Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca10-87-02531/USCOURTS-ca10-87-02531-0/pdf.json

Parties Involved:
Scott Amspoker
Appellee
Basis, Inc.
Appellee
Mark A. Davis
Appellee
Russell B. Kepler
Appellee
Mai Basic Four, Inc.
Appellant
Thomas A. Olson
Appellee

Document Text:

PUBLISH 

UNITED STATES COURT OF APPEALS 

MAI BASIC FOUR, INC., a 

Delaware corporation, 

TENTH CIRCUIT 

87-2531 

PJLBD 

Uoited Sratci~ Cmuc of Appeals 

Tenth Circuit 

JUL 211999 

'ROBERT L. HOECKER 

Clerk 

Plaintiff-Appellant, 

v. 

) 

) 

) 

) 

) 

) 

) 

On Appeal From The 

United States District Court 

For The District Of New Mexico 

(D.C. Civil No. 86-148-M) 

BASIS, INC., a New Mexico ) 

corporation, THOMAS A. OLSON, ) 

SCOTT AMSPOKER, RUSSELL B. ) 

KEPLER and MARK A. DAVIS, ) 

Defendants-Appellees. 

) 

) 

John R. Webb of Holme, Roberts & Owen, Denver, Colorado (Boyd N. 

Boland of Holme, Roberts & Owen, Denver, Colorado, Saul Cohen, 

Philip R. Higdon and Lorna M. Brown of Sutin, Thayer & Browne, 

Santa Fe, New Mexico, with him on the brief), for PlaintiffAppellant. 

Gregory D. Huffaker, Jr. of Poole, Tinnin & Martin, Albuquerque, 

New Mexico (Jill Burtram of Poole, Tinnin & Martin, Albuquerque, 

New Mexico, with him on the brief), for Defendants-Appellees. 

Before LOGAN, SETH and TACHA, Circuit Judges. 

SETH, Circuit Judge. 

Appellate Case: 87-2531 Document: 01019742581 Date Filed: 07/21/1989 Page: 1 
The plaintiff, MAI Basic Four, Inc., appeals the trial 

court's entry of partial summary judgment in favor of defendants, 

Thomas A. Olson, Scott Amspoker, Russell B. Kepler, and Mark A. 

Davis, all former employees of plaintiff, and Basis, Inc. 

Plaintiff, a computer software company, required the individual 

defendants, whom it employed in Albuquerque as employees-at-will, 

to sign two agreements. The first, a Patent Waiver Agreement, 

required them to assign to plaintiff any developments, inventions 

and improvements made or conceived while they were employed by 

plaintiff and for 90 days thereafter. The Patent Waiver Agreement 

also obligated them to disclose any such developments, inventions 

or improvements to plaintiff in writing. The second agreement, a 

Confidentiality and Non-Disclosure Agreement, required the 

individual defendants to treat as confidential all information 

disclosed to them as a result of or through their employment by 

plaintiff, and to refrain from disclosing such information to 

others. Defendant Olson did not sign a Confidentiality and NonDisclosure Agreement, and plaintiff's claims concerning that 

agreement were not directed toward him. 

While working for plaintiff, several of the defendants 

participated in the development of a software product known as 

"BB/M." In November 1984, plaintiff shut down its Albuquerque 

operation and terminated the individual defendants. In January 

1985, the individual defendants formed Basis, Inc. ("Basis"). 

Later in 1985, Basis began marketing two software products, "BBx" 

and "Comm 72," which plaintiff claims are markedly similar to 

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Appellate Case: 87-2531 Document: 01019742581 Date Filed: 07/21/1989 Page: 2 
"BB/M." Plaintiff claims that the defendants developed these 

products during their employment with plaintiff or within 90 days 

of their termination by plaintiff. Plaintiff commenced this 

diversity action alleging, among other claims unrelated to. this 

appeal, breach of the two agreements. It sought specific 

performance of the Patent Waiver Agreements, requiring conveyance 

to plaintiff of all rights to "BBx" and "Comm 72," and damages for 

breach of the Confidentiality and Non-Disclosure Agreements. 

The trial court granted summary judgment to defendants on 

plaintiff's two claims relating to the agreements. In the trial 

court's view, the validity of the agreements hinged on the issue 

of "whether continued employment [is] adequate consideration for 

restrictive covenants such as the [agreements at issue]." 

