Southwest Stainless, LP v. Sappington

582 F.3d 1176, 29 I.E.R. Cas. (BNA) 1287, 2009 U.S. App. LEXIS 20915, 2009 WL 2989149
CourtCourt of Appeals for the Tenth Circuit
DecidedSeptember 21, 2009
Docket08-5127
StatusPublished
Cited by85 cases

This text of 582 F.3d 1176 (Southwest Stainless, LP v. Sappington) is published on Counsel Stack Legal Research, covering Court of Appeals for the Tenth Circuit primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Southwest Stainless, LP v. Sappington, 582 F.3d 1176, 29 I.E.R. Cas. (BNA) 1287, 2009 U.S. App. LEXIS 20915, 2009 WL 2989149 (10th Cir. 2009).

Opinion

LUCERO, Circuit Judge.

This diversity case requires us to address the contours of covenants not to compete under Oklahoma law. When John R. Sappington and William B. Emmer defected from one Tulsa-area metals business, Southwest Stainless, to another, Rolled Alloys, they took with them years of expertise in the metals industry and personal relationships with many area customers. Some years before, Southwest Stainless had been involved in a merger, and Sappington and Emmer had signed noncompetition agreements that purported to restrict their ability to work for competitors in the area. When Southwest Stainless lost business to Rolled Alloys following Sappington’s and Emmer’s defections, it sued for breach of these agreements and a number of related claims.

After trial, Southwest Stainless succeeded on a handful of these claims and was granted an injunction ordering Sappington and Emmer to abide by the noncompetition agreements for a year following judgment. Rolled Alloys appeals, arguing that even on these claims, Southwest Stainless failed to connect its alleged loss of business to the defendants’ actions. Exercising jurisdiction under 28 U.S.C. § 1291, we affirm the damages and injunction arising from the noncompetition agreements and reverse damages for misappropriation of trade secrets.

I

Southwest Stainless, L.P., is a metals manufacturer formed by the merger of three metals businesses known collectively as the Metals Group or Metals. 1 When *1181 the Metals Group was acquired by HD Supply, Inc., in 1997, among its owners were Sappington, Emmer, and Ronald L. Siegenthaler. All three men were based in Tulsa, Oklahoma. As a condition precedent to the acquisition agreement, each signed contracts agreeing that, in the event he left the employment of the Metals Group, he would not “engage in any business within the States of Missouri, Texas, Oklahoma, Tennessee, Louisiana, Alabama, and Florida ... which competes in any manner with any business conducted by any constituent corporation of the Metals Group” for a period of one year (the “Non-competition Agreements”). 2 Sappington and Emmer also entered into agreements to remain with the company for three years following the acquisition (the “Employment Agreements”). 3

Rolled Alloys, Inc., also competes in the Tulsa metals market. Prior to the events at issue in this case, however, it sold products to Tulsa customers but did not have an office in the area. In the 1990s, the Metals Group and Rolled Alloys both competed for customers and worked together on sales in which Metals served as a middleman for Rolled Alloys’ products.

For about three years after the acquisition, Siegenthaler consulted for the Metals Group. More than a year before the events relevant to the case at hand, however, he stopped consulting for Metals and took a hiatus from the metals industry. During this period, he operated a consulting company, Myriad Technologies. However, by 2006, Siegenthaler began to contemplate returning to the metals industry and, in particular, opening a Rolled Alloys office in Tulsa. In October 2006, he entered into a business relationship with Rolled Alloys to open a fully functional Rolled Alloys office in Tulsa. Later that same month, he leased space for the office, and by February 2007 he was making sales calls.

Shortly thereafter, both Sappington and Emmer left Metals for Rolled Alloys. On Friday, March 9, 2007, Emmer resigned from the Metals Group, and on the following Monday he started working as an “inside” salesperson in Rolled Alloys’ Tulsa office. A month later, on April 9, Sapping-ton submitted his letter of resignation to Metals and started working at Rolled Alloys as an “outside” salesperson later that same day. In metals industry parlance, “inside” salespeople price quotes and fill orders, while “outside” salespeople work directly with and call on customers.

After Emmer and Sappington began working in Rolled Alloys’ Tulsa office, Rolled Alloys won business from Tulsa-area customers who had, in the past, placed orders with the Metals Group. 4 Of particular relevance to this appeal are orders placed by two Tulsa-area customers, Cust-o-Fab and Hughes Anderson. At trial, Emmer denied helping prepare quotes for Cust-o-Fab or any other Okla *1182 homa customers. However, faced with documents showing some handwritten figures for a Cust-o-Fab order, Emmer acknowledged, “[I]t does look like my writing, but I have no recollection of that at all.” A Metals employee who had worked with Emmer prior to his departure also identified his handwriting on the documents. The documents reflect that Custo-Fab placed a $449 order with Rolled Alloys. Historically, Metals had averaged a 40% profit margin on Cust-o-Fab orders.

Similarly, Sappington never acknowledged at trial that he worked on Hughes Anderson orders after he left Metals for Rolled Alloys. However, he did recall helping Owen Thornton, a salesperson at Metals, price a Hughes Anderson order shortly before Sappington moved to Rolled Alloys. According to Thornton, Sapping-ton instructed him to lower the price on certain items, resulting in a quote of $208,900. Thornton submitted the resulting quote to Hughes Anderson, but on April 12, 2007 — the same week Sappington started work at Rolled Alloys — Hughes Anderson placed the order with Rolled Alloys for $208,044. If Hughes Anderson had selected Thornton’s quote, Metals would have made $31,200 in profit.

Invoking the federal courts’ diversity jurisdiction, Southwest Stainless sued Rolled Alloys, Siegenthaler, Sappington, and Emmer on June 14, 2007. 5 In its amended complaint, Southwest Stainless alleged: (1) breach of the Noncompetition Agreements and Employment Agreements, (2) breach of the acquisition agreement, (3) interference with business relations, (4) breach of fiduciary duty of loyalty, (5) interference with contractual relations, and (6) misappropriation of trade secrets. In an opinion and order prior to trial, the district court granted partial summary judgment on certain key questions of law: (1) Oklahoma law governs the interpretation of the Non-competition Agreements, 6 (2) defendants were entitled to summary judgment as to claims arising out of the Employment Agreements, as these agreements expired by their own terms prior to the events in question, and (3) defendants were entitled to summary judgment as to claims arising out of the Acquisition Agreement, as all its relevant conditions had been satisfied. On the remaining claims, the district court concluded that genuine issues of material fact existed for trial. The parties agreed on a pretrial order identifying twelve contested issues of law and fifty-seven contested issues of fact.

After a three-day bench trial, the district court issued a fifty-six page opinion and order, reaching 197 conclusions of fact and 54 conclusions of law.

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582 F.3d 1176, 29 I.E.R. Cas. (BNA) 1287, 2009 U.S. App. LEXIS 20915, 2009 WL 2989149, Counsel Stack Legal Research, https://law.counselstack.com/opinion/southwest-stainless-lp-v-sappington-ca10-2009.