Healthcare Services of the Ozarks, Inc., d/b/a Oxford Healthcare, Respondent/Appellant v. Pearl Walker Copeland and Luann Helms, Appellants/Respondents.

This slip opinion is subject to revision and may not reflect the final opinion adopted by the Court. Opinion Missouri Court of Appeals Southern District Case Style: Healthcare Services of the Ozarks, Inc., d/b/a Oxford Healthcare, Respondent/Appellant v. Pearl Walker Copeland and Luann Helms, Appellants/Respondents. Case Number: 26410 & 26452 Handdown Date: 07/27/2005 Appeal From: Circuit Court of Newton County, Hon. Gregory Stremel Counsel for Appellant: Thomas W. Millington Counsel for Respondent: Rick E. Temple Opinion Summary: None Citation: Opinion Author: JOHN E. PARRISH, Presiding Judge Opinion Vote: AFFIRMED IN PART; REVERSED IN PART AND REMANDED. Shrum and Barney, JJ., concur Opinion: This is a consolidated appeal from a judgment that denied Healthcare Services of the Ozarks, Inc., d/b/a Oxford Healthcare (Oxford) recovery of damages on breach of contract claims in separate actions brought against Pearl Walker Copeland and LuAnn Helms (Count I in each of Oxford's petitions), but held that Oxford was entitled to injunctive relief to enforce covenants not to compete executed by Copeland and Helms (Count II in each of Oxford's petitions). The judgment further denied separate counterclaims by Copeland and Helms against Oxford that sought damages for tortious interference with business relationships with Integrity Home Care (FN1) (Integrity) (Counterclaim Count I), and declaration that covenants not to compete executed by Copeland and Helms were unenforceable as being in violation of public policy of Missouri (Counterclaim Count II). This court affirms in part, reverses in part, and remands. Copeland and Helms were at-will employees of Oxford. Copeland was hired by Oxford in 1979. Helms was hired in

1. Each signed a non-compete agreement with Oxford. Copeland signed her agreement June 1, 1993. Helms'

agreement was signed September 2, 1997. Each was required to sign the agreement in order to continue their employment with Oxford. Each agreement provided that the respective employee would not "either directly or indirectly on [her] own account or as agent, stockholder, owner, employer, employee or otherwise, engage in a business competitive to that of [Oxford]" within a radius of 100 miles of Joplin, Missouri. Each agreement further provided that the employee would not "in any way divert or attempt to divert from [Oxford] any business or employees whatsoever" or would not "influence any of the customers or employees of [Oxford]." The non-compete agreements extended for two years following the employees' termination by Oxford. Neither Copeland nor Helms had work experience in the home health service industry prior to employment by Oxford, although Helms had previously worked as a nurse. During their employment by Oxford, both had extensive contact with caseworkers, clients, and other Oxford employees. On January 21, 2000, Copeland and Helms each submitted a notice of resignation with the last day of work to be February 21, 2000. Copeland's salary from Oxford was $40,974 per year with an opportunity for bonus. Copeland had received total compensation for the year 1999 of $44,139.03. Helms' salary was $35,500 per year. After Copeland submitted her notice of resignation, she attended meetings and began working with others, including the Missouri Division of Aging (now the Missouri Division of Senior Services), on behalf of Integrity. In late January 2000, Copeland agreed with the owner of Integrity to allow Integrity to utilize her Certificate of Provider Certification Training to apply to contract with the Missouri Division of Aging to provide in-home health care services in competition with Oxford. On January 31, 2000, Integrity requested a Social Services Block Grant from the Missouri Division of Aging to provide the same type of services as provided by Oxford in the same counties in which Oxford does business. The services sought by Integrity would be in competition with Oxford. Integrity's request to the Division of Aging included Copeland's Certificate of Provider Certification Training in order to satisfy a regulatory requirement that Integrity have at least one certified manager in order to be awarded the block grant contract it sought. Copeland received her certificate June 28, 1999, while employed by Oxford. Integrity received a Social Services Block Grant, as requested, from the Missouri Division of Aging on February 4,

1. Copeland and Helms attended meetings at Greg Horton's (Integrity's owner) house in Springfield, Missouri, in late

January and February 2000. Copeland set up an office in her home in February 2000 for the purpose of conducting Integrity business. She allowed meetings called by others to be held in her home on February 10 and 13, 2000, with present and former employees of Oxford to solicit employees for Integrity. Beginning in February 2000, Helms worked several hours each workday in the home of Copeland for Integrity. A team

roster submitted by Integrity to the Missouri Division of Aging as of February 24, 2000, listed Copeland and Helms as two of four employees that were actively working on its behalf in its Joplin office. All of the activity heretofore described occurred within a radius of 100 miles of Joplin, Missouri. Beginning in February 2000, some of Oxford's employees resigned to accept employment with Integrity. Some of the clients served by the employees who had resigned requested the Missouri Division of Aging to transfer their services to Integrity and services for those clients were transferred. Oxford's action against Copeland was filed February 16, 2000. Its action against Helms was filed March 10, 2000. The trial court entered temporary restraining orders on February 24, 2000, and March 23, 2000, respectively, enforcing the non-compete agreements with Oxford that Copeland and Helms had signed. The restraining orders were continued in effect throughout the litigation until the non-compete agreements expired. Integrity replaced Copeland's Certificate of Provider Training that had been filed with the Missouri Division of Aging by letter dated July 3, 2000. The letter was received by the Missouri Division of Aging July 7, 2000. The two-year period covered by the Copeland and Helms non-compete agreements ended February 4, 2002. Trial commenced January 8, 2004. At the time the case was tried, Copeland and Helms were employed by Integrity at Joplin, Missouri. The trial court found that on January 21, 2000, when Copeland and Helms resigned their employment by Oxford, they were aware of their non-compete agreements; that notwithstanding their knowledge of the non-compete agreements, each made a conscious decision to assist with starting Integrity; that these actions were in direct violation of the terms of the non-compete agreements. It found that Copeland and Helms consciously agreed to suffer the consequences that would follow. The trial court found that Copeland and Helms each breached their non-compete agreement with Oxford, but that Oxford did not prove it was damaged as a result of the breaches of those agreements. The trial court, therefore, did not grant relief on Count I of Oxford's action against either Copeland or Helms. On Count II, the trial court found that the restraining orders and injunctive relief that had been issued during the time the actions were pending were justified and had been issued properly and providently and ordered cash bonds posted by Oxford, together with interest accrued thereon, returned to Oxford. The trial court found against Copeland and against Helms on both counts of their respective counterclaims against Oxford and assessed costs to Copeland and Helms. Judgment was entered in accordance with the trial court's findings. Scope of Appellate Review

This case was tried before the trial judge without a jury. "The trial court's judgment will be reversed only if no substantial evidence supports the judgment, if the decision is against the weight of the evidence, or if the judgment erroneously declares or misapplies the law." Foster v. Village of Brownington, 140 S.W.3d 603, 607 (Mo.App. 2004). Copeland's and Helms' Appeal Copeland's and Helms' first point argues that the trial court erred in finding that the non-compete agreements were enforceable. They contend non-compete agreements were in violation of section 416.031 (FN2) because there was no evidence that Oxford had trade secrets that were subject to use or appropriation by Copeland or Helms in any competitive employment relationship, nor was there a showing that customers or client lists were taken in the course of any competitive relationship. Copeland and Helms assert that those interests are the only ones that may be protected by non- compete or non-solicitation agreements. Section 416.031.1 provides, "Every contract, combination or conspiracy in restraint of trade or commerce in this state is unlawful." Schmersahl, Treloar & Co., P.C. v. McHugh, 28 S.W.3d 345, 348 (Mo.App. 2000), explains: Contracts in restraint of trade are unlawful in Missouri. Section 416.031 RSMo (1994).[ (FN3) ] "A promise is in restraint of trade if its performance would limit competition in any business or restrict the promisor in the exercise of a gainful occupation." RESTATEMENT (SECOND) OF CONTRACTS Section 186(2) (1981). "Every promise that relates to a business dealing or to a professional or other gainful occupation operates as a restraint in the sense that it restricts the promisor's future activity." Id., cmt. a. Restrictive covenants limiting individuals in the exercise or pursuit of their occupations are in restraint of trade. Sturgis Equip. Co., Inc. v. Falcon Indus. Sales Co., 930 S.W.2d 14, 16 (Mo.App. 1996). Post-employment restrictions are generally considered restraints of trade. House of Tools & Engineering, Inc. v. Price, 504 S.W.2d 157, 159 (Mo.App. 1973).

Id. at 348-49. Schmersahl observed, however, that there are two areas in which non-compete agreements may be enforceable. "A restrictive covenant in an employment agreement is only valid and enforceable if it is necessary to protect one of two well- defined interests, trade secrets and customer contacts, and if it is reasonable as to time and place." Id. at 349. In West Group Broadcasting, Ltd. v. Bell, 942 S.W.2d 934 (Mo.App. 1997), this court held: Covenants by employees not to compete with their employers after termination of employment are no longer contrary to public policy in Missouri, yet they are not favored in this state. Furniture Mfg. Corp. v. Joseph, 900 S.W.2d 642, 647[8] (Mo.App. 1995). Such covenants are carefully restricted because they deal with restraints on commerce and limit an

employee's freedom to pursue his or her trade. Universal Underwriters Ins. Co. v. Lyon, 896 S.W.2d 762, 764[2] (Mo.App. 1995) (citing Osage Glass, Inc. v. Donovan, 693 S.W.2d 71, 75 (Mo.banc 1985)). The following general rule still attends: An employer cannot extract an enforceable restrictive covenant merely to protect himself from the competition of an employee. Herrington v. Hall, 624 S.W.2d 148, 151[1] (Mo.App. 1981). Accordingly, even when restrictive covenants on future employment are reasonable spatially and temporally, they are enforceable only if a legitimate protectable interest of the employer is served. Id.

Id. at 937. The question for resolve with respect to Point I in Copeland's and Helms' appeal is whether the non-compete agreement each signed was for protection of trade secrets of Oxford or for protection of its customer contacts, or whether the agreement was to merely protect Oxford from the competition of Copeland and Helms. If it was for either of the former reasons, and if there was a showing that a reasonable need for such protection exists, the non-compete agreement is enforceable. If it was for the latter purpose, it is not enforceable. Copeland and Helms worked solely with Medicaid patients. Richard McGee, Oxford's Vice President of Support, was asked the following questions and gave the following answers regarding Medicaid patients. Q. As for the Medicaid clients, clients whose services are paid for through Medicaid, could you explain for the Court the manner in which that system works? How does Oxford receive payment for the services its employee provides to these employees [sic]? A. Okay. There's a Medicaid patient in the home that either contacts a provider saying, "I need help," or they may contact the State or case manager. A physician may refer them to someone, but it goes to a case manager with the State that verifies the person is eligible for Medicaid or is already on Medicaid, and the person does require help in the home. That case manager, with the State, determines the hours of service that need to be provided and what kinds of services. They then do ask the patient for a choice, if the patient has a provider that they would like to choose to provide that care in the home. If the patient doesn't choose one or doesn't know, the State assigns them to a contracted provider on a rotating basis. Q. So --

A. And then we go out in the home, set up the case, provide all these -- all the different services on a routine basis in the home. Fill out time sheets, bill slips showing what was provided in the home. And then we pay our employee and we bill the State. The trial court concluded: [Copeland and Helms] admitted on cross-examination that, both while employed with [Oxford] and currently with Integrity, there is an expectation that the clients served by the provider and paid for by Medicaid funds through the Missouri Division of Aging will remain clients of that provider unless they no longer qualify for services or die. Defendant Helms also admitted that it is generally known in the industry that when a field employee of an in-home services provider changes employment to another provider, the clients served by that field employee will often request of the Missouri Division of Aging that their services be moved to the provider of the new employer. [Oxford] did have an expectation that the clients served by it and paid for by Medicaid funds through the Missouri Division of Aging would continue to remain its clients absent the client no longer qualifying for services, or death. Therefore, such clients were a "protectible interest" of [Oxford] under the applicable Missouri case law relating to enforcement of non-compete agreements. The trial court held that the non-compete agreements were enforceable and that Copeland and Helms had breached those agreements; that the injunctive relief issued during the time the suits were pending were "justified, proper, and providently issued." Copeland and Helms argue that enforcement of the non-compete agreements under the facts of this case is contrary to this court's holding in West Group Broadcasting, Ltd. v. Bell, supra ; that restrictive agreements are not enforceable for the sole purpose of protecting an employer from competition from former employees. The protectible interests the trial court found to be served by the non-compete agreements were "an expectation that the clients served by [Oxford] and paid for by Medicaid funds through the Missouri Division of Aging would continue to remain its clients absent the client no longer qualifying for services, or death." The trial court concluded that "such clients were a 'protectible interest' of [Oxford]." Oxford, in its initial brief filed as respondent/cross-appellant in this appeal, points out that the Division of Aging regulations in effect at the time of this case prohibited in-home service providers from soliciting clients that were being

serviced by other providers. 13 CSR 15-7.021(18)(V), which was effective through April 30, 2002, included the requirement: The in-home service provider shall meet, at a minimum, the following administrative requirements: . . . Shall not solicit, nor cause to be solicited, through agents or employees of the in-home service provider, any person to become a client if that person is currently receiving services from any provider authorized by the Division of Aging. Solicitation means seeking out or initiating contact with another provider agency's clients, in person or by mail, for the purpose of persuading them to choose another provider. Solicitation, as used in this subsection, does not include media advertising directed toward the general public; nor does it include presentations to the general public, organizations or other interested groups regarding the services available; . . . . Oxford appears to argue that this supports its claim that it was entitled to enforce the non-compete agreements it had with Copeland and Helms. This court does not find that argument compelling. In Schmersahl, the Eastern District of this court declared: The fact of an employer-employee relationship, standing alone, is not sufficient to cause a confidential relationship to exist as to knowledge which is the natural product of the employment. National Rejectors [Inc. v. Trieman], 409 S.W.2d [1] at 35 [(Mo.banc 1966)]. It is a well-established principle that: "[A]n employee after leaving the service of an employer may carry on the same business on his own and use for his own benefits the things he had learned while in the earlier employment. If this were not so an apprentice who had worked up through the stages of journeyman and master workman could never become an entrepreneur on his own behalf. Any such system of quasi-serfdom has long since passed away. Necessarily the former employee may use what he learned in the former employer's business while engaged in business for himself or some business competing with the former employer." Id. at 41 (quoting Midland-Ross Corp. v. Yokana, 293 F.2d 411, 412-13 (3 rd Cir. 1961)).

Id. at 350-51.

The record does not reveal that Copeland or Helms had a relationship with Oxford's Medicaid clients other than in their capacities as Oxford's employees. There is no evidence that they acquired the type of influence over Oxford's Medicaid clients that would justify enforcement of a non-compete agreement that would preclude them from working for a competitor of Oxford. Likewise, the record does not support Oxford's claim that Copeland or Helms possessed protectible trade secrets of Oxford. The trial court erred in concluding that the non-compete agreements signed by Copeland and Helms were enforceable. That determination was against the overwhelming weight of the evidence. The evidence was not sufficient to prove that Oxford had trade secrets known to Copeland or to Helms. Neither was the evidence sufficient to prove that Copeland or Helms had customer (or client) contacts that were entitled to protection on behalf of Oxford by way of non- compete agreements. The trial court misapplied the law in its declaration that the fact that Oxford provided services to Medicaid clients established those clients as "a 'protectible interest' of [Oxford] under the applicable Missouri case law relating to enforcement of non-compete agreements." The fact that Oxford had Medicaid patients did not result in production of a consumer list that would be entitled to protection by the non-compete agreements it sought to enforce. Neither was there a showing that there were "trade secrets" that would permit Oxford to enforce the non-compete agreements. The non- compete agreements the trial court upheld were not directed to legitimate protectible interests. Point I is granted. Injunctive relief was not warranted. The judgment will be reversed as to Count II of Oxford's petitions. Copeland's and Helms' Point II asserts trial court error in finding the non-compete agreement each signed enforceable because Oxford "is an entity chartered in Missouri as a not-for-profit corporation and designated as a 'public benefit' corporation, qualified for tax exempt status under section 501(c)(3) of the Internal Revenue Code (Title 26 U.S.C. section 501(c)(3))." They argue that "as a matter of public policy in Missouri," Oxford is or should be "prohibited from limiting, restraining, deterring or enjoining others from offering the same or similar services which may be demanded by the public, on a for-profit basis, or otherwise, as a matter of sound public policy." No authority is cited that holds what Point II claims should be the law. (FN4) Point II is moot in that, in response to Point I, the trial court's declaration that injunctive relief enforcing the non- compete agreements was determined to be error. Furthermore, the corporate powers of not-for-profit corporations and for- profit corporations are identical. City of St. Louis v. Institute of Medical Educ. & Research, 786 S.W.2d 885, 887 (Mo.App. 1990), citing Pilgrim Evangelical Lutheran Church of Unaltered Augsburg Confession v. Lutheran

Church-Mo. Synod Found., 661 S.W.2d 883, 838 (Mo.App. 1983). Point II is denied. Copeland's and Helms' Point III is directed to a finding of the trial court that an action Copeland and Helms brought in the federal courts is res judicata to their asserting Oxford's not-for-profit status and tax status as a 501(c)(3) corporation precluded enforcement of the non-compete agreements. As with respect to the claim of error in Point II, the issue is moot in that, for the reasons given in the discussion of Point I, the non-compete agreements are not enforceable. Point III is denied. Copeland's and Helms' Point IV is directed to the trial court's denial of their counterclaims against Oxford for tortious interference with a business expectancy. (FN5) The basis for the dismissal of each Count I was that because Oxford's action for enforcement of the non-compete agreements was valid, Copeland and Helms did not show an absence of justification for the actions Oxford took that they argue had interfered with each business expectancy with Integrity. (FN6) The other elements required for actions for tortious interference with a business expectancy were not addressed by the trial court. Having found the non-compete agreements not enforceable, the trial court's dismissal of Count I of each counterclaim was erroneous. The part of the judgment denying Count I of each counterclaim will be reversed. Count I of the counterclaim will be remanded for a new trial in order that Copeland and Helms may be given the opportunity to prove their claims of tortious interference with a business expectancy. Oxford's Cross-Appeal Oxford presents one point in its appeal, Point V in its "Brief of Respondent/Cross-Appellant." Oxford contends the trial court erred in not awarding damages against Copeland for breach of the non-compete agreement she signed. The judgment on the breach of contract action Oxford brought was a judgment in favor of Copeland and Helms. That determination was correct because the non-compete agreements are not enforceable and, therefore, Oxford is not entitled to relief against Copeland for breach of contract. Oxford's Point V is denied. Disposition of Appeals The judgment is affirmed as to the judgment for Copeland and the judgment for Helms on Count I of Oxford's petition. The judgment is reversed as to the determination in Count II of Oxford's petition that determined Oxford was entitled to injunctive relief it was awarded during the pendency of this action by which Copeland and Helms were restrained from working for a competitor of Oxford, and the case is remanded for proceedings on the bond Oxford provided to secure the granting of that relief. The judgment on Count I of Copeland's and Helms' counter-claims against Oxford for tortious interference with business expectancies is reversed and remanded for a new trial. The judgment for Oxford and against Copeland and Helms on Count II of Copeland's and Helms' counterclaims is affirmed. The case is remanded for further

proceedings consistent with this opinion.

Footnotes: FN1. Integrity Home Care is a business in Joplin, Missouri, owned by Greg Horton. Its business name is registered as a fictitious name. Integrity's corporate identity is ASA Healthcare, Inc. Its primary office is in Springfield, Missouri. FN2. References to statutes are to RSMo 2000 unless otherwise stated. FN3. The language of section 416.031, RSMo 2000, is unchanged from the language in the 1994 revised statutes. FN4. The only authorities on which Copeland and Helms rely are Murphy v. Carron, 536 S.W.2d 30 (Mo.banc 1976), that addresses the scope of appellate review, and section 355.015, a statute that has been repealed. However, although not listed as authority in support of Point II, they cite section 355.025 in the text of their argument in support of Point II. FN5. The tortious interference counterclaim of Copeland and of Helms was Count I of each of their actions against Oxford. Count II of each counterclaim was an action for declaratory judgment. They do not challenge the trial court's entry of judgment on Count II of the counterclaims. FN6. As stated in the trial court's conclusions of law, the elements, as stated in Luketich v. Goedecke, Wood & Co., Inc., 835 S.W.2d 504 (Mo.App. 1992), are (1) a contract or a valid business expectancy; (2) the defending party's knowledge of the contract or relationship; (3) intentional interference by the defending party inducing or causing a breach of the contract or relationship; (4) absence of justification; and (5) damages resulting from defendant's conduct.

Separate Opinion: None This slip opinion is subject to revision and may not reflect the final opinion adopted by the Court.