Court Opinion

ID: 9376013
Source: CourtListenerOpinion
Date Created: 2023-03-01 17:00:48.856146+00
Date Added: 2024-06-11T17:17:03.712731
License: Public Domain

United States Court of Appeals
                            For the Eighth Circuit
                        ___________________________

                                No. 22-1138
                        ___________________________

                                 Core and Main, LP

                        lllllllllllllllllllllPlaintiff - Appellant

                                           v.

                    Ron McCabe; Dakota Supply Group, Inc.

                      lllllllllllllllllllllDefendants - Appellees
                                       ____________

                    Appeal from United States District Court
                         for the District of Minnesota
                                 ____________

                           Submitted: October 19, 2022
                              Filed: March 1, 2023
                                 ____________

Before LOKEN, GRUENDER, and GRASZ, Circuit Judges.
                          ____________

LOKEN, Circuit Judge.

      Core and Main, LP (“C&M”), headquartered in St. Louis, supplies water,
wastewater, storm drainage, and fire protection products and services to commercial
and governmental customers. On October 6, 2017, C&M expanded its Midwest
operations by acquiring the assets of Minnesota Pipe and Equipment Company
(“MPE”), which supplied the same products and services in areas of Minnesota and
South Dakota. Six shareholders of MPE were parties to the Asset Purchase
Agreement and to a separate Noncompetition Agreement that was “a condition
precedent to C&M’s obligation” to close the purchase.

      One of the shareholders, Ron McCabe, was part of MPE’s management team.
Based on McCabe’s longstanding customer relations after thirty years of selling
waterworks products, C&M and McCabe entered into a separate at-will Employment
Agreement in which C&M employed McCabe as an Outside Sales Representative,
agreeing to pay him at least $250,000 in commissions and bonus and to provide
enumerated employee benefits in the first year. The Employment Agreement was
made “contingent on the closing of the sale of [MPE] to [C&M].”

      On June 1, 2021, unhappy that he had not become part of C&M’s management
team, McCabe quit his sales representative position. One week later, he started work
at Dakota Supply Group, Inc. (“DSG”), a C&M competitor. Both the Noncompetition
Agreement and the Employment Agreement included restrictive covenants and an
“Entire Agreement” provision. C&M brought this diversity action against McCabe
and DSG, asserting breach of the Employment Agreement’s noncompete and
confidentiality covenants, tortious interference, and related claims. The district court
granted defendants’ Rule 12(b)(6) motion to dismiss for failure to state a claim.1 The

      1
        The district court declined to dismiss C&M’s breach of loyalty claim, so its
Order was not an appealable “final decision.” 28 U.S.C. § 1291. The court then
voluntarily dismissed the loyalty claim without prejudice. We have “repeatedly
criticized the use of dismissals without prejudice to manufacture appellate jurisdiction
in circumvention of the final decision rule.” West Am. Ins. Co. v. RLI Ins. Co., 698
F.3d 1069, 1071 n.1 (8th Cir. 2012). This is not a jurisdictional issue because the
district court has given the “clear and unequivocal manifestation” of its intent to enter
a final decision that § 1291 requires. However, in most cases, a district court abuses
its discretion “when it frustrates the limitations on federal appellate jurisdiction” in
this manner. Great Rivers Coop. v. Farmland Indus., 198 F.3d 685, 689 (8th Cir.
1999). At oral argument, C&M agreed that we amend the dismissal of the claim to
be with prejudice. We direct the district court to modify its Order of January 4, 2022.

                                          -2-
principal issue on appeal is whether the court correctly concluded that the
Noncompetition Agreement was a later agreement and therefore its Entire Agreement
provision superseded the restrictive covenants in McCabe’s Employment Agreement.
Concluding that the breach of contract and tortious interference claims turn on fact-
intensive issues that cannot be determined on the pleadings, we reverse the dismissal
of those claims and otherwise affirm.

