Opinion
Case No. C-2-02-531
July 2, 2002
OPINION AND ORDER
Plaintiff Midwest Motor Supply Co., Inc. d/b/a Kimball-Midwest ("Kimball") commenced this action against its former employee, Bonnie Davis, seeking injunctive relief and damages alleging that Davis violated the non-competition covenants contained in her employment agreement. This matter came on for a preliminary injunction hearing on June 20, 2002.
Kimball is engaged in the maintenance repair and operations parts ("MRO") industry. Kimball employs approximately 380 sales representatives who sell nuts, bolts, fasteners, electrical terminals, industrial solvents, drill bits, maintenance supplies, shop supplies, and other similar items to businesses, institutions, and agencies that perform maintenance services on buildings, machinery, equipment, and vehicles. Because the products involved are generic in nature, the MRO industry is highly competitive.
Kimball requires that all of its sales representatives sign a written employment agreement that contains provisions which forbid the employee during two years following termination of employment from: 1) accepting employment by a company engaged in competition with Kimball; 2) accepting employment with a company that sells a competing product in the state in which the employee worked for Kimball and; 3) soliciting any customer, client, or account previously contacted by the employee while employed by Kimball. In this case, Kimball seeks to enforce against Davis only the provision which forbids her from becoming employed by a company which sells a competing product in the state of Georgia. Transcript of Plaintiff's Motion For Preliminary Injunction at pp. 209-210. Kimball suggests that if the court finds this geographical restraint overly broad, that it would be appropriate to limit the restraint to the counties in Georgia in which Davis worked for Kimball. Id.
Kimball's standard employment agreement contains a choice of law clause which states that the agreement shall be construed in accordance with Ohio law and a choice of forum clause which requires that any action brought by the employee relating to the employment agreement must be venued in Franklin County, Ohio.
Kimball is no stranger to this court having both prosecuted and defended similar lawsuits in the past. Indeed, Kimball's litigation activities here and elsewhere suggest that litigation with other members of the MRO industry over covenants not to compete is part of Kimball's business strategy. Kimball's litigation history indicates that it disregards the restrictive covenants of its competitors' employment agreements and actively recruits their employees while at the same time aggressively enforcing its own restrictive covenants against its own former sales people when they go to work for competitors.
Davis is a 53-year old resident of Kennesaw, Georgia, who supports herself and her disabled husband. She has worked as a salesperson in the MRO industry in the Atlanta, Georgia area for over twenty years. From April, 1985 until September, 1999, Davis was employed as an independent sales agent by Kent Industries, a division of Premier Industrial Corporation. While working for Kent, Davis sold MRO products in nineteen Georgia counties. Her Independent Agent Agreement contained a covenant not to compete which prohibited her from engaging in competing employment in her nineteen county territory for a period of two years following termination of the agreement.
While representing Kent, Davis was contacted by Kimball's zone manager in the Atlanta area, James Carter, who offered her a position with Kimball. Before she accepted, Davis advised Carter that her agreement with Kent included a covenant not to compete and she provided him with. a copy of her Kent Industries Independent Agent Agreement. Davis ultimately accepted Kimball's offer of employment and her employment agreement with Kimball designated a territory consisting of seven Georgia counties, all of which were included in the territory spelled out in her Kent Industries Independent Agent Agreement. Davis began her employment with Kimball on September 23, 1999, and began attempting to convert her Kent Industries customers into Kimball customers. She succeeded with most of them. However, Davis had difficulty establishing new accounts and was unable to meet the sales goals Kimball had set for her. She also lost some major accounts. Ultimately, Davis's income declined to the minimum wage level and she was unable to keep her financial commitments. On March 15, 2002, she accepted a position as an independent agent for Chromate Industrial Corp., another company in the MRO industry. Davis's agreement with Chromate assigns her a ten-county territory in Georgia, which includes five of the counties which were part of her Kimball territory.
In this action, Kimball seeks to restrain Davis from continuing her employment with Chromate and, in an amended complaint filed on June 18, 2002, Kimball has joined Chromate as an additional defendant alleging that it tortiously interfered with Kimball's employment agreement with Davis.
Kimball has an interesting history of litigation with Chromate. In 1999, Kimball hired several Chromate sales agents and filed suit against Chromate in the Supreme Court of the State of New York, Suffolk County, seeking a declaration that the restrictive covenants contained in the agents' contracts with Chromate were unenforceable, asserting that there were no trade secrets or confidential information in the MRO industry and that the services of sales agents in that industry are not unique or extraordinary. Kimball prevailed in that litigation, yet here it seeks to enforce its similar non-competition agreement against Chromate and its former agent Davis.
Kimball has been involved in recent litigation with another competitor in the Common Pleas Court of Franklin County, Ohio. Kimball was sued by a competitor after it hired the competitor's former sales agents. In that case, Kimball argued that territorial restrictions in employment contracts in the MRO industry are unnecessary and unenforceable. See UZ Engineered Prods. Co. v. Midwest Motor Supply Co., Inc., 2001 W.L. 1631351 (Ohio Ct.App. Dec. 20, 2001), p. 3. In UZ Engineered Prods., Kimball's president, Patrick McCurdy, "repeatedly testified to his belief that territorial restrictions were unenforceable, despite the fact that defendant had such restrictions in its own employment contracts." Id. As noted above, this is precisely the kind of restriction that Kimball seeks to enforce against Davis in the instant case.
Davis has asserted the defense of unclean hands to Kimball's request for injunctive relief. "`The concept of unclean hands may be employed by a court to deny injunctive relief where the party applying for such relief is guilty of conduct involving fraud, deceit, unconscionability, or bad faith related to the matter at issue to the detriment of the other party.'" Performance Unlimited v. Questar Publishers, Inc., 52 F.3d 1373, 1383 (6th Cir. 1995) (quoting Novus Franchising, Inc. v. Taylor, 795 F. Supp. 122, 126 (M.D., Pa. 1992)). "`The doctrine of unclean hands requires that the alleged misconduct on the part of the plaintiff relate directly to the transaction about which the plaintiff has made a complaint.'" Id. (quoting Dollar Systems, Inc. v. Avcar Leasing Sys., Inc., 890 F.2d 165, 173 (9th Cir. 1989)). The unclean hands doctrine can be applied only to conduct relating to the matter in litigation. Northeast Women's Center, Inc. v. McMonagle, 868 F.2d 1342, 1355 (3rd Cir.) cert. denied, 493 U.S. 901 (1989). The doctrine is not to be used as a "loose cannon" depriving a plaintiff of an equitable remedy to which it is otherwise entitled merely because it is guilty of unrelated misconduct. American Hosp. Supply Corp. v. Hospital Prods., Ltd., 780 F.2d 589, 601 (7th Cir. 1986).
The court finds that by inducing Davis to accept employment with Kimball in violation of the non-competition provisions of her Independent Agent Agreement with Kent, Kimball is guilty of unclean hands, which justifies the denial of Kimball's request for injunctive relief to enforce the similar non-competition covenant of its own employment agreement against Davis and her new employer, Chromate. Davis's Independent Agent Agreement with Kent contained a facially valid covenant not to compete for a period of two years limited to the counties in which she sold Kent's products. Like Kimball's agreement, the Kent Independent Agent Agreement was, by its terms, governed by Ohio law.
Kimball argues that Davis's defense of unclean hands fails because she has not established that her Kent Industries Independent Agent Agreement was valid and enforceable; that she breached it while employed with Kimball; or that Kimball was aware that she breached it. As Kimball well knows, and as it has itself argued to this court on previous occasions, non-competition agreements of the kind contained in the Kent agreement are generally enforceable under Ohio law. Kimball was aware that Davis was violating the terms of her non-competition agreement with Kent when she accepted employment with Kimball. Kimball knew Davis was servicing Kent Industries customers in the very same counties in which Kimball hired her to work. Indeed, Kimball first contacted Davis through one of Kent's customers. Although Kimball argues that it may not have received Exhibit A to Davis's Independent Agent Agreement with Kent, which listed the counties included in her territory, this court is nevertheless convinced, based upon all of the circumstances, that Kimball was well aware of the territory Davis had been working in for Kent before it employed her.
Kimball's employment agreement contains various clauses which attempt to shift to the employee the responsibility for determining whether or not employment with Kimball would violate the terms of a previous employer's contract. These are rather transparent efforts to shield Kimball from the legal consequences of inducing individuals to violate the terms of their employment agreements. This court is satisfied that Kimball well knew that if Davis accepted its offer of employment, she would be violating the terms of her Independent Agent Agreement with Kent.
Davis testified that she did not know whether the non-competition provisions of her Independent Agent Agreement with Kent were legally enforceable. Kimball's actions in hiring her must surely have led her to believe that Kimball considered such agreements unenforceable. There is no evidence that anyone at Kimball warned Davis that although its actions indicated that it believed that non-competition agreements were not worth the paper they were written on, that it nevertheless fully intended to sue her to prevent her from working in the counties in Georgia where she has earned her livelihood in the MRO industry for over twenty years if she should subsequently become employed by another company in the industry. Kimball's actions in hiring Davis in violation of the terms of her employment agreement with Kent Industries is directly related the equity it seeks in this matter. An employer who comes to a court of equity asking it to enforce a non-competition agreement against an employee it has induced to violate another employer's non-competition agreement comes to court with unclean hands and is not deserving of the remedy a court of equity would ordinarily provide.
During the hearing on plaintiff's motion for a preliminary injunction, the court suggested, and the parties agreed, that the hearing on the motion for preliminary injunction should be consolidated with the hearing on the merits of plaintiff's request for permanent injunction relief pursuant to Fed.R.Civ.P. 65(a)(2). Plaintiff's motion for preliminary and permanent injunctive relief against defendant Davis is denied.
It is so ORDERED.