Core and Main, LP v. Ron McCabe; Dakota Supply Group, Inc.
No. 22-1138
United States Court of Appeals For the Eighth Circuit
Submitted: October 19, 2022; Filed: March 1, 2023
Aрpeal from United States District Court for the District of Minnesota
Before LOKEN, GRUENDER, and GRASZ, Circuit Judges.
Core and Main, LP (“C&M”), headquartered in St. Louis, supplies water, wastewater, storm drainage, and fire protection products and services to commercial and
One of the shareholders, Ron McCabe, was part of MPE‘s management team. Based on McCabe‘s longstanding customer relations after thirty years of selling waterworks products, C&M and McCabe entered into a separate at-will Employment Agreement in which C&M employed McCabe as an Outside Sales Representative, agreeing to pay him at least $250,000 in commissions and bonus and to provide enumerated employee benefits in the first year. The Employment Agreement was made “contingent on the closing of the sale of [MPE] to [C&M].”
On June 1, 2021, unhappy that he had not become part of C&M‘s management team, McCabe quit his sales representative position. One week later, he started work at Dakota Supply Group, Inc. (“DSG”), a C&M competitor. Both the Noncompetition Agreement and the Employment Agreement included restrictive covenants and an “Entire Agreement” provision. C&M brought this diversity action against McCabe and DSG, asserting breach of thе Employment Agreement‘s noncompete and confidentiality covenants, tortious interference, and related claims. The district court granted defendants’ Rule 12(b)(6) motion to dismiss for failure to state a claim.1
principal issue on appeal is whether the court correctly concluded that the Noncompetition Agreement was a later agreement and therefore its Entire Agreement provision superseded the restrictive covenants in McCabe‘s Employment Agreement. Cоncluding that the breach of contract and tortious interference claims turn on fact-intensive issues that cannot be determined on the pleadings, we reverse the dismissal of those claims and otherwise affirm.
I. Background
The Employment Agreement was set forth in a letter to McCabe dated September 25, 2017 from Don Taylor, C&M‘s “Sr. RVP North.” C&M offered McCabe the position of Outside Sales Representative on the terms stated, contingent on the closing of the sale of MPE to C&M. After detailing the offered employment duties and terms of employment, the letter provided that, in exchange for “separate and independent consideration,” McCabe agreed he would not, for a period of twelve months after termination of employment and within a territory limited to a 150 mile radius from “each office location from which you have provided services on behalf
The Noncompetition Agreement recited that it was made and entered into on October 6, 2017, and that “it is a condition precedent to C&M‘s obligations to close the [Asset Purchase Agreement] that each of the Restricted Parties [MPE and the six shareholders] executes and delivers this Agreement.” Section 2.1 provided:
Restrictions on Competition. Each Restricted Party hereby agrees that, during the Term, it will not, directly or indirectly, anywhere in the Territory, exceрt on behalf of C&M: (i) engage in the Business; (ii) engage in any business which is in competition with the Business; (iii) invest in any person or entity which is engaged in the Business or any business which is in competition with the Business; or (iv) be employed by or be a director . . . of or provide consulting services to any person or entity which is engaged in the Business or . any business which is in competition with the Business.
Business was defined as purchasing, selling, or distributing a broad array of waterworks products and services. Term was defined as 42 months for MPE and two shareholders, and 24 months for the other shareholders, including McCabe. Territory was defined as Minnesota, Wisconsin, North Dakota, South Dakota, and Iowa.
The Noncompetition Agreement included an “Entire Agreement” provision:
This Agreement constitutes the entire agreement by and between the parties pertaining to the subject matter hereof and supersedes all prior or contemporaneous agreements, letters of intent, understandings, negotiations and discussions of the parties, whether oral or written.
Similаrly, the Employment Agreement provided that it “contains the entire agreement between [McCabe] and the Company with respect to your employment and all issues related to or arising from your employment and supersedes all prior oral and written agreements, discussions and understandings regard[ing] such subject.”
