Kross Acquisition Co., L.L.C. v. Groundworks Ohio, L.L.C.

2024 Ohio 592, 236 N.E.3d 453

• Court: Ohio Court of Appeals
• Decided: February 16, 2024
• Docket: C-230272
• Status: Published

Opinion

[Cite as Kross Acquisition Co., L.L.C. v. Groundworks Ohio, L.L.C., 2024-Ohio-592.]

IN THE COURT OF APPEALS FIRST APPELLATE DISTRICT OF OHIO HAMILTON COUNTY, OHIO

KROSS ACQUISITION CO., LLC, : APPEAL NO. C-230272 TRIAL NO. A-2201033 Plaintiff-Appellant, :

vs. : O P I N I O N.

GROUNDWORKS OHIO LLC, et al., :

Defendants, :

and :

ROGER KIEF, :

Defendant-Appellee. :

Civil Appeal From: Hamilton County Court of Common Pleas

Judgment Appealed From Is: Affirmed

Date of Judgment Entry on Appeal: February 16, 2024

Yocum & Neuroth, LLC, Thomas R. Yocum, Cors & Bassett, LLC, and Patrick M. O’Neill, for Plaintiff-Appellant,

Moore & Van Allen PLLC, Sarah Negus, Paul J. Peralta, Caroline F. Savini, Eberly McMahon Copetas LLC, and David A. Eberly, for Defendant-Appellee. OHIO FIRST DISTRICT COURT OF APPEALS

CROUSE, Judge.

{¶1} Plaintiff-appellant Kross Acquisition Co., LLC, (“Kross”) is a basement

waterproofing contractor. Kross brought this action to enforce a “Confidentiality and

Non-Competition Agreement” (the “NCA”) against its former salesperson, defendant-

appellee Roger Kief. In contravention of the terms of the NCA, Kief left Kross to work

in a virtually identical sales position for competitor Groundworks Ohio, LLC,

(“Groundworks”). The trial court granted summary judgment in favor of Kief on the

basis that the NCA was unenforceable. For the following reasons, we affirm the

judgment of the trial court.

I. Procedural and Factual History

{¶2} Kross is a renovation contractor that specializes in foundation and crawl

space waterproofing, repair, and related work. Kross provides service in southwestern

Ohio, southeastern Indiana, and northern and eastern Kentucky. Groundworks is a

direct competitor of Kross that is engaged in substantially the same business. Through

its various affiliated companies, Groundworks serves the entire state of Ohio, as well

as substantial portions of Kentucky, Indiana, and many other states.

{¶3} Kief began working for Kross as a salesperson and estimator in July

2012. In May 2017, Kief signed the NCA with Kross. The NCA prohibits Kief from

“disclos[ing] any of such confidential information, trade secrets or other proprietary

information” belonging to Kross. The NCA also prohibits Kief from working anywhere

in Ohio or Kentucky “directly or indirectly” for any company engaged in “the business

of inspections, estimating/pricing, and repair work relating to basement

waterproofing, foundation repair, crawl space vapor barrier installation, other work

relating to wet, leaky basements, moisture problems in crawl spaces, mold, bowed,

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cracked, settling or sinking foundation walls or other business engaged in by” Kross

for two years following the end of Kief’s employment with Kross.

{¶4} In February 2022, Groundworks offered Kief a virtually identical

position, with a start date of March 2022. In its offer letter, Groundworks

acknowledged that Kief was subject to the NCA, but stated its belief that the NCA was

unenforceable and offered to cover any legal expenses necessary to challenge the NCA.

{¶5} In late March 2022, Kross filed the instant suit against Groundworks

and Kief. In its first amended complaint, Kross sought injunctive relief and damages

against Groundworks and Kief. Kross claimed breach of contract, tortious interference

with business relations, violation of the Ohio Trade Secret Act, and civil conspiracy

against Kief. Kross also claimed tortious interference with contractual relations,

violation of the Ohio Trade Secret Act, and civil conspiracy against Groundworks. In

February 2023, Kross voluntarily dismissed its claims against Groundworks without

prejudice.

{¶6} Kross alleges that Kief attended a trade show on its behalf during the

waning days of his employment with Kross in early March 2022. Kross alleges that

Kief appropriated potential business contacts from that trade show for his use after

starting work for Groundworks. Kross also alleges that Kief copied “hundreds of files”

containing sales proposals from Kross’s computer system to a thumbdrive. Kross

alleges that Kief has used the information copied to solicit Kross’s customers and

potential customers.

{¶7} Kross filed a motion for partial summary judgment as to the injunctive

relief sought, as well as a finding of liability against Groundworks and Kief. Kief filed

his own motion for summary judgment asking for judgment in his favor on all claims.

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Following a hearing, the trial court granted summary judgment in favor of Kief and

denied Kross’s motion.

{¶8} This appeal timely followed.

II. Analysis

{¶9} In a single assignment of error, Kross argues that the trial court erred in

granting summary judgment in favor of Kief and denying its motion for partial

summary judgment. Within its assignment of error, Kross presents several issues for

our review. Specifically, Kross asks us to review the trial court’s findings that the NCA

is unenforceable, that Kross’s trade-secrets claim fails as a matter of law, and that the

NCA’s liquidated-damages provision is unenforceable.

{¶10} Because the appeal challenges the court’s decision on a motion for

summary judgment, this court’s review is de novo. Environmental Solutions &

Innovations, Inc. v. Edge Eng. & Science, LLC, 1st Dist. Hamilton No. C-220634,

2023-Ohio-2605, ¶ 6. Under Civ.R. 56(C), summary judgment is appropriate when the

moving party establishes (1) there are no genuine issues of material fact, (2) the

moving party is entitled to judgment as a matter of law, and (3) construing the

evidence most strongly in favor of the nonmoving party, “reasonable minds can come

to but one conclusion and that conclusion is adverse to the party against whom the

motion for summary judgment is made.” Id., quoting Civ.R. 56(C).

Validity of the NCA

{¶11} The parties agree as to the existence of the NCA and its terms. The

bedrock case for evaluating the enforceability of noncompetition agreements is

Raimonde v. Van Vlerah, 42 Ohio St.2d 21, 325 N.E.2d 544 (1975).

{¶12} A noncompetition agreement “is enforceable only if the restraint ‘is no

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greater than is required for the protection of the employer, does not impose undue

hardship on the employee, and is not injurious to the public.’ ” Wigton v. Univ. of

Cincinnati Physicians, Inc., 2021-Ohio-3576, 179 N.E.3d 241, ¶ 6 (1st Dist.), quoting

Raimonde at 26. Cases involving noncompetition agreements must be decided on the

facts of the specific case. Raimonde at 25. Courts consider the following factors in

determining enforceability:

(1) whether the agreement contains time and space limitations; (2)

whether the employee is the sole contact with the customer; (3) whether

the employee has confidential information or trade secrets; (4) whether

the covenant seeks to limit only unfair competition or is designed more

broadly to eliminate ordinary competition; (5) whether the agreement

seeks to stifle the employee’s inherent skill and experience; (6) whether

the benefit to the employer is disproportional to the detriment to the

employee; (7) whether the agreement bars the employee’s sole means of

support; (8) whether the skills that the agreement seeks to restrain were

actually developed during the employment; and (9) whether the

forbidden employment is merely incidental to the main employment.

Wigton at ¶ 6, citing Raimonde at 25.

{¶13} Kief’s NCA specifies that Kief is restricted from working in the specified

field for two years and throughout Ohio and Kentucky. However, the evidence before

the trial court showed that Kross’s service area covers only a portion of southwestern

Ohio and about half of Kentucky, as well as a small portion of Indiana. And even

though Kross services areas of Ohio, Kentucky, and Indiana, the parties do not dispute

that the areas where Kief actually worked with clients is only a portion of that service

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area.

{¶14} At the summary-judgment hearing, and again at oral argument on

appeal, counsel for Kross admitted that the geographic and temporal limitations

exceed what is necessary to protect Kross’s legitimate business interests. We agree.

Accordingly, the NCA as written is unenforceable.

{¶15} However, that the NCA as written is unenforceable does not end our

analysis. Kross argues that the trial court should have modified or amended the scope

of the NCA rather than finding it unenforceable. In support of its argument that

modification of the NCA is mandatory, Kross relies on the syllabus in Raimonde which

states, “A [covenant] not to compete which imposes unreasonable restrictions upon

an employee will be enforced to the extent necessary to protect an employer’s

legitimate interests.” Raimonde, 42 Ohio St.2d 21, 325 N.E.2d 544, at paragraph one

of the syllabus.

