Barnes Group, Inc. v. C & C Products, Inc., and Roy E. McGuire

716 F.2d 1023, 38 Fed. R. Serv. 2d 433, 1983 U.S. App. LEXIS 24358

• Court: Court of Appeals for the Fourth Circuit
• Decided: August 31, 1983
• Docket: 82-1636
• Status: Published

Opinions

PER CURIAM:

The court’s judgment is by split decision of the panel. The court’s majority decisions respecting the several claims at issue are here summarized.

1. The district court’s determination that C & C Products, Inc. (C & C) tortiously interfered with the contracts of George Maria (Maryland contract) and Roy McGuire (South Carolina contract) is affirmed. Judge Hall dissents.

2. The district court’s determination that C & C tortiously interfered with the contracts of Craig Berry, James Floyd, Cy Flinchum (Alabama contracts) and S.D. Richardson (Louisiana contract) is reversed. Judge Murnaghan dissents.

3. The district court’s award of compensatory and punitive damages is vacated and remanded for further proceedings limited to the fixing of damages on the claims affirmed as to liability.

4. The district court’s injunctive decree is vacated and remanded for modification limiting its scope to the territorial bounds of Maryland and South Carolina. Judge Hall dissents to the extent the injunctive decree is not wholly reversed. Judge Murnaghan dissents to the extent the decree is not wholly affirmed, but concurs to the extent it is affirmed in its application to the Maryland and South Carolina territories.

The several views of the panel are set out in the opinions that follow.

Judge Phillips has written the lead opinion which states the decision of a majority of the panel on each issue; Judge Hall and Judge Murnaghan have each written separate opinions concurring in part and dissenting in part from the lead opinion.

JAMES DICKSON PHILLIPS, Circuit Judge:

This diversity action was instituted against C & C Products, Inc. (C & C) by Barnes Group, Inc., Bowman Distribution division (Bowman), which alleged that C & C had tortiously interfered with the contracts of six Bowman sales agents. C & C appeals from a final judgment of the district court, entered after a bench trial, finding it liable in tort and awarding Bowman injunctive and compensatory and punitive damages. Because the district court erred in its analysis of dispositive choice-of-law issues we reverse the judgment in part and remand for further proceedings.

I

Bowman operates out of its headquarters in Ohio¹ a nationwide business in the selling of washers, nuts, bolts, and other fungible parts used in the production and repair of vehicles and machinery. Given the nature of the business, see generally Barnes Group, Inc. v. Harper, 653 F.2d 175, 176 (5th Cir.1981), cert. denied, 455 U.S. 921, 102 S.Ct. 1278, 71 L.Ed.2d 462 (1982), Bowman’s sales force is central to its competitive success; Bowman apparently relies almost exclusively upon its salesmen for development and maintenance of its customer base. These salesmen, who the parties concede are independent contractors and not employees, are under contract, terminable at will by either party, to develop clients for Bowman in non-exclusive geographic areas. The standard contract includes a restrictive covenant, centrally in issue on this appeal, whereby the salesman agrees, for a two-year period after severing relations with Bowman, not to sell Bowman-like products to any customer with whom he had dealt over the final two years he was under contract with Bowman.² As well, the contract provides that it “shall be construed in aecordance with the laws of the State of Ohio.”

It is undisputed that between 1977 and 1979 six Bowman salesmen signed contracts with C & C, a Bowman competitor, and commenced selling to former Bowman customers in violation of the contractual covenant not to compete. Three of these salesmen — Craig Berry, James Floyd, and Cy Flinchum — were Alabama residents who had sold for Bowman exclusively in Alabama; all three were assigned by C & C to new territories in Alabama. Another salesman, George Maria, haled from Maryland, and had serviced Bowman clients in Maryland and the District of Columbia; C & C reassigned him to cover portions of Maryland, Virginia, and the District of Columbia. S.D. Richardson, a Louisiana resident, was assigned by C & C a territory in Louisiana overlapping much of the area he had previously covered for Bowman. Finally, Roy McGuire, a resident of South Carolina who had previously sold for Bowman there, was hired by C & C to manage salesmen throughout South Carolina and to make customer calls as well.

Bowman filed suit in October 1979 against C & C³ in the United States District Court for the Northern District of Ohio, alleging that C & C’s dealings with these six salesmen constituted tortious interference with the restrictive covenant contained in the standard Bowman contract.⁴ Pursuant to 28 U.S.C. § 1404(a), the case was transferred in December 1979 to the District Court for the District of South Carolina, where it proceeded to a bench trial on the merits. Applying Ohio law, as stipulated in the choice-of-law provision of the Bowman contract, the district court determined that the restrictive covenants were a reasonable means for protecting Bowman’s legitimate business interests. Accordingly, it adjudged C & C liable for tortious interference with those covenants, awarded Bowman $243,000 in compensatory and $250,000 in punitive damages, and entered a decree enjoining C & C from further interference with Bowman contracts.

II

This case presents two difficult and interrelated choice-of-law questions that we find were resolved erroneously, at least in part, by the district court. We address first the question of the law that properly should govern a threshold determination of whether the restrictive covenants at issue are enforceable between the parties, and then turn to consider the law that should govern questions of tort liability for interference with the contracts found enforceable.

A

As the parties concede, a necessary element of the tort of intentional interference with contract is that the contract at issue be valid and enforceable as between the parties to it. See Nifty Foods Corp. v. Great Atlantic & Pacific Tea Co., 614 F.2d 832, 837 (2d Cir.1980); Advance Industrial Security, Inc. v. William J. Bums International Detective Agency, Inc., 377 F.2d 236, 238 (5th Cir.1967). In this case particularly, C & C’s liability for tortious interference hinges almost entirely upon whether the Bowman restrictive covenants are enforceable, because the facts clearly establish all other elements of the tort.⁵

On appeal, C & C’s principal assignment of error is that the trial court erred, as a matter of law, in applying Ohio law to determine the enforceability of the restrictive covenants with which C & C allegedly interfered.⁶ The district court’s application of Ohio law was based entirely upon the stipulation in the standard Bowman contract that it “shall be construed in accordance with” Ohio law. The first potentially dispositive question on appeal therefore is whether, as a matter of law, the contractual choice-of-law provision is controlling.

As dictated by Van Dusen v. Barrack, 376 U.S. 612, 84 S.Ct. 805,11 L.Ed.2d 945 (1964), the district court was bound, as are we, to apply here the prevailing law of the transferor forum, the District Court for the Northern District of Ohio, which in turn would apply Ohio choice-of-law principles in this diversity action, Klaxon Co. v. Stentor Electric Manufacturing Co., 313 U.S. 487, 61 S.Ct. 1020, 85 L.Ed. 1477 (1941).

Seeking the applicable Ohio choice-of-law rule, we have looked first to the possibility that there might be directly controlling Ohio precedent for the specific rule of decision. Finding none, we have turned, therefore, to general choice-of-law doctrine and principles, as currently applied by the Ohio courts, for guidance to the applicable rule. That inquiry has persuaded us that the Ohio courts currently apply contemporary choice-of-law doctrine based upon interest analysis, the most significant relationship, and the Restatement (Second) of Conflicts. See Bonkowsky v. Bonkowsky, 19 Ohio Op.3d 113, 114 (Ct.App.1980) (torts), aff’d, 69 Ohio St.2d 152, 431 N.E.2d 998, cert. denied, 457 U.S. 1135, 102 S.Ct. 2963, 73 L.Ed.2d 1352 (1982); S & S Chopper Service v. Scripter, 59 Ohio App.2d 311, 312-13, 394 N.E.2d 1011, 1012-13 (1977) (contracts).⁷ We therefore look to that general body of doctrine as a guide to the specific rule of decision that Ohio would presumably apply to the choice-of-law issues before us here.

A basic principle under contemporary choice-of-law doctrine is that parties cannot by contract override public policy limitations on contractual power applicable in a state with materially greater interests in the transaction than the state whose law is contractually chosen. See Restatement (Second) of Conflicts § 187(2)(b) (1971). While contemporary doctrine recognizes a sphere of party autonomy within which contractual choice-of-law provisions will be given effect,⁸ it also limits the extent to which deft draftsmanship will be allowed to bypass legislative judgments as to basic enforceability or validity.⁹ This is implicit in the Restatement (Second) of Conflicts § 187(2)(b), which provides that a contractual choice-of-law clause will not be given effect on matters such as “capacity, formalities and substantial validity,”¹⁰ id. comment d, when “application of the law of the chosen state would be contrary to a fundamental policy of a state which has a materially greater interest than the chosen state in the determination of the particular issue and which ... would be the state of the applicable law in the absence of an effective choice of law by the parties.”¹¹ We believe Ohio would apply this choice-of-law rule here as part of its contemporary choice-of-law doctrine. Cf. Woelfling v. Great-West Life Assurance Co., 30 Ohio App.2d 211, 216, 285 N.E.2d 61, 66 (1972) (citing Restatement (Second) § 192 in construing choice-of-law in insurance policy).

Applying the Restatement (Second) § 187 formulation,¹² we think it clear that, absent the contractual choice-of-law provision, Ohio conflicts principles¹³ would mandate application here of the substantive laws of Alabama, Louisiana, Maryland,¹⁴ and South Carolina — where the six salesmen whose contracts are at issue work and reside — to determine the basic enforceability of these restrictive covenants between the contracting parties. The local jurisdictions involved here have interests at two levels in applying their own law on the enforceability of restrictive covenants: to protect employee-residents from contractually abrogating their ability to earn a livelihood, and to control the degree of free competition in the local economy.¹⁵ These interests in regulating business relationships within the states outweigh any generalized interest Ohio might have in applying its own law to protect the interstate contracts of its domiciliary, see Blalock v. Perfect Subscription Co., 458 F.Supp. 123, 126-27 (S.D.Ala.1978), aff’d, 599 F.2d 743 (5th Cir.1979), cert. denied sub nom. Seibert v. Baptist, 446 U.S. 918, 100 S.Ct. 1851, 64 L.Ed.2d 271 (1980), and compel the conclusion that, under Ohio choice-of-law rules, the laws of these other jurisdictions would control if there were no contractual stipulation of Ohio law.¹⁶ See S & S Chopper Service v. Scripter, 59 Ohio App.2d 311, 312-13, 394 N.E.2d 1011, 1012-13 (1977); see also supra note 7 and accompanying text.

The remaining and most vexing element of the Restatement (Second) formulation, in determining whether to adhere to the contractual choice-of-law provision, concerns whether application of Ohio law would be “contrary to a fundamental policy” of any or all of the jurisdictions involved,¹⁷ all of which undoubtedly have a “materially greater interest” than does Ohio in whether these covenants are enforceable, cf. Nordson Corp. v. Plasschaert, 674 F.2d 1371, 1375-76 (11th Cir.1982) (parties’ choice of Ohio law would be honored, despite Georgia’s fundamental policy against covenants not to compete, because Georgia did not have materially greater interest in applying its law than did several other jurisdictions in applying theirs to the same covenants). It is apparent that there can be no clear-cut delineation of those policies that are sufficiently “fundamental,” within the meaning of § 187(2)(b), to warrant overriding a contractual stipulation of controlling law. See Restatement (Second) of Conflicts § 187 comment g. Nonetheless, a few general landmarks offer some structure for this inquiry. First, not every situation where contractually chosen law diverges merely in degree¹⁸ from that of the state whose law would otherwise apply impinges upon the fundamental policy of that state.¹⁹ See Warren Brothers Co. v. Cardi Corp., 471 F.2d 1304, 1307 n. 3 (1st Cir.1973) (a contractual choice of law will not be respected “if a serious conflict with state policy were to result”) (emphasis added). This is seen most clearly in regard to usury statutes, where the parties’ choice of law has been held to validate interest rates that would be usurious and unenforceable in the jurisdiction whose law would prevail absent the contractual stipulation of controlling law. See Sarlot-Kantarjian v. First Pennsylvania Mortgage Trust, 599 F.2d 915, 917-18 (9th Cir.1979); National Surety Corp. v. Inland Properties, Inc., 286 F.Supp. 173, 188-89 (E.D.Ark.1968), aff’d, 416 F.2d 457 (8th Cir.1969).²⁰ See generally Miller v. Premier Corp., 608 F.2d 973, 986 & n. 19 (4th Cir.1979). At the other extreme, it seems apparent that where the law chosen by the parties would make enforceable a contract flatly unenforceable²¹ in the state whose law would otherwise apply, to honor the choice-of-law provision would trench upon that state’s “fundamental policy.” See, e.g., Fine v. Property Damage Appraisers, Inc., 393 F.Supp. 1304, 1308 (E.D.La. 1975); Boyer v. Piper, Jaffray & Hopwood, Inc., 391 F.Supp. 471, 474-75 (D.S.D.1975).²²

The district court’s application of Ohio law to determine the enforceability of the restrictive covenants at issue presents both ends of this spectrum. Under Ohio law, covenants not to compete are enforceable if reasonable, see Raimonde v. Van Vlerah, 42 Ohio St.2d 21, 25, 325 N.E.2d 544, 547 (1975), a test similar to that applied under the laws of South Carolina, see Aimers v. South Carolina National Bank, 265 S.C. 48, 51-52, 217 S.E.2d 135, 137 (1975), Maryland, see Gill v. Computer Equipment Corp., 266 Md. 170, 181, 292 A.2d 54, 59 (1972), and Louisiana,²³ see Simpson v. Kelly Services, Inc., 339 So.2d 490, 493 (La.Ct. App.1976). These latter jurisdictions differ from Ohio, if at all,²⁴ only in degree concerning the enforceability of covenants not to compete; hence the district court properly applied Ohio law to the covenants of the Maryland, South Carolina, and Louisiana salesmen, as stipulated by the parties, because it is not “contrary to a fundamental policy” of those states.

Under Alabama law, however, covenants not to compete, whether or not reasonable, are void as against public policy and cannot be enforced. See Blalock v. Perfect Subscription Co., 458 F.Supp. 123, 126-27 (S.D. Ala.1978), aff’d, 599 F.2d 743 (5th Cir.1979), cert. denied sub nom. Seibert v. Baptist, 446 U.S. 918, 100 S.Ct. 1851, 64 L.Ed.2d 271 (1980). To honor the contractual choice of law would make enforceable a contract flatly unenforceable in Alabama, surely impinging upon “fundamental policy” of Alabama. It was error, therefore, for the district court to apply Ohio law to determine the enforceability of the Alabama salesmen’s covenants not to compete.

B

After determining the enforceability of the covenants not to compete, the district court applied Ohio law²⁵ to determine the contours of the cause of action for tortious interference with contract, because in its view Ohio was the lex loci delicti.26 Without addressing whether the court’s conclusion concerning the place of injury was correct, we think it plain that Ohio has abandoned lex loci delicti as the choice-of-law rule in torts cases in favor of the contemporary approach based upon interest analysis, see supra note 7 and accompanying text. And it is equally plain, applying this approach, that the local jurisdictions involved here — Alabama, Louisiana, South Carolina, and Maryland — have far greater interests than does Ohio in applying their law on tortious interference with contracts involving their residents that were to be performed solely within their boundaries. See Brinkley & West, Inc. v. Foremost Insurance Co., 499 F.2d 928, 932-35 (5th Cir. 1974).

Although the district court thus erred in applying Ohio law, for the most part this error was harmless because both South Carolina, see Chitwood v. McMillan, 189 S.C. 262, 265-66, 1 S.E.2d 162, 163 (1939), and Maryland, see Wilmington Trust Co. v. Clark, 289 Md. 313, 329, 424 A.2d 744, 754 (1981), as does Ohio, see Juhasz v. Quik Shops, Inc., 55 Ohio App.2d 51, 57, 379 N.E.2d 235, 238 (1977), recognize a classic common law cause of action for tortious interference with contract.²⁷

In contrast, however, no cause of action for tortious interference with contract exists under Louisiana law, see Brinkley & West, 499 F.2d at 933-34. Accordingly, the court’s error in applying Ohio law to the alleged interference with the personal service contracts being performed in Louisiana was prejudicial and requires correction.

C

Our conclusions on the choice-of-law issues presented by this appeal can be summarized briefly. The district court properly honored the contractual choice-of-law provision in applying Ohio law to assess the enforceability of the restrictive covenants involving the Maryland, South Carolina, and Louisiana salesmen. But Alabama law, which holds such covenants unenforceable, should have been applied to the contracts of the three Alabama salesmen, and the court committed reversible error in not doing so. The district court committed reversible error as well in applying Ohio law to the claim for tortious interference with respect to the contract of the Louisiana salesman. We therefore affirm the district court’s determinations that C & C tortiously interfered with the contracts of the Maryland and South Carolina²⁸ salesmen, but reverse its determinations that C & C tortiously interfered with the contracts of the Alabama and Louisiana salesmen.

Ill

The district court awarded Bowman compensatory damages of $243,544, computed on the basis of lost profits on sales made by the six salesmen with whose contracts C & C was found to have interfered.²⁹ On appeal, C & C assigns as error the method by which these damages were computed, and contends as well that the court improperly shifted the burden to C & C to file a response to Bowman’s itemized claims, that the court erred in admitting into evidence summaries of the documents on damages, and that Bowman failed to mitigate damages.

In light of our disposition of the liability issue, we need not address specifically these contentions of error going only to the damages issues.³⁰ The damage award was computed as a lump sum, with no separate accounting made for lost profits arising from the six separate contractual breaches C & C was found to have induced. Because, with respect to four of the six contracts at issue, we reverse the findings of tortious interference, the entire issue of compensatory damages must be retried, on a reopened record, to determine damages properly recoverable for tortious interference with the Maryland and South Carolina salesmen’s contracts.

C & C also contends that the district court erred in awarding Bowman $250,000 in punitive damages. Its argument runs that there was no showing of malice requisite to the imposition of punitive damages and that, in any event, the amount was unreasonable because greatly in excess of C & C’s net worth. Again, because the punitive damage award hinges on the liability findings that we reverse in part, we must vacate and remand on the issue of punitive damages. In doing so, we also note an error in the application of state law on this issue that must be corrected on remand.

The district court awarded Bowman punitive damages based upon its finding that C & C had acted in “willful, wanton and reckless disregard” of Bowman’s contractual rights. The factual underpinnings for this general conclusion, however, seem to be nothing more than the elements necessary to establishing the cause of action for tortious interference with contract.³¹ We find this insufficient, under the law of Maryland and South Carolina³² to support an award of punitive damages.³³

Maryland law makes clear that punitive damages will lie in tort actions arising out of contractual relations only where there is “actual or express malice,” H & R Block, Inc. v. Testerman, 275 Md. 36, 43-47, 338 A.2d 48, 52-53 (1975), defined as “an evil or rancorous motive influenced by hate; the purpose being to deliberately and willfully injure the plaintiff,” Food Fair Stores, Inc. v. Hevey, 275 Md. 50, 55, 338 A.2d 43, 46 (1975) (quoting Siegman v. Equitable Trust Co., 267 Md. 309, 314, 297 A.2d 758, 760 (1972)). Under Maryland law, a mere desire to realize commercial gain — which appears on the present record fairly to characterize C & C’s motivation — will not constitute actual malice requisite to an award of punitive damages. See H & R Block, 275 Md. at 47, 338 A.2d at 54.

We find South Carolina law, though not so explicit, to be in the same vein. See Todd v. South Carolina Farm Bureau Mutual Insurance Co., 276 S.C. 284, 294, 278 S.E.2d 607, 612 (1981) (“punitive damages may be justified for aggravated, unjustified interference with the contractual rights of a party”) (emphasis added).³⁴

On remand, the issue of punitive damages in respect of interference with the contracts of the Maryland and South Carolina salesmen must be addressed in light of the applicable state law.

IV

The district court enjoined C & C from “soliciting, hiring, encouraging or inducing Bowman’s contract salesmen from violating the terms of their sales agreements with Bowman while they are under contract with Bowman, and from inducing or encouraging them, for a period of two (2) years from the date of their leaving Bowman, to sell or attempt to sell similar C & C products to those former Bowman accounts to whom they have made one or more sales on behalf of Bowman during their last two years with Bowman.” We vacate as well this injunctive decree; it clearly sweeps too broadly by including within its obviously intended reach jurisdictions, such as Alabama, where the Bowman restrictive covenants are unenforceable, and others, such as Louisiana, where Bowman has no cause of action against C & C. On remand, injunctive relief may appropriately issue to enforce Bowman’s contractual rights within the territorial bounds of Maryland and South Carolina. But, as this litigation makes clear, given the uncertainty of Bowman’s contractual and tort rights with respect to these restrictive covenants from state to state, injunctive relief should not be ordered with respect to contracts being performed in jurisdictions whose law has not been drawn in issue and properly applied in this action.

V

The district court’s finding that C & C tortiously interfered with the contracts of the former Bowman salesmen who lived in Alabama and Louisiana is reversed. Its finding of tortious interference with respect to the contracts of the Maryland and South Carolina salesmen is affirmed. The court’s award of compensatory and punitive damages to Bowman is vacated and remanded for further proceedings consistent with this opinion.³⁵

AFFIRMED IN PART; REVERSED IN PART; VACATED IN PART; AND REMANDED IN PART.

1 . C & C is incorporated in Ohio, with its principal place of business in Cleveland; there is diversity of citizenship because Bowman is a division of a Delaware corporation having its principal place of business in Connecticut.

2 . The precise language reads:

The Salesman agrees that upon termination of this agreement for any reason whatsoever he will not, for a period of two (2) years thereafter, sell or attempt to sell any products of the same or similar kind as those sold by [Bowman], to any of the customers to whom he made one or more sales for [Bowman] within the last two years prior to such termination. The Salesman agrees that his promise herein made so to refrain from selling or attempting to sell means that he will not, directly or indirectly, either as an individual on his own account or as a partner, employee, agent or salesman of or for any person, firm association or corporation, or as an officer, director or stockholder of any closely-held corporation as hereinafter defined, engage in selling or attempting to sell any of said products to any of the customers hereinabove designated. This covenant shall not be deemed violated by the Salesman’s engaging in the business of a manufacturer or retailer of said products, but it shall be deemed violated by any sale of said products to any of said customers by the Salesman in or for a business combining retail and wholesale sales if the wholesaling is a substantial part of such combined business. For the purposes of this covenant automobile manufacturers and their franchised new-car dealers shall not be considered to be in the business of wholesaling.

The term “closely-held corporation”, as used herein, shall be any corporation in which the Salesman or his wife, child or parent owns, directly or indirectly, more than ten per cent (10%) in value of the outstanding stock, or a corporation in whose management the Salesman is an active participant.

If it should become desirable or necessary for the Company to seek compliance with this covenant by judicial proceedings, the period during which the Salesman will not sell or attempt to sell any products of the same or similar kind as those sold by the Company to any of the customers to whom he made one or more sales for the Company, shall extend to the second anniversary of the date of the judicial order requiring such compliance.

This covenant on the part of the Salesman is of the essence of this agreement; it shall be construed as independent of any other provision in this agreement, and the existence of any claim or cause of action of the Salesman against the Company, whether predicated on this agreement or otherwise, shall not constitute a defense to the enforcement by the Company of this covenant.

3 . Bowman also sued Roy McGuire individually for breach of his salesman’s agreement. McGuire has not appealed from the district court order finding him liable for unlawful business interference.

4 . Bowman’s complaint included allegations— additional to those concerning breach of covenants not to compete — that C & C had induced breach by the salesmen of their contractual duty not to disclose trade secrets or confidential information. The course of proceedings to date, however, and the parties’ arguments on appeal have focused solely on whether there was a breach of the salesmen’s restrictive covenant. For instance, the monetary damages awarded to Bowman by the district court were measured solely on the basis of lost sales, without mention of disclosed confidential information. We presume the trade-secrets allegations have been abandoned or otherwise disposed of by consent of the parties.

5 . The district court found that C & C interfered with the contractual relationship between Bowman and its salesmen:

by soliciting and enticing Bowman salesmen to leave Bowman by stating that the Bowman restrictive covenant was not enforceable and by promising that C & C would pay any legal expenses if Bowman sued them, and by making other unfair statements intended to cause them to break their contract with Bowman;

by encouraging the Bowman salesmen hired by C & C to breach their restrictive covenant — and to use the confidential information received from Bowman to divert their Bowman accounts to C & C;

by encouraging at least two of Bowman’s salesmen to work for and transfer their former Bowman accounts to C & C before resigning from Bowman; and

by encouraging them to bring other Bowman salesmen with them to C & C.

Notwithstanding C & C’s argument to the contrary, these factual findings are not clearly erroneous, and provide ample support for the district court’s ultimate finding of liability on the tortious interference claim to the extent the covenants are enforceable ones under governing law, and, of course, to the extent the tort of tortious interference is itself recognized under applicable state laws. As to the last point, see infra Part II B.

6 . C & C does not dispute that the restrictive covenants are reasonable and enforceable under Ohio law.

7 . See also Jones v. Wittenburg Univ., 534 F.2d 1203, 1213 (6th Cir.1976); Saalfrank v. O’Daniel, 390 F.Supp. 45, 57 (N.D.Ohio 1974), rev’d on other grounds, 533 F.2d 325 (6th Cir.), cert, denied, 429 U.S. 922, 97 S.Ct. 319, 50 L.Ed.2d 289 (1976); Moats v. Metropolitan Bank, 40 Ohio St.2d 47, 49, 319 N.E.2d 603, 604 (1974); Fox v. Morrison Motor Freight, 25 Ohio St. 193, 195-99, 267 N.E.2d 405, 407-08, cert, denied, 403 U.S. 931, 91 S.Ct. 2254, 29 L.Ed.2d 710 (1971); Osborn v. Osborn, 10 Ohio Mise. 171, 176-77, 226 N.E.2d 814, 818 (Cuyahoga Cty. C.P. 1966), aff’d, 18 Ohio St.2d 144, 248 N.E.2d 191 (1969).

Ohio choice-of-law doctrine is far from settled or clearly defined. See generally Note, Ohio Choice-of-Law Rules: A Guide to the Labyrinth, 44 Ohio St. L.J. 239 (1983). But we think the cited cases most accurately reflect the present state of Ohio law, particularly with regard to questions arising from contractual choice-of-law provisions, for which the rule-oriented approach of the first Restatement of Conflicts provides no ready analytical framework. See Note, supra, at 253 (“When [Ohio] courts find that traditional rules do not resolve the case at hand adequately, they may turn to the newer type of analysis.”).

In ascertaining prevailing Ohio choice-of-law precepts, we specifically decline to rely upon a series of diversity cases, decided under Ohio law, that have applied the territorial principles of the first Restatement. See, e.g., Arsham v. Band, 511 F.2d 1108, 1114 (6th Cir.1975); American Druggists’ Ins. Co. v. Equifax, Inc., 505 F.Supp. 66, 68 (S.D.Ohio 1980); McCluskey v. Rob San Servs., Inc., 443 F.Supp. 65, 68 (N.D.Ohio 1977); Perlmuter Printing Co. v. Strome, Inc., 436 F.Supp. 409, 413 (N.D.Ohio 1976). These decisions did not address the most recent choice-of-law developments in Ohio, but drew instead upon earlier precedent that no longer can be considered controlling. See generally West v. American Tel. & Tel., 311 U.S. 223, 237, 61 S.Ct. 179, 183, 85 L.Ed. 139 (1940).

Another line of cases decided under Ohio law has formulated what at first blush appears to be a hybrid approach to interest analysis, combining elements from both the first and second Restatements. For instance, in Lake v. Richardson-Merrell, Inc., 538 F.Supp. 262, 272 (N.D. Ohio 1982), it was observed that “Ohio courts apply the rule of lex loci delicti, tempered with considerations of public policy and governmental interests.” See also Loughan v. Firestone Tire & Rubber Co., 624 F.2d 726, 729 (5th Cir.1980); Michell v. General Motors Corp., 439 F.Supp. 24, 27 (N.D.Ohio 1977). Upon closer observation, however, these references in Ohio law to lex loci delicti appear to reflect simply a residual choice-of-law rule in situations of false conflict where neither Ohio nor other concerned jurisdictions have a true interest in applying their own law. See Lake v. RichardsonMerrell, 538 F.Supp. at 272-76 (choice of law based upon a weighing of government interests, without reference to lex loci delicti). They do not shake our conviction that Ohio would apply interest analysis, rather than the principles of the first Restatement, when faced with a true conflict such as that presented here.

8 . Parties are not “legislating” when they choose governing law, “because the forum has adopted a choice of law rule which provides that the law chosen by the parties shall be applied.” Reese, Contracts and the Restatement of Conflict of Laws, Second, 9 Int’l & Comp.L.Q. 531, 534 (1960).

9 . See Lauritzen v. Larsen, 345 U.S. 571, 588-89, 73 S.Ct. 921, 931-32, 97 L.Ed. 1254 (1953); Dothan Aviation Corp. v. Miller, 620 F.2d 504, 506-07 (5th Cir.1980); Foreman v. George Foreman Assocs., 517 F.2d 354, 357 (9th Cir. 1975); Warren Bros. Co. v. Cardi Corp., 471 F.2d 1304, 1307 n. 3 (1st Cir.1973); Southern Int’l Sales Co. v. Potter & Brumfield Div. of AMF, Inc., 410 F.Supp. 1339, 1342 & n. 8 (S.D. N.Y.1976); Kronovet v. Lipchin, 288 Md. 30, 43-46 & n. 16, 415 A.2d 1096, 1104-1106 & n. 16 (Ct.App.1980). See generally Note, Effectiveness of Choice-of-Law Clauses in Contract Conñicts of Law: Party Autonomy or Objective Determination?, 82 Colum.L.Rev. 1659, 1666-67, 1672-77 (1982).

10 . In contrast, parties enjoy full autonomy to choose controlling law with regard to matters within their contractual capacity. See Restatement (Second) of Conñicts § 187(1) (1971). See generally Sedler, The Contracts Provisions of the Restatement (Second): An Analysis and a Critique, 72 Colum.L.Rev. 279, 286-90 (1972).

11 . The Restatement also specifies two other circumstances, not apposite here, in which a contractual choice of law will not be given effect in matters concerning capacity and substantive validity: where the state whose law is chosen has no substantial relationship to the contract; and where the choice-of-law clause is the result of misrepresentation, duress, undue influence, or mistake. See Restatement (Second) of Conñicts § 187(2)(a) & comment b.

12 . This analysis is not affected by whether the choice-of-law provision stipulates forum or non-forum law. While many cases where § 187(2) has been applied to override a stipulation of applicable law involve a factual pattern slightly different from the one presented here in that the law of the forum would apply absent the parties’ contractual choice of non-forum law, see, e.g., Pan American Computer Corp. v. Data General Corp., 467 F.Supp. 969, 970 (D.P. R.1979); Boyer v. Piper, Jaffray & Hopwood, Inc., 391 F.Supp. 471, 472-73 (D.S.D.1975); Nasco, Inc. v. Gimbert, 239 Ga. 675, 676-77, 238 S.E.2d 368, 369 (1977), § 187(2) has been applied as well to bypass the contractual choice of forum law, see, e.g., Keystone Leasing Corp. v. Peoples Protective Life Ins. Co., 514 F.Supp. 841, 847-48 (E.D.N.Y.1981); Business Incentives Co. v. Sony Corp., 397 F.Supp. 63, 67 (S.D.N.Y.1975). The forum of the litigation should have no analytical relevance — save in determining the applicable choice-of-law rules — to evaluating whether a contractual choice-of-law provision is controlling. In practical application, however, the choice of forum may have sizeable import. See Sedler, supra note 10, at 294-95, 297.

