion, there is no credible evidence that
Emerson's failure to do so rose to a waiver of its right to enforce the agreement as to
Rogers or that its failure to enforce the agreement as to other employees makes it any
less likely that Rogers could use information gained during his relationship with
Emerson to unfairly compete against it.
Rogers also maintains that the covenant not to compete is unenforceable
because it is unreasonably broad. "The question of reasonableness of a restraint
requires a thorough consideration of surrounding circumstances, including the subject
matter of the contract, the purpose to be served, the situation of the parties, the extent
of the restraint, and the specialization of the business." House of Tools and Eng'g,
Inc. v. Price, 504 S.W.2d 157, 159 (Mo. Ct. App. 1973) (internal quotation omitted).
The reasonableness of the covenant is determined in light of the specific
circumstances present in the case. Washington County Memorial Hospital v.
Sidebottom, 7 S.W.3d 542, 545 (Mo. Ct. App. 1999).
The covenant and injunction only apply to the region in which Rogers worked
for Emerson and only extend for one year from the time at which Rogers stopped
selling Emerson's products. Thus, the restriction in the injunction runs only to
November 1, 2005. Although it applies to potential as well as current Emerson
customers, the district court heard evidence that Rogers attempted to solicit business
from Emerson immediately after he resigned. Georgia Lighting's decision to go out
of business illustrates the reasonableness of the restraint at issue. If Georgia
Lighting's former employees were to start working for a new entity, the injunction
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would not protect Emerson from abuse of the relationship Rogers formed with its
customers unless it extended to any customer in the region. The one year restriction
will allow Emerson time to employ a new representative who can become acquainted
with the territory and the customers before Rogers begins marketing Minka's fans.
Since Rogers has a vast amount of knowledge about Emerson's products, sales
methods, and pricing strategies, the district court did not abuse its discretion by
finding it reasonable to keep Rogers from working for any of Emerson's competitors
in any capacity for the limited period.
To show irreparable harm in Missouri an employer need only demonstrate that
there is a threat of irreparable harm; the employer is not required to demonstrate that
actual damage has occurred. Osage Glass, Inc., 693 S.W.2d at 75. If Rogers were to
lure away Emerson's customers and retain them for Minka, it would be difficult to
measure the amount of damages caused by the unfair competition and impossible to
remedy fully because the consumers could not be forced to purchase Emerson's
products.
Finally, Rogers argues that the district court abused its discretion when it found
that the harm to Emerson outweighs the potential harm to him and that issuance of the
injunction is in the public interest. We disagree. Rogers knowingly and voluntarily
agreed to be restricted by the covenant, and any perceived harm to him by the
enforcement of the agreement is outweighed by the harm foreseeable to Emerson. As
an independent contractor, Rogers worked as a manufacturer's representative for
approximately thirty years before he entered into the covenant not to compete. He
served as a representative to at least three other companies, and he earned annual
commissions larger than those he earned from Emerson from at least two of the other
companies. Even with the injunction, he retains the ability to sell lighting products
to any customer in the region. He will only be barred from selling fan products for
a period of one year from the date he left Emerson, that is until November 1, 2005.
Although Rogers submitted an affidavit from Pat Wilson, Minka's Vice President for
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Sales, that Minka would hire a new representative to represent all of its products in
the territory if Rogers could not represent both its ceiling fan and lighting products,
it cannot be said that the district court abused its discretion by enforcing an agreement
that only restricts Rogers for one calendar year. By voluntarily signing the
agreement, Rogers continued earning commissions from the sale of Emerson
products. The district court did not clearly err in finding that the potential harm to
Rogers did not outweigh the harm to Emerson if Rogers was permitted to compete
against it in contravention of their agreement.
Where there is a legal covenant not to compete, "and the opportunity for
influencing customers exists, enforcement is appropriate." Osage Glass, Inc. v.
Donovan, 693 S.W.2d at 75. Based on the limited duration of the covenant, Rogers'
consent to the covenant, and the risk Emerson will suffer unquantifiable harm, the
district court did not abuse its discretion by finding that the public policy of Missouri
encouraged the enforcement of the covenant not to compete. See Natl. Starch &
Chem. Corp. v. Newman, 577 S.W.2d 99, 104 (Mo. Ct. App. 1978) ("The policy of
Missouri is to enforce reasonable restrictive covenants which tend to protect Missouri
businesses from unfair competition by former employees.").
Rogers spends a substantial portion of his brief arguing that the law of Georgia
rather than Missouri should determine whether the covenant not to compete is
enforceable, but counsel did not address the subject at oral argument. The parties
agreed in the Standard Sales Agreement that Missouri law would govern any dispute
regarding the terms of the agreement, including the covenant not to compete. Rogers'
assertion that conflict of law principles dictate that the district court should have
applied Georgia law is without merit. Each state has a substantial interest in the
validity of the covenant. Even assuming that Missouri were the default state and that
a Georgia court would be more likely to find the covenant unenforceable, there is no
indication Missouri lacks all interest in the transaction or that Georgia's interest in the
dispute is materially greater than that of Missouri. Restatement (Second) Conflict of
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Laws § 187 (1971). The district court did not err by applying Missouri law to
determine whether the injunction should be issued.
Rogers also argues the district court's initial failure to consider imposing a
bond requirement on Emerson rendered the injunction invalid under Federal Rule of
Civil Procedure 65(c). Since Emerson has meanwhile posted a bond in the amount
of $105,000.00, we need not reach the merits of this contention. 2
Accordingly, we affirm the preliminary injunction issued by the district court
and remand for further proceedings.
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2
After oral argument, Emerson filed a motion requesting leave to file a
supplemental appendix that evidenced its $105,000.00 bond. We now grant the
motion.
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