Salon 2000, Inc., Appellant, vs. Chandra Lynn Dauwalter, Respondent, Beehive Salon Inc., Respondent.

Salon 2000, Inc., Appellant, vs. Chandra Lynn Dauwalter, Respondent, Beehive Salon Inc., Respondent. A06-1227, Court of Appeals Unpublished, June 5, 2007.

This opinion will be unpublished and

may not be cited except as provided by

Minn. Stat. § 480 A. 08, subd. 3 (2006).

 

 

STATE OF MINNESOTA

IN COURT OF APPEALS

A06-1227

 

Salon 2000, Inc.,

Appellant,

 

vs.

 

Chandra Lynn Dauwalter,

Respondent,

 

Beehive Salon Inc.,

Respondent.

 

Filed June 5, 2007

Affirmed in part, reversed in part, and remanded Willis, Judge

 

Hennepin County District Court

File No. CT 05-009014

 

 

Anne D. Byrne, Timothy B. Field, Kallas & Associates, Ltd., 4930 West 77th Street, Suite 210, Edina, MN  55435 (for appellant)

 

Paul P. Sarratori, Sarratori Law Offices, P.A., 2601 Coon Rapids Boulevard, Coon Rapids, MN  55433 (for respondent Chandra Lynn Dauwalter)

 

Christopher P. Parrington, Campbell Mithun Tower, 222 South Ninth Street, Suite 3220, Minneapolis, MN  55402 (for respondent Beehive Salon Inc.)

 

            Considered and decided by Shumaker, Presiding Judge; Klaphake, Judge; and Willis, Judge.

U N P U B L I S H E D   O P I N I O N

WILLIS, Judge

            Appellant challenges the district court's grant of summary judgment to respondents.  Because we conclude that there are genuine issues of material fact regarding appellant's breach-of-contract claim but that summary judgment was appropriately granted on appellant's claim of tortious interference with contract, we affirm in part, reverse in part, and remand.

FACTS

On May 24, 2002, respondent Chandra Lynn Dauwalter, a hairstylist, entered into an employment agreement with appellant Salon 2000, Inc.  The employment agreement contains the following noncompete clause:

Employee promises, beginning with the effective date of this agreement and ending one (1) year after the voluntary or involuntary termination of Employee's employment, not to directly or indirectly engage in any business competitive with the business carried on by the Employer, within a ten (10) mile radius of Employer's place of business.  Employee further agrees not to solicit or have others solicit, on behalf of a competitor, persons or companies who are or were customers or prospects of Employer during Employee's employment with the Employer. 

 

Dauwalter terminated her employment with Salon 2000 without notice by not coming to work after May 26, 2005.  Dauwalter had appointments scheduled for June 7, 2005, but only one of the scheduled customers arrived for his or her appointment. 

On May 31, 2005, Dauwalter entered into a "Lease Agreement" with respondent Beehive Salon, Inc.  Under the lease agreement, Dauwalter rents space in Beehive Salon, and Beehive Salon receives the income from any sale of salon products to Dauwalter's customers.  Beehive Salon provides services and facilities to Dauwalter that include appointment-scheduling services, towels, towel laundry, and the use of a hooded hair dryer.  Dauwalter admits that she provides services at Beehive Salon to 19 customers who were also her customers while she worked at Salon 2000.  The president of Beehive Salon was also once an employee of Salon 2000 and signed an employment agreement with Salon 2000 that contained a noncompete clause similar to the noncompete clause in Dauwalter's employment agreement.        

Salon 2000 brought suit against respondents, alleging that Dauwalter breached her employment agreement "by immediately soliciting new business from [Salon 2000's] clients."  Salon 2000 also alleged in its complaint that Beehive Salon tortiously interfered with the contract between Salon 2000 and Dauwalter.  Respondents each moved for summary judgment, and the district court granted both motions.  This appeal follows.                        

D E C I S I O N

On an appeal from summary judgment, this court asks two questions: (1) whether there are genuine issues of material fact and (2) whether the district court erred in its application of the law.  State by Cooper v. French, 460 N.W.2d 2, 4 (Minn. 1990).  We view the evidence in the light most favorable to the party against whom summary judgment was granted.  Fabio v. Bellomo, 504 N.W.2d 758, 761 (Minn. 1993).  But if that party fails to raise a genuine issue of material fact on any element essential to establishing its case, summary judgment is appropriate.  Lubbers v. Anderson, 539 N.W.2d 398, 401 (Minn. 1995).  "[T]here is no genuine issue of material fact for trial when the nonmoving party presents evidence which merely creates a metaphysical doubt as to a factual issue and which is not sufficiently probative with respect to an essential element of the nonmoving party's case to permit reasonable persons to draw different conclusions."  DLH, Inc. v. Russ, 566 N.W.2d 60, 71 (Minn. 1997).

