EASTERN OIL CO V MARY ERMATINGER
Annotate this Case
Download PDF
STATE OF MICHIGAN
COURT OF APPEALS
EASTERN OIL COMPANY, a Michigan
Corporation,
UNPUBLISHED
August 25, 2009
Plaintiff-Appellant,
v
No. 284286
Oakland Circuit Court
LC No. 05-070411-CZ
MARY ERMATINGER, an individual and
CADILLAC OIL COMPANY, a Michigan
Corporation,
Defendants-Appellees.
EASTERN OIL COMPANY, a Michigan
Corporation,
Plaintiff-Appellee,
v
No. 284442
Oakland Circuit Court
LC No. 05-070411-CZ
MARY ERMATINGER, an individual and
CADILLAC OIL COMPANY, a Michigan
Corporation,
Defendants-Appellants.
Before: Fitzgerald, P.J., and Talbot and Shapiro, JJ.
PER CURIAM.
This contract and tort action arose when defendant Mary Ermatinger was terminated by
plaintiff Eastern Oil Company (Eastern) and went to work for defendant Cadillac Oil Company
(Cadillac). In Docket No. 284442, defendants appeal as of right from the trial court’s entry of
default judgments against them. In Docket No. 284286, plaintiff appeals as of right from the
trial court’s failure to hold defendants jointly and severally liable. We reverse, vacate the
defaults, affirm the trial court’s determination that the contract provision is enforceable, and
remand to the trial court discovery and trial and for entry of an order imposing sanctions
pursuant to MCR 2.603(D)(4).
-1-
I. Basic Facts and Procedural History
Both Eastern and Cadillac are in the business of selling industrial lubricating oils to
machine tool shops. Eastern hired Ermatinger in 1987 as a sales representative. In 1996, she
executed an Employee Confidential Information and Competition Limitation Agreement (the
Agreement). Pursuant to the Agreement, Ermatinger was prohibited from calling on any of
Eastern’s customers for a period of six months following termination of her employment with
Eastern and from using or disclosing any of Eastern’s trade secret formulas. In the event of a
violation of the Agreement, Eastern could elect to require Ermatinger to purchase the good will
associated with any Eastern customer where “any disclosure or use of confidential information,
or any contact, solicitation or dealing prohibited by this Agreement at any time results in, or in
any way contributes to, the sale of any product or service by me, my new employer, or by any
business entity in which I have a direct or indirect interest to” that customer.
While at Eastern, Ermatinger worked as its sale’s representative for Quality Pipe
Products, Inc. (Quality Pipe). In May 2004, Eastern had begun to develop a custom-blend metal
cutting fluid for Quality Pipe, ultimately known as “Formcut 6504.” Formcut 6504 was
successfully developed by October 2004 and non-trial shipments of the product to Quality Pipe
began by late March 2005. Ermatinger had been involved in the development of Formcut 6504
and was one of the authorized personnel able to access its formula on Eastern’s computer system.
Eastern terminated Ermatinger on March 31, 2005. Cadillac hired her in June 2005 as a
sales representative. Around July 2005, Quality Pipe ceased doing business with Eastern and
began obtaining custom-blend metal cutting solution from Cadillac. Two months later, Eastern
received anonymous telephone calls stating that Ermatinger had been violating the Agreement by
soliciting sales from Eastern’s clients and “had been in Quality Pipe selling products for Cadillac
Oil Company for the past month.”
Plaintiff filed suit against Ermatinger and Cadillac Oil seeking both injunctive relief and
damages. After defendants each failed to timely appear, default against each was entered. While
the subsequent motion for entry of default judgment was pending, defendants filed motions for to
set aside the defaults. The trial court found, both on the initial motions and on motions for
reconsideration that neither Ermatinger nor Cadillac Oil had set forth “good cause” for doing so.
II. Defaults
We begin our analysis with the proposition that “the law favors the determination of
claims on their merits.” Alken-Zeigler, Inc v Waterbury Headers Corp, 461 Mich 219, 227; 600
NW2d 638 (1999). As noted by Judge O’Connell in his concurrence in Shawl v Spence Bros,
Inc, 280 Mich App 213, 241, 242; 760 NW2d 674 (2008) (O’Connell, J. concurring), “if a timely
meritorious claim or defense is alleged and the conflict of the parties reasonably falls within the
set of rules at issue, the law favors a lesser sanction than default or dismissal,” and courts should
not allow “the manner in which the procedural rules are implemented [to] be more important
than the substance of the case.” We agree that “[rules of practice and procedure] must be
followed but they must also be thought of as guides and standards to the means of achieving
justice, not the end of justice itself.” Higgins v Henry Ford Hosp, 384 Mich 633, 637; 186
NW2d 337 (1971).
-2-
In this case, the trial court had good reason to be displeased with the actions of
defendants in their failures to cooperate in plaintiff’s attempts to accomplish service. However,
we conclude that each defendant presented “good cause” for its failure to timely appear.1
As to Ermatinger, we conclude that she was never served under the court rules and so she
has shown “a substantial defect or irregularity in the proceedings upon which the default was
based.” Shawl, supra at 221. It is uncontested that Ermatinger was not served pursuant to MCR
2.105(A) by personal delivery of the summons and complaint or by certified mail with filing of a
signed receipt. Where ordinary service cannot be completed, the serving party may seek to serve
by other means that are within the court’s discretion. MCR 2.105(I). However, an order for
substituted service may only be issued after a request made in a “verified motion” and “service
of process may not be made under this subrule before entry of the court’s order permitting it.”
MCR 2.105(I)(2) and (3). Here, no verified motion was filed and no order of the court allowing
it was ever entered. Pursuant to MCR 2.602(A)(2), the date of entry of an order is the date that
the order was signed. The trial court did not issue a written order allowing substituted service
and so no order was ever entered. We do not disagree with the trial court’s conclusion that
Ermatinger was evading ordinary service and discuss this further below as it applies to MCR
2.603(D)(4). However, absent compliance by both the serving party and the trial court with
MCR 2.105(I), we cannot find that she was served and so conclude that she has satisfied the
good cause requirement.
As to Cadillac Oil, we conclude that the trial court erred in finding that Cadillac had been
served and so agree that it has also demonstrated “good cause.” Plaintiff alleged that service was
made on Cadillac by personal delivery of the summons and complaint upon its resident agent and
president, Roger Piceu. The court held an evidentiary hearing on this issue at which time Eastern
Oil’s process server testified. He refused to provide his actual name which, according to
defendants’ briefing, is Harvey Aidem, and instead gave the court only the name “O’Malley”
which he described as his “street name” and “professional name.” He testified that he personally
served Piceu on November 11, 2005 on Cadillac’s premises. The trial court concluded that the
issue was one of credibility and that the process server’s testimony was more credible that
Piceu’s since Piceu had been evading service. While Piceu’s credibility is questionable, we
conclude that the other evidence presented at the hearing and in the motion for reconsideration
1
Defendants’ claim that the trial court had no jurisdiction over them is without merit. Both
defendants appeared through a general appearance filed by their counsel. In doing so, defendants
submitted to the court’s jurisdiction. Penny v ABA Pharmaceutical Co (On Remand), 203 Mich
App 178, 181; 511 NW2d 896 (1993) (a defendant “who enters a general appearance and
contests a cause of action on the merits submits to the court’s jurisdiction and waives service of
process objections”). Although Al-Shimmari v Detroit Med Ctr, 477 Mich 280, 293; 731 NW2d
29 (2007) overruled Penny’s statement regarding service of process objections to the extent it
conflicted with MCR 2.116(D)(1), it left intact the conclusion that failure to file a limited
appearance subjected defendants to the jurisdiction of the trial court. See id. at 292, n 17
(“whether a party ‘submits to the court’s jurisdiction,’ is irrelevant in determining whether a
party has waived a (C)(3) objection” [citations omitted]). Accordingly, the trial court had
jurisdiction over defendants.
-3-
demonstrates that Piceu was not in Michigan, but rather Florida on the alleged date of service.
This evidence included: credit card receipts showing use of Piceu’s personal credit card in
Stuart, Florida on November 11; an affidavit from a Florida resident that Piceu was with her on
both the morning and evening of November 11; an affidavit from Cadillac’s general manager
that a process server came to the company’s premises on November 11 looking for Piceu and
that he was advised that Piceu was not present and that, in fact, Piceu was not at the office that
day but instead was out of town; and credit card receipts and sales invoices made out to Piceu
from Florida for November 10 and 12. Moreover, we do not believe that the process server’s
testimony can be considered credible. First, as already noted, it is uncontested that he refused to
give his name and signed the proof of service with a false name and the proof of service was not
notarized. Second, at Cadillac’s motion to strike the proof of service, plaintiff’s counsel did not
dispute that O’Malley’s true name was Harvey M. Aidem or that Aidem had been convicted on
two felony counts of larceny by conversion, MCL 750.362, and one count of obtaining money
under false pretenses, MCL 750.218. Given the nature of these offenses, we cannot agree that
“O’Malley” was a credible witness. We, therefore, find that the trial court clearly erred in
concluding that Piceu had been served on November 11.
