Court Opinion

ID: 9471141
Source: CourtListenerOpinion
Date Created: 2023-08-05 03:25:49.021825+00
Date Added: 2024-06-11T17:42:17.182054
License: Public Domain

K.K. HALL, Circuit Judge,
concurring in part and dissenting in part:
I concur in the majority’s opinion insofar as it concludes that the district court erred in applying Ohio law to determine the enforceability of the Alabama salesmen’s cov*1036enant not to compete and the claim of tortious interference with respect to the Alabama and Louisiana salesmen and that, with respect to those salesmen, the judgment below must be reversed. However, I cannot agree with the majority’s conclusion that the district court correctly applied Ohio law to determine the enforceability of the covenant not to compete with respect to the Louisiana,1 Maryland and South Carolina salesmen. I dissent in part.
Appellee Barnes Group, Inc., is a Delaware corporation with its principal place of business in Connecticut. Bowman is a division of Barnes Group, Inc., and is headquartered in Cleveland, Ohio. Bowman is engaged in the nationwide marketing of some 14,000 items, including washers, nuts, bolts, and related products for the repair of vehicles and machinery. It sells its products primarily through independent contractors. The contracts between Bowman and its contractors contain a non-competition covenant and provide that it “shall be construed in accordance with the laws of the State of Ohio.”
Between 1977 and 1979, six Bowman salesmen left Bowman and took a sales or management position with C & C Products, Inc., (C & C), an Ohio corporation and Bowman competitor also having its principal place of business in Cleveland. These salesmen included S.D. Richardson, George Maria, and Roy E. McGuire. S.D. Richardson, a Louisiana resident assigned part of Louisiana as his Bowman territory, was hired by C & C and assigned a territory which overlapped with most of his former territory. George Maria, a Maryland resident and Bowman contractor for the District of Columbia and part of Maryland, was hired by C & C and assigned a territory covering part of Maryland, the District of Columbia, and nearby northern Virginia which had previously been covered by another C & C salesman. Roy E. McGuire, a South Carolina resident selling in the central part of the state for Bowman, was hired by C & C as a district manager primarily to recruit, train, and manage salesmen throughout South Carolina.
On October 26, 1979, Barnes Group, Inc., instituted this diversity action against C & C and Roy E. McGuire in the United States District Court for the Northern District of Ohio alleging that C & C had tortiously interfered with contracts between Bowman and some of its present and former sales agents, and that McGuire had breached the covenant not to compete contained in his contract. Pursuant to 28 U.S.C. § 1404(a), this action was transferred to the United States District Court for the District of South Carolina, because the claim “appears to have occurred in South Carolina and other Southeastern states.” Applying Ohio law to determine the enforceability of Bowman’s covenant not to compete and to determine Bowman’s claim of tortious interference, the district court sitting in South Carolina found for Bowman.
The South Carolina district court, as transferee, was required to apply the same law as the transferor court in Ohio. Kline v. Wheelsby Kinney, Inc., 464 F.2d 184, 185 (4th Cir.1972). This being a diversity action, the transferor court would have applied Ohio substantive law, including its choice-of-law rules. Klaxon Co. v. Stentor Electric Mfg. Co., 313 U.S. 487, 61 S.Ct. 1020, 85 L.Ed. 1477 (1941); Erie R.R. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938).
Ohio would apply the law of the state chosen by the parties to govern their contract unless
application of the law of the chosen state would be contrary to a fundamental policy of a state which has a materially greater interest than the chosen state in the determination of the particular issue *1037and which, ... would be the state of the applicable law in the absence of an effective choice of law by the parties.
Restatement (Second) of Conflict of Laws § 187(2)(b) (1971). See S&S Chopper Service, Inc. v. Scripter, 59 Ohio App.2d 311, 394 N.E.2d 1011 (1977); Woelfling v. Great-West Life Assurance Co., 30 Ohio App.2d 211, 285 N.E.2d 61 (1972).
The majority concedes that there are no Ohio cases which address whether the enforceability or non-enforceability of a covenant not to compete involves a policy sufficiently weighty to be considered “fundamental.” The majority further acknowledges that “there can be no clear-cut delineation of those policies that are sufficiently ‘fundamental’ ... to warrant overriding a contractual stipulation of controlling law” and relies upon usury cases for the proposition that a state’s “fundamental policy” is not impinged upon if the contractually chosen law differs only in minor respects from the law that would apply absent the choice of law. At 1030. Although choice-of-law provisions have been enforced so as to validate interest rates that would be usurious in the state whose law would apply absent the choice-of-law provisions, at least one court has applied a strong public policy on usury and rejected contrary, state usury laws. Huchingson v. Republic Finance Company, Inc., 236 Ark. 832, 370 S.W.2d 185 (1963). In any event, I do not find usury cases to be controlling in this case which involves .the enforceability of a restrictive covenant in employment contracts. In my view, the instant case is more analogous to insurance eases, where the oppressive use of superior bargaining power by the insurance company against the insured may be present, than to usury cases. See generally Restatement (Second) of Conflicts § 187 comment g. Accordingly, I conclude that a contract which prevents an individual from earning his livelihood and which restrains competition involves “fundamental policy.” Based upon the facts of this case, I further conclude that the Ohio Supreme Court would defer to the superior interest of the states where the independent contractors resided, worked, executed the contracts, and engaged in the acts about which Bowman complains. See Blalock v. Perfect Subscription Co., 458 F.Supp. 123 (S.D.Ala. 1978), aff’d, 599 F.2d 743 (5th Cir.1979).
Under Ohio law, a covenant not to compete is enforceable if reasonable. Raimonde v. Van Vlerah, 42 Ohio St.2d 21, 325 N.E.2d 544 (1975). The majority acknowledges that this test concerning the enforceability of restrictive covenants is not the same as the tests applied under the laws of Maryland and South Carolina.
For an employee in Maryland to be covered by a restrictive covenant, he must perform “unique” services or have received valuable trade secrets. E.L. Conwell & Co. v. Gutberlet, 429 F.2d 527 (4th Cir.1970); Budget Rent-a-Car v. Rapp, 268 Md. 478, 302 A.2d 11 (1973). In South Carolina, non-competition covenants in employment contracts are critically examined and construed against the party imposing them because they are “generally disfavored.” Sermons v. Caine & Estes Ins. Agency, Inc., 275 S.C. 506, 273 S.E.2d 338, 339 (1980); Almers v. S.C. Nat’l Bank of Charleston, 265 S.C. 48, 217 S.E.2d 135 (1975). The test for enforceability is (1) reasonable duration and (2) protection of some legitimate business interest. Almers v. S.C. Nat’l Bank of Charleston, supra; Standard Register Co. v. Kerrigan, 238 S.C. 54, 119 S.E.2d 533 (1961). In Ohio, by contrast, these requirements of Maryland and South Carolina law are simply factors to be considered in assessing reasonableness. Raimonde v. Van Vlerah, supra, 325 N.E.2d at 547.
Accordingly, I would remand this case with respect to the Maryland and South Carolina salesmen for specific findings whether the covenant is valid and enforceable in those states.

. Whether the district court applied the wrong law in determining the enforceability of the Louisiana salesman’s covenant does not affect the disposition of this case, since Louisiana does not recognize a cause of action for tortious interference in contractual relations. Brinkley & West, Inc. v. Foremost Insurance Co., 499 F.2d 928, 933-34 (5th Cir.1974). I mention my views pertaining to the law applicable to the Louisiana salesman’s covenant only for the purpose of explaining fully and clearly my analysis of this case.