I.

 

Salon 2000 asserts that the district court erred by granting summary judgment to Dauwalter on its breach-of-contract claim.  The district court determined that "Salon 2000's claim that Defendant Dauwalter solicited customers to leave Salon 2000 is a general assertion unsubstantiated by affidavits or other documentation of customers" who discontinued using Salon 2000's services.  Salon 2000 does not contend on appeal that there are genuine issues of material fact but argues that summary judgment was inappropriately granted to Dauwalter and that Salon 2000 is "entitled to summary judgment as a matter of law" because (1) there is a valid and enforceable contract, including a valid noncompete clause, between the parties; (2) Dauwalter breached the contract both by competing with Salon 2000 within a ten-mile radius and by soliciting Salon 2000's customers; and (3) Salon 2000 has suffered articulable damages as a result of Dauwalter's breach.

            Valid and enforceable contract

It is undisputed that Dauwalter signed an employment agreement with Salon 2000.  Salon 2000 contends that the noncompete clause in Dauwalter's employment agreement is valid and enforceable.  In Minnesota, noncompete agreements are "looked upon with disfavor, cautiously considered, and carefully scrutinized."  Kallok v. Medtronic, Inc., 573 N.W.2d 356, 361 (Minn. 1998).  But a noncompete clause is valid if it is (1) necessary for the protection of the business or goodwill of the employer; (2) not more restrictive than reasonably necessary to protect the employer's business given the nature of that business and the extent of the duration and the geographic scope of the restraint; and (3) not injurious to the public.  Walker Employment Serv. Inc. v. Parkhurst, 300 Minn. 264, 270-71, 219 N.W.2d 437, 441 (1974).     

Under the first requirement, Salon 2000 contends, and we agree, that because stylists are in a position to develop a close relationship with the salon's customers, its noncompete agreement is necessary for the protection of its business.  It asserts that in the salon business, "a customer is more likely to seek the personal services of the stylist than the services of the salon, if the stylist is sufficiently close."  See Webb Publ'g Co. v. Fosshage, 426 N.W.2d 445, 450 (Minn. App. 1988) (determining that a noncompete clause served a legitimate interest in preventing an account executive from soliciting customers because of the strong relationship between the executive and customers that formed when the account executive assisted his employer's customers in developing marketing strategies and was his customers' primary contact with the employer). 

Under the second requirement, Salon 2000 asserts that the noncompete agreement is no more restrictive than is reasonably necessary.  The restriction on competition is relatively limited geographically (ten miles) and temporally (one year).  See Granger v. Craven, 159 Minn. 296, 199 N.W. 10 (1924) (holding that a noncompete clause prohibiting a former employee for a period of three years from opening a doctor's office within 20 miles of the city in which his former employer practiced was a reasonable protection of the former employer's goodwill).  Beehive Salon, in arguing that no valid contract existed with which it could have tortiously interfered, contends that the ten-mile restriction is "completely arbitrary and serves no legitimate, just or honest purpose in protecting Salon 2000's business or goodwill."  But it provides no support for this argument.  We agree with Salon 2000 that its noncompete agreement is a reasonable restriction, both geographically and temporally.                    

Finally, Salon 2000 asserts that the noncompete agreement is not injurious to the public and therefore meets the third requirement.  Beehive Salon argues that the noncompete agreement is injurious to the public because preventing "Dauwalter's customers from using the services of the stylist of their choosing . . . clearly injures those customers."  But the type of injury at issue here is not the type contemplated by the caselaw to invalidate a noncompete agreement.  See, e.g., Bess v. Bothman, 257 N.W.2d 791, 795 (Minn. 1977) (determining that a noncompete provision was not injurious to the public because it did not, for example, foster a monopoly).  If the noncompete agreement here were determined to be injurious to the public, we find it difficult to imagine a noncompete agreement that would not be injurious.     

We conclude as a matter of law that the noncompete agreement in Dauwalter's employment agreement with Salon 2000 is valid.    