We also find that defendants did present meritorious defenses, although these were
somewhat limited by the trial court’s focus on the issue of service, rather than meritorious
defense, when it denied the motions to set aside default. Indeed, the trial court directed the
parties at the hearing not to discuss the meritorious defense issue. Cadillac provided an affidavit
from Piceu that alleged that the restrictive covenant was not binding on Cadillac because it was
not a party to the Agreement. It also alleged that it owed no duty to plaintiff. This affidavit
provided a meritorious to plaintiff’s claim for injunctive relief.
Cadillac also provided Tilotti’s affidavit which stated:
6. As Vice President and General Manager, I interviewed Mary
Ermatinger for employment at Cadillac. Ms. Ermatinger had contacted me,
looking for a job. She explained that Eastern Oil Company (“Eastern”) had fired
her, and she needed employment.
7. During the course of the interview, I became aware of the existence of
a non-competition covenant that existed between Eastern and Ms. Ermatinger. It
was my understanding that, according to the covenant, Ms. Ermatinger was
prohibited from soliciting Eastern’s customers for a period of six months.
Because Ms. Ermatinger was fired by Eastern, I did not know whether the
covenant was still enforceable. Nevertheless, I advised Ms. Ermatinger that, if
she were to be hired by Cadillac, she should not solicit Eastern’s customers during
the remaining term of the covenant.
***
11. During the course of this litigation, I understand that Eastern has
accused Ms. Ermatinger or Cadillac, or both, of misappropriating a secret formula
used by Eastern. I categorically deny that this has occurred. To be clear, Ms.
Ermatinger is involved in sales for Cadillac. She has nothing to do with
chemistry or the make up of the oil compositions and formulas which Cadillac
-4-
supplies to its customers. . . . No misappropriation by Ermatinger or Cadillac of
any formulas or trade secrets of Eastern has ever taken place to the best of my
knowledge and belief. Ms. Ermatinger was not consulted by our chemists about
any formula or trade secret of Eastern.
These assertions, if proven, could provide a meritorious defense against plaintiff’s
misappropriation of trade secrets, tortious interference with a business relationship, conspiracy,
and unjust enrichment claims. These two affidavits together provided a meritorious defense as to
all of plaintiff’s claims.
Ermatinger’s affidavit of merit alleged that the preliminary injunction is moot because
her restriction on calling on Eastern’s customers only lasted six months and the six-month period
had expired. This was clearly a meritorious defense as to the injunctive claim. While this does
not foreclose the claim that she actually violated the Agreement causing economic damages to
Eastern, her affidavit went on to deny that she violated the Agreement. Moreover, Tilotti’s
affidavit spoke to Ermatinger’s defense by stating that she had never provided Cadillac with the
formula for Formcut 6504 or any other material and that she was specifically directed not to
contact Quality Pipe or solicit their business.
We are cognizant of the fact that the trial court found that both defendants were actively
and intentionally evading service and we do not disagree with that conclusion. Thus, although
we are directing that the defaults be set aside, we direct that on remand, the trial court, pursuant
to MCR 2.603(D)(4), assess taxable costs against defendants, including reasonable fees for all
attorney fees incurred by plaintiff as a result of the default, including this appeal, and for the
costs incurred by plaintiff in its attempts to serve defendants.
III. Remaining Claims
In light of our decision to reverse the default judgments against both defendants and
remand the case for discovery and trial, we need not consider plaintiff’s appeal regarding the
amount of damages. Our reversal similarly precludes the need to decide defendants’ assertion
that the formula in the non-compete clause was an unenforceable liquidated damages provision.
However, because this issue will come up again on remand, and the trial court already decided
the issue, to promote judicial efficiency, we will consider the merits.
The provision at issue provides:
If any disclosure or use of confidential information, or any contact,
solicitation or dealing prohibited by this Agreement at any time results in, or in
any way contributes to, the sale of any product or service by me, by my new
employer, or by any business entity in which I have a direct or indirect interest, to
any customer(s) of EASTERN that I was prohibited from contacting; then
EASTERN, in its sole discretion and in addition to any other remedy provided by
law or in the Agreement, may elect to sell the goodwill associated with any such
customer(s) to me or to any business entity in which I have an interest. In the
case of such election by EASTERN, I agree, on behalf of myself and any business
entity in which I have an interest, to purchase the goodwill of any such
-5-
customer(s) and to pay EASTERN therefore an amount to be determined as
follows:
a. With regard to any customer(s) that has purchased goods or services from
EASTERN for a period of time in excess of two years preceding the
election, the purchase price shall be equal to the total of EASTERN’S
gross sales to such customer(s) during the two calendar years immediately
preceding the election;
b. With regard to any customer(s) who has not purchased goods or services
from EASTERN for a period in excess of two years prior to the election,
the purchase price shall be determined by multiplying the average monthly
gross sales to such customer(s) for all months preceding the election, by a
factor of twenty-four (24) months.
The sale of goodwill shall not be deemed effective until EASTERN has received
the full purchase price. I agree that the goodwill of any customer is difficult to
evaluate and that the formula set forth in this paragraph is a commercially
reasonable means of determining value.
Although the non-compete clause had a duration of six months, there was no duration on the
duty not to disclose confidential information. The trial court held that this provision was
enforceable under the law because it was “neither unconscionable nor excessive, and appears to
be reasonable.” It further concluded that defendants failed to prove any authority that the
Agreement was one of adhesion. We agree.
Our Supreme Court has upheld provisions such as this one, reasoning:
An employee who possesses confidential information regarding a client is in a
position to exploit that information for the purpose of obtaining the patronage of
the client after leaving his employer’s service. In view of the risks presented by
an employee’s knowledge of confidential customer information, and the perceived
unfairness of allowing the employee to gain a competitive advantage by using it,
an employer may protect himself from the unauthorized use of such confidential
information by obtaining an agreement that, in the event the employee obtains the
patronage of former clients, he will be obliged to pay the employer according to
an agreed formula. [Follmer, Rudzewicz & Co, PC v Kosco, 420 Mich 394, 406407; 362NW2d 676 (1984).]
To be enforceable, the agreement must be reasonable. Id. at 408.
As noted by Eastern, remarkably similar provisions to the one contained in the
Agreement have been upheld as valid. In Follmer, with is sister case Nolta-Quail-Sauer & Assoc
v Roche, our Supreme Court upheld the enforcement of two non-compete clauses that required
the purchase of goodwill when violated. The Follmer agreement provided for a period of three
years and a goodwill value of the billable time spent by the employer during the immediate 12
months preceding termination. Id. at 398, n 1. The Nolta-Quail-Sauer agreement provided for a
time period of five years and a penalty of three times the first year’s insurance sales
-6-
commissions. Id. In Rehmann, Robson & Co v McMahan, 187 Mich App 36; 446 NW2d 325
(1991), this Court upheld a provision requiring no contact or solicitation for a period of two
years after termination, with a penalty of the employer’s billings for the one-year period prior to
termination. Id. at 41-42.
In this case, the limitation of six months is remarkably small compared to the multi-year
limitations contained in these other enforceable provisions, making its duration reasonable.
Although there is no time limit on the disclosure of confidential information, we do not believe
that this renders the provision unenforceable, as that requirement is unrelated to Ermatinger’s
ability to seek or perform future employment. Additionally, the use of gross sales to determine
the value is similar to the other agreements’ use of billings. None of these provisions speak in
terms of profit, let alone net profit, such that the use of gross sales does not seem unreasonable.
Although two of the upheld agreements set the value based on one-year’s previous billings, the
Nolta-Quail-Sauer provision takes one year’s worth of commissions and multiplies it by three.
Nothing in the Nolta-Quail-Sauer provision takes into account whether there was any
expectation that the customer would continue to do business with the company for three years.
Thus, we are unpersuaded by defendants’ argument that the provision in this case is
unenforceable because it essentially provides for two year’s worth of sales without any evidence
that the customer would stay.
Finally, in Rehmann, supra, this Court held that “we find no reason why designating the
amount paid as ‘goodwill’ in one instance and as a ‘penalty’ in the other makes any material
difference.” Id. at 47. Thus, defendants’ continued characterization of the provision as a penalty
rather than the purchase of goodwill has no impact on this claim. We agree with the trial court
that the non-compete clause is reasonable and, therefore, enforceable.
IV. Conclusion
In both cases, we reverse, vacate the trial court’s entry of default judgments against
defendants, affirm the trial court’s holding that the Agreement is enforceable, and remand to the
trial court to order discovery, schedule trial, and enter an order pursuant to MCR 2.603(D)(4)
assessing taxable costs against defendants, including reasonable fees for all attorney fees
incurred by plaintiff as a result of the default, including this appeal, and for the costs incurred by
plaintiff in its attempts to serve defendant.
/s/ E. Thomas Fitzgerald
/s/ Douglas B. Shapiro
-7-
Some case metadata and case summaries were written with the help of AI, which can produce inaccuracies. You should read the full case before relying on it for legal research purposes.
This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.
