Appeal_Brief_of_Appellee_(UZ_Engineered_Products)

Appeal_Brief_of_Appellee_(UZ_Engineered_Products) - IN THE...

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Unformatted text preview: IN THE COURT OF APPEALS OF OHIO TENTH APPELLATE DISTRICT FRANKLIN COUNTY, OI‘TIO MIDWEST MOTOR SUPPLY CO., ) APPELLATE CASE NO. INC., d/b/a KIMBALL-MIDWEST, ) , 01 AP-551 et 31., ) ) Appellants, ) TRIAL COURT CASE NO. ) 99CVI‘I 11-9731 ) vs. ) ) . UZ ENGII‘V’EERED PRODUCTS, ) Regular Calendar a division of STATE INDUSTRIAL ) CORPORATION, ) ) Appellee. ) BRIEF OF APPELLEE UZ ENGINEERED PRODUCTS John W. Ferron (0024532) Nicholas D. Satullo (0017364) Sloan T. Spalding (0068054) T. Anenson (0063734) Dawn M. Dunker (0069068) REMINGER 8c REMINGER FERRON 8C ASSOCIATES The 113 St. Clair Building A Legal Professional Association Cleveland, Ohio 44114 240 North Fifth Street, Suite 300 (216) 0687-1311 Columbus, Ohio 43215-2611 (614) 228-5225, 223-3255 fax Attorneys for Appellant William A. Barnett (0007031) Jennifer H. Goiman (0042610) STATE INDUSTRIAL CORP. 3100 Hamilton Avenue 4 Geveland, Ohio 44114 (216) 931-7511 Attorneys for Appellee STATEMENT OF THE ISSUES PRESENTED FOR REVIEW ASSIGNMENT OF ERROR NUMBERTWO 0 Did the trial court correctly determine that the two-year territorial restriction against competition in Appellee’s contract was reasonable and enforceable? ' 0 Did Appellant fail to establish that it w0uld be prejudiced by enforcement of the territorial restriction because the evidence established that Appellant violated all of the other restrictive covenants aswell? STATEMENT OF THE FACTS This is a case seeking damages by one business against another for the unlawful solicitation of employees in order to gain an unfair competitive advantage. Appellee, UZ Engineering Products, Inc, sells various products to companies engaged in. i the maintenance and repair of equipment throughout the country. .(TOP 61, 82-82, 99, 101-03, 157, 215, 433) Personal contact is essential to securing these sales. (TOP 73-74; Defendant’s Proposed Finding of Fact and Conclusions of' Law in Support of Its Rule 41(B)(2) Motion to Dismiss and its Rule 50 (A)(1) Motion for Directed Verdict) Consequently, Appellee expends significant effort and money in training'its sales personnel in customer development, company products, and selling techniques. (TOP 68—69, 85, 104-05) Given the investment in training and the significance of personal selling to the continued viability of the company, Appellee’s employees agree to refrain from and/ or soliciting other persons to work for a competitor in their same geographic territory for a period of two years after the termination of their employment. (Plaintiff Exhibit Nos. 2, 8, 16) Appellant, Kimball Midwest, competes with Appellee byselling similar products to the same customers. (TOP 99, 157, 215) Due toithe importance of the sales force in the industry, Appellant has its employees execute employment contracts that contain restrictive covenants with Mme same temporal and geographic limitations as Appellee. (TOP 61-67, 93-95, 105, 628-29, 643—647) D Beginning in November of 1998 and continuing for about one year, Appellant wrongly solicited several employees of Appellee. (TOP 118-19, 203, 205-09, 224-33, 159-71) Appellant’s secret solicitation was accomplished primarily through Jeffrey Moore, a former employee of Appellee. (TOP 96, 103, 118-21, 146-47, 159-71, 232~34, 556-61, 772, 881, 947, 1011-13) As a result, five employees quit their jobs With Appellee and began working with Appellant in violation 2 of the non—compete clauses in their employment contracts. (TOP 90-91, 149—55, 213) These employees were Michael McLane, James Grady, Stanley Boyd, Katherine Weber, and Nlichael Greig. (Id) As a consequence of Appellant’s successful solicitation of Appellee’s employees, Appellee suffered significant financial repercussions, including the loss of sales, customers, and its good name. (TOP 44346, 540, 568-69, 571) STATEMENT OF THE CASE Appellee brought suit seeking compensatory and punitive damages against Appellant a well as its former employees. The Pleadings In its complaint, Appellee alleged several claims sounding in both ton and contract. (Second Amended Complaint) Appellee’s claims included one against Appellant for tortious interference with the contracts between itself and its former employees. (Id) Appellant jointly answered the complaint and asserted various affirmative defenses. (Answer of Defendants to Plaintiff’s Second Amended Complaint and Defendants’ Counter- Appellant additionally counter-claimed. against Appellee, asserting that the restrictive covenants contained in the employment contracts were over-broad and should be reformed. (Id) - V Appellee answered the counter-claim and maintained, imer alia, that