Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-azd-2_09-cv-00505/USCOURTS-azd-2_09-cv-00505-2/pdf.json

Nature of Suit Code: 190
Nature of Suit: Other Contract Actions
Cause of Action: 28:1332 Diversity-Breach of Contract

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IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF ARIZONA

Zep, Inc., 

Plaintiff, 

vs.

Brody Chemical Company, Inc. and

individuals Mark Bartley, Neil Carse,

Wayne Cassidy, Richard Crouse, and

Anthony Strukel, 

Defendants. 

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No. CV-09-0505-PHX-NVW

ORDER

Before the Court is Defendant Brody Chemical Company, Inc.’s (“Brody”) Motion

for Partial Summary Judgment (doc. # 146), in which Defendants Mark Bartley, Neil

Carse, Wayne Cassidy, Richard Crouse, and Anthony Strukel (“Individual Defendants”)

have joined. (Doc. # 148.) Because Richard Crouse has since filed for bankruptcy, the

action is stayed as to him. (Doc. ## 153, 154.) Collectively, Defendants seek summary

judgment as to the enforceability of customer and employee non-solicitation covenants

contained in employment agreements between Plaintiff Zep, Inc. (“Zep”) and the

Individual Defendants. 

I. Legal Standard

Summary judgment is warranted if the evidence shows there is no genuine issue as

to any material fact and the moving party is entitled to judgment as a matter of law. Fed.

R. Civ. P. 56(c). The moving party must produce sufficient evidence to persuade the

Case 2:09-cv-00505-NVW Document 157 Filed 04/06/10 Page 1 of 10
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Court that there is no genuine issue of material fact. Nissan Fire & Marine Ins. Co., Ltd.

v. Fritz Cos., Inc., 210 F.3d 1099, 1102 (9th Cir. 2000). Conversely, to defeat a motion

for summary judgment, the nonmoving party must show that there are genuine issues of

material fact. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250 (1986). A material fact

is one that might affect the outcome of the suit under the governing law, and a factual

issue is genuine “if the evidence is such that a reasonable jury could return a verdict for

the nonmoving party.” Id. at 248. 

The moving party bears the initial burden of identifying those portions of the

pleadings, depositions, answers to interrogatories, and admissions on file, together with

the affidavits, if any, which it believes demonstrate the absence of any genuine issue of

material fact. See Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). If the nonmoving

party would bear the burden of persuasion at trial, the moving party may carry its initial

burden of production under Rule 56(c) by producing “evidence negating an essential

element of the nonmoving party’s case,” or by showing, “after suitable discovery,” that

the “nonmoving party does not have enough evidence of an essential element of its claim

or defense to carry its ultimate burden of persuasion at trial.” Nissan Fire, 210 F.3d at

1105-06; High Tech Gays v. Defense Indus. Sec. Clearance Office, 895 F.2d 563, 574

(9th Cir. 1990). 

When the moving party has carried its burden under Rule 56(c), the nonmoving

party must produce evidence to support its claim or defense by more than simply showing

“there is some metaphysical doubt as to the material facts.” Matsushita Elec. Indus. Co.

v. Zenith Radio Corp., 475 U.S. 574, 586 (1986). Where the record, taken as a whole,

could not lead a rational trier of fact to find for the nonmoving party, there is no genuine

issue of material fact for trial. Id. The nonmoving party’s evidence is presumed to be

true and all inferences from the evidence are drawn in the light most favorable to the

nonmoving party. Eisenberg v. Ins. Co. of North America, 815 F.2d 1285, 1289 (9th Cir.

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1987). If the nonmoving party produces direct evidence of a genuine issue of material

fact, the motion for summary judgment is denied. Id. 

II. Facts

Zep is a publicly-traded company that sells industrial cleaning products. To sell its

products, it employs sales representatives who are expected to develop their own

customer bases through their own efforts. Zep has a training program for new sales

representatives that can last up to twenty-four months. However, new sales

representatives that perform well can transition to a largely commission-based pay

structure in much less than twenty-four months and in as little as three weeks.

When a Zep sales representative leaves the company, that representative’s

accounts are reassigned to existing Zep sales representatives. When possible, an account

is reassigned to a sales representative with specific knowledge and experience selling to

other customers in the same industry segment. Otherwise, the account is reassigned to a

sales representative that has demonstrated growth potential or to a newer sales

representative to speed his or her transition from training to selling.

The Individual Defendants in this case were originally employed by Zep as sales

representatives. In that capacity, they were required to sign contracts containing

covenants not to solicit Zep’s customers or employees during the period of employment

and for certain periods of time post-employment. Defendants Strukel and Cassidy signed

contracts containing the following covenant regarding non-solicitation of customers:

Sales Representative hereby expressly covenants and agrees that during the

term of employment hereunder and for a period of eighteen (18) months

following the termination of employment hereunder, whether such termination

is voluntary or involuntary, Sales Representative will not, for or on behalf of

Sales Representative or any person, persons, partnership, or corporation

(except Company), directly or indirectly, within the Territory [defined as

Maricopa County, Arizona] sell or attempt to sell or solicit the sale of any

products of the same or similar kind as those offered or sold by Company at

any time during the twelve (12) month period immediately preceding the

termination of Sales Representative's employment hereunder, to any person,

persons, partnerships, or corporation who was solicited for the sale of or sold

any such products by Sales representative at any time during Sales

Representative's employment hereunder. 

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It also contained the following covenant regarding non-solicitation of employees:

Sales Representative hereby expressly covenants and agrees that during the

term of employment hereunder and for a period of eighteen (18) months

following the termination of employment hereunder, whether such termination

is voluntary or involuntary, Sales Representative will not, for or on behalf of

Sales Representative or any person, persons, partnership, or corporation

(except Company), directly or indirectly, induce, persuade, or encourage or

attempt to induce, persuade, or encourage any person who was employed by

the Company at any time during the term of Sales Representative's

employment hereunder, to terminate such employee's position with the

Company and become employed by any person, persons, partnership, or

corporation which is engaged in the offer or sale of products of the same or

similar kind as those offered or sold by Company at any time during the twelve

(12) month period immediately preceding termination of Sales Representative's

employment hereunder.

In addition to the above non-solicitation covenants, it also contained the following

severability clause: 

The provisions of this Agreement are independent of and separable from each

other. If any provision is declared invalid or unenforceable, such invalidity or

unenforceability shall not affect the validity or enforceability of any other

provisions of this Agreement.

Defendants Carse and Crouse signed a newer version of the contract that contained the

following covenant regarding non-solicitation of customers:

Non-Solicitation Covenant. Employee covenants and agrees that during the

term of Employee's employment with employer and for a period of twelve (12)

months following the termination of such employment, whether voluntary or

involuntary, Employee shall not for or on behalf of Employee or any such

person or entity (except Employer), directly or indirectly, solicit, contact, or

communicate with or attempt to solicit, contact or communicate with any

customer or potential customer of Employer that Employee solicited,

contacted, communicated with, sold or received commissions or other

compensation with respect to at any time during the six (6) month period

immediately preceding the termination of Employee's employment with

Employer, for the purpose of or with the view to selling or providing any

products, services or equipment or items competitive with the Product Line.

It also contained the following covenant regarding non-solicitation of employees:

Non-Inducement Covenant. Employee covenants and agrees that during the

term of Employee's employment with Employer and for a period of twelve (12)

months following termination of such employment, whether voluntary or

involuntary, Employee shall not, for or on behalf of Employee or any person

or entity, directly or indirectly, induce, persuade or encourage or attempt to

induce persuade or encourage any person who was employed by Employer

during the twelve (12) month period immediately preceding Employee's

termination, to terminate such employee's position with Employer.

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In addition to the above non-solicitation covenants, it also contained the following

severability clause: 

Severability. If any provision of this Agreement is declared invalid or

unenforceable by a court of competent jurisdiction, such invalidity or

unenforceability shall not affect the validity or enforceability of any other

provisions of this Agreement and the remaining provisions of this Agreement

shall remain in full force and effect.

Though Zep originally had no evidence that Defendant Bartley had signed a contract

containing similar restrictive covenants, it recently produced a contract signed by Bartley

with the following covenants:

17. The Salesman further independently covenants and agrees . . .

(b) That he will NOT, during the term of this contract, nor for one (1) year

immediately following the termination of this contract, for himself, or for any

other person, persons, firm, company, corporation, or partnership, call upon to

sell or endeavor to sell to any of the customers and/or patronage of the

Company, [various products] or any other items incidental to or kindred to

sanitary, janitor, and/or building maintenance supplies, and/or products now,

or from time to time sold or distributed by the Company during the term of this

contract.

(c) That he will NOT, during the term of this contract, nor for one (1) year

immediately following the termination of this contract, directly or indirectly,

for himself, or for or in conjunction with any other person, persons, firm,

company, corporation, or partnership, solicit, divert or take away any of the

customers or patronage of the Company.

(d) Each of the foregoing subparagraphs . . . is and shall be deemed to be a

separate covenant independent of each other such subparagraph and the

invalidity or unenforceability of any such subparagraph shall not affect the

validity of the others.

At various times between early 2008 and early 2009, each of the Individual

Defendants began working for Brody, one of Zep’s direct competitors. They all admit

that their employment with Brody began prior to the termination of their employment

with Zep. During the time they worked for both companies simultaneously, they sold

Brody products to Zep customers and accessed confidential information maintained by

Zep, such as customer names, addresses, contact information, sales histories, and pricing

information. Defendants Cassidy, Crouse, and Carse admit to downloading customer lists

and information from Zep’s databases onto their personal computers shortly before

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ceasing employment with Zep. Defendant Cassidy, in particular, downloaded several

hundred pages of detailed customer information and purchasing history from Zep’s

databases the day after entering into an employment relationship with Brody. 

 In addition to using the information to sell Brody products to Zep customers while

still employed by Zep, Defendants Cassidy and Carse sent the customer information to

Brody employees. Brody also paid referral bonuses to Defendants Bartley, Strukel, and

Carse for bringing Zep sales representatives to Brody. After ceasing employment with

Zep, the Individual Defendants retained documents containing Zep’s confidential

information on their personal computers. Zep has been unable to recapture a substantial

number of the customers it lost when the Individual Defendants departed for Brody. 

III. Analysis

A number of Zep’s claims against Brody and the Individual Defendants are

predicated on customer and employee non-solicitation covenants included in the

Individual Defendants’ employment agreements with Zep. Defendants challenge the

scope of the covenants. 

A. Enforceability as Written

 The restrictive covenants at issue are anti-piracy agreements, “designed to prevent

former employees from using information learned during employment to divert or to

‘steal’ customers from the former employer.” Olliver/Pilcher Ins., Inc. v. Daniels, 148

Ariz. 530, 531, 715 P.2d 1218, 1219 (1986). “A restrictive covenant — whether a

covenant not to compete or an anti-piracy agreement — is enforceable as long as it is no

broader than necessary to protect the employer’s legitimate business interest.” Hilb,

Rogal & Hamilton Co. v. McKinney, 190 Ariz. 213, 219, 946 P.2d 464, 467 (Ct. App.

1997). With respect to sales representatives, the “employer’s protectable interest [is

limited] to those customers to whom the employee represented the employer’s goodwill.”

Amex Distrib. Co. v. Mascari, 150 Ariz. 510, 518, 724 P.2d 596, 604 (Ct. App. 1986). 

“When the restraint is for the purpose of protecting customer relationships, its duration is

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reasonable only if it is no longer than necessary for the employer to put a new man on the

job and for the new employee to have a reasonable opportunity to demonstrate his

effectiveness to the customers.” Valley Med. Specialists v. Farber, 194 Ariz. 363, 370,

982 P.2d 1277, 1284 (1999) (quoting Amex Distrib. Co., 150 Ariz. at 518, 724 P.2d at

604). Though determining the reasonableness of a restrictive covenant is “a factintensive inquiry that depends on weighing the totality of the circumstances,” it is

ultimately a question of law. Id. at 366-67, 982 P.2d at 1280-81. 

1. Customer Non-Solicitation Covenants

The duration of the post-employment restrictions in all of the customer nonsolicitation covenants at issue, including Defendant Bartley’s, is longer than necessary for

Zep to put a different sales representative on the job and have that representative

demonstrate his or her effectiveness to the customer. The restriction in Defendants

Strukel and Cassidy’s version lasts for eighteen months. The restriction in Defendants

Carse, Crouse, and Bartley’s versions lasts for twelve months. 

 Zep justifies this duration as the amount of time it takes them to train a new sales

representative to take over the accounts. However, Zep admits that it often reassigns the

accounts of a departed representative to existing representatives with experience in the

given industry segment. It also frequently reassigns accounts to existing representatives

that have demonstrated growth potential. Therefore, the restrictive covenant does not

necessarily need to last long enough to train a brand new sales representative to take over

the accounts. Even when Zep does have to train a new employee, skilled sales people can

transition to commission-based pay with as little as three weeks of training. Defendant

Carse, for example, was placed on full commission after only three weeks with Zep. 

Furthermore, most of Zep’s customers order cleaning products more frequently than once

a year. Consequently, a sales representative that has been transferred an existing account

will likely have multiple opportunities to demonstrate his or her effectiveness to the

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customer in far less than a year’s time. Therefore, as written, none of the customer nonsolicitation covenants are enforceable.

2. Employee Non-Solicitation Covenants

The employee non-solicitation covenants are similarly overbroad. They purport to

prevent former sales representatives from soliciting any of Zep’s employees no matter the

extent of the sales representative’s relationship, if any, with that employee. Therefore,

the employee non-solicitation covenants are also unenforceable as written.

B. “Blue Pencil” Modifications

“Generally, courts do not rewrite contracts for parties.” Olliver/Pilcher, 148 Ariz.

at 533, 715 P.2d at 1221. However, “[i]f it is clear from its terms that a contract was

intended to be severable, the court can enforce the lawful part and ignore the unlawful

part.” Id. Under this “blue pencil” rule, a court can eliminate “grammatically severable,

unreasonable provisions,” but cannot add terms or otherwise rewrite unenforceable

restrictive covenants. Farber, 194 Ariz. at 372, 982 P.2d at 1286. All of the employment

agreements at issue in this case contained a severability clause. Therefore, the covenants

may be modified to the extent permitted by the “blue pencil” rule. 

1. Customer Non-Solicitation Covenants

To save the post-employment restrictions in all of the customer non-solicitation

covenants at issue would require more than eliminating grammatically severable,

unreasonable provisions. Specifically, it would require the Court to supply new terms for

the duration of the restrictions. Therefore, none of the covenants can be modified to

remedy the unenforceable restrictions on solicitation after employment with Zep has

terminated.

The restrictions during employment, however, may be saved. Policy

considerations requiring courts to police post-employment restrictions on solicitation do

not apply to restrictions during employment, because employees owe their employers the

utmost loyalty and good faith at all times during the period of employment. See Sec. Title

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Agency v. Pope, 219 Ariz. 480, 492, 200 P.3d 977, 989 (Ct. App. 2008); McCallister Co.

v. Kastella, 170 Ariz. 455, 457, 825 P.2d 980, 982 (Ct. App. 1992). Encompassed within

the fiduciary duty of loyalty are obligations not to solicit the employer’s customers or

employees. Pope, 219 Ariz. at 492, 200 P.3d at 989; Kastella, 170 Ariz. at 459, 825 P.2d

at 984.

In this case, all of the customer non-solicitation covenants are enforceable once the

post-employment restrictions are removed. Therefore, modified as follows, Defendants

Strukel and Cassidy’s version is enforceable: 

Sales Representative hereby expressly covenants and agrees that during the

term of employment hereunder and for a period of eighteen (18) months

following the termination of employment hereunder, whether such termination

is voluntary or involuntary, Sales Representative will not, for or on behalf of

Sales Representative or any person, persons, partnership, or corporation

(except Company), directly or indirectly, within the Territory [defined as

Maricopa County, Arizona] sell or attempt to sell or solicit the sale of any

products of the same or similar kind as those offered or sold by Company at

any time during the twelve (12) month period immediately preceding the

termination of Sales Representative's employment hereunder, to any person,

persons, partnerships, or corporation who was solicited for the sale of or sold

any such products by Sales representative at any time during Sales

Representative's employment hereunder.

Similarly, Defendants Carse and Crouse’s version is enforceable with the following

change:

Non-Solicitation Covenant. Employee covenants and agrees that during the

term of Employee's employment with employer and for a period of twelve (12)

months following the termination of such employment, whether voluntary or

involuntary, Employee shall not for or on behalf of Employee or any such

person or entity (except Employer), directly or indirectly, solicit, contact, or

communicate with or attempt to solicit, contact or communicate with any

customer or potential customer of Employer that Employee solicited,

contacted, communicated with, sold or received commissions or other

compensation with respect to at any time during the six (6) month period

immediately preceding the termination of Employee's employment with

Employer, for the purpose of or with the view to selling or providing any

products, services or equipment or items competitive with the Product Line.

Finally, Defendant Bartley’s covenants are enforceable with the following modifications:

17. The Salesman further independently covenants and agrees . . .

(b) That he will NOT, during the term of this contract, nor for one (1) year

immediately following the termination of this contract, for himself, or for any

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other person, persons, firm, company, corporation, or partnership, call upon to

sell or endeavor to sell to any of the customers and/or patronage of the

Company, [various products] or any other items incidental to or kindred to

sanitary, janitor, and/or building maintenance supplies, and/or products now,

or from time to time sold or distributed by the Company during the term of this

contract.

(c) That he will NOT, during the term of this contract, nor for one (1) year

immediately following the termination of this contract, directly or indirectly,

for himself, or for or in conjunction with any other person, persons, firm,

company, corporation, or partnership, solicit, divert or take away any of the

customers or patronage of the Company.

The above “blue penciling” is limited and does not amount to rewriting the

covenants. In any event, the dangers inherent in “blue penciling” are absent in this case

because the resulting covenants do no more than recite the common law fiduciary duty of

loyalty and good faith imposed on all employees. 

2. Employee Non-Solicitation Covenants

Saving the restrictions on employee solicitation both after and during the term of

employment would require more than eliminating grammatically severable, unreasonable

provisions. To save the post-employment restrictions, the Court would have to add

language qualifying the relationship between the former employee and those current

employees he or she may not solicit. The restrictions during employment also cannot be

saved. While the post-employment durations can be removed, the remaining language in

both versions is not amenable to “blue pencil” modifications that would restrict

employees from soliciting only current as opposed to former Zep employees. 

IT IS THEREFORE ORDERED that Defendant Brody Chemical Company, Inc.’s

Motion for Partial Summary Judgment (doc. # 146), joined by Defendants Mark Bartley,

Neil Carse, Wayne Cassidy, and Anthony Strukel, is granted in part and denied in part.

Because the ruling is not dispositive of any claims, no claims will be dismissed.

DATED this 6th day of April, 2010.

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