Memorandum Opinion and Order, June 10, 1987, at 6. The court 

stated that, while New Mexico law governs the substantive legal 

issues in this case, there was in its view no New Mexico law 

directly applicable to this issue. After discussing a split of 

authority among other jurisdictions, the trial court reasoned the 

New Mexico courts would hold that, as "restrictive covenants" 

comparable to agreements not to compete, the agreements at issue 

in this case required some consideration beyond continued at-will 

employment in order to be valid. Finding such additional 

consideration lacking, the court held the two agreements void. 

The trial court's entire discussion is based on the 

underlying assumption, not addressed in its opinion, that the two 

agreements at issue in this case are properly characterized as 

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Appellate Case: 87-2531 Document: 01019742581 Date Filed: 07/21/1989 Page: 3 
\ "restrictive covenants" akin to agreements not to compete. 

Because the trial court failed to "set out its analysis" in 

predicting that the New Mexico Supreme Court would endorse this 

assumption, we predict de novo how that court would rule on this 

particular issue. Weiss v. United States, 787 F.2d 518, 525 (10th 

Cir.). We note the New Mexico Supreme Court declined to accept 

this issue for certification in a letter to this court dated 

March 16, 1989. 

We hold that the Patent Waiver Agreements and Confidentiality 

and Non-Disclosure Agreements at issue in this case cannot be 

characterized as restrictive covenants and must be treated 

separate and apart from agreements not to compete. The agreements 

at issue in this case serve entirely different purposes than do 

agreements not to compete and must be analyzed on the basis of 

those distinct purposes alone. By their very nature, these 

agreements are not covenants not to compete. Defendants remain 

free to work for whomever they wish, wherever they wish, and at 

whatever they wish, subject only to the prohibition against 

misusing plaintiff's proprietary information and the requirement 

that defendants assign to plaintiff any work product relating to 

plaintiff's business that was developed by defendants while they 

were employed by plaintiff or shortly thereafter. 

Without expressing an opinion on the validity of the trial 

court's conclusion that an enforceable agreement not to compete 

requires some consideration in addition to continued at-will 

employment, it can be noted that the benefits an employer receives 

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Appellate Case: 87-2531 Document: 01019742581 Date Filed: 07/21/1989 Page: 4 
from executing such an agreement are distinct from the benefits 

the employer receives from the employee's continued employment. 

In contrast, the benefits plaintiff received from the agreements 

at issue here are indelibly linked to the benefits plaintiff 

received by employing the individual defendants in the first 

instance. The confidentiality agreements protected and preserved 

the trade secrets and other valuable confidential information 

plaintiff necessarily had to disclose to the individual defendants 

during the course of their employment. The patent waiver 

agreements assured that plaintiff, who hired the individual 

defendants, supplied them with support, and underwrote the risks 

attendant to the defendants' research, would enjoy the benefits of 

discoveries resulting from defendants' employment activities. 

Cases addressing what consideration is required to enforce an 

agreement not to compete are thus of no value to the resolution of 

this appeal. See Harsco Corp. v. Zlotnicki, 779 F.2d 906, 910 (3d 

Cir.) (trial court correct in holding that Pennsylvania law does 

not equate patent waiver agreements with restrictive covenants 

contained in employment agreements); Federal Screw Works v. 

Interface Sys., 569 F. Supp. 1562, 1564 (E.D. Mich.) (covenants 

that seek to protect trade secrets do not fall within ambit of 

Michigan statute prohibiting restrictive covenants not to 

compete). 

The agreements at issue here are necessary to insure the 

commercial viability of companies competing in the development of 

technology, and both are properly characterized as necessary 

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Appellate Case: 87-2531 Document: 01019742581 Date Filed: 07/21/1989 Page: 5 
incidents to a contract for employment in that field. Therefore, 

in light of the absence of New Mexico law on this question, we 

hold that the trial court erred in declaring the two agreements at 

issue in this case were void for lack of any consideration in 

addition to continued employment. 

Our holding is a narrow one, limited only to the issue of 

whether additional consideration was required. The trial court 

did not address the other arguments offered by defendants to void 

the agreements, including the argument that the agreements are 

overbroad, and we do not address those issues on this appeal. 

The judgment of the trial court is REVERSED and the case is 

REMANDED to the trial court. 

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Appellate Case: 87-2531 Document: 01019742581 Date Filed: 07/21/1989 Page: 6