FARM CREDIT SERVICES OF NORTH CENTRAL WISCONSIN, ACA, Plаintiff-Appellant-Petitioner, v. David WYSOCKI, Defendant-Respondent.
No. 99-1013
Supreme Court of Wisconsin
Oral argument January 31, 2001. Decided May 30, 2001.
2001 WI 51 | 237 Wis. 2d 522 | 627 N.W.2d 444
For the defendant-respondent there were briefs by Gary L. Dreier and First Law Group, S.C., Stevens Point, and oral argument by Gary L. Dreier.
An amicus curiae brief was filed by Eric H. Rumbaugh, Donald A. Daugherty, David A. Dixon and Michael Best & Friedrich, LLP, Milwaukee, and oral argument by Eric H. Rumbaugh on behalf of Wisconsin Manufacturers and Commerce.
¶ 1. JON P. WILCOX, J. This case presents two issues. The first issue is whether the restrictive covenant in David Wysocki‘s (Wysocki) 1983 employment agreement with Production Credit Association (PCA) of Wausau is void as a matter of law becаuse the geographic area in which PCA of Wausau was authorized to conduct business was expanded through a 1986 merger. Because we find that the covenant not to compete here is narrowly tailored to a customer list and does not contemplate a geographic restriction, we rule that it is not per se invalid. Therefore, we remand the case to the circuit court to determine whether the covenant not to compete was “reasonably necessary for the protection of the employer or principal.”
¶ 2. The second issue is whether Farm Credit Services (FCS) is the same corporation as PCA of Wausau, which contracted with Wysocki in 1983. Reviewing the two plans of merger in light of the relevant statutes, we conclude that PCA of Wausau is the surviving corporation of both mergers and, therefore, FCS is entitled to enforce the covenant not to compete provision in Wysocki‘s employment agreement. Accord-
¶ 3. FCS brought this action against Wysocki to enforce a covenant not to compete provision in his 1983 employment agreement with PCA of Wausau. Wysocki moved for summary judgment, arguing that Wysocki did not contract with FCS. The circuit court for Portage County, Judge James M. Mason presiding, found that FCS was not the same entity as PCA of Wausau and, therefore, was not entitled to enforce the covenant. The circuit court also granted summary judgment in favor of Wysocki on the ground that the covenant not to compete was unilaterally enlarged through the two mergers and was thus void. The court of appeals, in a split decision, affirmed the decision of the circuit court. Farm Credit Services of North Central Wisconsin, ACA v. Wysocki, 2000 WI App 124, ¶ 19, 237 Wis. 2d 522, 614 N.W.2d 1. The majority assumed, “arguendo, that FCS is the same corporation as PCA,” but that the covenant not to compete was void because the “‘specified territory,’ as that term is used in
I
¶ 4. The basic facts are undisputed for the purposes of this review on motion for summary judgment. In 1983 Wysocki signed an employment agreement with PCA of Wausau as a “Related Services Coordinator/Loan Officer” in order to provide “accounting, bookkeeping, or prepare tax returns for PCA membership.” PCA of Wausau was authorized to serve five counties and part of a sixth: Lincoln, Marathon, Portage, Price, Wood, and a portion of Taylor. As stated in its employment contract with Wysocki, PCA of Wausau
Post-employment Competition. In consideration of the special training and materials provided to Employee by PCA and the preparation of tax returns for persons engaged in agriculture and confidential information made available to Employee by PCA concerning the financial affairs of its members, including, in particular, information generated by the Agrifax program, it is agreed that the Employee‘s activities shall be restricted in accord with this paragraph. If the Employee ceases to be a PCA Employee, for any reason, the Employee shall not, for a period of one year immediately following the date of separation from PCA, directly or indirectly, engage in the business of tax preparation, tax consultation, bookkeeping, or accounting, or any other duties performed as a tax consultant for PCA with the persons(s) [sic] the Employee consulted or serviced in performance of his/her consultant duties at any time during the one year immediately prior to the date of separation. Person(s) includes individuals, sole proprietorships, partnerships, and corporations.
It is undisputed that this covenant is aimed at preventing Wysocki from providing various accounting services to PCA of Wausau customers whom he had serviced in the year prior to his separation.
¶ 5. In 1986, three years after Wysocki signed the employment agreement, PCA of Wausau merged with PCA of Antigo and PCA of Neillsville. The agree-
¶ 6. However, on November 30, 1998, FCS alleges that Wysocki informed his supervisor that he was leaving FCS and that he intended to solicit FCS’ customers whose returns he had prepared during 1997. FCS further alleges that Wysocki then solicited FCS customers for whom he had prepared tax returns in 1997. In order to enforce the covenant not to compete, FCS filed suit against Wysocki. The circuit court granted Wysocki‘s motion for summary judgment and the court of appeals affirmed.
II
¶ 7. This case is before us on review of summary judgment. It is well established that we review a grant
¶ 8. We first are presented with a question of law regarding the construction of a covenant not to compete in an employment contract. Jones v. Jenkins, 88 Wis. 2d 712, 722, 277 N.W.2d 815 (1979). We review this question of law de novo. Id. We begin our review by determining whether the covenant not to compete provision is per se invalid.
¶ 9. In Wisconsin, covenants not to compete are regarded with suspicion by the courts because the law seeks to “encourage[] the mobility of workers.” Gary Van Zeeland Talent, Inc. v. Sandas, 84 Wis. 2d 202, 214, 267 N.W.2d 242 (1978). Indeed, because free movement and personal liberty of employees are preeminent features of employment relations in this state, we have remarked that “so long as a departing employee takes with him no more than his exрerience and intellectual development that has ensued while being trained by another, and no trade secrets or processes are wrongfully appropriated, the law affords no recourse.” Id. Consistent with encouraging the free movement of employees, we have applied the following canons of construction to covenants not to compete: (1) such covenants are prima facie suspect; (2) they must withstand close scrutiny to pass legal muster as being reasonable; (3) they will not be construed to extend beyond their proper import or further than the lan-
¶ 10. These canons are grounded in
A covenant by an assistant, servant or agent not to compete with his employer or principal during the term of the employment or agency, or thereafter, within a specified territory and during a specified time is lawful and enforceable only if the restrictions imposed are reasonably necessary for the protection of the employer or principal. Any such restrictive covenant imposing an unreasonable restraint is illegal, void and unenforceable even as to so much of thе covenant or performance as would be a reasonable restraint.
As we recently observed, this statute “evidences a strong public policy against the enforcement of trade restraints which are determined to be unreasonable
¶ 11. But we cannot allow the underlying policy of
¶ 12. The standard rules of contract interpretation apply: the primary goal in contract interpretation is to determine and give effect to the parties’ intention at the time the contract was made. Wisconsin Label v. Northbrook Prop. & Cas. Ins., 2000 WI 26, ¶ 23, 233 Wis. 2d 314, 607 N.W.2d 276. When the language is unambiguous, we apply its literal meaning. Id. If, on the other hand, we determine that a contract provision is ambiguous, we then look to extrinsic evidence to discern its meaning. Management Computer Servs., Inc. v. Hawkins, Ash, Baptie & Co., 206 Wis. 2d 158, 177, 557 N.W.2d 67 (1996). In sum, if the provision is not invalid per se and is unambiguous, we uphold its plain meaning. Therefore, we first look to whether the covenant not to compete is invalid per se.
¶ 13. The covenant not to compete at issue here is a customer list limitation rather than a geographical restriction. It prevents Wysocki from servicing those customers he “consulted or serviced in the performance of his[] consultant duties at any time during the one year immediately prior to the date of separation.” In Hunter of Wisconsin, Inc. v. Hamilton, 101 Wis. 2d 460, 304 N.W.2d 752 (1981), we considered whether a similar—albeit much broader—customer list limitation was invalid as a matter of law. There, two employees of
¶ 14. Here, we are presented with a covenant that is more narrowly tailored than the covenant at issue in Hunter. Rather than including all of PCA of Wausau‘s customers during the period of Wysocki‘s employment, the covenant not to compete provision here includes only the customers that Wysocki serviced in the year prior to his date of separation. Furthermore, whereas the covenant in Hunter effectively restricted each of the two employees for two years after the separation, the covenant here restricts Wysocki for only one year after separation. Therefore, under Hunter, we cannot conclude that this covenant not to compete is invalid per se, especially when this covenant is less restrictive than the covenant we examined in Hunter. See also Chuck Wagon Catering, Inc. v. Raduege, 88 Wis. 2d 740, 754, 277 N.W.2d 787 (1979) (noting that “in Wisconsin a restrictive covenant protecting an employer‘s customer contacts in a situation of necessity will be enforced provided the restraint is reasonable“).
