Friday, December 19, 2008

Missouri Courts Botch Non-Compete Phantom Dispute (Naegele v. Biomedical Systems)

A Missouri appellate court issued a downright bizarre and non-sensical opinion involving a declaratory judgment claim brought by an employee seeking an adjudication of her rights under a non-solicitation agreement.

Mary Naegele worked for Biomedical Systems as a national sales director in its Women's Health Services Division. Her non-compete clause contained a customary 2-year restriction against solicitation of any client within her division. Under Illinois law, the covenant may have been unreasonably broad because it arguably was not restricted to those clients Naegele serviced directly or as a supervisor.

Naegele gave notice of her resignation with Biomedical after a relatively short tenure. She immediately sought a declaration of her rights and obligations under the non-solicit agreement - just as she had done when she first joined Biomedical from a competitor. Oddly enough, Naegele returned to Matria - the employer she sued under a non-compete when she started with Biomedical. Even more strange - Naegele sued Biomedical before her two-week notice period was up and while she was still making sales calls on its behalf.

Biomedical filed a counterclaim seeking injunctive relief and attorney's fees as called for under her agreement.

The evidence was somewhat murky. It was clear that Matria did not want Naegele to breach her Biomedical non-compete; it in fact prohibited her from working until a court rendered an opinion on the issue. Ultimately, Naegele's position and territory were crafted so as to avoid work in areas where Biomedical customers were located.

Still, the court granted the injunction and awarded Biomedical over $300,000 in attorney's fees. Naegele appealed.

The court affirmed the grant of a preliminary injunction, which barred Naegele from disclosing any confidential information of Biomedical and from soliciting business from Biomedical customers - including those Naegele brought with her from Matria. However, it reversed the order granting Biomedical its attorney's fees.

This is where the reasoning of the appellate court gets downright bizarre. The reason why the attorney's fee petition was denied? No evidence of breach, or threatened breach, by Naegele.

Still, the court ruled that the injunction was proper, even going so far as to note that the extension of the restraint to ex-Matria customers that Naegele brought with her was appropriate under Missouri law. (Under Illinois law, this part of the order would be reversible error).

The court's decision seems to be an advisory order or opinion without any case or controversy at issue. Without any evidence of a breach or threatened breach of the non-compete agreement, the court never should have issued an injunction. Indeed, the declaratory judgment petition should have been dismissed as not being ripe for adjudication.

Perhaps some justice was accomplished on appeal insofar as Naegele was not ordered to pay attorney's fees to Biomedical. But why the court waded into this mess in the first place is utterly confounding.


Court: Court of Appeals of Missouri, Eastern District, Division One
Opinion Date: 10/28/08
Cite: Naegele v. Biomedical Systems Corp., 2008 Mo. App. LEXIS 1577 (Mo. Ct. App. Oct. 28, 2008)
Favors: Employer
Law: Missouri

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