Safety-Kleen Systems v. Kevin Hennkens ( 2002 )

United States Court of Appeals
FOR THE EIGHTH CIRCUIT
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No. 02-1981
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Safety-Kleen Systems, Inc., *
*
Plaintiff - Appellee, *
* Appeal from the United States
v. * District Court for the
* Eastern District of Missouri.
Kevin Hennkens, *
*
Defendant - Appellant. *
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Submitted: June 13, 2002
Filed: August 29, 2002 Corrected 9/3/02
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Before WOLLMAN, RICHARD S. ARNOLD, and LOKEN, Circuit Judges.
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LOKEN, Circuit Judge.
After Safety-Kleen Systems, Inc. fired Kevin Hennkens, a customer service
representative, he began soliciting customers in his former trade area for a Safety-
Kleen competitor. Safety-Kleen filed this diversity action, seeking to enforce a one-
year restrictive covenant in Hennkens’s employment agreement with Safety-Kleen.
After an evidentiary hearing, the district court1 granted Safety-Kleen’s motion for a
preliminary injunction. Hennkens appeals, arguing that Safety-Kleen failed to prove
1
The HONORABLE E. RICHARD WEBBER, United States District Judge for
the Eastern District of Missouri.
irreparable injury and the likelihood of success on the merits, and that the injunction
is overly broad. We affirm.
I. Background.
Safety-Kleen is a national waste management company that provides products
such as solvents and parts cleaners and waste collection and disposal services to its
industrial and commercial customers. For manufacturing customers in particular,
these products and services are customized to fit each customer’s particular needs.
Safety-Kleen’s sales and service representatives are its primary customer contacts.
The Safety-Kleen representatives develop a personal relationship with customers and
learn each customer’s specific waste management needs. These relationships are
crucial to Safety-Kleen because seventy percent of its new business comes from
existing customers.
On January 3, 2000, Hennkens began work as a Vacuum Sales and Service
Representative at Safety-Kleen’s branch in Caseyville, Illinois. Hennkens signed an
Employment Agreement that included the following provisions:
1. Customer Relationships: Employee acknowledges that the
Company’s business is largely a service business which is dependent
entirely upon the satisfaction existing between the customer and the
Company . . . . The Employee recognizes that the only normal contact
between the individual customer and Safety-Kleen is the Employee
himself, and that the Employee represents Safety-Kleen and its
associated goodwill to such customers.
* * * * *
7. Competitive Activities After Termination of Employment: Employee
agrees that for a period of one (1) year from the date on which his
employment terminates, for whatever reason, he will not solicit or divert,
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or attempt to solicit or divert any of the customers, employees or
patronage of the Company within the geographic area which is set forth
in Addendum A . . . and he will not for himself or on behalf of any other
person, firm or corporation engage directly or indirectly in any activity
competitive with the business carried on by the Company within the
Geographic Area.
The Geographic Area was defined as the areas served by Safety-Kleen’s branches in
Caseyville and in St. Charles, Missouri.
While working at the Caseyville branch, Hennkens served a trade area
consisting of eight Illinois counties and the City of St. Louis. His duties included
driving a tanker truck to collect customer wastes and soliciting new nonhazardous
waste disposal business. In March of 2000, Hennkens transferred to the St. Charles
branch, where he became an Industrial Sales and Service Representative. In this
position, he solicited sales and provided waste disposal and parts cleaning services
to customers engaged in manufacturing. His primary territory consisted of four
Missouri counties, including part of St. Louis county but not the City of St. Louis.
Safety-Kleen reorganized the St. Charles branch in August of 2001, separating
the sales and service responsibilities. Hennkens was offered a position as “Customer
Service Representative,” responsible for providing services to the same customers in
the same trade area. He accepted the position and signed a new Non-Competition and
Non-Disclosure Agreement on August 15, 2001. This Agreement contained a more
elaborate non-compete provision than the above-quoted portions of the first
agreement, but for our purposes the restrictions were the same except Hennkens was
prohibited for one year from working for a competitor “within any county in any state
in which Employee provides services for the Company during his employment.”
Safety-Kleen fired Hennkens for dishonesty in responding to a customer
complaint the day after he signed the second non-compete agreement. Following his
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dismissal, he went to work for Heritage-Crystal Clean (“Crystal Clean”), a major
competitor of Safety-Kleen. In a pre-hearing affidavit, Hennkens admitted that the
two companies sell “essentially identical” products and services; that he calls on
customers for Crystal Clean in the areas served by Safety-Kleen’s St. Charles and
Caseyville branches, including some customers he called on while employed by
Safety-Kleen; and that he has succeeded in obtaining some business from at least
three former Safety-Kleen customers. Testifying at the evidentiary hearing,
Hennkens admitted sending Crystal Clean sales literature to customers with whom he
had contact while at Safety-Kleen and acknowledged that the confidential sales and
customer information he acquired while working at Safety-Kleen “would give a
person a competitive advantage as a salesperson in the same industry.” (However,
there is no evidence that Hennkens misappropriated any customer lists, price lists, or
other confidential Safety-Kleen documents when he left.)