¶ 15. Attempting to avoid our Hunter decision, Wysocki urges, and the court of appeals accepted, the argument that because the two mergers “unilaterally enlarged the specified territory of the restrictive covenant beyond that to which the parties agreed in 1983, it is unenforceable.” Farm Credit Services, 2000 WI App 124 at ¶ 13. This argument, however, is flawed because it discounts the plain terms of the covenant and our decision in Hunter. Wysocki‘s covenant not to compete with PCA of Wausau anticipated enlargement as well as contraction of the “specified territory,” which is the list of customers that Wysocki serviced in the year prior to his separation from PCA of Wausau. As evidenced by the terms, the parties contemplated a fluid customer list limitation rather than a rigid geographical restriction. In accordance with the policy of encouraging the freedom of movement of employees and protecting their persоnal liberty, such fluid customer list limitations should be given greater breadth than rigid geographical restrictions because they oftentimes “more closely approximate[] the area of the employer‘s vulnerability to unfair competition by a former employee and [do] not deprive the employee of legitimate competitive opportunities to which he is entitled.” Hunter, 101 Wis. 2d 466. Furthermore, there is no mention of any geographical territory, such as a county or counties, or any extraneous document, such as a charter, in the covenant at hand. The absence of a reference to PCA of Wausau‘s charter is especiаlly telling; it is difficult to understand how a change in the
¶ 16. Because the covenant at issue here is not per se invalid, we remand the cause to the circuit court to develop the evidentiary record in order to determine whether the covenant is reasonable under
III
¶ 17. Wysocki, however, argues that PCA of Wausau has been merged out of existence. FCS, according to Wysocki, was not yet in existence when he signed
¶ 18. The first merger took place in 1986. In regard to this merger,
Procedure for merger. (1) Any 2 or more domestic corporations may merge into one of such corporations pursuant to a plan of merger approved in the manner provided in this chapter.
(2) The board of directors of each corporation shall, by resolution adopted by each such board, approve a plan of merger setting forth:
(a) The names of the corporations proposing to merge, and the name of the corporation into which they propose to merge, hereinafter designated the surviving corporation;
(b) The terms and conditions of the proposed merger;
...
(e) Such other provisions with respect to the proposed merger as deemed necessary or desirable.
The 1986 agreement of merger states, in accordance with the above statute, that “[t]he Production Credit Association of Antigo and the Production Credit Association of Neillsville shall merge into the Production Credit Association of Wausau which shall be the continuing association and its charter and bylaws shall be those of the continuing association.” The agreement further indicates that “[t]he name and location of the continuing association shall be the Production Credit Association of North Central Wisconsin, Wausau, Wisconsin.” Therefore, in accordance with
¶ 19. The effect of this statutory merger is explained in
Effect of merger or consolidation. When any merger or consolidation has been effected in accordance with this chapter:
(1) The several corporations parties to the plan of merger or consolidation shall be a single corporation, which, in the case of a merger, shall be that corporation designated in the plan of merger as the surviving corporation, and, in the case of a consolidation, shall be the new corporation provided for in the plan of consolidation.
(2) The separate existence of all corporations parties to the plan of mеrger or consolidation, except the surviving or new corporation, shall cease....
...
(4) Such surviving or new corporation shall thereupon and thereafter possess all the rights, privileges, immunities, and franchises, as well of a public as of a private nature, of each of the merging or consolidating corporations; and all property, real, personal and mixed, and all debts due on whatever account, including subscriptions to shares, and all other choses in action, and all and every other interest, of or belonging to or due to each of the corporations so merged or consolidated, shall be taken and deеmed to be transferred to and vested in such single corporation without further act....
The plain language of this statute, read in conjunction with the agreement of merger, indicates that PCA of Wausau was the surviving corporation, which was then renamed PCA of North Central Wisconsin. Consequently, PCA of North Central Wisconsin could have enforced the covenant not to compete in Wysocki‘s employment agreement after the 1986 merger was executed. In short, the 1986 merger did not change the parties to the 1983 employment contract.
¶ 20. The second “Agreement and Plan of Merger” is dated April 4, 1991. The relevant merger statute at that time,
Merger. (1) One or more сorporations may merge into another corporation if the board of directors of each corporation, by resolution adopted by each board, approves a plan of merger and, if required by s. 180.1103, its shareholders also approve the plan of merger.
(2) The plan of merger shall set forth all of the following:
(a) The name of each corporation planning to merge and the name of the surviving corporation into which each other corporation plans to merge.
(b) The terms and conditions of the merger.
In accordance with this merger statute, the 1991 “Agreement and Plan of Merger” states that PCA of North Central Wisconsin would merge with Federal Land Bank Association of North Central Wisconsin and that PCA of North Central Wisconsin “shall be the surviving association....” The agreement further specifies that PCA of North Central Wisconsin‘s “name shall be changed to Farm Credit Services of North Central Wisconsin, ACA.” Again, the Agreement and Plan of Merger set forth the corporations that would be merging, that PCA of North Central Wisconsin would be the surviving association, and that it would be renamed FCS, which is in accordance with the relevant merger statute in 1991,
Effect of merger or share exchange. (1) All of the following occur when a merger takes effect:
(a) Every other corporation that is party to the merger merges into the surviving cоrporation and the separate existence of every corporation party to the merger except the surviving corporation ceases.
(b) The title to all property owned by each corporation that is party to the merger is vested in the surviving corporation without reversion or impairment.
(c) The surviving corporation has all liabilities of each corporation that is party to the merger.
...
