may not be cited except as provided by
Minn. Stat. § 480A.08, subd. 3 (1998).
STATE OF MINNESOTA
IN COURT OF APPEALS
Federated Mutual Insurance Company, et al.,
Michael L. Pehrson,
Filed August 31, 1999
Affirmed in part, reversed in part, and remanded
Hennepin County District Court
File No. 98-5515
Michael D. Madigan, Rebecca L. Orttel, Johnson & Madigan, P.L.L.P., 500 Baker Building, 706 Second Avenue South, Minneapolis, MN 55402 (for respondent)
Considered and decided by Toussaint, Chief Judge, Halbrooks, Judge, and Parker, Judge.[*]
Appellants Federated Mutual Insurance Company and Federated Life Insurance Company (Federated) challenge the district court's summary judgment in favor of Michael Pehrson, their former employee, whom they had sued for violation of a noncompete agreement, misappropriation of trade secrets, and unjust enrichment. Because there are genuine issues of material fact as to the noncompete agreement and the district court erred as a matter of law, we reverse the summary judgment and remand for trial. We affirm summary judgment on the remaining issues.
On May 2, 1997, Pehrson gave two weeks' notice that he intended to resign. Two days before he left, his supervisor held an exit interview at which there was some mention of the noncompete agreement. A May 15, 1997 letter discussing matters relating to Pehrson's resignation reminded him of the two-year noncompete provision.
Pehrson then obtained employment at C.F. Lake and Company, selling insurance. Within a few months, three of his former Federated clients cancelled their policies with Federated and purchased insurance through Pehrson and his new employer. Pehrson asserts these clients contacted him due to Federated's poor service and increased rates, while Federated contends that Pehrson used confidential information to obtain this business. Federated sent Pehrson several letters asserting that he violated his noncompete agreement and, in March 1998, commenced this lawsuit. Pehrson left his position at C.F. Lake after several months, alleging he was forced to do so because of Federated's threats to sue the company; he then joined another insurance agency.
The parties brought cross-motions for summary judgment. The district court granted summary judgment in favor of Pehrson and dismissed Federated's complaint. Federated appeals.
In an appeal from summary judgment, an appellate court will determine whether there are any genuine issues of material fact and whether the district court erred as a matter of law. Norwest Bank Minn., N.A. v. State Farm Mut. Auto. Ins. Co., 588 N.W.2d 743, 745 (Minn. 1999). The reviewing court must consider the evidence in the light most favorable to the nonmoving party. Delgado v. Lohmar, 289 N.W.2d 479, 483 (Minn. 1979).
This appeal requires us first to determine whether there are any genuine issues of material fact concerning the noncompete agreement, and whether the district court properly decided Pehrson was entitled to judgment as a matter of law. Minnesota courts look upon with disfavor, cautiously consider, and carefully scrutinize employment noncompete agreements, but will nonetheless enforce them if "they serve legitimate employer interest and are not broader than necessary to protect this interest." Kallok v. Medtronic, Inc., 573 N.W.2d 356, 361 (Minn. 1998).
Federated's marketing representative employment contract provides in relevant part that the representative agrees not to compete:
[I]n any other territory assigned by Employer and agreed to in writing by the parties herein or worked by him for Employer. It is understood, however, that two years after Marketing Representative has been transferred from a territory assigned to him by Employer or worked by him for Employer, the agreements contained in this paragraph * * * shall automatically expire as to such territory.
In a separate writing, Federated assigned Pehrson to a sales territory within California and, after his transfer to Minnesota, to a sales territory there.
The district court ruled as a matter of law that the employment contract was to be performed entirely within California and that the noncompete agreement was restricted to Pehrson's assigned territory there. But an examination of the noncompete agreement shows that there is at least a genuine issue of material fact as to its geographic limits. First, the language of the agreement itself is not specific to any territory and instead anticipates that the marketing representatives will be assigned to different geographic areas. Second, Federated assigned Pehrson to territories in California and then in Minnesota in separate writings.
Nor do we agree that the noncompete is unenforceable as a matter of law because it is open-ended. Instead, the question should be whether the terms are reasonable, considering the subject matter, geographic scope, and the length of the restriction. Bennett v. Storz Broadcasting Co., 270 Minn. 525, 534, 134 N.W.2d 892, 899 (1965); Overholt Crop Ins. Serv. Co. v. Bredeson, 437 N.W.2d 698, 703 (Minn. App. 1989). Moreover, Federated is asking the district court to enforce the noncompete only as it relates to the former clients that Pehrson dealt with during the first three months after his employment with Federated ended. The determination of whether a noncompete is enforceable depends on the facts in each case. Bennett, 270 Minn. at 535, 134 N.W.2d at 899.
The district court also ruled that when Pehrson transferred from California to Minnesota, the parties mutually rescinded the employment contract, which was replaced by a new oral contract that did not contain the noncompete clause. "Rescission has been defined as the unmaking of a contract," in which the contract is abrogated and undone from the beginning. Abdallah, Inc. v. Martin, 242 Minn. 416, 420, 65 N.W.2d 641, 644 (1954). Rescission must be clearly expressed and inconsistent with the existence of a contract. Levin v. C.O.M.B., Co., 441 N.W.2d 801, 805 (Minn. 1989). Here, there is at least a fact question as to whether the contract was merely modified when Pehrson moved back to Minnesota, or whether it was mutually abandoned, cancelled, or rescinded. See id. (holding summary judgment improperly granted because material facts sharply disputed).
Next, the district court found that although it was unnecessary to assess the adequacy of Pehrson's consideration for the California contract, on this basis alone the restrictive covenant could be rendered void under Minnesota law. It is true that when an employee and employer enter into a noncompete agreement after employment has begun, it must be supported by separate consideration. Davies & Davies Agency, Inc. v. Davies, 298 N.W.2d 127, 130-31 (Minn. 1980). But again, the adequacy of the consideration depends on the facts of each case. Id. at 130. Taking the view of the evidence most favorable to Federated, there is at least a fact question of whether the consideration is adequate.
Federated also contends that the district court erred in granting summary judgment on its trade secrets and unjust enrichment claims. After reviewing the relevant law and facts, we agree with the district court that Pehrson is entitled to summary judgment as a matter of law on these latter two claims.
In summary, we affirm in part, reverse in part, and remand for trial on the noncompete issue.
Affirmed in part, reversed in part, and remanded.
[*] Retired judge of the Minnesota Court of Appeals, serving by appointment pursuant to Minn. Const. art. VI, § 10.