C&M‘s Verified Complaint alleges that, in the spring of 2021, an important supplier reported that McCabe had encouraged a C&M customer to switch from using the supplier‘s fire hydrants to a cоmpetitor‘s hydrants, a competitor whose hydrants DSG is authorized to sell more widely in Minnesota. On June 1, McCabe resigned in an e-mail to C&M, expressing dissatisfaction with certain people and referencing C&M business practices. That day, McCabe sent text messages to C&M customers that he had resigned and could be reached at a new number. The next day, C&M sent letters to McCabe and DSG demanding compliance with the Employment Agreement restrictions. In reply, Defendants’ attorney asserted that C&M‘s letters were a “desire to retaliate in response to concerns regarding CM‘s business practices raised by Mr. McCabe with CM on June 1.” That reply is the basis for C&M‘s claim that McCabe breached his
Defendants moved to dismiss all claims, arguing, as relevant on appeal, (i) the Employment Agreement is not effective because C&M‘s CEO never signed it, as C&M procedures required; (ii) the Complaint fails to state a breach of contract claim because the Noncompetition Agreement‘s Entire Agreement provision superseded the Employment Agreement covenant not to compete for one year after termination, and McCabe‘s covenant not to compete in the Noncompetition Agreement has exрired; and (iii) there is no plausible claim that McCabe breached any duty of confidentiality.
The district court dismissed all but the breach of loyalty claim, concluding (i) the breach of contract claim fails to state a claim because the Noncompetition Agreement superseded Employment Agreement covenants covering the same subject; (ii) the tortious interference claims fail because they are based on Employment Agreement restrictive covenants that are unenforceable; and (iii) C&M‘s Complaint fails to state a plausible breach of confidentiality claim.
II. Discussion
“We review a Rule 12(b)(6) dismissal for failure to state a claim de novo, accepting all well-pleaded factual allegations as true and construing all reasonable inferences in the nonmoving party‘s favor.” Vigeant v. Meek, 953 F.3d 1022, 1024 (8th Cir. 2020). To survive dismissal, complaints must plead “enough facts to state a claim to relief that is plausible on its face.” Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007). “A claim has facial plausibility when the plaintiff pleads fаctual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009).
A. The Breach of Contract Claim. At the heart of this appeal is the difficult question whether the Employment Agreement is a “prior or contemporaneous” agreement “pertaining to the subject matter hereof” that was superseded by the Entire Agreement provision in the Noncompetition Agreement, rendering the restrictive covenants in the Employment Agreement on which C&M relies unenforceable.2
An Entire Agreement provision creates what is commonly called a “completely integrated agreement [that] discharges prior agreements to the extent that they are within its scope.” Restatement (Second) of Contracts § 213(2) (1981). The parol evidence rule “is closely allied to the doctrine of integration.” Millar Co. v. UCM Corp., 419 N.W.2d 852, 855 (Minn. App. 1988).3 “[I]f a contract is a complete
“The crucial issue in determining whether there has been an integration is whether the parties intended their writing to serve as the exclusive embodiment of their agreement.” Spark Connected, LLC v. Semtech Corp., No. 4:18-cv-748, 2020 WL 6118575, at *5 (E.D. Tex. Oct. 16, 2020) (quotation omitted). The Comment to Restatement 2d § 213 explains that even if an agreement is completely integrated:
the court in addition . . . must determine that the asserted prior agreement is within the scope of the integrated agreement. Those determinations are made in accordance with all relevant evidence, and require interpretation both of the integrated agreement and of the prior agreement.
As the district court recognized, “while extrinsic evidence may be admissible to clarify ambiguous terms in a written contract, it is not admissible to vary terms whose meaning is plain.” Hayle Floor Covering, Inc. v. First Minn. Const. Co., 253 N.W.2d 809, 812 (Minn. 1977). Whether a contract is unambiguous is determined by the court, giving contract terms “their plain, ordinary, and popular meaning to give effect to the intention of the parties.” Kremer v. Kremer, 912 N.W.2d 617, 626 (Minn. 2018). A court‘s task is to give effect to the parties’ intent, looking at the
and the parties did not brief it on appeal. Defendants cite Missouri cases, but none addressed the issues on appeal. We leave this issue to the district court on remand. Our research has not revealed any relevant conflict between Minnesota and Missouri law, in which case the issue should be avoided. See Ronnoco Coffee, LLC v. Westfeldt Bros. Inc., 939 F.3d 914, 920 (8th Cir. 2019).
“obvious purpose of the contract [here, the contracts] as a whole.” Republic Nat‘l Life Ins. Co. v. Lorraine Realty Corp., 279 N.W.2d 349, 354 (Minn. App. 1979) (cleaned up). Thus, if the plain meaning of the Entire Agreement provision in the Noncompetition Agreement read in the context of the agreements that accompanied the sale of MPE to C&M establishes that the Employment Agreement was not a superseded “prior or contemporaneous agreement,” or if the Entire Agreement provision was ambiguous in this regard so that extrinsic evidence must be considered, then it was error to grant defendants’ motion to dismiss the breach of contract claim.
