No. 89-236
IN THE SUPREME COURT OF THE STATE OF MONTANA
1989
STATE MEDICAL OXYGEN AND
SUPPLY, INC., a Montana corporation,
Plaintiff and Appellant,
AMERICAN MEDICAT, OXYGEN CO., a Montana
corporation, J.C. LYNDES, GARY GOMEZ,
and RONALD WRIGHT,
Defendants and Respondents.
9
APPEAL FROM: District Court of the Eighth Judicial Distrlct
In and for the County of Cascade
The Honorable John M. McCarvel, Judqe presidinq.
COUNSEL OF RECORD:
For Appellant:
P. Mars Scott, Mulroney, Delaney and Scott
Missoula, Montana
For Respondent :
Michael G. Moses, Moses L a w Firm, Billings, Montana.
Philip P. McGimpsey, Billings, Montana
Submitted on Briefs: October 13, 1989
Decided: November 30, 1989
Filed.:
Justice Diane G. Barz delivered the Opinion of the Court.
Plaintiff, State Medical Oxygen and Supply, Inc. (State
Med.), appeals the January 19, 1989 decision of the District
Court of the Eighth Judicial ~istrict, Cascade County,
finding that plaintiff's nondisclosure agreement violated S
28-2-703, MCA, and granting summary judgment in favor of
defendants--~mericanMedical Oxygen Co. (~merican Med.), J.C.
Lyndes, Gary Gomez and Ronald Wright. We affirm.
The issues raised on appeal are:
1. Whether plaintiff's "Agreement of Employee not to
Disclose Trade Secrets or Customer Lists of State Medical
Supply, Inc." violates S 28-2-703, MCA, as being a contract
that restrains the exercise of a lawful profession, trade or
business of any kind; and
2. Whether the District Court erred by granting
defendants' motion for summary judgment.
Plaintiff, State Med., is a Montana corporation engaged
in the business of supplying oxygen and allied health care to
patients in their homes and in hospitals. Upon State Med.'s
formation in the early part of 1984, the directors of State
Med. had its employees sign an agreement entitled, "Agreement
of Employee not to Disclose Trade Secrets or Customer Lists
of State Medical Supply, Inc." This Agreement provides that:
The undersigned, an employee of
State Medical Supply, Lnc., in
consideration of his employment, hereby
agrees not, at any time or in any manner,
either directly or indirectly, to
divulge, disclose or communicate t o any
person, firm, or corporation, in any
manner whatsoever, any information
concerning any matters affecting or
relating to the business of State Medical
Supply, Inc.'s trade secrets and/or
customer lists. Including without
limitinq the above, the employee agrees
not to divulge any of State Medical
Supply, Inc.'s customers, the prices it
obtains or has obtained from the sale of,
or at which it sells or has sold, its
products, or any other information
concerning the business of State Medical
Supply, Inc., its manner of operation,
its plans, processes, or other data
without regard to whether all of the
foregoing matters will be deemed
confidential, material, or important, the
parties hereby stipulating that as
between them, the same are important,
material and confidential and gravely
affect the effective and successive
conduct of the business of State Medical
Supply, Inc., and State Medical Supply,
Inc. 's good will, and that any breach of
the terms of this agreement shall be
termed and considered a material breach.
This agreement shall remain in full
force and effect during the undersigned
employment and contin-uing for all time
thereafter.
A violation of this agreement will
entitle State Medical Supply, Inc., to
seek damages and/or injunctive relief or
any other remedy at law against the
undersigned and the undersigned agrees to
pay State Medical Supply, Inc. 's
attorney's fees in prosecuting any breach
of this agreement.
Several, if not all, of the employees of State Med. signed
this Agreement.
Three State Med. employees--Link, Fatz and Tope--became
unhappy with their jobs at State Med. and began to seek
employment elsewhere. On August 9, 1985, these employees
quit their jobs at State Med. and immediately began working
for American Med., a Montana corporation also engaged in the
business of supplying oxygen and allied health care to
patients in their homes and in hospitals. When Link left
State Med.'s employ, he memorized his customer route and
offered his customers an opportunity to switch from State
Med. to American Med. Most of Link's regular customers made
the switch.
On March 1, 1988, this Court decided State Medical
Oxygen & Supply, Inc. v. American Medical Oxygen Co. (Mont.
1988), 750 P.2d 1085, 45 St.Rep. 349, which addressed issues
initially raised by State Med. This Court affirmed in part,
reversed in part and remanded for further proceedings, but
did not address the issue of the nondisclosure agreement
because the District Court had not yet ruled on it. - State
Medical Oxygen Supply, Inc., 750 P.2d at 1089, 45 St.Rep. at
355. On October 18, 1988, the parties stipulated to the
dismissal with prejudice of defendant Link from this action.
On November 30, 1988, the remaining defendants--American
Med., Lyndes, Gomez and Wright--renewed their motion for
summary judgment, asserting again that the nondisclosure
agreement was void pursuant to 5 28-2-703, MCA.
On January 19, 1989, the District Court granted
defendants' motion for summary judgment, and stated that the
nondisclosure agreement between State Med. and its employees
not to divulge trade secrets or customer lists violated
S 28-2-703, MCA, and therefore the court found it against
public policy and unenforceable as a matter of law. The
District Court certified this January 19, 1989 order as a
final judgment under Rule 54 ( b ) , M. R.Civ.P. State Med.
appeals.
The first issue that will be addressed by this Court is
whether plaintiff's "Agreement of Employee not to Disclose
Trade Secrets or Customer Lists of State Medical Supply,
Inc." violates 5 28-2-703, MCA.
Section 28-2-703, MCA, codifies Montana's public policy
regarding contracts that restrains the exercise of a lawful
profession, trade or business of any kind. This statute
provides that " [alny contract by which anyone is restrained
from exercising a lawful profession, trade, or business of
any kind, otherwise than is provided for by 28-2-704 or
28-2-705, is to that extent void." The two exceptions allow
parties to agree that upon either the sale of goodwill of a
business or the dissolution of a partnership, one or more of
the parties will refrain from carrying on a similar business
within a narrow designated area. Sections 28-2-704 and -705,
MCA.
Prior to Dobbins, DeGuire & Tucker v. Rutherford,
MacDonald & Olson (1985), 218 Mont. 392, 708 P.2d 577, this
Court recognized a difference between covenants incident to
an employment contract and those regarding the trade of a
business or property. J.T. Miller Co. v. Made1 (1978), 176
Mont. 49, 52-53, 575 P.2d 1321, 1323. When presented with a
covenant not to compete that involved trade, this Court
applied a three part test by which to discern reasonable
covenants from unreasonable restraints. IJnder this test, a
covenant not to compete is reasonable if it is (1) limited in
operation either as to time or place; (2) based upon some
good consideration; and (3) affords reasonable protection for
and not impose an unreasonable burden upon the employer, the
employee, or the public. OINeill v. Ferraro (1979), 182
Mont. 214, 218-19, 596 P.2d 197, 199. In Dobbins, this Court
determined that this test should also be applied to
restrictive covenants that are found within employment
contracts. Dobbins, 218 Mont. at 396-97, 708 P.2d at 580.
In the present case, State Med. has the burden of
showing that its agreement does not violate 5 28-2-703, MCA.
First American Ins. Agency 17. Gould (1983), 203 Mont. 217,
223, 661 P.2d 451, 454. State Med. did not assert nor prove
that the sale of goodwill of a business or the dissolution of
a partnership occurred. Therefore, neither of the statutory
exceptions--§§ 28-2-704 or -705, MCA--applies. State Med.'s
agreement also does not pass the test of reasonableness. As
stated in Dobbins and OINeill, three essential things are
required for an agreement to be considered reasonable. State
Med.'s agreement, however, did not limit the restrictions as
to either time or place and therefore did not meet the first
essential criterion. We therefore do not find a need to
proceed any further to determine whether the covenant meets
the remaining two criteria. Although State Med. cites
Dobbins, it does not argue that its agreement meets the three
criteria. Instead, State Med. merely argues that the
District Court erred because it did not make findings of fact
or conclusions of law. However, Rule 52 (a), M.R.Civ.P. and
previous decisions do not require a district court to set
forth findings of fact or conclusions of law when ruling on a
summary judgment motion. Lewis v. State Dept. of Revenue
(1984), 207 Mont. 361, 375, 675 P.2d 107, 114; Downs v. Smyk
(1979), 185 Mont. 16, 19, 604 P.2d 307, 309.
State Med. also argues that the District Court confuses
its contract, which they assert is a contract not to disclose
trade secrets and/or customer lists with a contract that
restrains the exercise of a lawful profession. State Med.
then apparently attempts to persuade this Court that its
agreement is not an employment contract and therefore it is
not in violation of S 28-2-703, MCA. We disagree. Section
28-2-703, MCA, states that any contracts that restrain anyone
from exercising a lawful profession, trade, or business is
void. The statute does not limit the prohibition to
employment contracts. In Dobbins, this Court erased any
previously recognized differences between the treatment of
trade and employment contracts which contain restrictive
covenants. Therefore, State Med.'s attempts at
distinguishing its agreement as something other than an
employment contract is not relevant to the issue presented on
appeal. In light of the above, the District Court did not
err in finding that State Med.'s agreement violated
§ 28-2-703, MCA, and thus finding the agreement void as
against public policy and unenforceable as a matter of law.
The second issue raised on appeal is whether the
District Court erred by granting defendants' motion for
summary judgment.
The party seeking summary judgment is entitled to
judgment only when no qenuine issue exist as to any material
facts and the moving party is entitled to judgment as a
matter of law. Rule 56(c), M.R.Civ.P. The party moving for
summary judgment has the initial burden of establishing that
a genuine issue of material fact does not exist. Once this
is established, the burden shifts to the party opposing the
motion to demonstrate otherwise. Rumph 17. Dale Edwards, Inc.
(1979), 183 Mont. 359, 365-66, 600 P.2d 163, 167.
In the present case, the District Court ruled that
State Med.'s agreement was in violation of § 28-2-703, MCA.
The record demonstrates that defendants established that no
genuine issue of material facts existed. The agreement on
its face violates the statute and the law regarding
restrictive covenants. The burden then shifted to State Med.
State Med. attempted to rebut this evidence by bringing in
extraneous information regarding tortious interference, which
is the underlying basis for their amended complaint. The
facts surrounding tortious interference are irrelevant to the
sole issue on appeal of whether the nondisclosure agreement
was in violation of 5 28-2-703, MCA.
State Med. also argues that affidavits submitted by
their employees puts into question whether or not their
agreement was an employment contract. As we stated
previously, - contracts, not just employment contracts, are
any
in violation of g 28-2-703, MCA, if they restrain anyone from
exercising a lawful profession, trade or business. In
addition, the same standard of reasonableness applies to a
restrictive covenant regardless of whether it is found within
a trade contract or an employment contract. Therefore,
evidence regarding whether the agreement was an employment
contract is irrelevant to the question of whether it violated
5 28-2-703, MCA. The District Court therefore did not err in
grantinq defendants' motion for summary judgment.
A£firmed.
We concur: