Trouble in Paradise - Missouri Court Clarifies Extent Of Trial Court's Discretion To Deny Injunction Request With Respect To A Valid And Enforceable Non-Compete Agreement.
The trial court factual determinations in Paradise v. Midwest Asphalt Coatings, Inc., No. WD70944 (Mo. Ct. App. Mar. 16, 2010), will sound familiar to many companies. Midwest hired Mr. Paradise as a general manager and head of sales and the parties executed a non-compete agreement. During the seven years of his employment, Mr. Paradise promoted Midwest’s business, built customer relationships and developed good will for the company. He then resigned and opened a similar business.
After resigning, Mr. Paradise sued Midwest, seeking, inter alia, a declaration that his non-compete agreement was invalid. Midwest filed a counterclaim requesting a declaration that the non-compete agreement was valid and also sought an injunction against Mr. Paradise. Then the case got interesting.
After modifying the time restriction contained in the non-compete agreement, the trial court held that the agreement was valid and enforceable as modified. The trial court also specifically held that Midwest had “a protectable interest in its customer contacts and repeat customers” and that Mr. Paradise could use his contacts with customers to Midwest’s disadvantage. (Note: Missouri recognizes two legitimate business interests: trade secrets and customer contacts). So far so good for Midwest. However, despite these findings, the trial court denied Midwest’s injunction request because the company had not established that Mr. Paradise had engaged in an actual customer solicitation in violation of the agreement.
According to the Court of Appeals, the trial court’s holding was based on an incorrect understanding of Missouri law. Specifically, the appellate court held as follows:
[O]nce the trial court exercised its discretion to modify the non-compete agreement to be enforceable and found that Midwest had a protectable interest in its customer contacts and that Mr. Paradise had the opportunity to use those contacts, it was required to grant the injunction. [The trial court’s] finding that Mr. Paradise had not solicited any customers or intentionally violated the terms of the non-compete agreement was irrelevant in deciding whether to grant an injunction. An employer is not required to show actual solicitation or willful violation of the non-compete agreement.
Paradise v. Midwest, slip op. at 4 (emphasis added).
Unfortunately for Midwest, the appellate court’s ruling came too late. The modified time restriction expired prior to the date of that decision and, consequently, the appellate court ruled that it could not order that an injunction be issued at that time. Nevertheless, this case provides an important reminder for those seeking to enforce or invalidate restrictive covenants in Missouri – a threatened violation of a non-compete agreement is sufficient to support the issuance of an injunction; an employer need not wait until the agreement has been violated before seeking relief.