Under this statute, FCS—the surviving corporation formerly known as PCA of North Central Wisconsin—took over all of Federal Land Bank Association of
¶ 21. Accordingly, we conclude that FCS may enforce the covenant not to compete in its employment contract with Wysocki. Wysocki has not raised any
IV
¶ 22. In sum, we find that Wysocki‘s covenant not to compete with FCS is not invalid per se as a customer list limitation; this provision is less restrictive than the covenant we examined in Hunter, which we likewise determined was not invalid per se. 101 Wis. 2d at 468. On this first issue, we remand the cause to the circuit court to determine whether the covenant meets the requirements of
By the Court.—The decision of the court of appеals is reversed, and the cause is remanded to the circuit court for further proceedings consistent with this opinion.
¶ 23. WILLIAM A. BABLITCH, J., did not participate.
¶ 24. SHIRLEY S. ABRAHAMSON, CHIEF JUSTICE (concurring). I agree that the cause should
¶ 25. The majority opinion correctly states our longstanding canоns of construction for covenants not to compete, canons based on
¶ 26. Yet in analyzing the covenant not to compete at issue in this case, the majority concludes that “[t]he standard rules of contract interpretation apply.”2 The majority also concludes that “our rules of cоnstruction [cannot] overwhelm the focus of our analysis in what are, at their core, contract cases.”3
¶ 27. The internal contradiction in the majority opinion is manifest. If special canons of construction apply to covenants not to compete, then the standard rules for contract interpretation do not apply in their totality. The legislature has not impermissibly “overwhelmed” contract law by creating an exception to the ability of employers and employees to negotiate to restrict employees’ ability to work. Rather, the legislature has expressly concluded that the principle of free movement of employees, which this court recently
¶ 28. Applying the principles mandated by the legislature and this court‘s precedent, I conclude that it is an open question of fact whether the covenant not to compete anticipated enlargement of the specified territory. In so concluding, I am mindful of the special nature of the employer, whose geographical scope and range of services have at all times been defined by federal law and federal charter. The federal law and the charter have changed since the employment contract was entered, allowing the geographical scope and range of services of the employer‘s business to expand.
¶ 29. The majority concludes as a matter of law that the parties contemplated a “fluid customer list.”4 But contemplation of a fluid customer list is not necessarily the same as contemplation of changes in federal law and in a federal charter that allow an employer to service customers that were previously off limits to the employer. The majority rejects this argument, finding that the changes in the employer‘s charter cannot affect the covenant not to compete because the “covenant” fails to refer to the charter.5 The covenant not to compete is, however, part of the employment contract, and the employment contract does explicitly refer to the applicable law governing PCA. Recital A of the employment contract states that “PCA is a corporation under the Farm Credit Act of 1971, as amended.”
¶ 30. In any event, it is an odd contortion of the “standard rules of contract interpretation” to conclude that an employer‘s federal charter is not relevant to interpreting an employment contract unless the fed-
¶ 31. Finally, I take issue with the majority opinion‘s unwarranted conclusion in footnote 2 that “even if PCA of Wausau ceased to exist, FCS could enforce the covenant not to compete.”7 In contrast, the employer in this case apparently concedes, relying on precedent, that it may not enforce the covenant not to compete against the employee if this court concludes that the 1983 corporation has been merged out of legal existence.8 Ignoring this concession, the footnote nevertheless addresses an issue that is unnecessary to
¶ 32. For the reasons set forth, I write separately.
In the absence of an assignment clause, enforcing such a covenant not to compete would violate our canon of construction that covenants not to compete “will not be construed to extend beyond their proper import or further than the language of the contract absolutely requires.” Streiff v. American Family Mut. Ins. Co., 118 Wis. 2d 602, 611, 348 N.W.2d 505 (1984).
Notes
[I]n the case of a merger the survivor and the parties that merge into the survivor become one. The survivor automatically becomes the owner of all real and personal property and becomes subject to all the liabilities, actual or contingent, of each party that is merged into it. A merger is not a conveyance, transfer, or assignment....It does not give rise to a claim that a contract with a party to the merger is no longer in effect on the ground of nonassignability, unless the contract speсifically provides that it does not survive a merger.
Model Bus. Corp. Act Ann. §§ 11-71 (3d ed. Supp. 1998-1999). According to this commentary, a surviving corporation can enforce a contract that a party entered into with a merged corporation over the objection that it was not assigned by the merged corporation. Following this commentary, even if PCA of Wausau ceased to exist, FSC could enforce the covenant not to compete. However, because we find that PCA of Wausau is the surviving corporation, merely renamed FSC, by the plain language of the merger agreement read in light of the merger statute, we do not need this official cоmmentary to discern the legislative intent of
Internal references in one document to another are often helpful in the processes of interpretation and adjudication; but the absence of such a reference does not make a document unusable in these processes or inadmissible in evidence. Its connection and relevancy can be established otherwise.
Arthur L. Corbin, 3 Corbin on Contracts § 549, at 192 (1960).