Breach of the contract

There are two ways in which Dauwalter could have breached the noncompete clause in her employment agreement with Salon 2000: by engaging in a business competitive with Salon 2000 within ten miles of Salon 2000 and within one year of the termination of her employment or by soliciting customers of Salon 2000.  Salon 2000 asserts that Dauwalter breached the agreement in both ways. 

It cannot be genuinely disputed that Dauwalter breached the one-year geographic restriction in her noncompete agreement.[1]  We do not seriously entertain Beehive Salon's argument on appeal that it is not located within ten miles of Salon 2000.  Reference to a map shows that the businesses are within ten miles of one another, and respondents conceded this fact in their respective memoranda in support of their motions for summary judgment.  Beehive Salon argues that Dauwalter did not breach the one-year geographic restriction in the noncompete clause on the ground that Beehive Salon does not compete with Salon 2000Salon 2000 sells Aveda products and provides salon-related services to the public while Beehive Salon sells non-Aveda products and leases space to stylists.  But establishing that Dauwalter breached her employment agreement does not require that Beehive Salon competes with Salon 2000 but that Dauwalter competes with Salon 2000.  And given Dauwalter's admission that 19 of her customers from Salon 2000 now use her services at Beehive Salon instead, there is at least a genuine issue of material fact regarding whether she competes with Salon 2000, regardless of whether Salon 2000 and Beehive Salon sell the same line of salon products. 

Salon 2000 asserts that the "undisputed facts are sufficient to show that Dauwalter" also breached her noncompete agreement by soliciting customers.  It is undisputed that Dauwalter provides services to 19 customers at Beehive that she formerly served at Salon 2000.  There is also evidence in the record that Dauwalter had appointments scheduled on June 7, 2005, after she had quit her employment, but only one of the scheduled customers arrived for his or her appointment that day.  Salon 2000 has provided sufficient evidence to create a genuine issue of material fact regarding whether Dauwalter breached her employment agreement by soliciting customers of Salon 2000.  

Damages

Salon 2000 argues that it has provided sufficient evidence to establish that it suffered determinable damages as a result of Dauwalter's breach of her employment agreement.  Damages need not be "calculable with absolute precision" but must be "ascertainable with reasonable exactness and may not be the product of benevolent speculation."  Faust v. Parrott, 270 N.W.2d 117, 120 (Minn. 1978).   

Respondents argue that Salon 2000's damages estimates are based on "speculation and conjecture."  Salon 2000 provided the court with a list, obtained through discovery, of customers that Dauwalter formerly served at Salon 2000 and now serves at Beehive Salon and the income that those customers generated for Dauwalter.  This evidence at least creates a genuine issue of material fact regarding Salon 2000's lost profits and whether those lost profits were caused by Dauwalter's breach of her noncompete agreement.  

Because the noncompete agreement between Salon 2000 and Dauwalter was valid, there are genuine issues of material fact regarding Dauwalter's breach of that agreement, and Salon 2000's damages are reasonably ascertainable, we conclude that summary judgment was inappropriately granted to Dauwalter, and we reverse and remand.   

II.

 

            Salon 2000 next argues that the district court erred by granting summary judgment to Beehive Salon on its claim of tortious interference with contract.  To establish a claim for tortious interference with a contract, a plaintiff must show that: (1) a valid contract existed; (2) the defendant had knowledge of the contract; (3) the defendant intentionally procured a breach of the contract; (4) the defendant had no justification for procuring the breach; and (5) the plaintiff suffered damages caused by the breach.  Bebo v. Delander, 632 N.W.2d 732, 738 (Minn. App. 2001), review denied (Minn. Oct. 16, 2001).   

The district court granted summary judgment to Beehive Salon, noting that "Salon 2000 does not have affidavits, documents or other support to substantiate its general assertion that Defendant Beehive tortiously interfered with the alleged contract" between Salon 2000 and Dauwalter, "specifically, that Defendant Beehive had knowledge of the alleged contract or intentionally procured its breach" or that "Beehive lacked justification for allegedly procuring the breach."

Existence of a contract

Because we have concluded that the noncompete agreement is valid, there was a contract for the purpose of Salon 2000's tortious-interference claim.     

Beehive Salon's knowledge of the contract

To establish tortious interference, proof of actual knowledge of a contract is not necessary.  "It is enough to show that [the] defendant had knowledge of facts which, if followed by reasonable inquiry, would have led to a complete disclosure of the contractual relations and the rights of the parties."  Swaney v. Crawley, 154 Minn. 263, 265, 191 N.W. 583, 584 (1923).  Salon 2000 argues that it provided sufficient evidence to create a genuine issue of material fact regarding whether Beehive Salon had knowledge of the agreement between Salon 2000 and Dauwalter or "should have known of the non-compete covenants, had Beehive Salon made reasonable inquiry."      

