Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca8-13-03671/USCOURTS-ca8-13-03671-0/pdf.json

Parties Involved:
NanoMech, Inc.
Appellant
Arunya Suresh
Appellee

Document Text:

United States Court of Appeals

For the Eighth Circuit

___________________________

No. 13-3671

___________________________

NanoMech, Inc.,

lllllllllllllllllllll Plaintiff - Appellant,

v.

Arunya Suresh,

lllllllllllllllllllll Defendant - Appellee.

____________

 Appeal from United States District Court 

for the Western District of Arkansas - Fayetteville

____________

 Submitted: September 8, 2014

 Filed: February 6, 2015

____________

Before BYE, COLLOTON, and GRUENDER, Circuit Judges.

____________

COLLOTON, Circuit Judge.

NanoMech, Inc. sued a former employee, Arunya Suresh, for breach of her

noncompete agreement. The district court granted judgment on the pleadings for

1

The Honorable P.K. Holmes, III, Chief Judge, United States District Court for

1

the Western District of Arkansas.

Appellate Case: 13-3671 Page: 1 Date Filed: 02/06/2015 Entry ID: 4242054 
Suresh, ruling that the noncompete agreement was unenforceable under Arkansas

law. NanoMech appeals, and we affirm.

I. 

NanoMech, a Delaware corporation with its principal place of business in

Arkansas, researches and develops nanotechnologies. The company specializes in

creating nanotechnology products in the areas of nano-machining, manufacturing,

lubrication, energy, biomedical coatings, and strategic military applications.

Before NanoMech hired Suresh, she signed a non-disclosure agreement in

which she agreed to protect NanoMech’s interest in any information that was

disclosed to her for the purpose of evaluating a potential employment relationship. 

NanoMech then hired Suresh in March 2010. As a condition of her employment,

Suresh signed an employment agreement, which by its termsis governed by Arkansas

law. The agreement contains the following noncompete provision:

COVENANT NOT TO COMPETE: The Employee agrees that during

the term of this Agreement, and for two (2) years following termination

of this Agreement by the Company, with or without cause; or, for a

period of two (2) yearsfollowing a termination of this Agreement by the

Employee, the Employee will not directly or indirectly enter into, be

employed by or consult in any business which competes with the

Company. 

R. Doc. 12, Ex. A, at 3.

During her employment with NanoMech, Suresh participated in projects

involving nano-integrated materials and the manufacturing processes for

nanoparticle-based products. Among other things, Suresh researched and developed

-2-

Appellate Case: 13-3671 Page: 2 Date Filed: 02/06/2015 Entry ID: 4242054 
NanoMech’s multi-component lubrication product, nGlide, which is the subject of a

pending U.S. patent application.

Suresh resigned fromNanoMech on May 2, 2012, stating thatshe was planning

to pursue doctoralstudies full-time. In March 2013, however, NanoMech discovered

that Suresh had accepted employment as an Application Chemist with BASF, a

worldwide chemical company that develops engine lubricants. 

In May 2013, NanoMech sued Suresh, alleging breach of her non-disclosure

agreement and breach of her covenant not to compete on the ground that BASF

directly competes with NanoMech and its nGlide technology. The company sought

to enjoin Suresh from employment with BASF for the remainder of the term of the

noncompete and to enjoin her from disclosing any of NanoMech’s confidential

information. NanoMech also sought compensatory damages. 

Suresh answered the complaint, asserting that NanoMech failed to state a

claim. She also counterclaimed for tortious interference with business expectancy. 

Six days after she submitted her answer, Suresh moved to dismiss NanoMech’s

complaint pursuant to Rule 12(b)(6) for failure to state a claim. NanoMech opposed

Suresh’s motion to dismiss, arguing both that it was untimely and without merit. 

The district court noted that Suresh’s motion to dismiss for failure to state a

claimwastechnically untimely under Rule 12(b)(6) because Suresh already had filed

her answer, but in accordance with Rule 12(h)(2), the court construed her motion as

a motion for judgment on the pleadings under Rule 12(c). The court granted Suresh’s

motion, concluding that the noncompete agreement was overbroad and unenforceable

because it lacked a geographic scope and prevented Suresh from working for an

undefined set of NanoMech’s competitors in any capacity. The court also concluded

that NanoMech failed to state sufficient facts to show that Suresh’s breach of the nondisclosure agreement resulted in damages. After the court issued its order, Suresh

-3-

Appellate Case: 13-3671 Page: 3 Date Filed: 02/06/2015 Entry ID: 4242054 
moved to dismiss her counterclaim against NanoMech. The court dismissed the

counterclaim without prejudice, and that resolution suffices under our precedent to

establish a final decision over which this court has appellate jurisdiction. See Great

Rivers Coop. of Se. Iowa v. Farmland Indus., Inc., 198 F.3d 685, 689 (8th Cir. 1999).