{¶16} Despite this seemingly mandatory language in the Raimonde syllabus,

the court stated later in the opinion, “[T]his court holds, for the first time, that a trial

court may enforce a covenant ‘to the extent necessary to protect an employer’s

legitimate interests * * *.’ ” (Emphasis added.) Id. at 28. In Professional

Investigations & Consulting Agency, Inc. v. Kingsland, 69 Ohio App.3d 753, 760, 591

N.E.2d 1265 (10th Dist.1990), the Tenth District held, “The use of permissive language

in the Raimonde decision implies that modification is within the discretion of the trial

court.” See also Facility Servs. & Sys., Inc. v. Vaiden, 8th Dist. Cuyahoga No. 86904,

2006-Ohio-2895, ¶ 54 (“[T]he trial court was not mandated to modify the provisions

to render them enforceable.”); LCP Holding Co. v. Taylor, 158 Ohio App.3d 546,

2004-Ohio-5324, 817 N.E.2d 439, ¶ 61 (11th Dist.) (“Although a trial court may modify

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an unreasonable restrictive covenant to make it reasonable and enforceable, it is not

required to do so.”).

{¶17} We agree that it is within a trial court’s discretion to modify a

noncompetition agreement, and so we review its decision not to modify such an

agreement for an abuse of discretion. “Abuse of discretion occurs when ‘a court

exercis[es] its judgment, in an unwarranted way, in regard to a matter over which it

has discretionary authority.’ ” State v. Austin, 1st Dist. Hamilton Nos. C-210140 and

C-210141, 2021-Ohio-3608, ¶ 5, quoting Johnson v. Abdullah, 166 Ohio St.3d 427,

2021-Ohio-3304, 187 N.E.3d 463, ¶ 35. An abuse of discretion “implies that the court’s

attitude is unreasonable, arbitrary or unconscionable.” Blakemore v. Blakemore, 5

Ohio St.3d 217, 219, 450 N.E.2d 1140 (1983).

{¶18} In the case at bar, the parties dispute what a reasonable geographic

restriction would look like: whether Kross can protect its entire service area, or

whether the agreement should cover only the areas where Kief personally visited

clients. Further, Kross could not state with certainty what a reasonable temporal

limitation would be. In a deposition of Kross’s co-owner and Civ.R. 30(B)(5)

representative, Robert Miles, Miles agreed that an 18-month restriction would be just

as effective as the 24-month restriction contained in the NCA. When asked if a 12-

month restriction would be just as effective, Miles answered, “Maybe, maybe not.”

{¶19} Additionally, the NCA prohibited Kief from engaging in a broad scope

of potential employment. The NCA prohibited Kief from working “directly or

indirectly” for any company engaged in “the business of inspections,

estimating/pricing, and repair work relating to basement waterproofing, foundation

repair, crawl space vapor barrier installation, other work relating to wet, leaky

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basements, moisture problems in crawl spaces, mold, bowed, cracked, settling or

sinking foundation walls or other business engaged in by” Kross. Kross argued that the

legitimate business interests to be protected were its customer lists and pricing

methods. While we agree that such information can constitute legitimate business

interests that may be protected by a noncompetition agreement, the scope of work

prohibited to Kief exceeds what is necessary to protect those interests. In particular,

the restriction on working “directly or indirectly” for any competing company, and

apparently in any role, does not bear a sufficiently direct relationship to the interests

Kross seeks to protect.

{¶20} With so many factors and considerations necessary to rewrite the NCA

to comport with Raimonde’s rule of reasonableness, we hold that the trial court did

not abuse its discretion by refusing to modify Kief’s NCA. See Professional

Investigations, 69 Ohio App.3d at 760, 591 N.E.2d 1265 (“To bring [plaintiff’s] non-

competition clause into compliance with the rule of reasonableness, the trial court

could not easily modify existing provisions but might be required to rewrite the entire

covenant. * * * We have found no case which states that a trial court must totally

rewrite a provision in order to carry out its discretionary powers.”); S & S, Inc. v. Kuret,

8th Dist. Cuyahoga Nos. 62478 and 63042, 1993 Ohio App. LEXIS 2442, 9 (May 13,

1993) (“It is not mandatory for this court to modify the covenant to make it a

reasonable restraint and it is not an abuse of discretion for us to decline to modify the

time and space restrictions of the covenant as it is unenforceable on its face.”).

Kross’s Trade-Secrets Claim

{¶21} Kross argues that the trial court erred by granting summary judgment

on its trade-secrets claim because there are genuine issues of material fact that

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preclude a decision on summary judgment.

{¶22} Under the Ohio Uniform Trade Secrets Act, R.C. 1333.61 to 1333.69,

misappropriation of a trade secret may be prevented by injunction, R.C. 1333.62(A),

or compensated by recovery of damages, R.C. 1333.63(A).

{¶23} “Trade secret” means:

information, including the whole or any portion or phase of any

scientific or technical information, design, process, procedure, formula,

pattern, compilation, program, device, method, technique, or

improvement, or any business information or plans, financial

information, or listing of names, addresses, or telephone numbers, that

satisfies both of the following:

(1) It derives independent economic value, actual or potential, from not

being generally known to, and not being readily ascertainable by proper

means by, other persons who can obtain economic value from its

disclosure or use.

(2) It is the subject of efforts that are reasonable under the

circumstances to maintain its secrecy.

R.C. 1333.61(D).

{¶24} To prevail on a claim of misappropriation of a trade secret, the plaintiff

must “show by a preponderance of the evidence: (1) the existence of a trade secret; (2)

the acquisition of a trade secret as a result of a confidential relationship; and (3) the

unauthorized use of a trade secret.” Tomaydo-Tomahhdo L.L.C. v. Vozary,

2017-Ohio-4292, 82 N.E.3d 1180, ¶ 9 (8th Dist.). In analyzing such a claim, the court

must consider:

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(1) The extent to which the information is known outside the business;

(2) the extent to which it is known to those inside the business, i.e., by

the employees; (3) the precautions taken by the holder of the trade

secret to guard the secrecy of the information; (4) the savings effected

and the value to the holder in having the information as against

competitors; (5) the amount of effort or money expended in obtaining

and developing the information; and (6) the amount of time and

expense it would take for others to acquire and duplicate the

information.

Id. at ¶ 11, quoting Salemi v. Cleveland Metroparks, 145 Ohio St.3d 408,

2016-Ohio-1192, 49 N.E.3d 1296, ¶ 25.

{¶25} Kross alleges that Kief (1) retained and used customer lists to solicit

Kross customers while working for Groundworks and (2) downloaded customer

proposals from Kross’s computer system in the days prior to his resignation and used

those proposals in soliciting Kross customers.

{¶26} The Ohio Supreme Court has held that:

Customer lists have been held to constitute trade secrets. However, to

be a trade secret, a customer list must contain more than a list of names,

when the identity of the customers is “readily ascertainable through

ordinary business channels or through classified business or trade

directories.” Rather, it must contain information not generally known

to or readily ascertainable by the public.

(Citations omitted.) Salemi at ¶ 26.

{¶27} In the case at bar, Kross does not allege that Kief downloaded a master

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customer list from its computer database. Rather, Kross alleges that Kief retained

customer contact information on his personal mobile phone after he resigned from his

employment. The record shows that Kross was aware that Kief used his personal

phone for company business, even though he was provided with a company phone and

directed on multiple occasions that he should only use the company-supplied phone

for conducting business. Kief was not subject to discipline for his consistent refusal to

use the company phone, as directed. Kross also did not undertake any efforts, despite

this knowledge, to ensure that Kief removed customer contact information from his

phone following his resignation.

{¶28} Because of the limited nature of the customer contact information Kross

alleges Kief retained, and because of the lack of effort put forth by Kross to maintain

confidentiality of the customer contact information stored on Kief’s phone, we hold

that there is no genuine issue of material fact that would support Kross’s claim that

the customer contact information retained by Kief constitutes a trade secret.

{¶29} Kross also alleges that Kief misappropriated the customer proposals

that Kief downloaded in the days prior to his resignation. Kief argues that the customer

proposals cannot constitute trade secrets because the proposals are given to customers

with no requirement that the customers keep the proposals confidential. On the

contrary, customers are encouraged to share the proposals freely with competitors

when comparing prices. Because Kross does not undertake efforts to keep the

customer proposals confidential, the customer proposals cannot be trade secrets.

{¶30} Because Kross has failed to show that the customer contact information

or customer proposals constitute trade secrets, the trial court did not err in granting

summary judgment in favor of Kief on Kross’s trade-secrets claim.

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Liquidated Damages

{¶31} Finally, Kross argues that the trial court erred in holding that Kross

cannot recover damages under the NCA’s liquidated-damages provision because Kross

failed to show that it suffered any actual damages. Because we have held that the NCA

is unenforceable, Kross is not entitled to seek damages under the NCA’s liquidated-

damages provision.

III. Conclusion

{¶32} Kross’s sole assignment of error is overruled, and the judgment of the

trial court is affirmed.

Judgment affirmed.

BOCK, P.J., and KINSLEY, J., concur.

Please note:

The court has recorded its entry on the date of the release of this opinion.