AK Steel Corp. v. Arcelormittal USA, L.L.C.

2016 Ohio 3285

• Court: Ohio Court of Appeals
• Decided: June 6, 2016
• Docket: CA2015-11-190
• Status: Published

Opinion

[Cite as AK Steel Corp. v. Arcelormittal USA, L.L.C., 2016-Ohio-3285.]

IN THE COURT OF APPEALS

TWELFTH APPELLATE DISTRICT OF OHIO

BUTLER COUNTY

AK STEEL CORPORATION, :

Plaintiff-Appellant, : CASE NO. CA2015-11-190

: OPINION - vs - 6/6/2016 :

ARCELORMITTAL USA, LLC, et al., :

Defendants-Appellees. :

CIVIL APPEAL FROM BUTLER COUNTY COURT OF COMMON PLEAS Case No. CV15-07-1543

Thompson Hine LLP, Deborah S. Brenneman, George B. Musekamp, 312 Walnut Street, Suite 1400, Cincinnati, Ohio 45202, for plaintiff-appellant

Sebaly Shillito + Dyer, Robert G. Hanseman, James A. Dyer, 1900 Kettering Tower, 40 North Main Street, Dayton, Ohio 45423-1013 and Seyfarth Shaw LLP, Lynn A. Kappelman, Kristine R. Argentine, 131 South Dearborn Street, Suite 2400, Chicago, IL 60603-5577, for defendant-appellee, Arcelormittal USA, LLC

Faruki Ireland & Cox PLL, Charles J. Faruki, D. Jeffrey S. Sharkey, Michael S. Mayer, 110 North Main Street, Suite 1600, Dayton, Ohio 45402, for appellee, Keith J. Howell

RINGLAND, J.

{¶ 1} Plaintiff-appellant, AK Steel Corporation, appeals the decision of the Butler

County Court of Common Pleas, which modified a noncompete agreement in favor of its

former employee, Keith Howell, who voluntarily resigned his position with the company to Butler CA2015-11-190

accept a position with defendant-appellee, ArcelorMittal USA L.L.C.1 For the reasons

discussed below, we reverse the decision of the trial court and remand for further

proceedings.

{¶ 2} AK Steel and ArcelorMittal are competing steel manufacturers.2 Howell is a

former executive for AK Steel. The record reflects that Howell excelled during his 18-year

employment with the company, eventually rising to the level of Senior Vice President of

Operations, the fourth-highest executive position within AK Steel. As a high ranking

executive with AK Steel, and in his various roles within the company over the course of his

employment, Howell has had access to confidential information relating to company

operations, strategy, manufacturing operations, logistics, capital expenditures, trade secrets,

customer lists, and pricing and margin information.

{¶ 3} The dispute in the present case involves a March 26, 2014 "Executive Officer

Severance Agreement." The severance agreement provided Howell a monetary severance

package in the event of his termination. In addition, the agreement contained a noncompete

provision, which limited Howell's ability to work for a competing business for a one-year

period following the termination of his employment with AK Steel.

{¶ 4} In late 2014, ArcelorMittal began a nationwide search to identify a candidate to

serve as its Chief Operating Officer. Howell was identified and became the leading candidate

for the position. Following several interviews, Howell was hired for the COO position. Howell

resigned his employment with AK Steel on June 12, 2015.

{¶ 5} Thereafter, AK Steel issued a cease-and-desist notice to Howell and

1. Pursuant to Loc.R. 6(A), we sua sponte remove this case from the accelerated calendar and place it on the regular calendar for purposes of issuing this opinion.

2. The record in these proceedings has been sealed from public disclosure, and this court has taken steps to refrain from identifying any asserted trade secret or confidential information. Resolution of this case can be accomplished without disclosure of the information that the parties consider confidential. -2- Butler CA2015-11-190

ArcelorMittal requesting that each honor Howell's noncompete agreement. On July 6, 2015,

AK Steel filed this lawsuit against Howell and ArcelorMittal asserting claims for breach of the

noncompete agreement, misappropriation of trade secrets, and intentional interference with a

contract. AK Steel requested a temporary restraining order and preliminary injunctive relief

against Howell and ArcelorMittal. The parties entered into an agreed TRO and the motion for

preliminary injunctive relief proceeded to a three-day evidentiary hearing.

{¶ 6} Following the close of evidence, the trial court found that the severance

agreement was supported by sufficient consideration, and that AK Steel demonstrated a

likelihood of success on the merits. However, the trial court also found the one-year

noncompete provision to be unduly burdensome and modified the length of time to six

months. AK Steel now appeals the decision to modify the noncompete provision to six

months, raising a single assignment of error for review.

{¶ 7} THE TRIAL COURT ERRED WHEN IT MODIFIED THE ONE YEAR

TEMPORAL RESTRICTIVE COVENANT OF HOWELL'S NON-COMPETE AGREEMENT.

{¶ 8} In its sole assignment of error, AK Steel argues the trial court erred by

modifying the length of the noncompete provision from one year to six months. We agree

with AK Steel and find the trial court erred by reducing the period of the noncompete.

{¶ 9} The purpose of a preliminary injunction is to preserve the status quo of the

parties pending a final adjudication of the case upon the merits. Back v. Faith Properties,

L.L.C., 12th Dist. Butler No. CA2001-12-285, 2002-Ohio-6107, ¶ 36. In ruling on a motion for

preliminary injunction, a trial court must consider whether (1) the moving party has shown a

substantial likelihood that he or she will prevail on the merits of their underlying substantive

claim; (2) the moving party will suffer irreparable harm if the injunction is not granted; (3)

issuance of the injunction will not harm third parties; and (4) the public interest would be

served by issuing the preliminary injunction. DK Prods., Inc. v. Miller, 12th Dist. Warren No. -3- Butler CA2015-11-190

CA2008-05-060, 2009-Ohio-436, ¶ 6.

{¶ 10} The party seeking the preliminary injunction must establish each of these

elements by clear and convincing evidence. Planck v. Cinergy Power Generation Servs.

L.L.C., 12th Dist. Clermont No. CA2002-12-104, 2003-Ohio-6785, ¶ 17. However, no single

factor is dispositive; "if there is a strong likelihood of success on the merits, an injunction may

be granted even though there is little evidence of irreparable harm and vice versa." Fischer

Dev. Co. v. Union Twp., 12th Dist. Clermont No. CA99-10-100, 2000 WL 525815, at *3 (May

1, 2000). We will not disturb the trial court's judgment granting a preliminary injunction

absent of an abuse of discretion. Freeman Indus. Prods., L.L.C. v. Armor Metal Grp.

Acquisitions, Inc., 193 Ohio App. 3d 438, 2011-Ohio-1995, ¶ 17 (12th Dist.).

{¶ 11} In general, most claims of overbreadth in a noncompete agreement concern the

size of the restricted territory and the duration of the restriction. The Ohio Supreme Court

has addressed the enforceability of such restrictions in Raimonde v. Van Vlerah, 42 Ohio

St.2d 21, 25 (1975). In that case, the court found that a noncompete agreement that

restrains an employee from competing with a former employer must be reasonable to be

enforceable. A noncompete agreement is reasonable if: (1) its restrictions are not greater

than that which is required to protect the employer, (2) it does not impose an undue hardship

on the employee, and (3) it is not injurious to the public. Id. at paragraph two of the syllabus.

{¶ 12} In determining whether the restrictions are reasonable, the following factors

should be considered:

[t]he absence or presence of limitations as to time and space, * * * whether the employee represents the sole contact with the customer; whether the employee is possessed with confidential information or trade secrets; whether the covenant seeks to eliminate competition which would be unfair to the employer or merely seeks to eliminate ordinary competition; whether the covenant seeks to stifle the inherent skill and experience of the employee; whether the benefit to the employer is disproportional to the detriment to the employee; whether the covenant operates -4- Butler CA2015-11-190

as a bar to the employee's sole means of support; whether the employee's talent which the employer seeks to suppress was actually developed during the period of employment; and whether the forbidden employment is merely incidental to the main employment.

Id. at 25.

{¶ 13} In the present case, the relevant noncompete provision is a worldwide limitation

from any employment with a competing steel manufacturer for a period of one year. In

pertinent part:

Restrictive Covenants. In exchange for [AK Steel's] agreement to provide you with the severance benefits opportunities set out in this Agreement * * * you agree that * * * you will not, directly or indirectly, do any of the following:

a. serve as an employee, employer, consultant, agent, principal, partner, owner, officer, or director of any business engaged directly or indirectly in competition with [AK Steel], including but not limited to a business engaged in the research, development, manufacturing, marketing or sale of carbon, electrical or stainless steel, steel pipe or tubing products, or any other metal or non- metal products that are competitive with [AK Steel] products, or that has an intent or plan to engage in such business during the one-year period following the date when your employment with [AK Steel] terminates.

***

{¶ 14} The trial court granted AK Steel's motion for preliminary injunctive relief, but

modified the noncompete provision to a period of six months. In so doing, the trial court

stated that "[e]nforcing the non-compete as written would cause an undue hardship" and

further stated that "the Court is not convinced that AK Steel can demonstrate that a one-year

restriction is necessary to protect its interests." As a result, the trial court found "[h]aving

balanced the hardships and restraints on Howell with AK Steel's interests, the Court finds

that AK Steel will likely succeed in enforcing the severance agreement with a modification to

the noncompete provision prohibiting competition within the metals industry for a period of six

months." -5- Butler CA2015-11-190

{¶ 15} Based on our review of the record, we find the trial court erred by modifying the

noncompete agreement. Although a court may modify a noncompete provision that it finds

unreasonable, we note that "[t]oo often courts have attempted to rewrite contracts for parties

that appear after the fact to be more equitable to one or more of the parties. The Raimonde

opinion acknowledges that temptation and its test should therefore be strictly applied."

Robert W. Clark, M.D., Inc. v. Mt. Carmel Health, 124 Ohio App.3d 308, 318 (10th Dist.

1997). The record in this case does not establish that a one-year noncompete agreement

was unreasonable.