II. 

NanoMech appeals only the district court’s ruling on the enforceability of the

noncompete agreement. NanoMech first argues that the district court erred in

construing Suresh’s motion to dismiss as a motion for judgment on the pleadings. 

NanoMech argues that Suresh’s motion was filed too late under Rule 12(b)(6),

because Suresh already had filed her answer, but was premature under Rule 12(c),

because NanoMech had not yet answered Suresh’s counterclaim. As the pleadings

were not yet closed when Suresh filed her motion, NanoMech argues that the district

court erred in converting her motion to dismiss into a motion for judgment on the

pleadings.

Although NanoMech is technically correct that Rule 12(c) requires all

pleadings to be closed before a motion may be filed, NanoMech did not suffer any

prejudice as a result of the district court’s decision. Suresh moved to dismiss only

NanoMech’s claims, which were closed when Suresh filed her motion. By the time

the district court ruled on Suresh’s motion, NanoMech had answered Suresh’s

counterclaim, which closed the pleadings with respect to all claims. Any error in the

district court’s decision to convert Suresh’s motion to dismiss into a Rule 12(c)

motion for judgment on the pleadings wastherefore harmless. Cf. Am. Fed’n of State,

Cnty. and Mun. Emps. v. City of Benton, 513 F.3d 874, 878 (8th Cir. 2008).

-4-

Appellate Case: 13-3671 Page: 4 Date Filed: 02/06/2015 Entry ID: 4242054 
III. 

The more substantial question is whether the district court properly granted

judgment on the pleadings in favor of Suresh. We review a motion for judgment on

the pleadings under the same standard that governs a motion to dismiss under Rule

12(b)(6). McIvor v. Credit Control Servs., Inc., 773 F.3d 909, 912-13 (8th Cir. 2014). 

Therefore, we must consider whether NanoMech has pleaded “enough facts to state

a claim to relief that is plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S.

544, 570 (2007).

Covenants not to compete are reviewed on a case-by-case basis in Arkansas,

Bendinger v. Marshalltown Trowell Co., 994 S.W.2d 468, 472 (Ark. 1999), and

reasonableness is “determined under the particular circumstances,” of each case. 

Optical Partners, Inc. v. Dang, 381 S.W.3d 46, 54 (Ark. 2011). But this approach

does not mean that judgment on the pleadings is never permissible. A court may

dismiss an action to enforce a noncompete agreement where the facts adduced in the

pleadings show that an evidentiary hearing is not necessary to make the

reasonableness determination. NanoMech was required to allege facts sufficient to

support a claim for relief that is plausible on its face.

NanoMech argues that the district court erred in holding the noncompete

agreement unreasonable and therefore unenforceable under Arkansas law. A restraint

of trade is reasonable only when it is “no greater than what is reasonably necessary

to secure the interest of the party protected by the contract and is not so broad as to

be injurious to the public interest.” Optical Partners, 381 S.W.3d at 53. In general,

a noncompete agreement must meet three requirements to be enforceable under

Arkansas law: “(1) the [employer] must have a valid interest to protect; (2) the

geographical restriction must not be overly broad; and (3) a reasonable time limit

must be imposed.” Duffner v. Alberty, 718 S.W.2d 111, 112 (Ark. Ct. App. 1986) (en

banc). The district court held that Suresh’s noncompete was overbroad, and thus

-5-

Appellate Case: 13-3671 Page: 5 Date Filed: 02/06/2015 Entry ID: 4242054 
unenforceable, because it lacked a geographic restriction and failed to define what

activities Suresh was prohibited from performing for NanoMech’s competitors. 

NanoMech asserts that the success of its research, development, and

commercialization depends on its ability to protect the confidentiality of its

proprietary information. The company argues that during Suresh’s employment with

NanoMech, she had broad access to the company’s trade secrets, including its

chemical formulas, manufacturing processes, and business strategies. NanoMech

thus contends that a broad covenant not to compete is reasonable because there is a

risk that Suresh would disclose trade secrets if she were permitted to work for a

competing nanotechnology company. 

While it is true that trade secrets warrant increased protection under Arkansas

law, Orkin Exterminating Co. of Ark. v. Murrell, 206 S.W.2d 185, 189-90 (Ark.

1947), a noncompete agreement that protects trade secrets will not be enforced if it

is overbroad. Mercy Health Sys. of Nw. Ark., Inc. v. Bicak, 383 S.W.3d 869, 874-75

(Ark. Ct. App. 2011). Suresh’s agreement contains no geographic limitation and

imposes no restrictions on the activities Suresh is prohibited from performing for

other nanotechnology companies. Under the plain language of the agreement, Suresh

would be prohibited from working for any company that is a competitor of

NanoMech, in any capacity, anywhere in the world. Even though NanoMech’s

proprietary interests warrant protection, the leading Arkansas authorities suggest that

Suresh’s noncompete agreement unduly infringes on her ability to pursue work in her

chosen field, and is therefore overbroad. 

NanoMech contends that a lack of a geographic restriction in a noncompete

agreement is not fatal under Arkansas law. It directs our attention to Girard v.

Rebsamen Ins. Co., 685 S.W.2d 526 (Ark. Ct. App. 1985), and Freeman v. Brown

Hiller, Inc., 281 S.W.3d 749 (Ark. Ct. App. 2008), where the Arkansas Court of

Appeals upheld noncompete agreements that contained no geographic limitation. In

-6-

Appellate Case: 13-3671 Page: 6 Date Filed: 02/06/2015 Entry ID: 4242054 
both cases, however, the agreements narrowly circumscribed the prohibitions on the

employees. The employees were permitted to engage in the same business as their

former employers, in any geographic location, but they were prohibited from

soliciting any customers with whom they had contact while working for their former

employers. Freeman, 281 S.W.3d at 752, 755-56; Girard, 685 S.W.2d at 527, 529-

30. In Girard, the noncompete still permitted the employee “to solicit and accept

business from 95% of the overall insurance market.” Girard, 685 S.W.2d at 529. 

The employee in Girard was therefore free to pursue his trade in any area of the

country, provided he did not solicit former clients. See HRR Ark., Inc. v. River City

Contractors, Inc., 87 S.W.3d 232, 239 (Ark. 2002). 

Suresh’s noncompete agreement is more analogous to the agreement at issue

in Bendinger, 994 S.W.2d at 471-73, where the Arkansas court held unenforceable

a noncompete agreement between a trowel company and its former employee because

the agreement failed to provide a geographic limitation. The Bendinger court

distinguished Girard and concluded that without a geographic limitation, the

noncompete lacked any “inherent limitation” that functioned like the customerspecific restriction in Girard. Id. at 473. Suresh’s noncompete agreement also is not

customer-specific, so without a geographic scope to limit its application, the Arkansas

courts are likely to deem the agreement overbroad.

NanoMech argues that an unlimited geographic scope isreasonable in this case

because the company engages in global business and competes with nanotechnology

companies around the world. The Third Circuit in Victaulic Co. v. Tieman, 499 F.3d

227 (3rd Cir. 2007), observed that “[i]n this Information Age, a per se rule against

broad geographic restrictions would seem hopelessly antiquated,” id. at 237, and

NanoMech advances a similar theme here. But even assuming that the Arkansas

court would accept a worldwide geographic scope as reasonable in this context, cf.

Bendinger, 994 S.W.2d at 472 (citing cases suggesting that “where a company is

actually engaged in nation-wide activities, nation-wide protection would appear to

-7-

Appellate Case: 13-3671 Page: 7 Date Filed: 02/06/2015 Entry ID: 4242054 
be reasonable and proper”), Suresh’s agreement is still overbroad because this

agreement—unlike those approved in Girard and Freeman, see id. at 473

n.4—prohibits her from working in any capacity for any businessthat competes with

the company. Id. at 473. Under Arkansas law, a noncompete agreement must be

valid as written; a court may not narrow it. Id. As we understand Arkansas law, a

blanket prohibition on Suresh’s ability to seek employment of any kind with an

employer in the nanotechnology industry anywhere in the world is unreasonable and

thus unenforceable.

For the foregoing reasons, the judgment of the district court is affirmed.

______________________________

-8-

Appellate Case: 13-3671 Page: 8 Date Filed: 02/06/2015 Entry ID: 4242054