Court Opinion

ID: 4013293
Source: CourtListenerOpinion
Date Created: 2016-07-06 15:01:10.261542+00
Date Added: 2024-06-11T07:44:51.952399
License: Public Domain

United States Court of Appeals
                            For the Eighth Circuit
                        ___________________________

                                No. 15-2294
                        ___________________________

  Symphony Diagnostic Services No. 1 Inc., doing business as MobilexUSA, a
                          California corporation

                        lllllllllllllllllllll Plaintiff - Appellant

                                            v.

                   Kimberly Greenbaum; Josephine Tabanag

                     lllllllllllllllllllll Defendants - Appellees
                                      ____________

                    Appeal from United States District Court
              for the Western District of Missouri - Jefferson City
                                ____________

                            Submitted: January 13, 2016
                                Filed: July 6, 2016
                                 ____________

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

KELLY, Circuit Judge.

      After Ozark Mobile Imaging was sold to Mobilex by means of an asset
purchase, two former Ozark employees, Kimberly Greenbaum and Josephine
Tabanag, went to work for Mobilex’s competitor, BioTech X-Ray. Mobilex sued
Greenbaum and Tabanag to enforce the non-compete and confidentiality agreements
they had signed with Ozark. The district court granted summary judgment in favor
of Greenbaum and Tabanag on the basis that a personal services contract cannot be
assigned to a subsequent employer under Missouri law without the employee’s
contemporaneous consent. Because we find that the non-compete and confidentiality
agreements at issue here were not personal services contracts and could be assigned
without the consent of Greenbaum and Tabanag, we reverse and remand.

                                         I

       Both Greenbaum and Tabanag worked as mobile x-ray technicians for Ozark
prior to its acquisition by Mobilex: Greenbaum from March 2007 onwards, and
Tabanag beginning in October 2010. Greenbaum started as a part-time employee, but
was eventually given a full-time position and promoted to district manager. Tabanag
too described her position at Ozark as full-time, working 40-plus hours a week with
full benefits. Neither, according to Mobilex, had a written employment contract.1 At
the time they left Ozark, Greenbaum made $21.50 an hour and Tabanag made $17.50
an hour.

      In September 2007, Greenbaum signed a non-compete agreement and a
confidentiality agreement with Ozark. Tabanag signed essentially identical
agreements in October 2010. Both non-competes began by stating that the employee
was entering into the agreement “[i]n consideration of his/her employment by Mobile
Medical Services Inc., Ozark Mobile Imaging, Clearview Mobile Imaging, LLC
and/or its affiliates . . . .” They went on to state that during his or her term of

      1
       Greenbaum submitted an affidavit claiming to have signed a written
employment contract when she began working at Ozark and each time she was
promoted, but no such contracts appear in the record, and Mobilex disputes their
existence.

                                        -2-
employment and for two years afterwards, the employee agreed within a specified
geographical area2 not to:

      1.     Directly or indirectly engage in the mobile diagnostic business.
      2.     In any manner be connected with or employed by a person,
             company, firm, or corporation engaged in the mobile diagnostic
             business.
      3.     For himself/herself or on behalf of any other person, partnership,
             or corporation call on any customer or customers of Mobile
             Medical Services, Ozark Mobile Imaging, Clearview Mobile
             Imaging, LLC, and/or its affiliates, for the purpose of soliciting
             their business for others.

      The separate confidentiality agreements Greenbaum and Tabanag signed
consisted of an acknowledgment that they had been instructed on their employer’s
confidentiality policy, and that they understood that failure to maintain confidentiality
was just cause for dismissal.

       Mobilex acquired Ozark through an Asset Purchase Agreement in December
2012. Around this same time, it made Greenbaum an offer of employment. Unlike
her previous position, the job Mobilex offered Greenbaum was part time, with a 90-
day probationary period, no guaranteed number of hours, and no guaranteed benefits.
According to an affidavit Mobilex submitted, Greenbaum was offered a part-time
position because she had asked to work fewer hours while at Ozark. Greenbaum
refused Mobilex’s offer.

      2
      Specifically, within a 100-mile radius of St. Joseph, Missouri; Kansas City,
Missouri; Columbia, Missouri; Joplin, Missouri; Laurie, Missouri; Springfield,
Missouri; Lincoln, Nebraska; and Omaha, Nebraska.

                                          -3-
       Tabanag was likewise made an offer by Mobilex. Although Mobilex offered
her the same wage she had been earning at Ozark, the position she was offered was
part time and without guaranteed benefits. Tabanag also refused Mobilex’s offer.

       Greenbaum took on a new position as a mobile x-ray technician at Mobilex’s
competitor, Biotech X-ray, in January 2013, and Tabanag followed suit in February.
In September 2013, Mobilex filed a complaint in federal court against Greenbaum
and Tabanag, alleging state law claims for breach of contract, breach of fiduciary
duty, and tortious interference with a business relationship. After Greenbaum and
Tabanag moved for summary judgment, the district court concluded that the success
of each of the claims depended on whether the non-compete and confidentiality
agreements were assignable from Ozark to Mobilex without Greenbaum’s and
Tabanag’s contemporaneous consent. The district court found that Greenbaum’s and
Tabanag’s consent was necessary in order for the agreements to be assignable. Since
it was undisputed that neither had provided consent, the district court entered
judgment in their favor on all counts.

                                           II

       The central question presented by this case is whether non-compete and
confidentiality agreements signed by an employee can be assigned without the
employee’s consent. Because this case was brought under Missouri state law, we are
bound by any relevant decisions of the Missouri Supreme Court. See Leonard v.
Dorsey & Whitney, LLP, 553 F.3d 609, 612 (8th Cir. 2009). If no such decisions
exist, “we may rely on the decisions of intermediate state courts, unless we are
convinced by persuasive data that the highest state court would decide the issue
differently.” Id. “Persuasive data” in this context includes “relevant state precedents,
analogous decisions, considered dicta, scholarly works, and any other reliable data.”
Id. (quoting McKenna v. Ortho Pharm Corp., 622 F.2d 657, 663 (3d Cir. 1980)).

                                          -4-
       No decision from the Missouri Supreme Court or Missouri’s intermediate
courts appears to have squarely addressed the question here. Faced with a similar
lack of precedent last year in deciding whether Arkansas law permitted “the
assignment of an employee’s non-compete agreement to a successor employer,” we
predicted that the Arkansas Supreme Court would adopt what we called the majority
rule: that covenants not to compete can be assigned to a successor employer. Stuart
C. Irby Co. v. Tipton, 796 F.3d 918, 923–24 (8th Cir. 2015) (citing 6 Williston on
Contracts § 13:13 (4th ed. 1990)). But see Great Am. Opportunities, Inc. v.
Cherrydale Fundraising, LLC, No. 3718-VCP, 2010 WL 338219, at *11 n.142 (Del.
Ch. Jan. 29, 2010) (noting disagreement as to which view commands majority
support). Stuart C. Irby supplies the default forecast of what a state’s highest court
would do when state law is silent, and therefore controls this case. Indeed, the Stuart
C. Irby court reached the conclusion it did despite the Arkansas courts’ general
skepticism of covenants not to compete, see 796 F.3d at 924, a skepticism that the
Missouri courts do not appear to share. See Whelan Sec. Co. v. Kennebrew, 379
S.W.3d 835, 841–42 (Mo. 2012) (en banc) (holding that “[t]he law of non-compete
agreements in Missouri seeks to balance the competing concerns between an
employer and employee in the workforce” and “[i]n balancing these competing
interests, Missouri courts generally enforce a non-compete agreement if it is
demonstratively reasonable”). We predict the Missouri Supreme Court would permit
assignment of covenants not to compete without contemporaneous consent. Accord
Restatement (Second) of Contracts § 317 cmt. c, illus. 6 (Am. Law Inst. 1981).

        The district court thought that a contrary result was required by Roeder v.
Ferrell-Duncan Clinic, Inc., 155 S.W.3d 76 (Mo. Ct. App. 2004). In that case, the
Missouri Court of Appeals observed that “[i]t is well recognized that in a contract for
personal services, which involves special knowledge, skill or a relation of personal
confidence, the duty to perform is not assignable without the consent of both parties.”
Id. at 84 (quoting Kenneth D. Corwin, Ltd. v. Mo. Med. Serv., 684 S.W.2d 598, 600
(Mo. Ct. App. 1985)). But this case, unlike Roeder, does not involve a personal

                                         -5-
services contract: it involves free-standing non-compete and confidentiality
agreements. Neither agreement formed part of a larger employment agreement that
required Greenbaum and Tabanag to provide personal services of any kind to Ozark.
By contrast, the plaintiff in Roeder, a physician, had agreed in an employment
contract “to provide professional medical services for [his employer’s] sole and
exclusive benefit during the term of the agreement.” Id. at 84. It was this employ-
ment contract that Roeder found to be a non-assignable personal services contract.
Id.

       Greenbaum and Tabanag argue that the non-compete and confidentiality
agreements they signed were personal services contracts because the non-compete
agreements stated that they were entered into in consideration for continued (albeit
at-will) employment by Ozark. Stated differently, in exchange for their signing the
non-compete agreements, Ozark agreed not to immediately discharge Greenbaum and
Tabanag. But this argument misapprehends the crucial difference between a personal
services contract and a non-compete agreement: the former requires affirmative
actions by the employee, whereas the latter requires only that they refrain from
certain actions. Managed Health Care Assocs. v. Kethan, 209 F.3d 923, 929–30 (6th
Cir. 2000); see also Sanfillippo v. Oehler, 869 S.W.2d 159, 163 (Mo. Ct. App. 1993)
(holding that the non-compete portion of an employment agreement was severable
and not a personal services contract); Cropper v. Davis, 243 F. 310, 316 (8th Cir.
1917) (suggesting that contract requiring employee to perform, unlike non-compete,
presents involuntary servitude issues); In re Andrews, 80 F.3d 906, 912 (4th Cir.
1996) (“Although the Thirteenth Amendment prohibits a court from specifically
enforcing a personal service contract, an agreement not to compete is specifically
enforceable if it is reasonable.”). As these cases suggest, a contract that imposes on
a party affirmative obligations to act raises concerns that are not implicated by a
contract that simply forbids certain actions, and its assignment must therefore be
policed more carefully. But the fact that Greenbaum and Tabanag signed the non-
compete and confidentiality agreements in consideration for continued employment

                                         -6-
did not transform those agreements into personal services contracts, because the
agreements imposed no obligation on them to take any affirmative action.

        Refusing to enforce the non-compete and confidentiality agreements here just
because they were transferred from Ozark to Mobilex without Greenbaum’s and
Tabanag’s consent would lead to anomalous results. If Mobilex had acquired Ozark
by way of purchasing its stock rather than its assets, there would be no bar under
Missouri law to its enforcing the non-compete and confidentiality agreements. See
Alexander & Alexander, Inc. v. Koelz, 722 S.W.2d 311, 312 (Mo. Ct. App. 1986).
The court in Alexander held that after an employer merges with its parent, the merged
entity is entitled to enforce employment contracts that were entered into pre-merger.
Id. at 313. And it suggested that the same rule should apply not just to mergers, but
also “the initial acquisition of one company by another by the purchase of stock.” Id.
We see no reason why the non-compete and confidentiality agreements here should
be unenforceable simply because Mobilex’s acquisition of Ozark was effected
through an asset purchase rather than a transfer of stock. See Managed Health Care,
209 F.3d at 929; 9 John E. Murray, Jr., Corbin on Contracts § 49.5, at 204–05 (rev.
ed. 2007) (“The underlying issue of whether an employee should be subject to a non-
competition covenant should not depend on matters of form.”).