The Entire Agreement provision in the Noncompetition Agreement only supersedes prior and contemporaneous agreemеnts “pertaining to the subject matter hereof.” We assume that the sophisticated drafters of this Agreement intended that term to adopt the established legal principle that a completely integrated agreement only discharges prior agreements “to the extent that they are within its scope.” Restatement 2d § 213(2). The district court concluded that the “most natural meaning of ‘the subject matter hereof’ is that it applies to the sole subject of the agreement -- noncompetitiоn.” But that purely textual analysis ignores the Restatement‘s direction that determining the scope of a complete integration clause “require[s] interpretation both of the integrated agreement and of the prior agreement” to determine the parties’ intent.
First, it is not uncommon for the purchaser of a small or mid-size business paying for its goodwill and customer relations to require the seller‘s shareholders and managers to agree to sale-of-business noncompete covenants that are judicially enforceable if reasonable. If the purchaser agrees to employ the seller‘s key shareholders or managers after the acquisition, it is also not uncommon to require the new employees to agree to noncompete covenants in an employment agreement, which are viewed with disfavor if they will interfere with the employee‘s ability to pursue his livelihood after termination but аre judicially enforceable if they reasonably avoid that sin. Both are noncompetition covenants. But they typically
have significantly different terms, and courts view them differently. As the Court of Appeals of Georgia concluded, “the noncompete covenant ancillary to the sale of the business relates to subject matter entirely different from that of the noncompete covenant ancillary to [the seller‘s] employment as a manager with [the buyer].” Attaway v. Republic Servs. of Ga., LLP, 558 S.E.2d 846, 848 (Ga. App. 2002).
Second, these two types of covenants may be contained in a single noncompetition agreement if the seller‘s only shareholder or owner is employed by the purchaser post acquisition, as in Progressive Techs., Inc. v. Chaffin Holdings, Inc., 33 F.4th 481, 484 (8th Cir. 2022). In that case, there was no integration clause issue -- both of the different noncompetition restraints were obviously intended by the parties, and the issue was whether the covenant with the longer duration on which the plaintiff reliеd was reasonable. Here, by contrast, the Noncompetition Agreement included additional selling-shareholder parties to whom the additional employment covenants should not apply. That no doubt explains why the covenants in C&M‘s Employment Agreement with McCabe contain both different and additional terms -- different durations, different covered territories, and non-solicitation restrictions common to employment agreements. See id. at 484, 486. That the covenants are in different agreеments brings the integration clause issue into play, but it should not change the result. Indeed, the presence of additional parties in the Noncompetition Agreement supports the conclusion that it was not intended to supersede the Employment Agreement, whether or not the latter was “prior or contemporaneous.” See Dunn v. FastMed Urgent Care PC, 424 P.3d 436, 441-42 (Ariz. App. 2018).
In these circumstances, we agree with C&M that it is at least plausible the two Agreements covered different subject matters, making Rule 12(b)(6) dismissal inappropriate. The Noncompetition Agreement restricting MPE shareholders from engaging or investing in a competing business was geographically broad (States where MPE competed with C&M), but its duration was precisely limited to a specific term for each restricted party (for McCabe, two years after the purchase closing). By
contrast, in the Employment Agreement, McCabe agreed to restrictions directly tied to his expected role as a C&M sales representative, including non-solicitation covenants, with а more limited geographic scope (150 miles from every office where McCabe worked), and a more limited but uncertain duration (12 months after his employment ended).
In addition, we conclude that, in the context of the multiple agreements that completed the Asset Purchase transaction, the term “prior or contemporaneous” in the Noncompetition Agreement‘s Entire Agreement provision is ambiguous. The
For these reasons, we conclude that at the very least, C&M plausibly pleaded that McCabe breached the Employment Agreemеnt. Whether that Agreement was “within [the] scope” of the Noncompetition Agreement cannot be determined as a matter of law from the pleadings alone. “While the district court‘s interpretation of the [Noncompetition] Agreement is certainly plausible, we cannot agree it is the only reasonable interpretation.” Rosemann v. Roto-Die, Inc., 276 F.3d 393, 399 (8th Cir. 2002). In Rosemann, applying Missouri law, we concluded the contract language was
ambiguous, looking at the context of the entire agreement, and reversed the grant of summary judgment that was based on the district court‘s interpretation. Id.
Defendants contend that C&M cannot disavow its “clear position” that the subject matter of the two restrictive covenants was the same, “to protect the customer goodwill and assets that [MPE] sold to [C&M].” The Supreme Court of Minnesota will uphold a reasonable covenant in an employment agreement “designed to protect the employer against the deflection of trade or customers by the employeе by means of the opportunity which the employment has given him.” Bennett v. Storz Broadcasting Co., 134 N.W.2d 802, 808 (Minn. 1965). Likewise, sale-of-business covenants protect the purchaser from competition that lessens the value of the assets purchased by “deflect[ing] trade or customers.” That sale-of-business covenants and employment covenants protect the same legitimate interest does not establish that the former are “within [the] scope” of the latter.
Defendants argue: (i) even though the pаrties operated under the Employment Agreement for years, it is not effective because it was never signed by C&M‘s CEO, as C&M‘s internal procedures required; and (ii) no “legitimate employer interest” not “broader than necessary” justifies the noncompete provisions, as Minnesota law requires. See Kallock v. Medtronic, Inc., 573 N.W.2d 356, 361 (Minn. 1998). The district court did not address these issues, and we decline to address them in the first instance. Of course, if the Employment Agreement‘s noncompete restrictions are not supеrseded by the Noncompetition Agreement‘s integration clause, the reasonableness of those restrictions will be a primary issue on remand. “[T]he reasonableness of a restrictive covenant clause is a question of fact.” Dean Van Horn Consulting Assocs., Inc. v. Wold, 395 N.W.2d 405, 408 (Minn. App. 1986).
B. Tortious Interference Claims. Because the district court dismissed C&M‘s claims for tortious interference with contractual relationship and prospective contractual relationships based on its finding
noncompete provision was operative, we also reverse the dismissal of those claims. Defendants make no contrary argument on appeal.
C. Breach of Confidentiality Claim. Count II of C&M‘s Verified Complaint alleged that McCabe breached the duty of confidentiality in Paragraph G of the Employment Agreement “when he shared information about Core and Main‘s billing practices with DSG‘s attorney,” as evidenced by the attorney‘s letter to C&M referencing “concerns regarding CM‘s business practices raised by Mr. McCabe with CM on June 1.” The district court dismissed this claim, explaining:
McCabe‘s [June 1] resignation еmail does not contain any information about Core and Main‘s billing practices, other than a vague reference to “issues with certain people and practices at Core and Main” and a request to receive commissions on products sold to date. The letter contains no specifics about Core and Main‘s business or billing practices. Core and Main‘s vague factual allegations do not plausibly allege a breach of the duty of confidentiality.
We agreе. The elements of a breach of confidentiality claim are:
(1) the protected matter is not generally known or readily ascertainable, (2) it provides a demonstrable competitive advantage, (3) it was gained at expense to the employer, and (4) it is such that the employer intended to keep it confidential. Cherne Indus., Inc. v. Grounds & Assocs., Inc., 278 N.W.2d 81, 90 (Minn. 1979).
The attorney‘s letter to C&M and McCabe‘s June 1 email to which the attorney referred are exhibits to C&M‘s Verified Complaint. The attorney‘s vague reference to McCabe‘s concеrn about C&M “business practices,” and the gripes of a resigning-employee expressed in McCabe‘s email to C&M, do not come close to pleading a plausible claim that McCabe disclosed to DSG‘s attorney information that constituted “protected matter” supporting a breach of confidentiality claim. Conclusory
assertions are “not entitled to be assumed true.” Iqbal, 556 U.S. at 681. Thus, as in Twombly, the Verified Complaint has not “nudged [C&M‘s Count II] claims across the line from conceivable to plausible.” 550 U.S. at 570. Count II was properly dismissed.
D. A Procedural Issue. Finally, C&M argues the district court erred by not dismissing without prejudice so that C&M could amend its Verified Comрlaint that was filed in state court because “Minnesota does not follow Twombly or Iqbal.”
“[A] district court in granting a motion to dismiss is not obliged to invite a motion for leave to amend if plaintiff did not file one.” United States v. Mask of Ka-Nefer-Nefer, 752 F.3d 737, 742 (8th Cir. 2014). Here, the case was removed to federal court in June 2021, defendants moved to dismiss in July, the district court dismissed all but one claim in December, and C&M filed a notice of dismissal of the final claim in January 2022. Thus, for more than half a year, C&M chose not to file a motion for lеave to amend along with the amended pleading that a motion to amend requires. “[T]he district court had no reason to question” C&M‘s decision “to stand on and defend its original complaint.” Id. at 742.
III. Conclusion
The judgment of the district court dismissing C&M‘s breach of contract, tortious interference with contractual relationships, and tortious interference with prospective contractual relationships claims is reversed