Opinion

Copeland LP v. Thurston

Court: District Court, E.D. Missouri
Filed: Apr 29, 2024
Cited by: 0 cases
Authority: More cited than 24.3%

where the restrictive covenant is valid and the former employee has an opportunity to influence his former employer’s customers, actual damages are not necessary to obtain permanent injunctive relief

How later courts described this case

where the restrictive covenant is valid and the former employee has an opportunity to influence his former employer’s customers, actual damages are not necessary to obtain permanent injunctive relief
enforcing a nationwide non- compete for five years

Written by the judges who cited it.

The opinion

UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF MISSOURI

EASTERN DIVISION

COPELAND LP, )

)

Plaintiff, )

v. ) CASE NO: 4:24CV509-HEA

)

DOUG THURSTON and )

DELTATRAK, INC., )

)

Defendants. )

OPINION, MEMORANDUM AND ORDER

This matter is before the Court on Plaintiff’s Motion for Temporary

Restraining Order against Defendants, [Doc. No. 5]. Defendants did not file written

oppositions to the motion but appeared and argued at the hearing held on April 15,

2024. The Court has considered the arguments and has reviewed Plaintiff’s

Verified Complaint and all exhibits thereto, the Motion for Temporary Restraining

Order, the Memorandum in Support of Motion for Temporary Restraining Order.

For the reasons set forth below, Plaintiff’s Motion for Temporary Restraining

Order is hereby GRANTED.

The following factual background is taken from the verified complaint and

the motion and supporting memorandum for temporary restraining order:

Copeland is a global provider of sustainable climate solutions, combining

category-leading brands in compression, controls, software and monitoring for

heating, cooling, and refrigeration. Until June 2023, Copeland was owned by and

part of Emerson Electric Co. (“Emerson”), operating under the name Emerson

Climate Technologies. On June 1, 2023, Emerson spun off its global climate

control businesses as a standalone entity as Copeland, LP. Emerson maintained a

40% common equity ownership in Copeland.

Copeland has long been a global pioneer in the HVAC and refrigeration

industries, providing climate technology solutions to customers around the world.

Copeland’s business includes cold chain management and temperature monitoring

solutions. Its business is heavily reliant on its industrial technology and software

and on its salesforce and customers. DeltaTrak, and its affiliates, are direct

competitors of Copeland in the cold chain management and temperature

monitoring solutions industry. Like Copeland, DeltaTrak operates in the same

geographic location and pursues the same clients as Copeland pursues.

Prior to the summer of 2016, Thurston was a shareholder for PakSense, Inc.,

which was a company specializing in products for monitoring the quality and

safety of food, pharmaceuticals, and other environmentally sensitive items during

cold chain transport and distribution. In 2016, Emerson acquired PakSense (which

was merged into and renamed Copeland Cold Chain LP). As part of the purchase,

Thurston received a substantial payout as a shareholder of PakSense, Inc. In

addition, Emerson hired Thurston, who at the time was employed as the Vice

President of Sales – Food for PakSense, Inc., to work for Emerson in the same

capacity.

On July 1, 2016, Thurston entered into an Employment Agreement and a

Cash Bonus Plan Award Agreement (the “Employment Agreement”). The

agreement contained non-compete, confidentiality, and assignment of work

product provisions. As part of that agreement, Thurston received significant

compensation, including options in Emerson stock, a salary, participation in the

commission plan and cash bonus payment of nearly a quarter of million dollars

paid over four years. In exchange for the consideration above, Thurston agreed to

the following non-complete agreement:

You agree that during your employment with the Company and for a period

of two years after the date of termination of your services, you will not (1)

compete directly or indirectly in any capacity with the Company's business

as currently conducted and as that business may evolve in the ordinary

course during your employment, or compete with any other business of the

Company or its affiliates with which you become familiar during your

employment anywhere in the world where the Company or any of such

affiliates conduct such business, (2) hire, or assist anyone else to hire, any

employee of the Company, or any of the Company's subsidiaries or

affiliates, or seek to persuade, or assist anyone else to seek to persuade, any

such employee of the Company, or any of the Company's subsidiaries or

affiliates, to discontinue employment with the Company, its subsidiaries or

affiliates, or (3) induce or attempt to induce, or assist anyone else to induce

or attempt to induce, any customer of the Company (or any of its

subsidiaries or affiliates) to reduce or discontinue its business with the

Company (or any of its subsidiaries or affiliates) or disclose to anyone else

the name and/or requirements of any such customer.

