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AMERIGAS PROPANE, INC. v. CROOK

October 25, 1993

AMERIGAS PROPANE, INC., Plaintiff,
v.
J.T. CROOK, RICKY JENKINS, EMPIREGAS, INC. OF LEBANON AND EMPIRE GAS CORPORATIONS, Defendants.



The opinion of the court was delivered by: JOHN T. NIXON

 The Plaintiff, Amerigas Propane Inc. ("Amerigas") seeks injunctive relief against the Defendants J.T. Crook ("Crook"), Ricky Jenkins ("Jenkins") and Empiregas, Inc. of Lebanon ("Empiregas"). On June 28, 1993, this Court heard oral argument upon AmeriGas's motion for a temporary restraining order. On July 2, 1993, this Court entered a Temporary Restraining Order restraining Defendants Crook, Jenkins, and Empiregas, Inc. of Lebanon from soliciting or servicing AmeriGas's Lebanon, Tennessee customers who had purchased liquefied petroleum gas ("propane gas") or otherwise received service from AmeriGas in the year prior to Crook's and Jenkins's resignation from AmeriGas's employ. Further, the temporary restraining order restrained Crook and Jenkins from disclosing any confidential information and from participating in, assisting in or determining Empiregas prices in the Lebanon, Tennessee area. The temporary restraining order also restrained Empire from using any confidential information in unfair competition with AmeriGas.

 On August 12 and 13, the Court heard evidence on AmeriGas's motion for a preliminary injunction. Based upon the evidence presented at that hearing and the complete record in the case, the Court makes the following findings of fact and conclusions of law and grants Plaintiff's motion for a preliminary injunction.

 FINDINGS OF FACT

 I. The Parties

 Plaintiff AmeriGas and Defendants Empire Gas Corporation ("Empire Corporation") *fn1" and Empiregas are competitors in the propane gas industry. Both AmeriGas and Empiregas sell and deliver liquid propane gas to residential and commercial users across the United States. Plaintiff Amerigas is headquartered in Valley Forge, Pennsylvania and is a nationwide distributor of propane gas and operates a retail distribution office in Lebanon, Tennessee. Defendant Empiregas was incorporated in October 1992 and is one of approximately 300 wholly-owned subsidiaries of Defendant Empire Corporation. Empire Corporation is a Missouri corporation, which through its various subsidiaries, distributes propane nationwide. Defendants Crook and Jenkins are former employees of AmeriGas's Lebanon office and are now employed by Defendant Empiregas.

 II. The Propane Gas Industry

 The propane gas business is intensely competitive and companies distinguish themselves and maintain their customers on the basis of price and/or service. The industry's client base consists primarily of individuals who live in rural areas as well as some industrial users. There is not a significant market for propane gas in urban areas because in those areas natural gas is a less expensive alternative. To utilize liquid propane gas, the consumer must have a propane storage tank. Propane gas consumers either own their tanks or rent tanks from the company from which they purchase their propane gas. Although there are exceptions, the majority of the rural propane gas customers are middle to lower income people. Approximately 500 to 600 gallons of propane gas are required for the average home throughout the winter. Thus, at a price which often exceeds a dollar per gallon, the expense of propane gas is a considerable item in the budgets of most consumers. Consequently, customers are very price-sensitive.

 Although price is a critical factor in customer choice, service also plays a role in customer choice of a propane company. Consumers are interested in having a relationship with a supplier who can provide, prompt, reliable, and competent service when needed. As a result of delivering the product and repairing the appliances, customer relationships are established and strengthened over time. Consequently, consumers tend to equate the employee with the company and desire to do business with that company.

 Competitors in the industry recognize the value of customer relationships and attempt to prevent employees from trading on these customer relationships on behalf of a future employer by requiring their employees to sign non-compete agreements. Non-compete agreements are standard in the industry and both Amerigas and Empire Corporation require their employees to sign covenants not to compete.

 III. Crook's and Jenkins's Employment with AmeriGas

 Crook was employed by AmeriGas or its predecessor, CalGas, *fn2" in Lebanon, Tennessee from 1986 to November 1992. Jenkins was employed by AmeriGas or its predecessor, CalGas, in Lebanon, Tennessee from 1987 to November 1992. Generally, AmeriGas requires all new employees to execute a Confidentiality and Post-Employment Activities Agreement. The job candidate will not be hired if he refuses to sign the agreement. Since 1990, AmeriGas' Tennessee area employees have been requested to sign subsequent agreements at the time of their salary increases, as a reminder of their obligations. Failure to sign does not result in the dismissal of the employee. Rather, the employee receives a reduction in his or her raise.

 Crook executed AmeriGas's Post-Employment Agreement in 1990 at the time of his salary increase. He signed an identical agreement in May 1992 at the time of another salary increase. The agreement stated that through his employment, AmeriGas was placing Crook in a position of trust and confidence by disclosing to him "Confidential Information," including past, present and prospective customer identities, pricing policies and practices, and gas usage patterns. This agreement also provides that the former employee will not solicit the propane gas business of any AmeriGas customer for a period of two years following termination of employment and within a fifty mile radius of any office or plant where the employee worked within the two years prior to termination of employment. Further, the agreement forbids former employee to service or sell any propane gas or related appliances, equipment or services to any AmeriGas customer under the previously mentioned time and distance limitations. The agreement defines a "customer" as any person or entity that purchased propane gas or related appliances, equipment or services from AmeriGas within one year prior to the termination of the AmeriGas worker's employment or was solicited by AmeriGas within six months prior to the termination of the employee's employment. By executing the agreement, Crook agreed not to disclose AmeriGas's confidential information and not to compete unfairly with AmeriGas. Moreover, Crook agreed that for a two-year period after his employment with AmeriGas, he would disclose the existence of this agreement to all future employers.

 Jenkins was hired by AmeriGas (which was conducting business as Cal Gas) in 1987 as a seasonal employee. At that time Jenkins executed a one-year non-compete agreement, which is substantially similar to AmeriGas's two-year agreement. In 1989 when Jenkins became a full-time AmeriGas employee, he signed AmeriGas' two-year Post-Employment Agreement. In exchange for salary increases, Jenkins re-executed this agreement in 1990 and in 1992.

 In their employment at AmeriGas, Crook primarily served as a serviceman and Jenkins served as a delivery driver. Generally, however, both men were able to perform the duties typical of the other. In 1992, Crook was made Acting Branch Supervisor. Neither Crook nor Jenkins had experience in the propane gas industry prior to their employment with AmeriGas. Defendants learned about the business through their employment at AmeriGas. While employed by AmeriGas, Crook and Jenkins had access to AmeriGas' confidential information including the identities of customers, customer usage and credit information, AmeriGas's prices and its marketing programs. Moreover, as AmeriGas employees, Crook and Jenkins understood that they were responsible for forming relationships with customers to promote the company in the minds of the customers and that these relationships and the service provided by the employees helped AmeriGas maintain its customer base.

 IV. Crook's and Jenkins's Departure from AmeriGas and Employment with Empiregas

 Prior to leaving his employment with AmeriGas, Jenkins called Empiregas of Murfreesboro, Tennessee about a possible job. Crook and Jenkins met with David Dean, Jr. ("Dean"), a Regional Manager for Empire Corporation. Dean testified that he assumed that Crook and Jenkins had executed non-compete agreements with AmeriGas. Dean was in Lebanon, Tennessee during the summer of 1992 to evaluate the region as a possible site for a new Empire Corporation subsidiary office. During Dean's visit to Lebanon he went to AmeriGas' office to solicit employees to work for Empire. As a consequence of this visit, on September 8, 1992, AmeriGas wrote to Empire Corporation Chairman, Robert Plaster, complaining of Dean's conduct and informing Empire Corporation of AmeriGas employees' obligations under the company's post-Employment Agreement. Crook and Jenkins submitted notices of resignation and terminated their employment with AmeriGas in early November 1992.

 On November 11, Dean drove Crook and Jenkins to Empire Corporation's headquarters in Missouri to be interviewed for jobs. During Crook's and Jenkins's interviews with the president and other senior executives of Empire Corporation President, their non-compete agreements with AmeriGas were discussed; however, no copies of the agreements were given to the Empire Corporation officials and no measures were taken to ensure that Crook and Jenkins would not violate the Amerigas agreement.

 On November 16, 1992, after being hired by Empiregas, Crook and Jenkins opened the company's Lebanon, Tennessee office. Prior to Empiregas officially hiring Crook and Jenkins, they signed a non-compete covenant with Empiregas. Empire Corporation requires that all employees execute such agreements in consideration for receiving their salaries. Refusal to sign the Empiregas Employment Agreement results in the withholding of the employee's paycheck. The Empiregas covenant that Crook and Jenkins signed, like the Amerigas agreement, identifies the type of confidential information to which an employee will have access and may not divulge. The Empiregas agreement, however, is more restrictive that the Amerigas agreement. In contrast to AmeriGas' two-year covenant, Empiregas's covenant prohibits a former employee for a three-year period after leaving Empiregas's employment from working in any capacity for another propane company or competing fuel supplier within a fifty mile radius of where the employee worked within the twenty-four months prior to termination.

 Further, the Empiregas agreement states that the restrictive covenants are not such that they would prevent the employee from earning a living. *fn3" Crook and Jenkins agreed to this provision when they signed the Empiregas agreement. The Amerigas agreement does not include similar language.

 Empiregas provided Crook and Jenkins with a copy of its Management Guidelines to assist them. The Guidelines emphasize the importance of business development and describes soliciting new customers as "undoubtedly the single most important thing that any Empiregas Retail Manger must do." Under the heading, "Soliciting New Business," the guidelines state that "all employees . . . should use every conceivable means and take advantage of every opportunity to obtain new customers for the company." The guidelines suggest several means for developing business, including calling on the competitor's customers.

 V. Solicitation of AmeriGas Customers

 It is undisputed that both Crook and Jenkins have actually solicited AmeriGas customers and have sold to and serviced other AmeriGas customers who came to Empire on their own initiative. As of July 7, 1993, Empiregas calculated that it had a total of 249 customers. Of the total, approximately thirty customers had been transferred to Empiregas's Lebanon office from Empire Corporation's Murfreesboro subsidiary. Of the remaining 219 customers, 106 of these customers are former AmeriGas customers.

 On November 19, 1992, three days after Crook and Jenkins opened the Empire office in Lebanon, they received letters attaching copies of their Post-Employment Agreements with AmeriGas and warning them that AmeriGas would take legal action in the event of their non-compliance. Copies of these letters were also sent to Empiregas and Empire Corporation. On December 21, 1992, Amerigas wrote to Crook, Jenkins, and Empire Corporation stating that ...


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