MPHLEX, LLC v. Sovereign International, INC.

• Court: Missouri Court of Appeals
• Decided: April 23, 2024
• Docket: WD86444
• Status: Published

Opinion

MISSOURI COURT OF APPEALS WESTERN DISTRICT MPHLEX, LLC, ET AL., ) ) Appellants, ) ) v. ) WD86444 ) SOVEREIGN INTERNATIONAL, ) INC., ET AL., ) Filed: April 23, 2024 ) Respondents. )

APPEAL FROM THE CIRCUIT COURT OF JACKSON COUNTY THE HONORABLE JERRI J. ZHANG, JUDGE

BEFORE DIVISION ONE: LISA WHITE HARDWICK, PRESIDING JUDGE, ALOK AHUJA, JUDGE, ANTHONY REX GABBERT, JUDGE

MPHlex, LLC, Anthony Pontier, and William Hudnall (collectively, “Appellants”)

appeal the entry of summary judgment in favor of Sovereign International, Inc.

(“Sovereign”), Nico Grobler, Deon Van Dyk, Relborgn Pty Ltd., and Triomviri Pty Ltd.

(collectively, “Respondents”), on Appellants’ claim asserting a per se antitrust violation.

Appellants contend the circuit court (1) erroneously shifted the burden of proof; (2)

erroneously determined Sovereign’s noncompete agreement did not constitute a per se

antitrust violation; (3) erred in ruling in Respondents’ favor because they did not meet

their burden of proof on their affirmative defense; (4) erred in determining Appellants failed to establish an antitrust injury; and (5) erred in awarding Respondents judgment on

the alternative basis of the Noerr-Pennington doctrine. Appellants also request an award

of attorney’s fees on appeal. For reasons explained herein, we affirm the judgment and,

accordingly, deny Appellants’ request for attorney’s fees on appeal.

FACTUAL AND PROCEDURAL HISTORY

The parties agree the material facts are not in dispute. Respondents are associated

with an international subsurface grouting business. The principal Respondent, Sovereign,

is incorporated under the laws of Missouri, with its principal place of business in New

York. On December 25, 2010, John Minturn, the president of Sovereign, executed a

confidentiality, non-solicitation, and noncompetition agreement with Sovereign. The

agreement included a lifetime agreement to maintain confidentiality and nondisclosure

obligations, as well as a non-solicitation and noncompete agreement for one year after his

association with Sovereign ended. This agreement was expressly made to limit

Minturn’s “right to compete only as reasonably necessary to the extent permitted by

applicable law and necessary to protect [Sovereign] from unfair competition.” On June

5, 2012, Minturn executed a consulting and retainer agreement with Sovereign and

Thyssen Mining and Construction of Canada, Inc., which contained its own perpetual

post-employment confidentiality obligations.

In December 2017, Minturn resigned from Sovereign. He resigned from

Sovereign-Thyssen Joint Venture and Sovereign-Thyssen, LP, on January 10, 2018.

After Minturn’s resignation, Grobler, who is Sovereign’s vice president, wrote to Minturn

stating that, even though he was resigning as president, Sovereign wanted Minturn to

2 continue his association with the company as a consultant. Minturn’s employment and

consulting with Sovereign ended no later than March 31, 2018.

Following his resignation from Sovereign and its related entities, Minturn actively

tried to compete with Sovereign by offering to sell a grout like Sovereign’s to the New

York City Transit Authority. After Sovereign learned that Minturn was trying to compete

against it, Sovereign sent a letter to Minturn asking him to sign a new noncompete

agreement or face litigation.

On April 18, 2018, Minturn signed a settlement agreement with Sovereign,

Sovereign-Thyssen Joint Venture, and Sovereign-Thyssen LP (“the 2018 Settlement”).1

On the same date, Minturn signed a nondisclosure agreement with the same parties (“the

2018 NDA”), which was incorporated into the 2018 Settlement. The 2018 NDA

contained a new noncompete agreement in which Minturn agreed that, for a period of 10

years from the date of the agreement, he would not directly or indirectly compete with the

business of Sovereign or its affiliates. The noncompete agreement also expressly

prohibited Minturn’s use of polymer, polyurethane, chemical solution, cementitious

material, epoxy, or precipitation materials as grout. Additionally, Minturn agreed not to

challenge or contest any patent granted or patent protection applied for by Sovereign or

its affiliates, whether such patent was granted or applied for in the United States or in

another country or region.

1 Grobler and Van Dyk both signed the 2018 Settlement and the 2018 NDA. Sovereign identified Grobler, Van Dyk, Relborgn, and Triomviri as falling within the “affiliates” class intended to benefit from the 2018 NDA. Van Dyk is the sole director of Triomviri, and Grobler is the sole director of Relborgn.

3 According to Grobler, “a new competitor offering the same or similar products as

Sovereign causes harm to Sovereign’s business and lowers its value as a company.”

Grobler believes Minturn “understood the scope” of the non-compete agreement.

Sovereign asked Minturn to sign an agreement with a longer noncompete period because

he was caught violating his prior noncompete agreement almost immediately after his

association with Sovereign ended. Because of the longer noncompete period, Sovereign

paid Minturn a one-time payment of $25,000, and agreed to pay him an additional

$25,000 in 2023.

Hudnall, Pointier, and MPHlex were Minturn’s business associates. By August

2018, Hudnall was aware of the 2018 NDA. By January 2019, Pontier was aware of the

2018 NDA. Between January 10, 2019, and the end of February 2019, Minturn

developed a new latex polymer grout that was a competitive product to the product sold

by Sovereign.

Sovereign filed suit against Minturn for violating the 2018 NDA. After learning

Appellants were aware of Minturn’s noncompete agreement in the 2018 NDA and helped

him compete against Sovereign anyway, Sovereign also filed suit against Appellants.

Appellants then filed counterclaims against Respondents. Over the next four years,

several claims and counterclaims were asserted, amended, dropped, or settled. At the

December 20, 2022 case management conference, Sovereign reported to the court that all

of its affirmative claims had been resolved pursuant to a settlement it had reached with

Minturn. Appellants asserted that a single outstanding counterclaim still required

4 resolution: their claim that the noncompete agreement in the 2018 NDA, incorporated

into the 2018 Settlement, constituted a per se antitrust violation.

Appellants moved for partial summary judgment on the counterclaim on the issue

of liability, and Respondents moved for summary judgment on the counterclaim. The

parties agreed to the same factual record. Following oral argument, the court entered

summary judgment in favor of Respondents on Appellants’ counterclaim. The court

determined Respondents were entitled to judgment on two grounds. First, the court

found that, because settlement agreements are encouraged under the law and noncompete

agreements entered ancillary to a permissible agreement are not per se illegal under

antitrust laws, the noncompete agreement in the 2018 NDA, entered into as part of the

2018 Settlement, was not a per se violation of antitrust laws. Second, the court found

that the antitrust injuries claimed by Appellants “seem to arise solely from Sovereign’s

filing of the lawsuit” and, as such, were barred by the Noerr-Pennington doctrine, which

provides that those who petition the government for redress are generally immune from

antitrust liability. Appellants appeal.

STANDARD OF REVIEW

Appellate review of summary judgment is essentially de novo. Green v.

Fotoohighiam, 606 S.W.3d 113, 115 (Mo. banc 2020). Summary judgment is appropriate

when there are no genuine issues of material fact and the movant is entitled to judgment

as a matter of law. Rule 74.04(c)(6). Where, as in this case, the movant is the defendant,

the movant establishes the right to judgment as a matter of law by showing one of the

following:

5 (1) facts negating any one of the claimant’s elements necessary for judgment; (2) that the claimant, after an adequate period of discovery, has not been able to—and will not be able to—produce evidence sufficient to allow the trier of fact to find the existence of one of the claimant’s elements; or (3) facts necessary to support [its] properly pleaded affirmative defense.

Roberts v. BJC Health Sys., 391 S.W.3d 433, 437 (Mo. banc 2013). In determining

whether the movant has met this burden, we review the summary judgment record in the

light most favorable to the party against whom judgment was entered and accord that

party the benefit of all reasonable inferences. Green, 606 S.W.3d at 116.

ANALYSIS

Appellants raise six points on appeal. We will address Point II first because it is

dispositive. In Point II, Appellants contend the circuit court erred as a matter of law

when it determined the noncompete agreement in the 2018 NDA, incorporated in the

2018 Settlement, was not a per se antitrust violation. They argue the uncontroverted

material facts “fit squarely within categories of per se antitrust violations in that

Sovereign and Minturn were competitors who promised to end competition, restrict

output, and allocate markets, customers and potential customers for ten years.” 2

Pursuant to the Missouri Antitrust Law, Sections 416.011 to 416.161, “Every

contract, combination or conspiracy in restraint of trade or commerce in this state is

2 Because Appellants assert only that the noncompete agreement is a per se antitrust violation, the reasonableness of the temporal and geographic restrictions in the noncompete agreement are not at issue.

6 unlawful.” § 416.031.1.3 The Missouri Antitrust Law “shall be construed in harmony

with ruling judicial interpretations of comparable federal antitrust statutes.” § 416.141.

“Section 1 of the Sherman Act prohibits ‘every contract, combination in the form

of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several

States.” Ohio v. Am. Express Co., 585 U.S. 529, 540 (2018) (quoting 15 U.S.C. § 1).

The Supreme Court interprets this provision as outlawing only “unreasonable restraints.”

Id. (quoting State Oil Co. v. Khan, 522 U.S. 3, 10 (1977)). The elements of a cause of

action under Section 1 of the Sherman Act consist of: (1) an agreement, conspiracy, or

combination between two or more entities; (2) an unreasonable restraint of trade; and (3)

an effect on interstate commerce. Am. Ad Mgmt., Inc. v. GTE Corp., 92 F.3d 781, 788

(9th Cir. 1996).

There are two standards by which courts can judge whether a restraint is

unreasonable. Am. Express, 585 U.S. at 540. The standard usually applied is the rule of

reason, “under which antitrust plaintiffs must demonstrate that a particular contract or

combination is in fact unreasonable and anticompetitive before it will be found

unlawful.” Texaco Inc. v. Dagher, 547 U.S. 1, 5 (2006). In conducting a rule of reason

analysis, courts consider “a variety of factors, including specific information about the

relevant business, its condition before and after the restraint was imposed, and the

restraint’s history, nature, and effect.” Khan, 522 U.S. at 10.

3 All statutory references are to the Revised Statutes of Missouri 2016.

7 The second standard by which courts can find a restraint unreasonable is the per se

standard, “which is reserved only for those agreements that are ‘so plainly

anticompetitive that no elaborate study of the industry is needed to establish their

illegality.’” Dagher, 547 U.S. at 5 (quoting Nat’l Soc. of Prof’l Eng’rs v. United States.,

435 U.S. 679, 692 (1978)). Courts treat these types of restraints as “necessarily illegal,”

thereby eliminating “the need to study the reasonableness of an individual restraint in

light of the real market forces at work.” Leegin Creative Leather Prods., Inc. v. PSKS,

Inc., 551 U.S. 877, 886 (2007).

A restraint is deemed a per se antitrust violation “only after courts have had

considerable experience with the type of restraint at issue, and only if courts can predict

with confidence that it would be invalidated in all or almost all instances under the rule of

reason.” Id. at 886-87 (internal citations omitted). “To justify a per se prohibition a

restraint must have manifestly anticompetitive effects and lack any redeeming virtue.”