By signing the Agreement, Thurston also agreed to the following

confidentially provision:

You also agree that you will not use or reveal “Confidential Information” to

anyone other than for and on behalf of the Company (or its subsidiaries or

affiliates) unless legally compelled to do so during your employment with

the Company and for so long thereafter as such information remains

confidential. As used herein, “Confidential Information” shall include, but

shall not be limited to, information, in whatever form kept or recorded,

pertaining to: inventions, discoveries, know-how, ideas, computer programs,

designs, algorithms, processes and structures, product information, research

and development information, client information, financial information,

business processes and methodology, and any other technical and business

information of the Business, the Company or Emerson, or their subsidiaries

and affiliates, which is of a confidential, trade secret and/or proprietary

character. However, Confidential Information shall not include any

information which is in the public domain. You understand that Confidential

Information may or may not be labeled as “confidential” and you will treat

all information as confidential unless otherwise informed by the Company.

The Employment Agreement provides that it shall be interpreted by the laws

of Missouri and any litigation relating to the Employment Agreement shall be filed

and pursued exclusively in the federal or state courts in St. Louis County,

Missouri.

Although the legal entity by whom Defendant Thurston was employed

changed several times during his employment, Thurston always worked as the

Vice President of Sales in the food division. In this position, Thurston oversaw

sales activities, met with major customers, drew up sales reports, designed new and

effective sales strategies, and worked to market and promote Copeland’s products

in the United States. He developed substantial relationships with Copeland’s

customers. In November, 2023, Copeland notified Thurston that his position with

Copeland was being eliminated as part of its cold chain business restructure in

response to the current business conditions, effective November 14, 2023. On

December 1, 2023, Copeland and Thurston entered into a Severance Agreement,

Waiver and General Release (the “Severance Agreement”). The Severance

Agreement reminded Thurston that his post-employment covenants would remain

in effect. Copeland paid Thurston $64,076.09 in exchange for signing a general

waiver and release.

In February 2024, Thurston began working as the Vice President of Sales for

U.S. Development for DeltaTrak. Thurston is now working for a direct competitor

of Copeland in a similar executive role to that which he performed for Copeland

and operating in competition against Copeland. Plaintiff avers Thurston is actively

soliciting clients and employees of Copeland for the benefit of DeltaTrak. Two

employees have already resigned from Copeland, with one of those employees

specifically stating he is going to work for or with Thurston at DeltaTrak. Thurston

is in a position to use confidential information to compete against Copeland and to

assist DeltaTrak in developing a competitive edge over Copeland.

Legal Standard

In considering whether to grant a TRO or preliminary injunction, the Court

looks to four primary factors: (1) the likelihood of the moving party's success on

the merits; (2) the threat of irreparable harm to the moving party; (3) the state of

balance between the alleged irreparable harm and the harm that granting the

injunction would inflict on the other party; and (4) the public interest. Dataphase

Sys., Inc. v. C L Sys., Inc., 640 F.2d 109, 113 (8th Cir. 1981); . see also Home

Instead, Inc. v. Florance, 721 F.3d 494, 497 (8th Cir. 2013). This analysis was

designed to determine whether the Court should intervene to preserve the status

quo until it decides the merits of the case. Dataphase, 640 F.2d at 109. The factors

must be balanced to determine whether they tilt toward or away from granting

injunctive relief. West Pub. Co. v. Mead Data Cent., Inc., 799 F.2d 1219, 1222 (8th

Cir. 1986). The burden of establishing the propriety of a TRO is on the movant.

Watkins, Inc. v. Lewis, 346 F.3d 841, 844 (8th Cir. 2003); Gelco Corp. v. Coniston

Partners, 811 F.2d 414, 418 (8th Cir. 1987).

Likelihood of Success on the Merits

The Court’s jurisdiction is based on diversity of citizenship under 28 U.S.C.

§1332. As such, Missouri substantive law applies to this case. Under Missouri law,

non-compete covenants are enforced if they are reasonable under the circumstances

and their enforcement serves legitimate protectable interests. Mayer Hoffman

McCann, P.C. v. Barton, 614 F.3d 893, 908 (8th Cir. 2010).

Missouri courts will enforce noncompete agreements that are

“demonstratively reasonable.” Whelan Sec. Co. v. Kennebrew, 379 S.W.3d

835, 841 (Mo. banc 2012). A demonstratively reasonable noncompete

agreement “must be narrowly tailored temporally and geographically and

must seek to protect legitimate employer interests beyond mere competition

by a former employee.” Id. at 841-42. “Accordingly, a non-compete

agreement is enforceable ‘only to the extent that the restrictions protect the

employer's trade secrets or customer contacts.’ ” Id. at 842 (quoting

Healthcare Servs. of the Ozarks, Inc. v. Copeland, 198 S.W.3d 604, 610

(Mo. banc 2006)). “The employer has the burden to prove that the non-

compete agreement protects its legitimate interests in trade secrets or

customer contacts and that the agreement is reasonable as to time and

geographic space.” Id.

* * * * * * *

“An employer has a legitimate interest in customer contacts to the extent it

seeks to protect against ‘the influence an employee acquires over his

employer's customers through personal contact.’ ” Id. (quoting Copeland,

198 S.W.3d at 611). A customer is defined as “one who repeatedly has

business dealings with a particular tradesman or business.” Id. (quoting

Silvers, Asher, Sher & McLaren, M.D.s Neurology, P.C. v. Batchu, 16

S.W.3d 340, 345 (Mo. App. 2000)). “Customer contacts are a protectable

commodity because goodwill develops between the customers and the

employer through its employees whose job it is to meet and converse with

the customer while representing the employer.” Brown v. Rollet Bros.

Trucking Co., 291 S.W.3d 766, 774 (Mo. App. 2009) (citation omitted). As

this court explained:

The goodwill that develops from customer contacts between the

salesman or business partner and the company's customer is essential

to the compan[y's] success and is the reason the employee or the

business partner is remunerated. The goodwill that develops results in

sales of the company's product or services. Therefore, an employer

has a protectable right in both customers and goodwill.

AEE-EMF, Inc. v. Passmore, 906 S.W.2d 714, 720 (Mo. App. 1995).

“The purpose of a non-compete agreement 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.’ ” Copeland,

198 S.W.3d at 611 (quoting Osage Glass v. Donovan, 693 S.W.2d 71, 75

(Mo. banc 1985)). “[A]n employee's ability to influence customers depends

on the ‘quality, frequency, and duration of an employee's exposure to an

employer's customers, which is crucial in determining the covenant's

reasonableness.’ ” Kennebrew, 379 S.W.3d at 842 (quoting Copeland, 198

S.W.3d at 611). The former employee's position with the employer is also

relevant to this determination. Id.

Jefferson City Med. Grp., P.C. v. Brummett, No. WD 86589, 2024 WL 1517680, at

*5–6 (Mo. Ct. App. Apr. 9, 2024).

The Court is satisfied that Plaintiff is likely to succeed on the merits of its

request for enforcement of the Agreement, as well as its request for injunctive

relief.

With respect to scope, the Agreement is reasonable under the circumstances

because the business in which both Plaintiff and Defendant engage involves a

limited category of customers around the world. The industry is a special niche of a

finite number of purchasers of Plaintiff’s goods and services, but those customers

are located anywhere in the world. Thus, in order for the agreement to have

meaning, it must encompass the globe. Indeed, Defendant challenged neither the

scope nor 2-year term. Rather, Defendant challenged the validity of the Agreement

itself arguing that since PakSense, Inc., “the company” in the Agreement, no

longer exists, the Agreement likewise no longer exists. The flaw in this argument,

however, is that the Agreement was between Emerson and Defendant Thurston.

That portion of Emerson in the climate control business has been separated and

renamed Copeland, but it remains the same Emerson business.

Courts applying Missouri law also readily enforce geographical limitations

that span the world. See, e.g., Sigma Chemical Co. v. Harris, 586 F. Supp. 704,

710 (E.D. Mo. 1984)(enforcing two-year, worldwide limitation); Superior Gearbox

Co. v. Edwards, 869 S.W.2d 239 (Mo. App. 1993) (enforcing a nationwide non-

compete for five years).

Enforcing the Agreement also serves legitimate protectable interests of

Plaintiff. An employer has a legitimate protectable interest in its confidential and

trade secret information (including customer lists), its customer relationships, and

the goodwill that developed while Defendant worked for Plaintiff. Whelan Security

Co. v. Kennebrew, 379 S.W.3d 835 (Mo. 2012). The Missouri Supreme Court has

recognized the employer’s legitimate interest in customer contacts to “protect

against ‘the influence an employee acquires over his employer’s customers through

personal contact.’” Kennebrew, 379 S.W.3d at 842 (quoting Healthcare Servs. of

the Ozarks, Inc. v. Copeland, 198 S.W.3d 604, 611 (Mo. 2006)). As such, customer

non-solicitation provisions in relation to customers whom the employee dealt with,

such as the provision in the Agreement, are reasonable to protect the employer’s

interests and, as such, enforceable. Whelan, 379 S.W.3d at 844-45. For example, in

Mid-States Paint & Chemical Co. v. Herr, 746 S.W.2d 613, 618 (Mo. App. 1988),

the court affirmed the lower court’s holding that access to customer lists, pricing

information, and formula books warranted enforcement of a restrictive covenant

for period of three years.

Likewise, in Cape Mobile Home Mart, Inc. v. Mobley, 780 S.W.2d 116, 117-

19 (Mo. App. 1989), the court affirmed the lower court’s finding that a restrictive

covenant was enforceable where an employee possessed access to monthly and

year-to-date sales and profit statistics, quarterly business and sales reports, a

companywide operations and procedures manual listing employer policies and

procedures, as well as customer lists. The court also noted that the employer

advised employee that he would have access to a great deal of confidential

information that he could not share.

These are precisely the protected pieces of vital information Thurston has

which will significantly impact Plaintiff if the Agreement is not enforced. Thurston

has information regarding strategies, contract expirations, new innovations, and

new technologies. The restriction supports Plaintiff’s legitimate business interests

in protecting its confidential information and trade secrets, its goodwill, and its

customer relationships.

If Defendant is permitted to continue to perform the competitive work at

DeltaTrak, Inc. his use and disclosure of the information are inevitable. This is so

because (1) the nature of his responsibilities at DeltaTrak are akin to those he held

for Plaintiff and require his consideration of Plaintiff’s confidential information in

the faithful performance of those responsibilities. See H&R Block Eastern Tax

Services, Inc. v. Enchura, 122 F. Supp. 2d 1067, 1074-75 (W.D. Mo. 2000).

Defendants argued that the FTC is going to ban noncompete agreements and

thus Plaintiff’s likelihood of success on the merits is extremely low. Indeed,

Defendants’ prediction of the ban has very recently occurred, (see

https://www.ftc.gov/news-events/news/press-releases/2024/04/ftc-announces-rule-

banning-noncompetes, last visited April 26, 2024. This ban, however, has no

bearing on the matter before the Court since the substantive law of Missouri

applies in this diversity of citizenship case.

Irreparable Harm to Plaintiff Absent an Injunction

“[T]o demonstrate irreparable harm, a party must show that the harm is

certain and great and of such imminence that there is a clear and present need for

equitable relief.” Novus Franchising, Inc. v. Dawson, 725 F.3d 885, 895 (8th Cir.

2013). This Court finds Plaintiff will suffer irreparable harm if the terms of the

restrictive covenants are violated. “Loss of intangible assets such as reputation and

goodwill can constitute irreparable injury.” United Healthcare Ins. Co. v.

AdvancePCS, 316 F.3d 737, 741 (8th Cir. 2002). “Courts generally hold that the

disclosure of confidential information such as customer information and business

strategy will result in irreparable harm to the plaintiff.” Experitec, Inv. v.

Stachowski, 2014 U.S. Dist. LEXIS 185282, at *7 (E.D. Mo. Jan. 30, 2014).

It is not necessary for the employer to show that actual damage has occurred

in order to obtain injunctive relief. Ashland Oil v. Tucker, 768 S.W.2d 595, 601

(Mo. App. 1989); Osage Glass, Inc. v. Donovan, 693 S.W.2d 71, 75 (Mo. 1985). If

the covenant is lawful, and the opportunity for influencing the employer’s

customers to the former employer’s disadvantage, enforcement is appropriate.

Ashland Oil, 768 S.W.2d at 601; Osage Glass, 693 S.W.2d at 75; see also

Systematic Business Services, Inc. v. Bratten, 162 S.W.3d 41, 51 (Mo. Ct. App.

2005) (where the restrictive covenant is valid and the former employee has an

opportunity to influence his former employer’s customers, actual damages are not

necessary to obtain permanent injunctive relief).

“The district court is empowered to issue an injunction ‘even without a

showing of past wrongs,’ so long as ‘there exists some cognizable danger of

recurrent violation.’” Church Mut. Ins. Co. v. Sands, 2014 WL 3907831 *2 (W.D.

Mo. Aug. 11, 2014) (quoting U.S. v. W.T. Grant Co., 345 U.S. 629, 633 (1953)). A

former employee’s “possible disclosure or use of confidential information such as

customer information” is relevant in determining irreparable harm. Id. (quoting

Medtronic, Inc. v. Gibbons, 684 F.2d 565, 569 (8th Cir. 1982)).

“The mere violation of a valid non-compete agreement can support an

inference of the existence of a threat of irreparable harm.” Sands, 2014 WL

3907831, at *3 (citing N.I.S. Corp. v. Swindle, 724 F.2d 707,710 (8th Cir. 1984)).

Irreparable harm is also properly presumed where there is evidence that a covenant

not to compete is breached or confidential, proprietary information is being

improperly used. H&R Block Tax Servs. LLC v. Haworth, 2015 WL 5601940 at * 3

(W.D. Mo. Sept. 22, 2015). As in Haworth, monetary relief will not adequately

protect Plaintiff’s interests in these relationships, and it cannot fully remedy

Plaintiff’s loss of goodwill, confidential information, and other legitimate business

advantage. Id. at *4.

Plaintiff is subject to immediate and irreparable injury if Defendant is

permitted to continue to solicit Plaintiff clients and offer competitive service on

behalf of DeltaTrak. Defendant agreed in the agreements that any violation of the

noncompete agreements constituted irreparable harm. Moreover, the agreements

set forth the basis of this irreparable harm-maintaining the confidentiality of

Plaintiff’s information, trade secrets and using Plaintiff’s goodwill in competition

with Plaintiff: