UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 06-1466
KENNETH M. MCGOUGH,
Plaintiff - Appellee,
versus
NALCO COMPANY, an Illinois Corporation,
formerly Nalco Chemical Company and Ondeo
Nalco Company,
Defendant - Appellant.
Appeal from the United States District Court for the Northern
District of West Virginia, at Elkins. Joseph Robert Goodwin,
District Judge. (2:05-cv-00074-JRG)
Argued: September 18, 2006 Decided: October 19, 2006
Before NIEMEYER, MICHAEL, and MOTZ, Circuit Judges.
Vacated and remanded by unpublished per curiam opinion. Judge
Niemeyer wrote a separate concurring opinion.
ARGUED: Philip J. Murray, III, THORP, REED & ARMSTRONG, L.L.P.,
Pittsburgh, Pennsylvania, for Appellant. Gerard Ray Stowers,
BOWLES, RICE, MCDAVID, GRAFF & LOVE, P.L.L.C., Charleston, West
Virginia, for Appellee. ON BRIEF: Robert J. Hannen, THORP, REED &
ARMSTRONG, L.L.P., Pittsburgh, Pennsylvania, for Appellant.
Unpublished opinions are not binding precedent in this circuit.
See Local Rule 36(c).
PER CURIAM:
Nalco Company appeals from an order denying its motion for
preliminary injunction against Kenneth McGough, a former Nalco
employee. Nalco had sought to enjoin McGough from “competing with
Nalco within any geographic region” in which McGough had worked
while employed by Nalco, and from disclosing “any of Nalco’s
confidential information.” Nalco based its claims on a contractual
non-competition provision, a contractual non-disclosure provision,
and a West Virginia trade secrets statute. We find no error in the
denial of preliminary injunction on the contractual non-competition
claim but must vacate the order denying injunctive relief and
remand for further proceedings because of the district court’s
failure to address the anti-disclosure or trade secrets claims.
I.
Nalco is a water-treatment chemical company, incorporated in
Delaware and headquartered in Illinois, with approximately twenty-
six separate lines of business. It engages in fine coal recovery,
which allows preparation plants to recover bits of coal as small as
.01 millimeter in size. Nalco assists with this process by
developing a unique chemical program to be used in each plant, the
composition of which is not disclosed to the customer.
McGough, a domiciliary of West Virginia, began work with Nalco
in 1978 as a twenty-four-year-old entry-level employee. He
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continued to work for Nalco for twenty-seven years until he left in
2005 to work for a competitor. McGough’s title and
responsibilities changed a number of times over his long career,
but he worked primarily to provide fine coal recovery services to
coal preparation plants. A full description of McGough’s evolving
duties is set forth in the district court’s opinion. See McGough
v. Nalco Co., 420 F.Supp.2d 556 (N.D.W.Va. 2006). We will limit our
factual recitation to those relevant to this appeal.
From 1978 to 1989 McGough worked as a sales representative in
the coalfields of Alabama. In 1989, McGough assumed new sales
territory in West Virginia and relocated there with his family.
Apart from a brief stint in Birmingham, Alabama in 1991, McGough
has been working, at least in part, in West Virginia ever since.
During the last two years of his employment with Nalco, McGough was
an “industry technical consultant” servicing the coal industry in
the eastern coal fields. During this period McGough assisted plants
in Indiana, Illinois, Kentucky, Ohio, West Virginia, Pennsylvania,
Virginia, Alabama, Washington, and eastern Canada.
Citing dissatisfaction with the work, McGough left Nalco’s
employment on July 12, 2005. Soon thereafter, he entered into a
non-exclusive consulting agreement with Appalachian Chemical
Services (“ACS”), a Nalco competitor. ACS, a new company, was
founded in March 2005 by Larry Hyatt, McGough’s former boss at
Nalco. Prior to McGough’s leaving Nalco, ACS did not have any
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customers. After McGough began consulting for ACS, however, ACS
gained at least four coal preparation plant customers that had been
Nalco customers prior to McGough’s departure. McGough’s duties at
ACS primarily consisted of “rendering service” to these ex-Nalco
plants. McGough’s employment by ACS, a Nalco competitor, became
the source of this dispute with Nalco.
Shortly after beginning his employment with Nalco in Alabama,
McGough signed a “Field Representative Agreement” (“Agreement”)
which contained a covenant not to compete for a period of two years
following termination of employment and non-disclosure provisions
that applied during employment as well as after termination. None
of these clauses is limited specifically to coal recovery; each
covers Nalco’s full business line. The Agreement was not job-
specific, nor was it ever supplemented, amended, or re-adopted by
McGough.
The lengthy non-competition clause (paragraph 5) provides in
relevant part:
Employee will not, directly or indirectly, during his
employment and for the period of two (2) years
immediately after its termination, engage or assist in
the same or any similar line of business, competing with
the line of business now or hereafter conducted or
operated by Nalco during the term of Employee’s
employment by Nalco, whether as consultant, employee,
officer, director, or representative of such competing
business, within the United States of America, provided,
however, that in the event that the Employee’s position
with Nalco immediately prior to termination is that of
field representative, then the geographic area of this
non-competition covenant shall be limited to that
geographic area within the United States of America for
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which Employee was responsible at any time during the two
year period immediately preceding termination . . . 1
The parties dispute whether McGough was a “field representative” at
the time of his termination, such that a restriction on his
employment would be limited to a nine-state geographic area.
Also in the Agreement, two clauses address the non-disclosure
issue. Paragraph 3 of the Agreement addresses business
information, generally. It reads:
Employee shall not, directly or indirectly, under any
circumstances or at any time, either during the term of
his employment or after its termination, communicate or
disclose to any person, firm, association or corporation,
or use for his own account, without Nalco’s consent, any
information acquired by him in the course of or incident
to his employment, relating to or regarding the names of
customers of Nalco or Third Parties, the sales or service
data of Nalco or Third Parties, furnished to him or
secured by him in the course of his employment, or any
other data or information concerning the business and
activities of Nalco or Third Parties.
Paragraph 2 of the Agreement is similar but prohibits
communication, disclosure or use of “technical information,”
defined as “inventions, discoveries, improvements, machines,
devices, processes, products, formulae, designs, projects, mixtures
and/or compounds, whether patentable or not.”
On the day he gave Nalco notice of his resignation, McGough
instituted a declaratory judgment action to determine whether the
Agreement placed any enforceable restrictions on his future
1
The provision closes with a clause explicitly inviting any
court that finds the reach of the provision to be too broad to pare
the covenant down to acceptable limits.
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employment. Nalco subsequently removed the case to the District
Court for the Northern District of West Virginia, based upon the
diversity of citizenship, see 28 U.S.C. § 1332(a) (2005), and added
counter-claims for injunction, breach of contract, and violation of
West Virginia’s Uniform Trade Secrets Act (the “UTSA”), see W.Va.
Code § 47-22-1 et seq. (2006). Nalco also moved for a preliminary
injunction seeking to prevent McGough, in effect, from continuing
to work at ACS during the pendency of the litigation. After a two-
day hearing that included testimony and admission of documentary
evidence, the district court denied Nalco’s motion for preliminary
injunction.
A preliminary injunction is an “extraordinary remed[y]
involving the exercise of very far-reaching power to be granted
only sparingly and in limited circumstances.” Microstrategy Inc.
v. Motorola, Inc., 245 F.3d 335, 339 (4th Cir. 2001). We review a
denial of a motion for preliminary injunction for an abuse of
discretion. Nat’l Audubon Soc. v. Dep’t of Navy, 422 F.3d 174, 200
(4th Cir. 2005). A district court’s order will be considered an
abuse of discretion only if it is guided by erroneous legal
principles or if it rests upon a clearly erroneous factual finding.
Bryte ex rel. Bryte v. Amer. Household Inc., 429 F.3d 469, 475 (4th
Cir. 2005). Although we review legal conclusions de novo, factual
findings cannot be reversed unless we find clear error. See, e.g.,
Nat’l Audubon, 422 F.3d at 200.
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Blackwelder Furniture Company of Statesville, Inc. v. Selig
Manufacturing Company, Inc., 550 F.2d 189 (4th Cir. 1977), sets
forth the law governing the grant of preliminary injunctions in the
Fourth Circuit. A court considers four factors: the likelihood of
irreparable harm to the moving party if the preliminary injunction
is denied, the likelihood of harm to the non-moving party if the
injunction is granted, the likelihood that the moving party will
succeed on the merits of his claim, and the public interest. See,
e.g., Rum Creek Coal Sales, Inc. v. Caperton, 926 F.2d 353, 359
(4th Cir. 1991).
II.
Initially, Nalco contends that the district court erred in
refusing to grant injunctive relief on its non-competition claim.
In fact, the district court carefully applied the Blackwelder
analysis to that claim.
First, the court determined that Nalco would suffer
irreparable harm in the absence of a preliminary injunction on the
non-compete claim. Specifically the district court found that
losing an employee considered “irreplaceable,” as Nalco considered
McGough, would detrimentally affect any company. See McGough, 420
F.Supp.2d at 564. Further, the court found it “almost without
question” that, if the non-compete clause were enforceable,
McGough breached it. Id. At the same time, however, the court
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found the amount of harm to Nalco tempered by evidence that Nalco
might have lost accounts to ACS even without McGough’s employment
there, on the strength of Larry Hyatt’s expertise and contacts
alone.
Moving to the other side of the scale, the court then
determined that McGough, the non-moving party, would also suffer
significant harm if a preliminary injunction were issued enforcing
the non-compete clause because he would be forced to resign from
his job with ACS and find a new job. The court found that this
hardship would occur regardless of whether McGough was treated as
a field representative, subject to a more limited geographic non-
compete bar, or whether he was subject to the nationwide
restriction. In balancing the hardships that would be faced by
each party, the court found that they approached equipoise.
Because Nalco, the moving party, had not established that the
hardships clearly weighed in its favor, it had to prove that it was
highly likely to succeed on the merits in order to win a grant of
preliminary injunction. This, the district court found, it could
not do. In assessing the likelihood of success on the non-compete
claim, the district court first carefully analyzed applicable West
Virginia conflict-of-law principles and determined that a West
Virginia court asked to enforce the Agreement would apply West
Virginia contract law to the dispute because that state had the
“most significant relationship” to the Agreement. See McGough, 420
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F.Supp.2d at 566 (citing New v. Tac & C Energy Inc., 355 S.E.2d
629, 631 (W.Va. 1987)). We find no legal error in the district
court’s analysis as to choice of law,2 although we recognize that
West Virginia law provides no clear answer on this question.
Compare Paul v. Nat’l Life, 352 S.E.2d 550, 551 (W.Va. 1986)
(reaffirming lex loci delicti as the general conflicts rule in West
Virginia) with New, 355 S.E.2d at 631 (explicitly applying section
196 of the Second Restatement to employment agreement dispute).
Applying West Virginia law, the district court then concluded
that a West Virginia court would find the non-compete clause
unreasonable on its face and consequently refuse to “blue pencil”
it. See Reddy v. Cmty. Health Found. of Man, 298 S.E.2d 906, 911-
15 (W.Va. 1982) (describing the requirement that a restrictive
covenant fall within the governing principle of the rule of reason
before a court may undertake to “blue pencil” it). The district
court recognized that the reasonableness of the non-compete clause,
and hence the likelihood that it would be blue pencilled, would
depend, in part, upon how geographically broad the fact-finder
determined its application to be. Compare O. Hommel Co. v. Fink,
177 S.E. 619 (W.Va. 1934) (finding reasonable, and blue pencilling,
2
Indeed, we note that in initially requesting injunctive
relief, Nalco itself relied entirely on West Virginia law,
conceding sub silentio its applicability; only after the district
court raised the issue and asked for additional briefing on the
question of what law should govern the Agreement, did Nalco
contend that Alabama law controlled.
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a three-year restrictive covenant encompassing Canada and the
eastern United States) with Pancake Realty Co. v. Harber, 73 S.E.2d
438, 443 (W.Va. 1952) (finding unreasonable and refusing to blue
pencil a covenant not to compete that contained no territorial
limitation). On the basis of the facts presented at the
preliminary injunction hearing, the district court determined that
the clause, if applied to McGough, would act as a nationwide bar on
competition, rather than applying only to the more limited nine-
state area in which McGough had worked over the previous two years.
McGough, 420 F.Supp.2d at 578. Based upon this assessment of the
clause’s geographic and industry breadth, the district court found
that the non-compete clause offended the rule of reason under West
Virginia law and would be unlikely to be blue pencilled. Id. at
578-79.
To the extent that Nalco argues the district court erred in
this or other findings of fact underlying its analysis of
injunctive relief with respect to the non-compete clause, we
disagree. Based on the limited evidence adduced at the preliminary
injunction hearing, we cannot say that the district court clearly
erred with respect to any factual finding. We caution, however,
that this does not mean that, after development of a fuller record,
a fact finder (or court on summary judgment) might not come to
contrary conclusions with respect to the facts.
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III.
Nalco also contends that the district court erred in failing
to address two additional grounds for the grant of a preliminary
injunction: McGough’s alleged breach of the non-disclosure
provisions of the Agreement and his alleged misappropriation of
trade secrets under West Virginia’s UTSA.
“[I]n granting or refusing interlocutory injunctions the court
shall similarly set forth the findings of fact and conclusions of
law which constitute the grounds of its action.” Fed. R. Civ. P.
52(a). A failure to consider and rule upon a purported ground for
a preliminary injunction may require remand. First-Citizens Bank
& Trust Co. v. Camp, 432 F.2d 481, 484-85 (4th Cir. 1970); see also
Mayo v. Lakeland Highlands Canning Co., 309 U.S. 310, 316 (1940)
(“It is of the highest importance to a proper review of the action
of a court in granting or refusing a preliminary injunction that
there should be fair compliance with Rule 52(a) of the Rules of
Civil Procedure.”).
In its motion for preliminary injunction, Nalco asked that
McGough be enjoined from “directly or indirectly competing with
Nalco within any geographic region that Mr. McGough worked while
employed by Nalco, and from disclosing and/or using any of Nalco’s
confidential information / trade secrets at any location or in any
capacity” (emphasis added). In the memorandum accompanying its
motion, Nalco indicated that it relied on two independent legal
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theories for enjoining McGough’s disclosure of confidential
information or use of trade secrets: a contract theory based upon
the Agreement and a statutory theory premised on the UTSA.
As has been previously discussed, the district court made
numerous factual and legal findings on the issue of McGough’s
competition with Nalco. We find no evidence of similar findings of
fact or law with regard to Nalco’s second request, that McGough be
enjoined from “disclosing and/or using” confidential information or
trade secrets. This was error.
Although the district court made passing reference to the
trade secret claim, its discussion and analysis focuses almost
exclusively on the covenant not to compete. McGough, 420 F.Supp.2d
at 573-79. The court never specifically analyzed the disclosure
provisions of the Agreement or referred to or cited the UTSA. The
district court’s failure to make specific findings of fact or law
on either the non-disclosure or trade secrets grounds for a
preliminary injunction cannot be considered harmless. Indeed,
consideration of these grounds may alter the Blackwelder balancing
of hardships.
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IV.
For the foregoing reasons, we must vacate the denial of a
preliminary injunction and remand for further proceedings not
inconsistent with this opinion.
VACATED AND REMANDED FOR FURTHER PROCEEDINGS
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NIEMEYER, Circuit Judge, concurring:
I concur in the opinion for the court and write separately
only to note that the district court’s conclusion that the non-
compete clause was unreasonable was dependent on the court’s
finding that McGough was not a “field representative.” Because of
that finding, the non-compete clause had a geographical scope
covering the entire nation. As we point out, however, this fact
could only have been determined preliminarily in the context of
whether to grant a preliminary injunction. Any ultimate finding on
that point, whether by the court or by the jury, could be different
and therefore could result in a much reduced geographical
application of the non-compete clause. In that circumstance, a
different analysis under West Virginia law would be required.
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