Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca8-05-01441/USCOURTS-ca8-05-01441-0/pdf.json

Parties Involved:
Emerson Electric Company
Appellee
Guy Rogers Sales
Appellant
Guy Rogers
Appellant

Document Text:

1

The Honorable E. Richard Webber, United States District Judge for the

Eastern District of Missouri. 

United States Court of Appeals

FOR THE EIGHTH CIRCUIT

 __________

 No. 05-1441

 __________

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. *

___________

Submitted: June 21, 2005

Filed: August 8, 2005

___________

Before MURPHY, RILEY, and SMITH, Circuit Judges.

___________

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. 

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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

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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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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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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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