                                   I. Background

        The Employment Agreement was set forth in a letter to McCabe dated
September 25, 2017 from Don Taylor, C&M’s “Sr. RVP North.” C&M offered
McCabe the position of Outside Sales Representative on the terms stated, contingent
on the closing of the sale of MPE to C&M. After detailing the offered employment
duties and terms of employment, the letter provided that, in exchange for “separate
and independent consideration,” McCabe agreed he would not, for a period of twelve
months after termination of employment and within a territory limited to a 150 mile
radius from “each office location from which you have provided services on behalf
of [C&M],” (i) accept employment, otherwise assist, or have any beneficial interest
in any person or entity that competes with C&M regarding its products as defined; (ii)
compete with C&M by accepting employment, providing services, or otherwise
assisting in business activities competing with C&M; and (iii) solicit or attempt to
solicit business from any customer or supplier or prospective customer or supplier of
C&M during the year prior to his termination, or solicit a reduction or end of their
dealings with C&M. McCabe also agreed to keep certain proprietary business and
customer information confidential. The Employment Agreement was signed by
McCabe on October 2 and by Taylor on October 5, 2017. McCabe began his
employment on October 9.

     The Noncompetition Agreement recited that it was made and entered into on
October 6, 2017, and that “it is a condition precedent to C&M’s obligations to close

                                         -3-
the [Asset Purchase Agreement] that each of the Restricted Parties [MPE and the six
shareholders] executes and delivers this Agreement.” Section 2.1 provided:

              Restrictions on Competition. Each Restricted Party hereby
      agrees that, during the Term, it will not, directly or indirectly, anywhere
      in the Territory, except on behalf of C&M: (i) engage in the Business;
      (ii) engage in any business which is in competition with the Business;
      (iii) invest in any person or entity which is engaged in the Business or
      . . . any business which is in competition with the Business; or (iv) be
      employed by or be a director . . . of or provide consulting services to any
      person or entity which is engaged in the Business or . . . any business
      which is in competition with the Business.

Business was defined as purchasing, selling, or distributing a broad array of
waterworks products and services. Term was defined as 42 months for MPE and two
shareholders, and 24 months for the other shareholders, including McCabe. Territory
was defined as Minnesota, Wisconsin, North Dakota, South Dakota, and Iowa.

      The Noncompetition Agreement included an “Entire Agreement” provision:

             This Agreement constitutes the entire agreement by and between
      the parties pertaining to the subject matter hereof and supersedes all
      prior or contemporaneous agreements, letters of intent, understandings,
      negotiations and discussions of the parties, whether oral or written.

Similarly, the Employment Agreement provided that it “contains the entire agreement
between [McCabe] and the Company with respect to your employment and all issues
related to or arising from your employment and supersedes all prior oral and written
agreements, discussions and understandings regard[ing] such subject.”

      C&M’s Verified Complaint alleges that, in the spring of 2021, an important
supplier reported that McCabe had encouraged a C&M customer to switch from using

                                         -4-
the supplier’s fire hydrants to a competitor’s hydrants, a competitor whose hydrants
DSG is authorized to sell more widely in Minnesota. On June 1, McCabe resigned
in an e-mail to C&M, expressing dissatisfaction with certain people and referencing
C&M business practices. That day, McCabe sent text messages to C&M customers
that he had resigned and could be reached at a new number. The next day, C&M sent
letters to McCabe and DSG demanding compliance with the Employment Agreement
restrictions. In reply, Defendants’ attorney asserted that C&M’s letters were a “desire
to retaliate in response to concerns regarding CM’s business practices raised by Mr.
McCabe with CM on June 1.” That reply is the basis for C&M’s claim that McCabe
breached his confidentiality covenant by sharing confidential business information
with DSG. C&M further alleges that McCabe violated the anti-solicitation restriction
when he attended a Park Rapids Conference and provided information on fire hydrant
installation and maintenance to members of the Rural Water Association.

       Defendants moved to dismiss all claims, arguing, as relevant on appeal, (i) the
Employment Agreement is not effective because C&M’s CEO never signed it, as
C&M procedures required; (ii) the Complaint fails to state a breach of contract claim
because the Noncompetition Agreement’s Entire Agreement provision superseded the
Employment Agreement covenant not to compete for one year after termination, and
McCabe’s covenant not to compete in the Noncompetition Agreement has expired;
and (iii) there is no plausible claim that McCabe breached any duty of confidentiality.

        The district court dismissed all but the breach of loyalty claim, concluding (i)
the breach of contract claim fails to state a claim because the Noncompetition
Agreement superseded Employment Agreement covenants covering the same subject;
(ii) the tortious interference claims fail because they are based on Employment
Agreement restrictive covenants that are unenforceable; and (iii) C&M’s Complaint
fails to state a plausible breach of confidentiality claim.

                                          -5-
                                    II. Discussion

       “We review a Rule 12(b)(6) dismissal for failure to state a claim de novo,
accepting all well-pleaded factual allegations as true and construing all reasonable
inferences in the nonmoving party’s favor.” Vigeant v. Meek, 953 F.3d 1022, 1024
(8th Cir. 2020). To survive dismissal, complaints must plead “enough facts to state
a claim to relief that is plausible on its face.” Bell Atlantic Corp. v. Twombly, 550
U.S. 544, 570 (2007). “A claim has facial plausibility when the plaintiff pleads factual
content that allows the court to draw the reasonable inference that the defendant is
liable for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009).

      A. The Breach of Contract Claim. At the heart of this appeal is the difficult
question whether the Employment Agreement is a "prior or contemporaneous"
agreement “pertaining to the subject matter hereof” that was superseded by the Entire
Agreement provision in the Noncompetition Agreement, rendering the restrictive
covenants in the Employment Agreement on which C&M relies unenforceable.2

      An Entire Agreement provision creates what is commonly called a “completely
integrated agreement [that] discharges prior agreements to the extent that they are
within its scope.” Restatement (Second) of Contracts § 213(2) (1981). The parol
evidence rule “is closely allied to the doctrine of integration.” Millar Co. v. UCM
Corp., 419 N.W.2d 852, 855 (Minn. App. 1988).3 “[I]f a contract is a complete

      2
      The Noncompetition Agreement, the basis for Defendants’ motion to dismiss,
was not referred to in C&M’s Complaint. We agree with the district court it is a
document “integral to the claim” that may be considered in ruling on a Rule 12(b)(6)
motion. See Zean v. Fairview Health Servs., 858 F.3d 520, 526 (8th Cir. 2017).
      3
       The Noncompetition Agreement provides that Missouri law governs its
interpretation. The Employment Agreement has no contractual choice-of-law
provision, so presumably a Minnesota forum would apply Minnesota choice-of-law
principles to resolve any conflict. The district court did not consider this question,

                                          -6-
integration of the parties’ agreements, prior agreements within the scope of the
contract are discharged regardless of consistency.” Stromberg v. Smith, 423 N.W.2d
107, 109 (Minn. App. 1998) (emphasis in original, citing Restatement 2d § 213). A
prior agreement “is not superseded or invalidated by a subsequent integration if it is
not inconsistent with the integrated contract and would naturally be made as a
separate agreement.” Millar, 419 N.W.2d at 855 (citation omitted).

       “The crucial issue in determining whether there has been an integration is
whether the parties intended their writing to serve as the exclusive embodiment of
their agreement.” Spark Connected, LLC v. Semtech Corp., No. 4:18-cv-748, 2020
WL 6118575, at *5 (E.D. Tex. Oct. 16, 2020) (quotation omitted). The Comment to
Restatement 2d § 213 explains that even if an agreement is completely integrated:

      the court in addition . . . must determine that the asserted prior
      agreement is within the scope of the integrated agreement. Those
      determinations are made in accordance with all relevant evidence, and
      require interpretation both of the integrated agreement and of the prior
      agreement.

       As the district court recognized, “while extrinsic evidence may be admissible
to clarify ambiguous terms in a written contract, it is not admissible to vary terms
whose meaning is plain.” Hayle Floor Covering, Inc. v. First Minn. Const. Co., 253
N.W.2d 809, 812 (Minn. 1977). Whether a contract is unambiguous is determined
by the court, giving contract terms “their plain, ordinary, and popular meaning to give
effect to the intention of the parties.” Kremer v. Kremer, 912 N.W.2d 617, 626
(Minn. 2018). A court’s task is to give effect to the parties’ intent, looking at the

and the parties did not brief it on appeal. Defendants cite Missouri cases, but none
addressed the issues on appeal. We leave this issue to the district court on remand.
Our research has not revealed any relevant conflict between Minnesota and Missouri
law, in which case the issue should be avoided. See Ronnoco Coffee, LLC v.
Westfeldt Bros. Inc., 939 F.3d 914, 920 (8th Cir. 2019).

                                         -7-
“obvious purpose of the contract [here, the contracts] as a whole.” Republic Nat’l
Life Ins. Co. v. Lorraine Realty Corp., 279 N.W.2d 349, 354 (Minn. App. 1979)
(cleaned up). Thus, if the plain meaning of the Entire Agreement provision in the
Noncompetition Agreement read in the context of the agreements that accompanied
the sale of MPE to C&M establishes that the Employment Agreement was not a
superseded “prior or contemporaneous agreement,” or if the Entire Agreement
provision was ambiguous in this regard so that extrinsic evidence must be considered,
then it was error to grant defendants’ motion to dismiss the breach of contract claim.

       The Entire Agreement provision in the Noncompetition Agreement only
supersedes prior and contemporaneous agreements “pertaining to the subject matter
hereof.” We assume that the sophisticated drafters of this Agreement intended that
term to adopt the established legal principle that a completely integrated agreement
only discharges prior agreements “to the extent that they are within its scope.”
Restatement 2d § 213(2). The district court concluded that the “most natural meaning
of ‘the subject matter hereof’ is that it applies to the sole subject of the agreement --
noncompetition.” But that purely textual analysis ignores the Restatement’s direction
that determining the scope of a complete integration clause “require[s] interpretation
both of the integrated agreement and the prior agreement” to determine the parties’
intent. Here, the required analysis produces strong contrary signals:

      First, it is not uncommon for the purchaser of a small or mid-size business
paying for its goodwill and customer relations to require the seller’s shareholders and
managers to agree to sale-of-business noncompete covenants that are judicially
enforceable if reasonable. If the purchaser agrees to employ the seller’s key
shareholders or managers after the acquisition, it is also not uncommon to require the
new employees to agree to noncompete covenants in an employment agreement,
which are viewed with disfavor if they will interfere with the employee’s ability to
pursue his livelihood after termination but are judicially enforceable if they
reasonably avoid that sin. Both are noncompetition covenants. But they typically

                                          -8-
have significantly different terms, and courts view them differently. As the Court of
Appeals of Georgia concluded, “the noncompete covenant ancillary to the sale of the
business relates to subject matter entirely different from that of the noncompete
covenant ancillary to [the seller’s] employment as a manager with [the buyer].”
Attaway v. Republic Servs. of Ga., LLP, 558 S.E.2d 846, 848 (Ga. App. 2002).

       Second, these two types of covenants may be contained in a single
noncompetition agreement if the seller’s only shareholder or owner is employed by
the purchaser post acquisition, as in Progressive Techs., Inc. v. Chaffin Holdings,
Inc., 33 F.4th 481, 484 (8th Cir. 2022). In that case, there was no integration clause
issue -- both of the different noncompetition restraints were obviously intended by
the parties, and the issue was whether the covenant with the longer duration on which
the plaintiff relied was reasonable. Here, by contrast, the Noncompetition Agreement
included additional selling-shareholder parties to whom the additional employment
covenants should not apply. That no doubt explains why the covenants in C&M’s
Employment Agreement with McCabe contain both different and additional terms --
different durations, different covered territories, and non-solicitation restrictions
common to employment agreements. See id. at 484, 486. That the covenants are in
different agreements brings the integration clause issue into play, but it should not
change the result. Indeed, the presence of additional parties in the Noncompetition
Agreement supports the conclusion that it was not intended to supersede the
Employment Agreement, whether or not the latter was “prior or contemporaneous.”
See Dunn v. FastMed Urgent Care PC, 424 P.3d 436, 441-42 (Ariz. App. 2018).

      In these circumstances, we agree with C&M that it is at least plausible the two
Agreements covered different subject matters, making Rule 12(b)(6) dismissal
inappropriate. The Noncompetition Agreement restricting MPE shareholders from
engaging or investing in a competing business was geographically broad (States
where MPE competed with C&M), but its duration was precisely limited to a specific
term for each restricted party (for McCabe, two years after the purchase closing). By

                                         -9-
contrast, in the Employment Agreement, McCabe agreed to restrictions directly tied
to his expected role as a C&M sales representative, including non-solicitation
covenants, with a more limited geographic scope (150 miles from every office where
McCabe worked), and a more limited but uncertain duration (12 months after his
employment ended).

       In addition, we conclude that, in the context of the multiple agreements that
completed the Asset Purchase transaction, the term “prior or contemporaneous” in the
Noncompetition Agreement’s Entire Agreement provision is ambiguous. The
Employment Agreement was “contingent on the closing of the sale.” The
Noncompetition Agreement was a “condition precedent” to C&M’s obligations to
close the sale. Thus, in reality, regardless of when each Agreement was signed, the
Noncompetition Agreement was a condition precedent to the Employment
Agreement. The Employment Agreement was signed by C&M the day before the
date of the Noncompetition Agreement. In determining whether a contract is
ambiguous, a court’s task is to give effect to the parties’ intent, looking at the obvious
purpose of the contracts as a whole. See Republic Nat’l Life Ins. Co. v. Lorraine
Realty Corp., 279 N.W.2d 349, 354 (Minn. App. 1979). For purposes of applying the
law of completely integrated contracts, which is more important, reality or the date
or dates the contracts were signed? The answer to that question calls for extrinsic
evidence, so this essential term of the contract is ambiguous and dismissal improper.

      For these reasons, we conclude that at the very least, C&M plausibly pleaded
that McCabe breached the Employment Agreement. Whether that Agreement was
“within [the] scope” of the Noncompetition Agreement cannot be determined as a
matter of law from the pleadings alone. “While the district court’s interpretation of
the [Noncompetition] Agreement is certainly plausible, we cannot agree it is the only
reasonable interpretation.” Rosemann v. Roto-Die, Inc., 276 F.3d 393, 399 (8th Cir.
2002). In Rosemann, applying Missouri law, we concluded the contract language was

                                          -10-
ambiguous, looking at the context of the entire agreement, and reversed the grant of
summary judgment that was based on the district court’s interpretation. Id.

       Defendants contend that C&M cannot disavow its “clear position” that the
subject matter of the two restrictive covenants was the same, “to protect the customer
goodwill and assets that [MPE] sold to [C&M].” The Supreme Court of Minnesota
will uphold a reasonable covenant in an employment agreement “designed to protect
the employer against the deflection of trade or customers by the employee by means
of the opportunity which the employment has given him.” Bennett v. Storz
Broadcasting Co., 134 N.W.2d 802, 808 (Minn. 1965). Likewise, sale-of-business
covenants protect the purchaser from competition that lessens the value of the assets
purchased by “deflect[ing] trade or customers.” That sale-of-business covenants and
employment covenants protect the same legitimate interest does not establish that the
former are “within [the] scope” of the latter.

       Defendants argue: (i) even though the parties operated under the Employment
Agreement for years, it is not effective because it was never signed by C&M’s CEO,
as C&M’s internal procedures required; and (ii) no “legitimate employer interest” not
“broader than necessary” justifies the noncompete provisions, as Minnesota law
requires. See Kallock v. Medtronic, Inc., 573 N.W.2d 356, 361 (Minn. 1998). The
district court did not address these issues, and we decline to address them in the first
instance. Of course, if the Employment Agreement’s noncompete restrictions are not
superseded by the Noncompetition Agreement’s integration clause, the
reasonableness of those restrictions will be a primary issue on remand. “[T]he
reasonableness of a restrictive covenant clause is a question of fact.” Dean Van Horn
Consulting Assocs., Inc. v. Wold, 395 N.W.2d 405, 408 (Minn. App. 1986).