Safety-Kleen discovered that Hennkens was working for a competitor in
October 2001 and filed this action on March 19, 2002. The district court promptly
held a preliminary injunction hearing. On April 3, 2002, the court issued its opinion
and order granting Safety-Kleen the following injunctive relief:
Mr. Kevin Hennkens is hereby prohibited from (1) demonstrating,
servicing, or selling products or services that are competitive with
Safety-Kleen products or services; (2) soliciting or accepting business
similar to any aspect of Safety-Kleen’s business from any person or firm
who was a customer of Safety-Kleen with whom Mr. Hennkens had
contact with while employed at Safety-Kleen; (3) soliciting, enticing, or
inducing any person or firm, or directing any other person to solicit,
entice, or induce any person or firm that was a Safety-Kleen customer
with whom Mr. Hennkens had contact with while employed at Safety-
Kleen; and (4) using, disclosing, or permitting any unauthorized person
access to any confidential information belonging to Safety-Kleen of
which Mr. Hennkens acquired knowledge during his employment with
Safety-Kleen. Such prohibitions are effective within Clinton, Greene,
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Jersey Macoupin, Madison, Monroe, Pike, and St. Clair counties in
Illinois; St. Charles, Warren, Lincoln, and St. Louis counties in
Missouri; and St. Louis city, Missouri until August 16, 2002, or a
resolution of this matter, whichever occurs first. In addition, Mr,
Hennkens is ordered to deliver to Safety-Kleen any memorandum, notes,
records, drawings, manuals, or other documents concerning confidential
information or trade secrets that are currently in his possession.
II. Discussion
A. Standard of Review. “A district court has broad discretion when ruling on
requests for preliminary injunctions, and we will reverse only for clearly erroneous
factual determinations, an error of law, or an abuse of that discretion.” United Indus.
Corp. v. The Clorox Co., 140 F.3d 1175, 1179 (8th Cir. 1998). “Whether a
preliminary injunction should issue involves consideration of (1) the threat of
irreparable harm to the movant; (2) the state of balance between this harm and the
injury that granting the injunction will inflict on other parties litigant; (3) the
probability that movant will succeed on the merits; and (4) the public interest.”
Dataphase Sys., Inc. v. C L Sys., Inc., 640 F.2d 109, 113 (8th Cir. 1981) (en banc).
B. Irreparable Harm. Hennkens first argues that the district court abused its
discretion when it concluded that Safety-Kleen would suffer irreparable harm absent
injunctive relief. Because this is a diversity case, we look to Missouri law for the
proper irreparable injury standard. See Overholt Crop Ins. Serv. Co. v. Travis, 941
F.2d 1361, 1371 (8th Cir. 1991) (no abuse of discretion to follow state law in
inferring irreparable injury from breach of a restrictive covenant); JAK Prods., Inc.
v. Wiza, 986 F.2d 1080, 1084 (7th Cir. 1993) (applying state law that irreparable
injury occurs “[w]henever an employee uses his experience gained from an employer
in violation of a reasonable covenant not to compete”).
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The district court found that Hennkens has actively solicited Safety-Kleen
clients in the trade areas he worked for Safety-Kleen, that he has had success
attracting some of his former Safety-Kleen customers to Crystal Clean, and that “there
is a real threat that his continued efforts will result in additional Safety-Kleen
customers switching to Heritage-Crystal Clean.” Hennkens argues that Safety-Kleen
has suffered only “a small amount of lost sales,” and that this harm does not entitle
Safety-Kleen to an injunction prohibiting him from soliciting “new, unaffiliated
customers.” This contention is contrary to Missouri law.
The purpose of the restriction is to keep the covenanting employee out
of a situation in which he might be able to make use of contacts with
customers to his former employer’s disadvantage. If the covenant is
lawful and the opportunity for influencing customers exists, enforcement
is appropriate.
Nor is it necessary for the employer to show that actual damage
has occurred, in order to obtain an injunction. . . . The significant
circumstance is potential for damage.
Osage Glass, Inc. v. Donovan, 693 S.W.2d 71, 75 (Mo. 1985) (citation omitted). In
addition, Missouri courts will enforce a reasonable covenant that prohibits a former
employee from competing generally in his former trade area, not just from soliciting
his former customers. See Washington County Mem’l Hosp. v. Sidebottom, 7 S.W.3d
542, 543-44 (Mo. App. 1999).
Relying on Hubbard Feeds, Inc. v. Animal Feed Supplement, Inc., 182 F.3d
598, 603 (8th Cir. 1999), Hennkens further argues that Safety-Kleen’s seven-month
delay in bringing suit following its discovery that Hennkens was competing in his
former trade areas precludes a finding of irreparable harm. This contention is without
merit. In Hubbard Feeds, we held that a district court did not abuse its discretion
when it denied a preliminary injunction in part because plaintiff’s nine-year delay in
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asserting unfair competition claims “belies any claim of irreparable injury pending
trial.” The issue is whether “the length of delay was unreasonable,” an issue that
turns on the facts of each case. Whitfield v. Anheuser-Busch, Inc., 820 F.2d 243, 245
(8th Cir. 1987). Here, it took Safety-Kleen seven months to learn of Hennkens’s
competitive activity, marshal its case for a preliminary injunction, and file this action
prepared for an immediate preliminary injunction hearing. The district court did not
abuse its discretion in concluding that Safety-Kleen did not unduly delay and made
an adequate showing of irreparable injury.2
C. Likelihood of Success on the Merits. Hennkens next argues that the
district court abused its discretion in concluding that Safety-Kleen made an adequate
showing of likelihood of success on the merits. This issue requires a review of
Missouri law pertaining to restrictive covenants. Though agreements limiting a
former employee’s freedom to compete are valid in Missouri, the Missouri courts
“carefully restrict[]” the enforcement of such agreements because they “restrain
commerce and limit the employee’s freedom to pursue his or her trade.” Donovan,
693 S.W.2d at 73-74. Thus, a restrictive covenant is enforceable under Missouri law
only to the extent that it is reasonable in duration and geographic scope and protects -
certain narrowly defined and well recognized interests against possible
appropriation by a former employee. These protectable interests are
limited to trade secrets and customer contacts, the latter being essentially
the influence an employee acquires over his employer’s customers
through personal contact.
Continental Research Corp. v. Scholz, 595 S.W.2d 396, 400 (Mo. App. 1980).
2
Hennkens argues that the seven-month delay precludes a finding of irreparable
injury because only five months remained of the restrictive covenant’s one-year term.
However, the first covenant provides that “the one-year period referred to above shall
be extended to include a period of time equal to the period of time during which
Employee engaged in conduct constituting a breach of this provision.”
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Hennkens argues that Safety-Kleen did not establish the requisite protectable
interest because his customer contacts were not of sufficient quality, frequency, and
duration to justify enjoining him from pursuing his career with a Safety-Kleen
competitor. We disagree. Safety-Kleen presented evidence tending to show that its
sales and service representatives are its principal customer contacts, that contacts with
customers and knowledge of customers’ specific needs are important to obtaining and
keeping waste management business, and that Hennkens developed hundreds of such
contacts while employed by Safety-Kleen. This showing was consistent with the
acknowledgment by Hennkens in his first employment agreement that his customer
relationships would be significant to Safety-Kleen. The Missouri courts have
frequently held that such substantial and individualized customer contacts are a
protectable interest warranting injunctive relief enforcing a covenant not to compete.
See Donovan, 693 S.W.2d at 74; Sidebottom, 7 S.W.3d at 545; Scholz, 595 S.W.2d
at 401; Renwood Food Prods., Inc. v. Schaefer, 223 S.W.2d 144, 152 (Mo. App.
1949). The district court did not abuse its discretion in concluding that Safety-Kleen
established a likelihood of success on the merits of this issue.
Hennkens further argues that Safety-Kleen failed to show likelihood of success
on the merits because he was fired without just cause the day after he signed the
second restrictive covenant, and therefore that agreement was without consideration
and tainted by Safety-Kleen’s unclean hands. The short answer to this contention is
that it does not affect the enforceability of the first covenant not to compete, which
expressly applied if Hennkens’s employment was terminated “for whatever reason.”3
To the extent the second covenant is relevant at this stage of the proceedings, the
district court did not abuse its discretion in concluding that Safety-Kleen had
3
Under Missouri law, an at-will employee’s continued employment after
signing a covenant not to compete is sufficient consideration for the covenant. See
Computer Sales Inter’l, Inc. v. Collins, 723 S.W.2d 450, 452 (Mo. App. 1986).
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sufficiently established a breach of contract warranting preliminary injunctive relief
and in deferring the issue of the second covenant’s validity for trial on the merits.
D. Scope of the Injunction. Finally, Hennkens argues that the injunction
should be narrowed so that it excludes the Illinois counties and the City of St. Louis,
which he worked while assigned to Safety-Kleen’s Caseyville branch but not after he
transferred to the St. Charles branch. By signing the first employment agreement,
Hennkens expressly agreed he would not compete with Safety Kleen for one year
after termination in all areas served by the St. Charles and Caseyville branches. In
the second agreement, Hennskens agreed not to compete anywhere in Missouri and
Illinois. The district court granted a preliminary injunction enforcing the one-year
covenants only in those areas that Hennkens in fact served during his two-and-one-
half-year employment with Safety-Kleen. The court did not abuse its discretion in
concluding that an injunction limited in this fashion was consistent with the principle
that restrictive covenants are enforceable under Missouri law to the extent they
impose reasonable restraints on a former employee’s right to compete.
The order of the district court granting a preliminary injunction is affirmed.
A true copy.
Attest:
CLERK, U. S. COURT OF APPEALS, EIGHTH CIRCUIT.
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