      It may make sense to preclude assignment of a non-compete agreement without
consent, at least in the absence of an explicit provision permitting assignment, when
the assignment would materially change the obligations of the employee, or the
employee only agreed to the non-compete because of qualities specific to the
employer. See Roeder, 155 S.W.3d at 89; Munchak Corp. v. Cunningham, 457 F.2d
721, 725–26 (4th Cir. 1972). For example, if a non-compete agreement forbade
“engaging in the same business ventures as the employer,” and the employer was
acquired by a company that engaged in a broader set of ventures, the obligations
imposed on the employee by the agreement would be expanded by the acquisition.
Similarly, if someone agreed to work as a personal assistant to Meryl Streep subject

                                         -7-
to a non-compete because of his admiration for Streep’s character and work, allowing
the non-compete to be assigned to a less accomplished actor without his consent
could fairly be viewed as changing the terms of the deal. See Traffic Control Servs.,
Inc. v. United Rental Northwest, Inc., 87 P.3d 1054, 174–75 (Nev. 2004); Smith, Bell
& Hauck, Inc. v. Cullins, 183 A.2d 528, 532 (Vt. 1962); American Colortype Co. v.
Continental Colortype Co., 188 U.S. 104, 107 (1903) (Holmes, J.) (“Service is like
marriage, which, in the old law, was a species of it. It may be repeated, but
substitution is unknown.”).

      We need not decide whether Missouri would disallow assignments in cases
such as these. The non-compete agreements here precluded only working in the field
of medical diagnostics or soliciting business from certain clients within a specified
geographical area. That obligation is no different whether enforced by Ozark or by
Mobilex. See Munchak, 457 F.2d at 725–26; Artromick Int’l, Inc. v. Koch, 759
N.E.2d 385, 389 (Ohio Ct. App. 2001) (upholding assignment because “no additional
burdens were placed upon appellee as a result of the asset sale or the assignment of
the noncompetition agreement”). And a reasonable jury, looking at the facts in the
record, could find that Greenbaum and Tabanag did not agree to the non-compete and
confidentiality agreements because of Ozark’s unique characteristics. See Alexander,
722 S.W.2d at 313 (“[W]hen a person contracts with a corporation, it must be
assumed that person contemplated the almost certain likelihood of change in the
corporation and its personnel.”); AutoMed Techs., Inc. v. Eller, 160 F. Supp. 2d 915,
924 (N.D. Ill. 2001).

       The danger in enforcing a non-compete agreement is that by eliminating other
realistic opportunities for employment, it may effectively force the employee to
continue working for the employer on the employer’s terms. See Osage Glass, Inc.
v. Donovan, 693 S.W.2d 71, 73–74 (Mo. 1985) (en banc). Greenbaum and Tabanag
say the post-acquisition employment offers Mobilex made them were significantly
less attractive than the positions they had enjoyed with Ozark: they were not

                                         -8-
guaranteed a minimum number of hours or benefits, for example. But in general, this
concern would not be addressed by imposing a rule against assigning non-compete
agreements without consent. As far as the record shows, Ozark would have been
within its rights at any time to reduce Greenbaum’s and Tabanag’s hours and deny
them benefits, leaving them in the same unenviable position they were put in after the
acquisition. To the extent that Greenbaum and Tabanag believe that the specific
terms of the non-compete agreements here restrict too heavily their ability to gain
future employment, they remain free on remand to challenge the agreements on that
basis. See Whelan, 379 S.W.3d at 841–42.

                                          III

       We reverse the judgment of the district court and remand the case to the district
court for further proceedings consistent with this opinion.
                        ______________________________

                                          -9-