U.S. Court of Appeals Ruled that Previous Business Owner Did Not Violate Non-compete Agreement

Doug Miller owned two companies in Indiana:  E.T. Products, which blended and sold fuel-additive products, and Petroleum Solutions, which blended and sold lubricant products.

Petroleum Solutions also supplied a few customers with fuel additives from E.T. Products.

In January 2011, a group of investors led by Tom Blakemore purchased E.T. Products. As part of the sale, Miller and his son, Tracy, signed essentially identical non-competition agreements.

The noncompete agreements had a five-year duration. The agreements were broad in geographic scope and in the range of activities they proscribed. The agreement prohibited the Millers to help anyone involved in any company either directly or indirectly engaged in the same industry as E.T. Products anywhere in North America.

The Millers were also forbidden to directly or indirectly own, operate, invest in, advise, render services for or otherwise assist any other competitor.

After selling E.T. Products, Miller continued to own Petroleum Solutions for about a year until it was purchased in January 2012.  Miller and his son continued to have a consulting relationship with the purchaser of Petroleum Solutions.

At first, Petroleum Solutions continued to purchase E.T. Products’ fuel additives for resale. That changed in late 2012. At around this time, the new owner of E.T. Products fired Tom Patton, one of its salesman. When Miller learned of this, he referred Patton to the new owner of Petroleum Solutions who then hired him as a salesman.

E.T. Products contended that Patton thereafter began competing for its customers in violation of his own non-compete agreement. In December 2012, E.T. Products ceased using Petroleum Solutions as its distributor and sued Patton and Petroleum Solutions to enjoin this competitive activity.

Petroleum Solutions found a new supplier and also began blending its own products. When Miller learned that E.T. Products had severed its relationship with Petroleum Solutions, he told the new owner of Petroleum Solutions that he could no longer assist him in the additive business due to his obligations under the non-compete clause.

The Millers then sued E.T. Products in state court, accusing it of violating the release. E.T. Products responded with a federal lawsuit accusing the Millers of breaching a non-compete agreement.

The cases were consolidated in federal court and the parties filed cross-motions for summary judgment. The judge in the federal court case entered a split decision, ruling for the defense in each of the cases. In the lawsuit for the breach of the non-compete agreement, the Millers prevailed against E.T. Products. E.T. Products appealed.

The issue in the case was whether the non-compete agreement was enforceable and whether the Millers violated it.

The court stated that non-compete agreements in the business-sale context are usually treated more leniently than those in the employment context.

The appeals panel found that the geographic restrictions were reasonable, noting the extension of the company’s territory of the new owner of E.T. Products. The court also was found that the short time period of the noncompete agreement was reasonable.

The court of appeals then turned to the question of breach. The panel noted that a company whose sole conduct in a relevant market consists of distributing one manufacturer’s product plainly isn’t that manufacturer’s competitor. The panel found that the Millers’ assistance could not possibly violate the noncompete.  As a result, the court of appeals affirmed the district court’s decision.

E.T. Products, LLC v. D.E. Miller Holdings, Inc., et al., No. 16-1204 (U.S. Court of Appeals for the 7th Circuit, Sept. 20, 2017).

Kreisman Law Offices has been handling commercial litigation cases, litigation dealing with noncompete clauses, business disputes and breach of contract cases for individuals and businesses for more than 40 years in and around Chicago, Cook County and its surrounding areas, including Naperville, Wheaton, Libertyville, Aurora, Waukegan, Chicago (Lakeview, Lincoln Square, Greek Town, Old Town Triangle, Gold Coast, Edgewater, Calumet City), Deerfield, Wheeling and Buffalo Grove, Ill.

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