Court Opinion

ID: 9471142
Source: CourtListenerOpinion
Date Created: 2023-08-05 03:25:49.033686+00
Date Added: 2024-06-11T17:42:17.186994
License: Public Domain

MURNAGHAN, Circuit Judge,
concurring in part and dissenting in part:
I.
All of us agree that Ohio’s choice of law principles should be dispositive of whether Ohio’s or another state’s substantive law *1038should apply in determining the validity of the restrictive covenant at issue here. Although the point is less eminently clear, it appears that Ohio would look to the Restatement (Second) of Conflict of Laws and to the general theory of interest analysis contained therein in applying its own choice of law rules. Consequently, where I part ways with my panel colleagues is simply as to the proper application of those principles to the case before us.
Clearly, Ohio law should not be construed so as automatically to accept whatever law the parties contract to apply. Nevertheless, the basic premise behind the Restatement’s treatment of contractual statements of mutual preference as to applicable law is that giving force to the parties’ choice of law is the rule rather than the exception:
Prime objectives of contract law are to protect the justified expectations of the parties and to make it possible for them to foretell with accuracy what will be their rights and liabilities under the contract. These objectives may best be attained in multistate transactions by letting the parties choose the law to govern the validity of the contract and the rights created thereby. In this way, certainty and predictability of result are most likely to be secured. Giving parties this power of choice is also consistent with the fact that, in contrast to other areas of the law, persons are free within broad limits to determine the nature of their contractual obligations.... [T]he demands of certainty, predictability and convenience dictate that, subject to some limitations, the parties should have power to choose the applicable law.
Restatement (Second) of Conflict of Laws § 187 comment e (1971). There is no question that here there is a clear and effective choice of Ohio law by the parties, and no challenge has been directed to the validity of the choice of law term in the contract.
Rather, the majority concludes that one of two limitations on the rule of Restatement § 187 applies here. The first limitation of § 187 is that the chosen state must have a “substantial relationship to the parties or the transaction” or there must be some other “reasonable basis for the parties’ choice.” Restatement, supra, § 187(a). Here it is not denied that Ohio has both a substantial relationship to the parties, and a very reasonable basis for being the chosen state.1
Second, § 187(2)(b) counsels against enforcement of contractual choices of law where
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 and which, under the rule of § 188, would be the state of the applicable law in the absence of an effective choice of law by the parties.
The requirement of a materially greater interest in the competing state in determining the issue, and the stipulation that the competing state would be the state of applicable law in the absence of a contractual choice actually amount, as a practical matter, to one and the same requirement. Section 188 establishes that, in the absence of an effective contractual choice, the state having the most significant relationship, to the transaction and parties will be that whose local law is applied to the dispute. Various contacts, including the place of contracting, the place of negotiation, the place (or places) of performance, the location of the subject matter of the contract, and the domicile, place of incorporation, etc. of the parties are to be considered, and the weight of each contact is to be evaluated according to its relative importance vis-a-vis the contractual issue in dispute. Section 188 also *1039incorporates the general principles of § 6,2 which are to be used to guide the process of assessing parties’ contacts and states’ interests in transactions to reach a choice of law. Thus, the state which would satisfy the § 188 test for choice of law in the absence of a contractually expressed preference would inevitably also be the state with the materially greater interest in the resolution of the disputed issue.
The § 187 limitation, then, requires that two facts be shown before the parties’ contractual choice of law will be disregarded: that a competing state has a materially greater interest in the issue in dispute than does the contractually chosen state, and that application of the contractually chosen law would violate a fundamental policy of that competing state.
Taking the requirement of the contravention of a fundamental policy first, the majority rightly notes that the inquiry as to whether a fundamental policy exists is by its very nature usually devoid of readily ascertainable and quantifiable results. The opportunity, accordingly, is presented for the fundamental policy exception to the general rule of § 187 to become “an escape valve out of which all the predictability and certainty of the autonomy rule [honoring contractual choices of law] flows”;3 the exception may well threaten to swallow the rule.4 Nevertheless, I am prepared to accept that a state statute which voids covenants not to compete, as does Alabama’s statute,5 is an expression of a fundamental state policy.
What remains to be shown, then, is whether Alabama has a materially greater interest than does Ohio in the issue of the validity of the covenants not to compete. I do not believe the majority has shown, nor that it can be shown, that Alabama has such a materially greater interest. The crucial steps here are those of reviewing the facts of the case at bar, allotting the contacts to the various states concerned, assessing each state’s interest in the resolution of the disputed issue, determining the significance of the former in light of the latter, and doing it all with an eye towards the policy ends expressed in Restatement (Second) of Conflict of Laws § 6.6
Instead of performing such an analysis, however, the majority merely assumes, without initial analysis or even discussion, that Alabama’s interests in the resolution of the issue of the validity of the restrictive covenants are stronger than any “generalized interest” Ohio might have, and leaves it at that. A more careful review should lead to a different result.
Restatement § 6 calls for choice of law decisions to be made with the following factors, inter alia, in mind:
^ * #
(d) the protection of justified expectations,
*1040(e) the basic policies underlying the particular field of law,
(f) certainty, predictability and uniformity of result....
Protection of justified expectations is referred to as “an important value in all fields of law,” Restatement, supra, § 6 comment g, and is particularly:
... of considerable importance with respect to issues involving the validity of a contract, such as capacity, formalities and substantial validity. Parties entering a contract will expect at the very least, subject perhaps to some rare exceptions, that the provisions of the contract will be binding upon them. Their expectations should not be disappointed by application of a local law rule of a state which would strike down the contract or a provision thereof unless the value of protecting the expectations of the parties is substantially outweighed in the particular case by the interest of the state with the invalidating rule in having this rule applied.
Id., § 188 comment b.
The point is further underlined by the Restatements assessment of the basic policies underlying contract law: “Protection of the justified expectations of the parties is the basic policy underlying the field of contracts.” Id. And finally, the values of certainty, predictability and uniformity of result are closely linked with the protection of parties’ expectations that their contractual choice of law will be honored, since “... unless these values are attained, the expectations of the parties are likely to be disappointed.” Id. Clearly, the Restatement expresses a strong policy preference for fulfilling contracting parties' justified expectations vis-a-vis their choice of law whenever possible.7
A recitation of the contacts of the contracting parties with Ohio and Alabama, respectively, is revealing. Although Bowman’s parent company, Barnes Group, Inc., is incorporated in Delaware with its principal place of business in Connecticut, Bowman’s headquarters are located in Ohio. The district judge found that each of the independent contractor salespeople involved in the instant litigation had sent his or her employment applications to Bowman in Ohio, and that Bowman had accepted the applications and executed the sales agreement contracts in Ohio as well. The salespeople received all their sales and training materials from Ohio, and attended a four-day training course there. Business was continually transacted between the independent contractors and Bowman’s Ohio headquarters by telephone and by mail; McGuire, the South Carolina salesman, for example, alone called Ohio more than twenty times in the eight months prior to his leaving Bowman. Letters, notes, orders and returned merchandise were frequently sent to Ohio by the salespeople, and weekly sales reports were sent there as well for as long as the salespeople worked for Bowman. Every two weeks salespeople received commission checks sent from Ohio and drawn on an Ohio bank.
Clearly, then, Ohio would be considered the place of contracting, the place of negotiation, and the domicile of one of the parties to the contracts. Likewise, it is too limited a view to conclude that the contracts were performed only in Alabama, Louisiana, Maryland or South Carolina, where the salespeople lived and gathered customers. A bilateral contract is inherently as well as linguistically two-sided, and all of Bowman’s contractual obligations were fulfilled in Ohio, in addition to the several aspects of the salespeople’s performance which occurred in or involved communication with Ohio. Finally, the location of the *1041subject matter of the contract, one to pay persons commissions for the sale of certain products, could be as easily construed to have been in Ohio, where the products and payment originated, as in the other states, where the independent contractors consummated the sales.
When the weight of the contacts is evaluated in light of their relative importance to the contractual issue in dispute, Ohio still emerges as, at the very least, a state with a material interest in the resolution of the case equally as great as that of Alabama.8 The larger issue here is one of contractual validity; since Ohio is, among other things, the state of execution of the contracts, and overall the state with most of the contacts once one accepts that things must be looked at from the point of view of both of the parties and not just one of them, Ohio obviously has an indefeasible interest in the resolution of the contract’s validity. More narrowly, the validity of the restrictive covenant is at issue. The majority rightly recognizes that the competing states have an interest in protecting their workers and setting local economic policies, but gives short shrift to Ohio’s interests in assuring its employers, as far as possible, of uniform enforcement in Ohio courts of valid contracts with out-of-state employees.9
Given the strong predisposition of the Restatement to honor contractual choices of law wherever possible, its underlying policy goals of furthering predictability and reliability in contractual affairs, the numerous contacts with Ohio in the instant case, and the interest Ohio has in seeing that its employers can assure their employees of evenhanded treatment, the bland assumption simply does not follow that Alabama has a materially greater interest than Ohio in the transaction and dispute before us.10 *1042I therefore dissent insofar as Alabama substantive law, rather than the law of Ohio, was applied here.
II.
Turning to the choice of law governing the availability of an action for tortious interference with contract, I regretfully also disagree with the majority’s conclusion that Louisiana law would apply. I do not quarrel with the conclusion that Ohio would utilize the Restatement’s interest analysis in choosing the law to govern an issue in tort. Once again, however, a closer analysis of the contacts with each of the two states and their relative weight vis-a-vis the issue at hand leads to the conclusion that Ohio’s law ought to apply.
Section 145 of the Restatement (Second) of Conflict of Laws outlines the contacts to be considered in determining which state has the most significant relationship to the occurrence and parties in the case of a tort:
(a) the place where the injury occurred,
(b) the place where the conduct causing the injury occurred,
(c) the domicile, residence, nationality, place of incorporation and place of business of the parties, and
(d) the place where the relationship, if any, between the parties is centered.
The contacts relevant to the tort action are almost exclusively in Ohio. Bowman has its headquarters in Ohio, and transacted all its business with the six salespeople from that geographic base. C & C, the alleged perpetrator of the tort, is incorporated, domiciled and has its principal place of business in Ohio.11 It is true that a Louisiana-based C & C employee apparently assisted the former Bowman salesman there to convert his former Bowman customers to C & C. Nevertheless, acknowledging the point, the district court made a finding, not clearly erroneous, that the alleged act of interference with contract was a “corporate decision,” formulated and affirmed at the highest levels, which “... was placed, directed and consummated by C & C officials, headquartered in Brook Park, Ohio.”12
Adoption of the Restatemenfs interest analysis of course precludes the automatic use of lex loci delicti as a choice of law rule, as the majority rightfully notes. Nonethe*1043less, the place where the injury occurs, as the original Restatement had defined lex loci delicti, is anything but irrelevant to an interest analysis. Here, the injury undoubtedly resulted in Ohio. The very point of a restrictive covenant in an employment contract is to allow an employer to protect itself from the loss of its sales techniques, personnel, information and customers to competitors. Bowman’s cause of action was predicated on the theory that C & C’s actions caused just such a loss, and Ohio is the only locale in which the loss could have been felt.
Ohio’s dual interest in the occurrence here is likewise paramount. “... [A] state has an obvious interest in regulating the conduct of persons within its territory and in providing redress for injuries that occurred there.” Restatement, supra, § 145 comment c. Such an interest can only be intensified when the injured party is not merely present, but domiciled in Ohio, and when the perpetrator is both resident and citizen of Ohio. C & C Products is an Ohio citizen, and making its practices towards a fellow denizen of that state conform with Ohio law is a reasonable, indeed desirable, interest. Thus, the drafters concluded that “... subject only to rare exceptions, the local law of the state where conduct and injury occurred will be applied to determine whether the actor satisfied minimum standards of acceptable conduct and whether the interest affected by the actor’s conduct was entitled to legal protection.” Id.
The nature of the particular tort alleged here surely does not diminish in any way Ohio’s interest in the matter; if anything, its planned and intentional character only strengthens Ohio’s interest in prevention, and its commercial character links it to the state’s larger interest in regulating its business community. Louisiana’s comparatively minor interest in preventing the maintenance of a cause of action between two Ohio parties for interference with a contract to which a Louisiana resident was a party cannot be of the same magnitude as Ohio’s interests.
The majority cites no cases which compel the conclusion that Louisiana law must apply. Brinkley & West, Inc. v. Foremost Insurance Co., 499 F.2d 928 (5th Cir.1974) does indeed stand for the proposition that Louisiana does not recognize a cause of action for tortious interference with contract. But the case provides no support for the proposition that Louisiana’s interests necessarily outweigh Ohio’s in the case at bar.
The facts in the Brinkley case were that a Louisiana corporation claimed an exclusive relationship as agent for a Michigan corporation doing business in Louisiana. The agent corporation in turn dealt with sub-agents in numerous states. The agent corporation asserted that the principal had induced the subagents to break their contracts with the agent by doing business directly with the subagents. The action was brought in federal district court in Louisiana. The district judge dismissed the claim, reasoning that by the rule of lex loci delicti Louisiana law should apply, and Louisiana recognized no such cause of action.
Before the Court of Appeals could rule on the issue, however, the Louisiana Supreme Court overturned the doctrine that lex loci delicti should govern to determine the applicable law,13 and the Court of Appeals interpreted the remainder of the Louisiana Supreme Court’s opinion to say that Louisiana would instead resort to the Restatement’s interest analysis. Thus, the Court of Appeals reversed and remanded the case for trial on the merits, rejecting the argument that Louisiana law would necessarily apply.
The Court of Appeals acknowledged that Louisiana had some connection with the alleged tort, since it had a strong domestic interest in protecting its labor force from the restrictions on employment mobility inherent in allowing such an action. Yet the court equally noted the policy extant in every other state involved (those in which the subagents were domiciled) to allow such causes of action, and the underlying goal of those other states of protecting commercial *1044expectations within and without their borders. The court therefore concluded that a Louisiana court would have had to consider those strong interests, and in fact that the Louisiana court would have found
... a way to vindicate these almost universally recognizable rights. It would not hold that the Louisiana geneology [sic] of a rule springing from the highly personalized relationship of master and servant would compel it to carry this over to defeat a claim for tortious interference of a modern, more complex commercial arrangement.
Brinkley, supra, at 935.
Though the case might arguably be deemed to give greater weight to the interests of the state of the subagents’ residence than to those of the state of the other two parties, the much stronger message seems to be that Louisiana would not allow its own restrictive law to prevent the vindication of rights through a cause of action recognized in sister states. If Louisiana itself would not so restrict its sister states, Ohio would hardly do so in the name of applying Louisiana law.
Accordingly, on the issues of whether, in competition with Ohio, Alabama’s or Louisiana’s law should apply, I dissent and would rule that, in both instances, Ohio’s substantive law should apply. Nothing suggests that it should not also apply for any other jurisdictions whose law might hereafter have to be considered. Accordingly, I disagree with the conclusion that the scope of injunctive relief was too broad. On all other issues decided by the majority, I concur.

. Bowman was not engaged in unreasonable state forum-shopping when it chose Ohio law to be applied to its contracts. Ohio was the most logical state for a company based in Ohio to choose to govern its uniform contracts with salespeople in many different states. Indeed, had Bowman chosen to apply a single state’s law other than Ohio’s to all of its contracts with its salespeople, such a choice would likely have been suspect.

. Restatement § 6(2) states that “... the factors relevant to the choice of the applicable rule of law include”:
(a) the needs of the interstate and international systems,
(b) the relevant policies of the forum,
(c) the relevant policies of other interested states and the relative interests of those states in the determination of the particular issue,
(d) the protection of justified expectations,
(e) the basic policies underlying the particular field of law,
(f) certainty, predictability and uniformity of result, and
(g) ease in the determination and application of the law to be applied.

. Note, Effectiveness of Choice-of-Law Clauses in Contract Confíicts of Law: Party Autonomy or Objective Determination?, 82 Colum.L.Rev. 1659, 1673 (1982).

. Here we have a situation where the contacts of Ohio, the mutually selected state, are numerous. That consideration counsels against the application of the fundamental policy exception unless the existence and nature of such a policy is strongly evident:
The more closely the state of the chosen law is related to the contract and the parties, the more fundamental must be the policy of the state of the otherwise applicable law to justify denying effect to the choice-of-law provision.
Restatement, supra, § 187 comment g.

. Alabama Code § 8-1-1 (a).

. Supra, at n. 2.

. As a part of the policy, the drafters of the Restatement recommended that:
In situations where the parties did not give advance thought to the question of which should be the state of the applicable law, or where their intentions in this regard cannot be ascertained, it may at least be said, subject perhaps to rare exceptions, that they expected that the provisions of the contract would be binding upon them.
Restatement, supra, § 188 comment b. It would be anomalous to presume that the validating state’s law would be applied where parties neglect to express their preference, but to refuse to apply it where the parties have made an explicit choice of law.

. Even if the facts point equally to application of Alabama’s or Ohio’s law, the court should still apply Ohio’s law:
If all of the most significant contacts converge in one state, the court’s decision is easy; that state’s law should be applied, regardless of a choice-of-law clause. Where the significant contacts point to different states, a court should weigh the strength of each state’s interest based upon the contacts relevant to its policy. If the court is still unable to reach a decision, it should err on the side of the parties’ expectations, and hon- or their choice of law.
* * * * * *
If an analysis of the competing policies and contacts leaves a court unable to decide which state’s law applies to the contract, the court should apply the law that the parties chose in order to avoid doing violence to their expectations without good reason. The primary policy behind contract law of upholding justified expectations demands this result.
Note, Effectiveness of Choice-of-Law Clauses in Contract Conflicts of Law: Party Autonomy or Objective Determination?, supra, n. 3, at 1688-89. See also Nordson Corp. v. Plasschaert, 674 F.2d 1371, 1376 (11th Cir.1982) (Because no one of several states had a materially greater interest in the controversy than any other state, the parties’ choice of Ohio law enforcing a covenant not to compete should be honored. Although Georgia has a fundamental policy against enforcement of such covenants, and was the state where a “substantial part” of the contract performance was carried out, other interests outweigh these, and Georgia law should not apply).

. To do the job completely, we, as a court, must take into account the chaotic employment conditions under which the salespeople for Bowman would have to work if Bowman were unable to treat its workers uniformly. Those in some states would be bound to comply with their contractual undertakings, while others would be free to enjoy substantial advantages, negotiating favorable terms with competitors by which the knowledge and contacts gained through working for Bowman could be diverted to them. Bruised feelings and jealousies would be inevitable. Worse, the restrictive covenant might well, practically speaking, in order to promote tranquility, have to be eliminated in all contracts, even those entered into with salespeople working in states which permit such covenants. That, I submit, would be no less an intrusion by one state (Alabama) into another’s (Ohio’s) law than the result which would give precedence to Ohio substantive law over Alabama law. One of the states must give way, a consideration inherent in the fact that a choice must be made. Ohio, there being multiple contacts with that state, including the citizenship of one of the parties, should receive serious consideration even without the mutual choice by the parties that Ohio law should prevail. With that stated preference, the choice for us is, properly viewed, not even close.

. Blalock v. Perfect Subscription Co., 458 F.Supp. 123 (S.D.Ala. 1978), aff’d, 599 F.2d 743 (5th Cir.1979), cert. denied sub nom. Seibert v. *1042Baptist, 446 U.S. 918, 100 S.Ct. 1851, 64 L.Ed.2d 271 (1980), cited by the majority, is distinguishable in a controlling way from the case at bar and does not support a conclusion that Alabama’s interests outweigh Ohio’s here. In Blalock, a covenant not to compete stipulated that Pennsylvania law was to apply, Pennsylvania having been the principal place of business of the employer company. By the time litigation had begun, however, things had changed: the employer as always was incorporated in Delaware, but had its principal place of business in New Jersey, while the employee lived in Alabama. It was ambiguous where the contract had been executed. On the facts, the court found that Alabama’s interest outweighed that of Pennsylvania, which no longer retained any connection with the transaction. Here, to the contrary, however, Ohio retains the interest stemming from Bowman’s domicile and activities there and from the negotiation, execution and conduct of the contract there. Since the interest analysis is so closely dependent upon the facts of each case, Blalock cannot be controlling here.

. The fact ... that one of the parties is domiciled or does business in a given state will usually carry little weight of itself. On the other hand, the fact that the domicile and place of business of all parties are grouped in a single state is an important factor to be considered in determining the state of applicable law. The state where these contacts are grouped is particularly likely to be the state of the applicable law if either the defendant’s conduct or the plaintiffs injury occurred there.
Restatement, supra, § 145 comment e.

. The drafters of the Restatement recognized, in giving importance to the factor of where the injury occurred, that “... persons who cause injury in a state should not ordinarily escape liabilities imposed by the local law of that state on account of the injury.” Restatement, supra, § 145, comment e. In addition, in cases of intangible torts similar to interference with contract (e.g., misappropriation of trade values), the drafters noted that “... the principal location of the defendant’s conduct is the contact that will usually be given the greatest weight in determining the state whose local law determines the rights and liabilities ...” arising from such tortious action. Restatement, supra, § 146 comment f.

. Jagers v. Royal Indemnity Co., La., 276 So.2d 309 (1973).