{¶ 16} Initially, we note that this matter does not involve a matter of public harm under

the third prong of Raimonde. This matter involves the interpretation and reasonableness of a

private contract between a sophisticated executive of a multi-billion dollar steel company and

his former employer. Rather, this case centers on the first and second prongs of the

Raimonde decision.

{¶ 17} The factors articulated in Raimonde first require that the restriction be

necessary to protect the employer. The record demonstrates that Howell had access to

confidential information and corporate strategic initiatives that AK Steel had a legitimate

business interest in keeping confidential, or otherwise out of the knowledge of its direct

competitors. For example, AK Steel executives testified that Howell had information about

AK Steel's business plan from years 2015-2017, was privy to certain manufacturing

processes for current and next generation products, and had information related to company

strategy and plant location. Furthermore, there was testimony with respect to the pricing and

awarding of annual contracts that make up a large portion of AK Steel's business. One such

executive testified about the nature of the industry with respect to annual contract negotiating

and the necessity of a one-year noncompete provision. Following a one-year period of

noncompetition, a vacating employee would no longer have confidential information related -6- Butler CA2015-11-190

to that year's margin, pricing, and negotiation information. Thus, following a one-year period,

AK Steel could be sure that a competitor would not be unfairly advantaged by hiring an AK

Steel executive with knowledge of pricing and margin information vital to AK Steel's

confidential negotiations.

{¶ 18} To be sure, there is no allegation that Howell has in any way attempted to steal

confidential or trademarked information for the benefit of ArcelorMittal. Furthermore, it is

acknowledged among the parties that certain information available to Howell, such as highly

complex and detailed manufacturing processes and patented technology, are simply not

capable of reproduction from memory. Rather, the pertinent concerns related to confidential

information involving company strategy and information that is relied upon at such a

fundamental level that makes non-disclosure nearly impossible. Although there is no

evidence to suggest any malicious intent on the part of ArcelorMittal, as competing multi-

billion dollar companies operating worldwide, there is a certain amount of information, in

particular strategic decisions, that the companies have a legitimate interest in remaining

confidential. The record establishes that AK Steel has a legitimate interest in restricting

Howell, the fourth-highest executive within the company, from accepting employment from a

competitor for a one-year period.

{¶ 19} Pursuant to the second factor under Raimonde, enforcement of the agreements

also does not impose undue hardship upon Howell. Howell maintains that the one-year

noncompete agreement imposes an undue hardship. As Howell's entire career has been in

the steel industry, he alleges that he has no other opportunities to provide for his family. The

trial court agreed and the noncompete agreement was shortened to six months. However, in

considering this factor, we find the trial court disproportionately considered this factor in favor

of Howell. "To be sure, any person who is prevented from practicing his profession or trade

for a period of time in an area in which it has been practiced, suffers some hardship. -7- Butler CA2015-11-190

However, the Raimonde test requires more than just some hardship * * *." Wall v. Firelands

Radiology, Inc., 106 Ohio App. 3d 313, 333 (6th Dist. 1995); Robert W. Clark, M.D., Inc. 124

Ohio App.3d at 318.

{¶ 20} The evidence in this case demonstrated that Howell would be prevented from

maintaining employment in the steel industry for a period of one year. However, the trial

court failed to consider that "sole means of support," as noted by the Raimonde decision is

not limited to employment income. The record here supported a finding that Howell was a

highly sought after senior executive of a major steel company, and was recruited by an even-

larger competitor. Although there was testimony that Howell had a family that depended on

his income, there was also testimony that Howell had a large, vested retirement plan from AK

Steel, and his new employment with ArcelorMittal would include a $900,000 signing bonus.

In resolving the issue of "undue hardship," we find the trial court erred by failing to consider

the additional resources in determining whether the noncompete provision deprived Howell of

his sole means of support.

{¶ 21} In balancing the hardship imposed on Howell with the legitimate business

interests of AK Steel, we find the trial court erred by reducing the noncompete provision to six

months. Although we acknowledge that a one-year period of prohibition from employment in

the steel industry amounts to some hardship, we find that it does not amount to undue

hardship, which is relevant to whether the agreement is "unreasonable." Although the record

may establish that Howell did not actively seek trademarked material, or indeed exhibit any

malice or bad behavior in exiting his role at AK Steel, the simple fact remains that Howell was

a high-ranking figure at AK Steel with an intimate knowledge of its business operations and

processes. As a sophisticated businessperson, Howell voluntarily entered into the "Executive

Agreement," which contained the noncompete agreement.

{¶ 22} The trial court was required to determine whether the one-year restriction was -8- Butler CA2015-11-190

reasonable; it was not to determine whether the restriction perfectly accommodated Howell or

find a "more reasonable" restriction. Indeed, as AK Steel correctly argues, if a one-year

restriction is unreasonable based on the facts in this case, it is difficult to comprehend

circumstances in which a one-year noncompete agreement would ever be reasonable.

Accordingly, we find the trial court erred by modifying the noncompete agreement.

{¶ 23} Judgment reversed and remanded.

M. POWELL, P.J., and S. POWELL, J., concur.

-9-