13 . There would be no constitutional obstacle to Ohio’s applying its own substantive law. See Allstate Ins. Co. v. Hague, 449 U.S. 302, 313-20, 101 S.Ct. 633 (1981) (plurality opinion); Watson v. Employers Liability Assurance Corp., 348 U.S. 66, 73, 75 S.Ct. 166, 170, 99 L.Ed. 74 (1954).

14 . George Maria, one of the six former Bowman salesmen hired by C & C, is a Maryland resident whose territory now covers Maryland as well as parts of Virginia and the District of Columbia. Our choice-of-law analysis does not address the prevailing substantive law in these latter two jurisdictions because — from among the three jurisdictions whose interests are implicated by enforcing the restrictive covenant contained in Maria’s Bowman contract — Maryland has the greatest interest in applying its law.

15 . See Blake, Employee Agreements Not To Compete, 73 Harv.L.Rev. 625, 627 (1960).

16 . Professor Brainerd Currie’s original formulation of interest analysis rejected the proposition that a court could or should weigh the competing interests of two jurisdictions in resolving a true conflict of law such as that presented here. See Currie, Notes on Methods and Objectives in the Conflict of Laws, 1959 Duke L.J. 171, 176-78; see also Sedler, The Governmental Interest Approach to Choice of Law: An Analysis and a Reformulation, 25 U.C.L.A.L.Rev. 181, 227 (1977) (arguing that the forum should apply its own law when faced with a true conflict of law in which it has a real interest). But the commentators and courts— including Ohio, which we follow here, see supra note 7 and accompanying text — have almost uniformly embraced a weighing of conflicting government interests. See J. Martin, Conflict of Laws: Cases and Materials 234 — 36 (1978); Note, Comparative Impairment Reformed: Rethinking State Interests in the Confíict of Laws, 95 Harv.L.Rev. 1079, 1083 n. 19 (1982). This process of weighing government interests might more appropriately be considered under a theory of “comparative impairment.” See id. at 1087-99.

17 . Whether a policy is sufficiently weighty to be considered “fundamental” must be determined according to the choice-of-law principles of Ohio, the forum state. See Restatement (Second) of Conflicts § 187 comment g (1971). Our research has disclosed no Ohio cases on this point, however, and therefore we essay to determine the approach that would be followed by the Ohio courts.

18 . As one commentator has put it, laws differing only in degree would “provide similar but not identical protection.” Note, supra note 9, at 1685.

19 . Moreover, merely because a state labels its policy as “fundamental” — or does not — cannot be dispositive.

In contrast to the view of Judge Hall in dissent, the “fundamental policy” exception of § 187(2)(b) does not come into play merely because the contractually chosen law touches on a matter of fundamental state concern. Rather, fundamental policy is impinged upon only when there are significant differences between the chosen law and that of the jurisdiction whose law otherwise would apply.

20 . The Restatement (Second) of Conflicts § 203 makes special provision for choice-of-law clauses in the context of usury laws. However, both the cited decisions were applying the general approach of § 187. See also Note, supra note 9, at 1684-85.

21 . We distinguish here between contracts void and unenforceable within a state, as a matter of public policy, and those that are voidable by the parties on questions related to matters of validity. Cf. Sedler, supra note 10, at 296 (“questions analytically going to validity, such as the existence of consideration, do not involve a strong public policy”).

22 . Between these extremes fall situations where the law of the jurisdiction stipulated by the parties and that of the state whose law would control absent the choice-of-law provision differ significantly — not merely in degree but in approach — as to the enforceability of the contract. A likely example is presented by a comparison of Louisiana and Ohio law on restrictive covenants between employers and employees. While Ohio would enforce such covenants if “reasonable,” Louisiana limits their enforceability to narrowly defined circumstances far more precise than a general concept of “reasonableness,” see National Oil Service v. Brown, 381 So.2d 1269, 1272-73 & n. 2 (La.Ct. App.1980). Applying a mere “reasonableness” standard to such covenants — as opposed to those at issue here, involving independent contractors — could well abridge a “fundamental policy” of Louisiana. See ADR v. Graves, 374 So.2d 699, 700-01 (La.Ct.App. 1979).

23 . Under Louisiana law, non-competition agreements between employers and employees “are disfavored and are deemed contrary to public policy” except in narrowly defined circumstances. See National Oil Service v. Brown, 381 So.2d 1269, 1272-73 & n. 2 (La.Ct. App.1980); see also ADR v. Graves, 374 So.2d 699, 701-02 (La.Ct.App.1979). But this limited acceptance of restrictive covenants does not apply to contracts involving independent contractors, which Louisiana assesses under a general “reasonableness” standard. See Simpson v. Kelly Services, Inc., 339 So.2d 490, 495 (La. Ct.App.1976).

24 . Arguably, the “reasonableness” test under the laws of the various jurisdictions involved is identical. Cf. Associated Spring Corp. v. Wilson, 410 F.Supp. 967, 975 (D.S.C.1975) (finding a restrictive covenant reasonable and enforceable under the laws of both South Carolina and Ohio). The language of the relevant cases does not make this clear. Compare, e.g., Aimers v. South Carolina National Bank, 265 S.C. 48, 52, 217 S.E.2d 135, 137 (1975) (“some time and geographic limitation must be incorporated into the covenant” for it to be reasonable), with Raimonde v. Van Vlerah, 42 Ohio St.2d 21, 25, 325 N.E.2d 544, 547 (1975) (among the factors to be considered in assessing reasonableness is the “absence or presence of limitations as to time and space”). More importantly, however, the tests need not be identical — so long as they follow the same basic approach and differ only in particulars — to honor the parties’ choice of law pursuant to the Restatement (Second) approach.

Ohio law on the enforceability of restrictive covenants does differ in one critical respect, not at issue here, from the laws of Maryland, South Carolina, and Louisiana: it will apply a variant of the “blue-pencil” rule to enforce an unreasonable covenant to the extent reasonable, see Raimonde v. Van Vlerah, 42 Ohio St.2d 21, 25-26, 325 N.E.2d 544, 546-47 (1975). We need not address whether application of such a rule is a difference in degree or in approach, see supra note 22. At least one court has held that application of a “blue-pencil” rule pursuant to a contractual choice-of-law provision would impinge upon fundamental policy of the state whose law would otherwise apply. See Dothan Aviation Corp. v. Miller, 620 F.2d 504, 506-07 (5th Cir.1980).

25 . The contractual choice-of-law provision, of course, can have no bearing on the law controlling a tort action brought against a third person not a party to the contract.

26 . The court held: “Ohio is the place where the tort of ‘business interference’ was committed— it was placed, directed and consummated by C & C officials, headquartered in Brook Park, Ohio.”

27 . Alabama also recognizes the tort of interference with contract in limited circumstances. See Homa-Goff Interiors, Inc. v. Cowden, 350 So.2d 1035, 1038 (Ala. 1977). We need not address, however, the similarities of Alabama and Ohio law with respect to tortious interference with contract, because the covenants not to compete with which C & C purportedly interfered are unenforceable in Alabama. See supra part II A.

28 . We reject the contentions advanced by C & C on appeal that the restrictive covenant entered into by McGuire, the South Carolina salesman, is unenforceable because not supported by consideration and because of prior breaches by Bowman of its contract with McGuire. The district court’s factual findings, which we find not clearly erroneous, render both these arguments untenable. We also find no support in the laws of the jurisdictions at issue here for C & C’s theory that a covenant not to compete contained in a contract terminable at will by either party is unenforceable.

Similarly, we find no support in the record for C & C’s attempt to assert laches or equitable estoppel as a defense to this suit.

29 . Specifically, over the two-year period from the date each of the former Bowman salesmen was found to have been induced to leave by C & C, Bowman claimed — and the court accepted as fact — that it had lost $401,678 in gross sales made by these salesmen to former Bowman customers. The compensatory damage figure was then calculated by the court based upon its finding that Bowman’s profit margin was 53.4%.

30 . We note in passing, however, that the district court’s computation of damages was an outside estimate because based on the presumption that all sales made by the former Bowman salesmen would have been reaped by Bowman but for C & C’s tortious interference with contract.

We reject C & C’s argument that the district court abused its discretion in admitting damage summaries into evidence. See Fed.R.Evid. 1006.

31 . The court found that “C & C, with full knowledge of Bowman’s business relations with its salesmen, maliciously solicited 24 of Bowman’s contract salesmen to leave Bowman and join C & C’s sales force and hired six of them to make sales to their Bowman customers in violation of their restrictive covenant.”

32 . Because South Carolina and Maryland law governs the bounds of the cause of action for tortious interference with contract, it controls as well on the question of damages. See Restatement (Second) of Conflicts § 171 (1971). Of course, we need not address Louisiana and Alabama law on the question of damages.

33 . On the remand we order, it will be open to Bowman to establish those additional facts necessary to support an award of punitive damages under controlling principles.

34 . Our disposition of the punitive damages issue makes it unnecessary for us to consider directly whether the award was unreasonable in comparison to C & C’s net worth. We note only that a defendant’s financial circumstances properly should be considered in awarding punitive damages under the law of South Carolina, see Patterson v. Bogan, 261 S.C. 87, 95, 198 S.E.2d 586, 590 (1973), and Maryland, see Carl M. Freeman Assocs. v. Murray, 18 Md.App. 419, 428, 306 A.2d 548, 554 (1973), and that C & C’s financial status remains an open question on remand.

35 . C & C also assigned as error the district court’s denial of its motion for leave to file a counterclaim, see Fed.R.Civ.P. 13(f), alleging that Bowman’s restrictive covenants violated state and federal antitrust laws. It is apparent that leave to amend to include compulsory counterclaims, such as the one at issue, should be granted freely lest parties later be met with a plea of res judicata. See 3 J. Moore, Moore’s Federal Practice j] 13.33, at 13-196 (2d ed. 1983). Mere delay in seeking leave to amend is not a sufficient basis upon which a district court may rest its denial of the motion, Mercantile Trust Co. Nat’l Ass’n v. Inland Marine Prods. Corp., 542 F.2d 1010, 1012 (8th Cir. 1976); Spartan Grain & Mill Co. v. Ayers, 517 F.2d 214, 220 (5th Cir.1975), but the district court has discretion, pursuant to Fed.R.Civ.P. 13(f), to deny leave to amend based upon a balancing of the equities, including whether the non-moving party will be prejudiced, whether additional discovery will be required, and whether the court’s docket will be strained, see Rohner, Gehrig & Co. v. Capital City Bank, 655 F.2d 571, 576 (5th Cir.1981); T.J. Stevenson & Co. v. 81,193 Bags of Flour, 629 F.2d 338, 370-71 (5th Cir.1980); Mercantile Trust Co., 542 F.2d at 1012-13. Though in terms not wholly clear, the district court denied C & C’s motion for leave to amend based upon a consideration of these factors, and we find no abuse df discretion.