cases, commentary and news related to restrictive covenants
Wednesday, September 23, 2009
Narrow Injunction Issued Against Graphic Arts Sales Manager (Oldham Graphic Supply v. Cornwell)
The case of Oldham Graphic Supply v. Cornwell is one of those non-compete opinions that has just about everything. Nothing is particularly earth-shattering or consequential about the decision itself. But it provides a great template for lawyers and clients to see how a court resolves a fairly typical case.
Though the case originates from Kansas, Illinois law applied to the non-compete contract. David Cornwell was a long-time Wichita-based salesman in the competitive field of graphic arts and printing equipment. Prior to joining Oldham Graphic Supply in 2004, Cornwell had vast industry experience and cultivated important client relationships - a fact that is crucial under Illinois law. When Cornwell started with Oldham in 2004, the company had no real presence in Wichita. But as a result of an acquisition, Oldham penetrated the Wichita market and brought Cornwell aboard to grow it.
Not surprisingly, Cornwell migrated to Oldham about 50 accounts. He later became the general manager of Oldham's branch office in Springfield, Missouri but only spent about one day per month there. The rest of the time he worked from his home office. Like most managers, he supervised other salespersons' accounts and managed some of his own, and he was paid by way of salary and commission.
Cornwell signed a two-year non-compete barring competitive employment within 200 miles "of each Oldham Graphic Supply office." He also agreed to a two-year customer non-solicitation covenant covering clients with whom he had contact while employed at Oldham. This necessarily captured Cornwell's pre-existing relationships.
Over the past couple of years, Cornwell's compensation structure at Oldham became decidedly less favorable. His commission percentage was reduced and he lost other benefits. Eventually, Cornwell had enough and (with a little urging from a supervisor) found another job - a competitive one with Xpedx. Prior to his departure, he encouraged a few of his customers to move with him and transfer their graphic arts business to Xpedx.
Though this may not have been the most advisable thing to do, Cornwell was careful in other respects when leaving Oldham. His new employer crafted his sales territory to avoid the 200-mile radius restriction in the non-compete, and it doesn't appear Cornwell took or used any proprietary documents.
The court first addressed whether Oldham had a protectable interest to enforce by way of a covenant not to compete. Though the opinion is somewhat meandering, it eventually found that Oldham did have such an interest in some limited confidential business information for certain accounts Cornwell developed solely on Oldham's dime - particularly cost information for those accounts where Kodak was the original supplier. The court properly noted that some of the business information in which Oldham tried to claim a protectable interest (e.g., customer pricing and information for his long-time customers) was really not confidential or unique, particularly given well-known industry customs, the rate at which such operational information becomes stale, and Cornwell's vast experience.
But the more salient part of the court's opinion concerns the reasonableness test - the second part of the inquiry after a court examines whether there is anything legitimate to protect at all. The court found that the covenant had to be modified to make it reasonable. Most importantly, the court noted that Cornwell's pre-existing accounts were not protectable and the injunction could not extend to them. However, for accounts he developed first while working for Oldham (there were only a few), the court did find that Oldham's request for injunctive relief was appropriate.
The court also rejected Oldham's core argument that the 200-mile non-compete clause should extend from Cornwell's "home office." The court construed the agreement's questionable ambiguity (it really wasn't ambiguous at all) against Oldham and held that the branch office to which the non-compete language applied was the Springfield, Missouri office. Since his Wichita contacts fell outside the 200-mile radius, Oldham basically could claim victory through the narrow reading of the non-compete. Apart from having to avoid a few customers until next year (the court also pared back the non-solicit from 2 years to 1, given the fluctuating nature of the graphic arts business), Cornwell can continue working for Xpedx with only minor inconvenience.
Court: United States District Court for the District of Kansas
Opinion Date: 9/17/09
Cite: Oldham Graphic Supply, Inc. v. Cornwell, 2009 U.S. Dist. LEXIS 85214 (D. Kan. Sept. 17, 2009)
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