      B. Tortious Interference Claims. Because the district court dismissed C&M’s
claims for tortious interference with contractual relationship and prospective
contractual relationships based on its finding that no Employment Agreement

                                         -11-
noncompete provision was operative, we also reverse the dismissal of those claims.
Defendants make no contrary argument on appeal.

       C. Breach of Confidentiality Claim. Count II of C&M’s Verified Complaint
alleged that McCabe breached the duty of confidentiality in Paragraph G of the
Employment Agreement “when he shared information about Core and Main’s billing
practices with DSG’s attorney,” as evidenced by the attorney’s letter to C&M
referencing “concerns regarding CM’s business practices raised by Mr. McCabe with
CM on June 1.” The district court dismissed this claim, explaining:

      McCabe’s [June 1] resignation email does not contain any information
      about Core and Main’s billing practices, other than a vague reference to
      “issues with certain people and practices at Core and Main” and a
      request to receive commissions on products sold to date. The letter
      contains no specifics about Core and Main’s business or billing
      practices. Core and Main’s vague factual allegations do not plausibly
      allege a breach of the duty of confidentiality.

We agree. The elements of a breach of confidentiality claim are:

      (1) the protected matter is not generally known or readily ascertainable,
      (2) it provides a demonstrable competitive advantage, (3) it was gained
      at expense to the employer, and (4) it is such that the employer intended
      to keep it confidential. Cherne Indus., Inc. v. Grounds & Assocs., Inc.,
      278 N.W.2d 81, 90 (Minn. 1979).

       The attorney’s letter to C&M and McCabe’s June 1 email to which the attorney
referred are exhibits to C&M’s Verified Complaint. The attorney’s vague reference
to McCabe’s concern about C&M “business practices,” and the gripes of a resigning-
employee expressed in McCabe’s email to C&M, do not come close to pleading a
plausible claim that McCabe disclosed to DSG’s attorney information that constituted
“protected matter” supporting a breach of confidentiality claim. Conclusory
                                        -12-
assertions are “not entitled to be assumed true.” Iqbal, 556 U.S. at 681. Thus, as in
Twombly, the Verified Complaint has not “nudged [C&M’s Count II] claims across
the line from conceivable to plausible.” 550 U.S. at 570. Count II was properly
dismissed.

       D. A Procedural Issue. Finally, C&M argues the district court erred by not
dismissing without prejudice so that C&M could amend its Verified Complaint that
was filed in state court because “Minnesota does not follow Twombly or Iqbal.”

        “[A] district court in granting a motion to dismiss is not obliged to invite a
motion for leave to amend if plaintiff did not file one.” United States v. Mask of
Ka-Nefer-Nefer, 752 F.3d 737, 742 (8th Cir. 2014). Here, the case was removed to
federal court in June 2021, defendants moved to dismiss in July, the district court
dismissed all but one claim in December, and C&M filed a notice of dismissal of the
final claim in January 2022. Thus, for more than half a year, C&M chose not to file
a motion for leave to amend along with the amended pleading that a motion to amend
requires. “[T]he district court had no reason to question” C&M’s decision “to stand
on and defend its original complaint.” Id. at 742.

                                  III. Conclusion

       The judgment of the district court dismissing C&M’s breach of contract,
tortious interference with contractual relationships, and tortious interference with
prospective contractual relationships claims is reversed and the case is remanded for
further proceedings not inconsistent with this opinion. The judgment dismissing the
breach of confidentiality claim is affirmed. The judgment dismissing the breach of
loyalty claim is modified to be with prejudice. Each side will bear its own costs of
appeal.
                       ______________________________

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