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8th Circuit sends noncompete agreement dispute back to district

An employer who filed suit against a sales employee who left for a competitor has had its case revived. In Core and Main, LP v. Ron McCabe, Et Al., the 8th U.S. Circuit Court of Appeals reversed and remanded on March 1, 2023.

Core and Main is a St. Louis company supplying water, storm, and fire protection products and services to both commercial and government customers. It acquired Minnesota Pipe and Equipment Co. in 2017.

Ron McCabe was part of the management team at Minnesota Pipe, selling waterworks products for 30 years. Given his longstanding customer relations, Core and Main entered into a separate at-will Employment Agreement with McCabe in which McCabe was employed as an outside sales representative. McCabe would be provided at least $250,000 in commissions and bonus, as well as enumerated employee benefits.

The Employment Agreement, executed on Oct. 5, 2017, was made “contingent on the closing of the sale” of Minnesota Pipe to Core and Main. It contained a noncompetition provision, prohibiting McCabe from competing with Core and Main during employment and for 12 months after. Then, on Oct. 6, 2017, a Noncompetition Agreement was executed. This agreement required a 24-month period of noncompetition from the date of execution of the Noncompetition Agreement. It included an “Entire Agreement” provision where it stated that “This Agreement constitutes the entire agreement by and between the parties pertaining to the subject matter hereof and supersedes all prior and contemporaneous agreements.”

McCabe remained in the sales position for more than three years. However, he became unhappy that he did not become part of Core and Main’s management team. McCabe quit his job in June 2021. Subsequently, he sent text messages to his Core and Main customers, informing them to contact him at a different telephone number from then on. A week later, McCabe became an operations manager at Dakota Supply Group.

Core and Main brought suit against McCabe and Dakota Supply Group. It argued that McCabe breached his duty of loyalty because 12 months had not elapsed since he left the position.

The critical question before both the district court and Eighth Circuit was whether the Noncompetition Agreement superseded the noncompete clause in the Employment Agreement. If the Noncompetition Agreement did supersede it, the noncompetition restriction would have expired on October 6, 2019, meaning McCabe would have no contractual duty to refrain from competition in 2021.

Core and Main argued that the Noncompetition Agreement did not supersede the noncompete clause in the Employment Agreement because of the subject matter of the Noncompetition Agreement was the purchase of Minnesota Pipe. The district court did not buy this argument. “The contract is titled ‘Noncompetition Agreement’ and the contents of the contract all pertain to noncompete obligations,” the district court declared. It determined that the Noncompetition Agreement’s noncompetition period superseded the Employment Agreement’s noncompetition clause. Consequently, the district court granted defendants’ motion to dismiss for failure to state a claim.

The 8th Circuit had to make a similar determination regarding the subject matters of the Noncompetition Agreement and McCabe’s Employment Agreement.

“What is the subject of the noncompetition agreement? Noncompetition. The questions and issues raised by appellant relate to the scope of that agreement and whether it can be added to or supplemented,” Sam Diehl, founding partner at CrossCastle stated. Diehl represented McCabe and Dakota Supply Group. “The subject the parties agree on.”

“The subject matter of that agreement was the purchase of the assets of Minnesota Pipe. It was not the future employment of defendant Ron McCabe,” stated Kurt Erickson, Shareholder at Littler & Mendelson who represented Core and Main. “We sold this company. The noncompetition agreement was all directly as a result of the sale of the company. End of story.”

The court agreed with Core and Main that it was at least plausible that the two agreements covered different subject matters. It pointed to the fact that the Noncompetition Agreement was geographically broad but its duration was limited to a specific term for each restricted party. However, in the Employment Agreement, the geographic scope was much more limited, and the duration was uncertain.

The court also determined that the term “prior or contemporaneous” that appeared in the Noncompetition Agreement’s Entire Agreement provision was ambiguous. While the Employment Agreement was contingent on the sale of Minnesota Pipe, the Noncompetition Agreement was a condition precedent to Core and Main’s obligations to close the sale. The Noncompetition Agreement was also a condition precedent to the Employment Agreement, signed the day before the Noncompetition Agreement.

“For purposes of applying the law of completely integrated contracts, which is more important, reality or the date or dates the contract were signed?” the court mused. “The answer to that question calls for extrinsic evidence.” Finding that the breach of contract claim was a fact-intensive issue that could not be determined on the pleadings, it reversed the district court’s dismissal of the claim.

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