Morgan et al v. West Memphis Steel & Pipe Inc

Filing 31

ORDER granting 4 Motion for Partial Summary Judgment. The claims related to the validity of noncompete clause set out in West Memphis Steel's Counterclaim 9 are dismissed with prejudice. The Morgan's breach-of-contract claim and West Memphis Steel's counterclaim for declaratory judgment on the sufficiency of consideration and validity of the nondisclosure clauses remain. Signed by Judge Billy Roy Wilson on 5/20/2014. (jak)

IN THE UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF ARKANSAS
JONESBORO DIVISION
DANIEL SCOTT MORGAN; and
CHRISTOPHER MICHAEL MORGAN
VS.

PLAINTIFFS

3:14-CV-00015-BRW

WEST MEMPHIS STEEL & PIPE, INC.

DEFENDANT
ORDER

Pending is Plaintiffs’ Motion for Partial Summary Judgment (Doc. No. 4). Defendant
has responded.1 Plaintiffs have replied.2 For the reasons set out below, the Motion is
GRANTED.
1.

BACKGROUND3
Plaintiffs Scott Morgan and Chris Morgan (brothers) are former employees of Defendant

West Memphis Steel & Pipe, Inc. Scott went to work for West Memphis Steel in 2000 and Chris
went to work there in 2005. In 2009, each employee signed an “Employment, Non-disclosure,
and Non-competition Agreement” with West Memphis Steel. Under the terms of the
Agreements, for two years after quitting West Memphis Steel the employees were prohibited
from soliciting the business of West Memphis Steel’s “past, present, or prospective future
customers or clients” within a 175-mile radius of West Memphis, Arkansas.4

1

Doc. No. 15.

2

Doc. No. 22.

3

Unless otherwise noted, the background section is comprised of facts as set out in
Defendant’s Statement of Material Facts Not in Dispute (Doc. No. 17).
4

Doc. Nos. 9-1, 9-2.
1

In January 2014, the employees quit and filed suit against West Memphis Steel, seeking
declaratory judgment that the agreements’ noncompete clauses are overly broad and
unenforceable.5 West Memphis Steel filed a counterclaim asserting that it is entitled to
declaratory judgment finding the noncompete clauses (and other parts of the agreements) are
valid and enforceable.6
II. SUMMARY JUDGMENT STANDARD
Summary judgment is appropriate only when there is no genuine issue of material fact, so
that the dispute may be decided on purely legal grounds.7 The Supreme Court has established
guidelines to assist trial courts in determining whether this standard has been met:
The inquiry performed is the threshold inquiry of determining whether there is the
need for a trial -- whether, in other words, there are any genuine factual issues that
properly can be resolved only by a finder of fact because they may reasonably be
resolved in favor of either party.8
The Court of Appeals for the Eighth Circuit has cautioned that summary judgment is an
extreme remedy that should be granted only when the movant has established a right to the
judgment beyond controversy.9 Nevertheless, summary judgment promotes judicial economy by
preventing trial when no genuine issue of fact remains.10 I must view the facts in the light most
5

Doc. Nos. 1, 2, 26.

6

After filing their Motion for Summary Judgment, Plaintiffs filed an Amended
Complaint (Doc. No. 26) adding claims for breach of contract concerning allegedly unpaid
commissions; and, Defendant filed its Answer and Counterclaim (Doc. No. 9), seeking
declaratory judgment on the validity of the noncompete and nondisclosure clauses of the
agreements and the sufficiency of consideration. But, because Plaintiffs argue only that the
noncompete clause is overly broad, I do not address these other issues at this time.
7

Holloway v. Lockhart, 813 F.2d 874 (8th Cir. 1987); Fed. R. Civ. P. 56.

8

Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250 (1986).

9

Inland Oil & Transp. Co. v. United States, 600 F.2d 725, 727 (8th Cir. 1979).

10

Id. at 728.
2

favorable to the party opposing the motion.11 The Eighth Circuit has also set out the burden of
the parties in connection with a summary judgment motion:
[T]he burden on the party moving for summary judgment is only to demonstrate,
i.e.,“[to point] out to the District Court,” that the record does not disclose a genuine
dispute on a material fact. It is enough for the movant to bring up the fact that the
record does not contain such an issue and to identify that part of the record which
bears out his assertion. Once this is done, his burden is discharged, and, if the record
in fact bears out the claim that no genuine dispute exists on any material fact, it is
then the respondent’s burden to set forth affirmative evidence, specific facts,
showing that there is a genuine dispute on that issue. If the respondent fails to carry
that burden, summary judgment should be granted.12
Only disputes over facts that may affect the outcome of the suit under governing law will
properly preclude the entry of summary judgment.13
III.

DISCUSSION
Arkansas law is a no friend of the noncompete agreement.14 It is less fond of one made in

connection with an employment contract (as opposed to one made in connection with the sale of
a business).15 A noncompete agreement that prohibits ordinary competition is not enforceable.16
“Without statutory authorization or, some dominant policy justification, a contract in restraint of
trade is unreasonable if it is based on a promise to refrain from competition that is not ancillary
to a contract of employment or to a contract for the transfer of goodwill or other property.”17

11

Id. at 727-28.

12

Counts v. MK-Ferguson Co., 862 F.2d 1338, 1339 (8th Cir. 1988) (quoting City of Mt.
Pleasant v. Associated Elec. Coop., 838 F.2d 268, 273-74 (8th Cir. 1988) (citations omitted)).
13

Anderson, 477 U.S. at 248.

14

HHR Ark., Inc. v. River City Contrs., 350 Ark. 420, 430 (2002).

15

Id.

16

Import Motors, Inc. v. Luker, 268 Ark. 1045, 1050-51 (1980).

17

Bendinger v. Marshalltown Trowell Co., 338 Ark. 410, 417-418 (1999).
3

“The enforceability of a covenant not to compete depends upon its reasonableness in light of the
particular facts of the case.”18 Noncompete clauses must be valid as written because courts
applying Arkansas law will neither rewrite or vary the terms of noncompete clauses nor enforce
only those parts that are valid.19 “Generally, the employer must meet these three requirements:
(1) the employer has a valid interest to protect; (2) the geographic restriction is not overly broad;
and (3) a reasonable time limit is given.”20
West Memphis Steel has a valid interest in protecting the customers who the Morgans
helped establish and with whom the Morgans closely worked. But, the noncompete clauses take
it a step too far by attempting to protect “prospective future customers or clients.” In Moore v.
Midwest Distribution, Inc., the Arkansas Court of Appeals held a noncompete clause that
purports to prevent an employee from working in a state where the employer has not previously
conducted business (as well as those where the employer has) is unenforceable because it is
broader than necessary to protect a valid interest of the employer.21 In Church Mutual Insurance
Company v. Copenhaver, the court declined to enforce a noncompete clause that purported to
prevent an employee from soliciting customers with whom the employer had not previously done
business (as well as those with whom the employer had) because it was broader than necessary
to protect a valid interest of the employer.22 “The test is whether the restraint imposed is no

18

Rebsamen Ins. v. Milton, 269 Ark. 737, 742 (1980).

19

See, e.g., Bendinger, 338 Ark. at 410 (1999).

20

Freeman v. Brown Hiller, Inc., 102 Ark. App. 76, 81 (2008).

21

Moore v. Midwest Distrib., Inc., 76 Ark. App. 397, 402-403, 65 S.W.3d 490, 494

(2002).
22

Church Mut. Ins. Co. v. Copenhaver, No. 4:09-CV-00487-JMM, 2010 WL 2105623
(E.D. Ark. 2010).
4

greater than is reasonably necessary for the protection of the [employer] and not so great as to
injure a public interest.”23
Here, the noncompete clauses take protecting West Memphis Steel a step too far by
prohibiting the Morgans from competing with “prospective future customers or clients.” West
Memphis Steel suggests that by “prospective future customers or clients” it meant those
customers with whom the Morgans had been working and developing, and it has a legitimate
interest in protecting.24 The agreement, however, does not include the definition of “prospective
future customers and clients” in the way suggested by West Memphis Steel, and I am “unable to
rewrite the restrictive covenant to supply it.”25
Because the noncompete clauses attempt to restrict the Morgans more than is reasonably
necessary to protect West Memphis Steel’s legitimate interest, they are over broad. How close a
noncompete clause comes to being just broad enough does not matter – if it misses by an inch, it
misses by a mile.26 Accordingly, the noncompete clauses are unenforceable, and the Morgans
are entitled to summary judgment on this issue.
CONCLUSION
For the reasons set out above, the Morgans’ Motion for Partial Summary Judgment (Doc.
No. 4) is GRANTED, and the claims related to the validity of the noncompete clause set out in
West Memphis Steel’s Counterclaim (Doc. No. 9) are DISMISSED with prejudice. The

23

Sensabaugh v. Farmers Ins. Exch., 420 F. Supp. 2d 980, 985 (E.D. Ark. 2006) (citing
Evans Laboratories, Inc. v. Melder, 262 Ark. 868, 870 (1978)).
24

Doc. No. 15.

25

Bendinger, 338 Ark. at 419.

26

See, Church Mut. Ins. Co. v. Copenhaver, No. 4:09-CV-00487-JMM, 2010 WL
2105623 (E.D. Ark. 2010).
5

Morgan’s breach-of-contract claim and West Memphis Steel’s counterclaim for declaratory
judgment on the sufficiency of consideration and validity of the nondisclosure clauses remain.
IT IS SO ORDERED this 20th day of May, 2014.

/s/ Billy Roy Wilson
UNITED STATES DISTRICT JUDGE

6