The president of Beehive Salon knew that Salon 2000 had used noncompete agreements in the past.  The record shows that the president of Beehive Salon is a former employee of Salon 2000 and was subject to a similar noncompete agreement, which she signed in 1991.  Salon 2000 also points out that Beehive Salon has leased space to other former Salon 2000 employees who were subject to similar noncompete agreements and argues that the president of Beehive Salon is an experienced stylist who "should have known that non-compete agreements are typically used in the upscale salon industry."

Construing the facts in the light most favorable to Salon 2000, we conclude that there is at least a genuine issue of material fact regarding whether Beehive Salon either knew about Dauwalter's noncompete agreement or had knowledge of facts that, if followed by an inquiry that would have been reasonable under the circumstances, would have apprised Beehive Salon of Dauwalter's noncompete agreement.               

Intentional procurement of breach of the contract

To establish the third element of tortious interference, Salon 2000 must offer evidence that Dauwalter breached her employment agreement and that Beehive Salon intentionally procured that breach.  See Bebo, 632 N.W.2d at 738.  Because we have concluded that there is at least a genuine issue of material fact regarding whether Dauwalter breached her employment agreement, we move on to address whether Salon 2000 has offered evidence sufficient to create a genuine issue of material fact regarding whether Beehive Salon intentionally procured that breach. 

Beehive Salon argues that because it did not "employ" Dauwalter, it did not procure a breach of her employment agreement.  As Salon 2000 argues, the characterization of the relationship between Dauwalter and Beehive Salon is immaterial.  But Salon 2000 must still offer evidence that Beehive Salon "intentionally and improperly" interfered with Salon 2000's contract with Dauwalter.  See United Wild Rice, Inc. v. Nelson, 313 N.W.2d 628, 633 (Minn. 1982).  Salon 2000 cites Kallok, 573 N.W.2d at 362, for the proposition that it is intentional procurement of a breach of contract to enter into an agreement with a person when the performance of that agreement would be a breach of the person's noncompete obligation.  But in Kallok, it was not merely entering into the new employment contract but also meeting with the employee on several occasions and offering him an employment position that constituted procurement of a breach of his noncompete agreement with his former employer.  Id.  And as Salon 2000 conceded at oral argument, merely entering into an agreement with Dauwalter, even with knowledge of Dauwalter's agreement with Salon 2000, is not tortious interference if Beehive Salon did nothing to induce Dauwalter to breach her agreement with Salon 2000.  See Snowden v. Sorensen, 246 Minn. 526, 533, 75 N.W.2d 795, 799-800 (1956).  

Salon 2000 has offered no evidence that Beehive Salon procured Dauwalter's breach of her noncompete agreement.  Because Salon 2000 has failed to create a genuine issue of material fact regarding intentional procurement of a breach, we conclude that summary judgment was appropriately granted to Beehive Salon on Salon 2000's claim of tortious interference with contract.

III.

 

Both respondents assert that they are entitled to attorney fees because Salon 2000's suit and appeal were "frivolous."  In addition to the fact that our disposition here demonstrates that neither Salon 2000's suit nor its appeal was frivolous, respondents have not complied with Minn. R. Civ. App. P. 139.06, subd. 1, which requires that a request for attorney fees be made by separate motion.  Therefore, we do not consider respondents' request for attorney fees.

Affirmed in part, reversed in part, and remanded.

[1] We note that Salon 2000 made no allegations in its complaint to support a breach-of-contract claim based on Dauwalter's violation of the one-year geographic restriction.  It based its breach-of-contract claim only on the allegation that Dauwalter solicited customers.  But all three parties have proceeded as though the one-year geographic restriction is an additional basis for Salon 2000's breach-of-contract claim.  Both respondents addressed the one-year geographic restriction in their memoranda in support of their motions for summary judgment; Salon 2000 argued in its memorandum opposing respondents' motions for summary judgment that Dauwalter violated the one-year geographic restriction; and Beehive Salon addresses only the one-year geographic restrictionand not the solicitation restrictionin its brief on appeal.  We conclude that the parties have litigated this issue by consent.  See Minn. R. Civ. P. 15.02 (providing that when a party does not raise an issue in its pleadings, the parties may litigate the issue by express or implied consent, and the district court will treat those issues as if they were raised in the pleadings).