Appellant should be precluded from contesdng the non—compete and non-solicitation agreements due t6 the fact that its own employment agreements contain the same restrictions. (Plaintiff’s Reply to Counterclaims of Defendants Midwest Motor Supply, Moore and Gradfi The Trial A seven-day trial commenced on Noyember 15, 2000. Due to the nature of the case, Appellee presented most of its evidence through the testimony on cross-examination of its former employees and the introduction of Appellant’s sales records and reports. The evidence at trial established the following: After working for Appellee as a sales manager for nearly two decades, Mr. Moore accepted a position with Appellant. (TOP 90) Like his former responsibilities, Mr. Moore’s job duties with Appellant included-recmiting new sales persons for the same territory that he had managed for Appellee in violation of the territorial restrictions in his contract. (TOP 9093) After Appellant hired Mr. Moore, he then began secretly soliciting several other employees of Appellee in violation of the non-solicitation resUiCtions in his contract with Appellee. (TOP 96, 103, 118-21, 146-47, 159-71, 205-09, 224-33, 556-61, 772, 881, 947, 1011-13) For those employees in which he was successful, Appellant placed them in exactly the same territory they had worked with Appellee in violation of their non-compete agreements. (TOP 91, 149, 154-55, 213) In further violation of their non-compete restrictions, these employees began calling on their former customers. (TOP 106-114, 116-147, 205-09, 229123454, 256-76, 159-171, 172-199; Plaintiff’s Exhibits 5, 6, 11, 12A, 19-21, 26-27) 1 . Despite requiring its own employees to execute restrictive covenants against competition and solicitation, Appellant’s management and President told Appellee’s former emplo;ees to disregard the same provisions in their contracts with Appellee. (T OP 68~69, 79—81, 632-40, 644- 47, 649-54) At the conclusion of the trial, the court determined that all of the restrictive ccwenants in Appellee’s contracts were enforceable as written. (TOP 608, 908; 1/ 24/ 01 Findings of Fact and Oonclmions of Law on Defendants’ Oounterclaims) The then found Appellant liable for 4 tom'ously interfering with the contracts between Appelleeand its former employees and amxded ‘ I _ $99,837 in compensatory and punitive damages. (1/24/01 Judgment Entry) This appeal followed. W RESPONSE TO ASSIGNMENT OF ERROR NUMBER TWO THE TRIAL COURT PROPERLY DETERMINED THAT APPELLEE’S CONTRACTS WITH FORMER EMPLOYEES MOORE, MCI.ANE, AND GRADY WERE VALID AND ENFORCEABLE. Appellant claims that the trial court erred in determining that Appellee’s contracts with employees Moore, McLane, and Grady were valid and enforceable. In particular, Appellant contends that the prohibition against competing in their fonner sales territories for two years is an unreasonable restraint of trade. Appellant’s contention fails to withstand scrutiny. I I i The trial court, on two occasions, considered the facts and the law and determined that Appellant’s contracts with its former employees were reasonable and enforceable.3 (TOP 608, 908-09) At the close of Appellee’s case in chief, Appellant moved for the involuntary dismissal of Appellee’s tortious interference claim pursuant to Civ.R. 41(B) (2) on the ground that the territorial restriction was overbroad and unreasonable.‘ (TOP 600) Despite overwhelming and undisputed evidence to the contrary, Appellant also moved under Civ.R. 50(A)(1) for a directed verdict and argued that Appellee had presented no evidence of breach of the other contract restrictions soliciting employees and former customers. (TOP 606—07) Appellant then renewed those motions at the close of all the evidence. (TOP 904) At the same time, Appellee also moved for, involuntary dismissal of Appellant’s counterclaim to reform the contract and remove the territorial restriction as unreasonable restraint of trade. (TOP 901) - Appellant claims error from the denial of the directed verdict, which is essentially derivative to the court’s determination of enforceability. Appellant’s argument, however, focuses 3 Appellant did not specify in its brief which ruling it considered error. Appellee will assume that it claims error as to both. 4 A determination of the extent of a contract’s enforceability affects the claim for Tortious Interference with Contract because the first element of that claim requires that a contract ex'st. 11 strictly on the enforceability of the contract. As such, Appellee proposes that the assigned error is better addressed-as the denial of an involuntary dismiSSal that should be reviewed under the manifest weight standard. Notably, regardless of the judgment from which the error is claimed, the nature of the determination, or the standard