Id. at 886 (internal quotation marks and citations omitted). “Agreements consistently

held per se unreasonable include price fixing, output restrictions, market allocations, and

certain group boycotts or concerted refusals to deal.” ZombieBox Int’l Inc. v. Generac

Power Sys. Inc., No. CV-23-00726-PHX-ROS, 2024 WL 894673, at *6, (D. Ariz. Mar. 1,

2024). The Supreme Court has been reluctant to add new categories of per se claims

“where the economic impact of certain practices is not immediately obvious.” Khan, 522

U.S. at 10 (quoting FTC v. Ind. Fed’n of Dentists, 476 U.S. 447, 458-59 (1986)).

Plaintiffs can plead both a rule of reason and a per se claim, or they can plead only

a per se claim. There is a danger to asserting only a per se claim, however. “While

8 pleading exclusively per se violations can lighten a plaintiff’s litigation burdens, it is not

a riskless strategy. If the court determines that the restraint at issue is sufficiently

different from the per se archetypes to require application of the rule of reason, the

plaintiff’s claims will be dismissed.” In re Ins. Brokerage Antitrust Litig., 618 F.3d 300,

317 (3d Cir. 2010).

Here, Appellants pled only a per se claim, asserting the noncompete agreement in

the 2018 NDA was a horizontal customer allocation and horizontal market division.

Simply “because an agreement is capable of being characterized as a market allocation

agreement does not mean that the per se rule applies.” Procaps S.A. v. Patheon, Inc., 845

F.3d 1072, 1083 (11th Cir. 2016). Indeed, where an alleged market allocation agreement

arises in a novel factual context with which courts do not have a great deal of experience,

courts apply the rule of reason rather than the per se rule. See id. at 1083-84. See also

Valley Drug Co. v. Geneva Pharm., Inc., 344 F.3d 1294, 1304 (11th Cir. 2003).

Looking at the factual context surrounding the alleged market allocation in this

case, when Minturn was employed by Sovereign, he executed a noncompete agreement

with Sovereign and its affiliate that prohibited him from competing against them for one

year after his employment ended. Minturn also agreed to maintain the confidentiality of

proprietary information he learned in his employment with Sovereign and through his

service as a consultant to the Sovereign-Thyssen Joint Venture. Within three months of

leaving Sovereign, however, Minturn began competing against Sovereign. Sovereign

contended that Minturn’s post-employment activities violated both the noncompete

agreement and the confidentiality and nondisclosure obligations he owed to Sovereign

9 and the Sovereign-Thyssen Joint Venture. After Sovereign learned that Minturn was

trying to compete against it, Sovereign sent a letter to Minturn asking him to sign a new

noncompete agreement or face litigation. Minturn agreed to sign the 2018 Settlement,

which extended the noncompete period to 10 years because he had just been caught

violating his prior noncompete agreement almost immediately after his association with

Sovereign ended.

The circumstances under which the noncompete agreement arose in this case are

unlike any of the circumstances in the market allocation cases Appellants cite, as none of

them involve noncompete agreements entered into between an employer and former

employee as part of a settlement agreement to avoid litigation over the employee’s breach

of a prior noncompete agreement. For example, Appellants cite Optronic Technologies,

Inc., v. Ningbo Sunny Electronic Co., Ltd., 20 F.4th 466, 481 (9th Cir. 2021), in which

the court found that an agreement between two of the biggest manufacturers of telescopes

sold in the United States to divide the products they produce and sell to different markets

to reduce conflicts between them was a per se antitrust violation. In another case

Appellants cite, Palmer v. BRG of Georgia, Inc., 498 U.S. 46 (1990), the Supreme Court

reviewed an agreement between the two primary bar review providers in Georgia. The

Court found the agreement, which contained a revenue-sharing formula and a promise

not to compete against each other in certain markets, was formed solely for the purpose

of raising the price of the bar review course and, therefore, was a per se antitrust

violation. Id. at 49. Appellants point to no cases in which a noncompete agreement in a

factual context similar to ours has been determined to be a per se antitrust violation.

10 There are, however, cases that reject the application of the per se rule and analyze

noncompete agreements similar to the one here under the rule of reason. For example, in

Haines v. VeriMed Healthcare Network, LLC, 613 F. Supp. 2d 1133, 1137 (E.D. Mo.

2009), the court held a noncompete agreement that prevented a company’s employees

from working directly for the company’s clients was not a per se antitrust violation. In so

holding, the court noted that, “[t]o the extent that the agreement . . . constrains

competition, it does so only to protect [the company]’s legitimate business interests.” Id.

The court rejected the employee’s argument that the noncompete agreement “should form

the basis for a new per se violation of antitrust laws, finding it to be “completely without

merit.” Id. The court explained, “Legitimate reasons exist to uphold noncompete

covenants even though by nature they necessarily restrain trade to some degree. The

recognized benefits of reasonably enforced noncompetition covenants are now beyond

question.” Id. (quoting Lektro-Vend Corp. v. Vendo Co., 660 F.2d 255, 265 (7th Cir.

1982)). Here, as in Haines, Respondents had a legitimate business interest in keeping its

former president from competing with Sovereign using the same or similar products.

Moreover, that the noncompete agreement was entered into as part of a settlement

agreement to avoid litigation over Minturn’s breach of the first noncompete agreement is

another reason why the rule of reason, instead of the per se rule, applies. Settlement

agreements made to avoid litigation are “encouraged under the law.” Hancock v. Shook,

100 S.W.3d 786, 799 (Mo. banc 2003). “[S]ettlements rather than litigation will serve

the interests of plaintiffs as well as defendants,” as they provide a speedier resolution

11 “without the burdens, stress, and time of litigation.” Marek v. Chesny, 473 U.S. 1, 10

(1985).

Consequently, a noncompete agreement that is ancillary to a settlement agreement

is not just “ancillary to a permissible transaction,” but is also “ancillary to an agreement

highly favored by the courts.” Justin Belt Co. v. Yost, 502 S.W.2d 681, 684 (Tex. 1973).

Hence, a covenant not to compete between an employer and its former employee that was

ancillary to a valid settlement agreement to avoid litigation over a noncompete violation

was held enforceable in Herndon v. Eli Witt Co., 420 So.2d 920, 923 (Fla. 1st DCA

1982). Applying a “reasonable standard test,” the court explained that the employee

“doubtless desired to avoid a lengthy litigation,” while the employer “obviously desired

that its business security be protected from one who at liberty could do the company

immediate harm should he disclose confidential corporate clients, information and trade

secrets.” Id. Therefore, the court concluded that, “under the circumstances disclosed,

considerations of public policy, equity and fair dealing favor enforcement of the covenant

if it is otherwise reasonable.” Id.

The undisputed facts show that the noncompete agreement served Sovereign’s

legitimate business interest and was ancillary to a settlement to avoid litigation over

Minturn’s breach of his original noncompete agreement. Thus, we cannot say that the

noncompete agreement lacked any redeeming virtue. See Leegin, Inc., 551 U.S. at 886.

Notably, Minturn does not challenge the validity of the original noncompete and

confidentiality restrictions to which he agreed in 2010 and 2012. He also does not

dispute that a court could have enforced the 2010 and 2012 agreements, without violating

12 antitrust laws, by awarding damages or equitable relief to Sovereign. Minturn does not

explain why a settlement agreement in which the parties agreed to analogous remedies,

without court intervention, establishes a per se antitrust violation. The restraint in this

case is sufficiently different from the per se archetypes that it requires application of the

rule of reason to determine if it is an antitrust violation. See Ins. Brokerage Antitrust

Litig., 618 F.3d at 317. Appellants failed to plead the rule of reason; therefore, the circuit

court properly granted summary judgment in favor of Respondents on Appellants’

counterclaim. See id. Point II is denied. Because this point is dispositive, we need not

address Points I, III, IV, V, and VI.

CONCLUSION

The judgment is affirmed. Appellants’ request for attorney’s fees on appeal is

denied.

_____________________________ LISA WHITE HARDWICK, JUDGE All Concur.