of‘review, the court’s decision to enforce the contract as written was correct. _ I. Standard of Review An appellate court will only reverse a finder of fact’s determination at trial in the exceptional circumstance where the evidence weighs heavily against the decision. See, eg, ambnymis Ca 11 513072271 (8 Dist. 1982), 6 Ohio App.3d 46, 47. II. _ Restrictive Covenants were Enforceable The trial c0urt’s decision to enforce the two—year territorial provision in Appellant’s contracts was supported by competent, credible evidence. Restrictive covenants contained in employment agreements are not presumptively void in Ohio. To the contrary, such employment restrictions are valid and enforceable so long as theyare “reasonable.” A covenant restraining an employee from competing with his former employer upon termination of employment is reasonable if the restraint is no 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. We Van Vlerab (1975), 42 Ohio St.2d 21, paragraph two of the syllabus (enforcing 3 year restrictive covenant); 87'ng '0 814110 (1942), 140 Ohio St. 499 (upholding 5 year non~competition clause). See, also, mert Oil Co a Marathon 01 Co. (1963), 92 Ohio Law Abs. 76, paragraph six of ' the syllabus (upholding 8-month restriction). As discussed 51pm in Appellant’s Response to Assignment of Error Number One, whether a restriction is “reasonable” depends upon the nature of the industry. See, generally, 17 Ohio 12 Jurisprudence 3d (2000), Contracts, Section 124. Of particular significance is if competitors are utilizing non-compete agreements and the content of those previsions. See id See, eg, Raide Control Co, Inc v Faster (Miss. App. 2000), 761 So.2d 967. Among the other factors to be considered in the “reasonableness” analysis are: the absence ‘ or presence of limitations as to time and space, whether the employeexepresents the sole contact I with the customer, whether the employee is possessed with confidential information or trade secrets; whether the covenant seels merely to eliminate ordinary competition; whether the covenant acts as a bar to the employee's sole means of support or restricts his employment in a particular geographic area; whether the employee’s talent which the employer seels to suppress was actually developed during the period of employment; and Whether the forbidden employment is essential or merely incidental to the employment. See W at 14-15. See, also, 3723 '0 Butler (1942), 140 Ohio St. 499. In following the mandate set forth by the Ohio Supreme Court in Rainznde, Ohio appellate courts have M the lower courts refusal to enforce contracts containing territorial prohibitions of up to three years. See, eg, szorér Ganfle Ch I: Stadium (1 Dist. Sept. 29, 2000), Hamilton App. No. 0990859, unreported, 2000 Ohio App. LEXIS 4475 (3 years allover the world); Tmbe q’Tdedo'u Cde (7 Dist. 1.... 23, 1987), Lucas App. No. L-86- 176, unreported, 1987 Ohio App. LEXIS 5615 (2 years); Mzkwetmmfam'tor 51442501 '0 H05 (May 20, 1985), Butler 7 App. No. 84—03-040, unreported, 1985 Ohio App. LEXIS 7685 (2 years). See, also, SW07 Co v Lamimk FarmBmwu (10 Dist. 1976),i52 Ohio App.2d 225 (1 year); derbrsMarfi'ml Equg'o. G: 'u Waiters (10 Dist. 1983), 13 Ohio App.3d 149 (2 years within State of Ohio); M54715); Russel G Co v Bayer (10 Dist. July 30, 1992), Franklin App. No. 91AP-974, unreported, 1992 Ohio App. LEXIS 3947 (2 years); Nag/7m 'u Nicholson Ca (7 Dist. Sept. 30, 1985),]efferson 13 App. No. 84-J—23, unreported, 1985 Ohio App. LEXIS 7163 (3 years); Peruse 'u McDmaJd’s 5m qr Orig In: (10 Dist. 1975), 47 Ohio App.2d 20. In support of its position that the trial court erred in upholding the territorial non—compete provision, Appellant relies on Majcen G A5506. '12 Phoenix A ssoc (8 Dist. Jan. 18, 2001), Cuyahoga . App. No.76454, unreported, 2001 Ohio App. LEXIS 149b,. Prazor e.- Gmue Co '0 5mm 51pm, and U2 Engbmm'Prmiw 'u Nola, eta]. (Ian. 14, 1998), New York Supreme Court, Oneida County , Index No. 96-03033, RJI No. 32~96— 17 91, unreported. 5 Major: G Assas. is inapplicable and does not discuss the enforceability issue at all. The court of appeals merely modified the injunction “in perpetuity" set by the trial court to conform to the contract and the stipulation of the prevailing party. See id at *3 8-39. Moreover, szor G Candie Ca actually supports the position of Appellee. The court of appeals in that case found the trial court’s dismissal of the plaintiff’s case to enforce its non-compete agreement under CivR. 41(B) against the manifest weight of the evidence and contrary to law. See, generally, id As outlined previously, the court upheld a five-year territorial restriction all over the world. In UZ EPmaha‘s u Nde, ad, a New York state trial court denied Appellee a preliminary injunction to enforce its restrictive covenants. In so ruling, however, the court acknowledged that its decision was contrary to another New York court which found “the restrictive covenant to be reasonable under Raimnie ” Id at 49. Indeed, as delineated 51pm, 5 While Appellant relies on these casm to support their position that the restrictive covenants should not have been enforced, it actuallycites these cases in Assignments of Error Number One and Three. To facilitate this Court’s review, Appellee will'address them here; ‘ ' Additionally, in applying the Raimna’e requirement and factors to the alleged facts of this case, Appellant fails to cite to the record. As this Court is well aware, AppR. 16 requires an appellant to cite the court to the place in the record where each alleged error is reflected Absent specific references to the record, unsubstantiated assertions cannot be considered on appeal. See S bder 11 51312106 Dist. Dec. 29, 1993), Summit App. No. 16224, unreported; Syfis Cam Ca '0 Martel/((9 Dist. Jan. 8, 1992), Summit App. Nos. 15034/ 15038, unreported, at 15-26. 14 refusing to uphold a two-year restriction from competition within a former sales tenitory contradicts precedent established by courts throughout the State of Ohio. In reaching its decision in N ole, moreover, the trial court found that Appellee had not presented evidence that it had been damaged by itsemployee’s departure to support the fact that it had legitimate business interests to protect in enforcing the restrictive covenants. See id at 50, 52, 55. Of course, the New York court did not consider Appellee’s damages stemming from the three employees’ contracts at issue in the case at bar. It did not hear the testimony of Appellee’s economic and financial experts or review its supporting documentation that Appellee was damaged after their departure bya drop in sales of seventy-five percent per month on average resulting in lost business income of almost one million dollars. (TOP 445, 557—58, Plaintiff Exhibit Nos. 37 8t 38) Significantly, the New York court also did not consider the evidence presented in this case that Appellant’s territorial provisions were exactly the same as its competitors that evidence that such protections are legitimate and necessaryin the industry. (TOP 61-67, 93-95, 105, 628-29, 643-647) As repeated by Appellant in its brief: “Unquestionably the decision of every case of this. nature turns upon and in great measure is governed by its own facts.” (citing Brig: 11 Buda' (1942), 140 Ohio St. 499, 510) The facts supporting the trial court’s decision to enforce Appellant’s contracts with its former employee are uncontroverted: Appellant and Appellee are direct competitors in the maintenance, repair, and operating parts (MRO) industry throughout the United States. (TOP 61, 82-82, 99, 101-03, 157,215) According to Moore who spent nearlytwo deCades in management with Appellee before going to work for Appellant, “the industry is highly competitive with companies competing for the same business in the same territories.” (TOP 60, 100) Mr. Moore explained that the parties “sell small 15 parts to virtually anytype Of business that would perform maintenance.” (TOP 83) Appellant’s Owner and President, who is a twenty-year veteran in the business, also testified that the customer base includes “just about any company or business or institution or government agency.” (Top 61) BeCause customers can be just about any business, a salesperson jealously guards his or her entire territoryfrom competitors. Mr. Mooretestified that.“a salesperson would want to maintain ’ your sales base and not have your competitors get in there or get their foot in the door.” (TOP 101) Appellee’s Director of Operations, Robert Rainey, testified that in his twenty years in the business, a company would incur damages when a sales person leaves and still remains in the territory even if that rson would not call on the customer. (TOP 534—35) Appellant’s own President admitted that “going to work for a competitor within two years can cause harm to a company.” (TOP 79-80) There is also a “broad range of products” sold by sales personnel in the MRO industry. (TOP 61) In fact, Appellant’s sales representatives are responsible for about 300,000 different products. (TOP 61) These products consist of nuts and bolts and other generic items. (TOP 61) Due to the lack of product differentiation, ertper'ienced sales. persons are critical to any company's success. (TOP 73- 74) Companies the MRO indumy “distinguish themselves from competitors primarily on the basis of the personal service provided” to their customers. ' (Defendant’s Proposed Finding of Fact and Conclusions of Law in Support of Its Rule 41(B)(2) Motion to Dismiss and its Rule 50 Motion for Directed Verdict) Indeed, Appellant’s President readily conceded that “without contacts with customers, it is very difficult to be successful.” (TOP 74) Due to the breadth of the product line, the variety of customers, and the competition, sales personnel are “difficult to recruit.” (TOP 471) Mr. Moore, who has been responsible for recruiting sales persons for the last two decades for Appellee (and now Appellant) aver-red that “recruiting and hiring people are not easy.” (TOP 96, 104) He further explained that “good 16 people don’t come out of nowhere.” (TOP 104) Sales personnel are required to work on a commission basis and make cold calls with “rejection being part of the job.” (TOP 85, 104) Once hired, sales persons need to be trained in the companfs products and sales techniques that cost the ' company time and money. (TOP 68—69, 85, 104—05) Furthermore, even if a company were to find someone to take the job, it is likely that they will leave the position. Appellant hires about one hundred sales persons annually with a fiftyto eighty percent turnover. (TOP 71) Mr. Moore testified that a company in the MRO industry is «15];er to go through a whole cycle of hiring before they get the right persons.” (TOP 104.05) explained that this means “there is a lot of training and retraining with the company losing money as time is consumed.” (TOP 104-05) There is no doubt that “if a sales representative leaves, there is an expense associated with the process of hiring someone else.” (TOP 104) Due to these costs, Appellant has a policy of hiring experienced persons who have knowledge of the industry and who bring “a ba3e of amounts.” (T OP 73-73) Appellant utilized this policy in hiring Appellee’s former employees Moore, McLane, and Grady, among others. These employees spent eighteen, ten, and twelve years, respectively, learning Appellant’s products, sales techniques, pricing structure, customers, as well as develong goodwill on behalf of Appellant. (TOP 83, 149, 199) Appellant’s President attributes this policy to the reason his company has increased sales by twentysix million dollars in the last seven years. (TOP 80) For all of these reasons, Appellant’s President conceded that “contracts with restrictive covenants are part of the industry.” (TOP 61) In fact, both parties have exactly the same restrictions on their employees that includes prohibiting them from competing with the“ company for two years in their former sales territory.” (TOP 61-67, 93-95, 105, 628-29, 643-647) Appellant’s President testified that these agreements “are important.” (TOP 68-69) As such, Appellant 17 “enforces its two year restrictions” along with Appellee and other companies in the industry. (TOP so 81) Considering Raz'mnde and its progeny in light of the foregoing facts, the trial court correctly determined the following: This is a very unique industry. It is totally people driven; salesperson driven dealing basically with the same products. But the test I have to look at is the type of industry where this is an appropriate agreement, and the answer to that is yes. Are the restrictions that are imposed dealing with time and location reasonable? And I’m going to make a determination to that the answer is yes. Under no circumstances is the aggement unreasonable. (TOP 908-09) (Emphasis added.) Accordingly, the trial court correctlydetermined to deny reformation of the contract to remove the ten'itorial provision and to enforce Appellee’s com-ma; as written. 6 Q 5-: I \ O “ In anyevent, overwhelming evidence was presented at trial that Appellee was damaged because Appellant illegally induced Appellee’s former employees to repeatedly violate '11]: fig provisions of theirconnactby. s Appellee’s employees and on their former customers. (TOP 106-114, llérl47, 205-09, 224-33, 234.54, 256-76, 159171, 172-199; Plaintiff’s Exhibits 5, 6, 11, 12A, 19-21, 2627) Consequently, Appellant has not affirmatively demonstrated that the enforcement of the territorial provision materially prejudiced its case. "41'" i he question of whether the trial court's decision violated Appellant’s censtbrPr-“z. rights won-:1! - * --. ct to; .1: . 18 CERTIFICATE OF SERVICE A copy of the foregoing Brief of Appellcc has been forwarded to the following via regular US. mail, postage pre-paid on the John W. Ferron (0024532) Sloan T. Spalding (0068054) Dawn M Dunker (0069068) FERRON 8C ASSOCIATES A Legal Professional Association 240 North Fifth Street, Suite 300 Columbus, Ohio 43215-2611 (614) 228-5225, 228-3255 fax day of August, 2001: 34 Attorneys for Appellant NIQ-IOLAS D. SATULLO T. LEIGH ANENSON WILLIAM A BARNETT JENNIFER H. GORMAN Attorneys for Appellee ...
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Appeal_Brief_of_Appellee_(UZ_Engineered_Products) - IN THE...

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