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Horter Investment Management, LLC v. Cutter

United States District Court, S.D. Ohio, Western Division

June 15, 2017

HORTER INVESTMENT MANAGEMENT, LLC, Plaintiff,
v.
JEFFREY CUTTER, Defendants.

          ORDER REGARDING DEFENDANTS' MOTIONS FOR SUMMARY JUDGMENT

          SUSAN J. DLOTT UNITED STATES DISTRICT COURT JUDGE.

         This matter is before the Court on the Motion for Summary Judgment by Defendant Jeffrey Cutter (Doc. 71) and the Motion for Summary Judgment by Defendants Ryan Borer and PCM Advisory LLC (“PCM”) (together, “Borer/PCM”). (Doc. 72.) Defendants move for summary judgment as to each claim asserted against them by Plaintiff Horter Investment Management, LLC (“Horter”) in its Second Amended Complaint.[1] (Doc. 43.) For the reasons that follow, Cutter's Motion will be GRANTED IN PART and DENIED IN PART, and Borer/PCM's Motion will be DENIED.

         I. BACKGROUND

         Broadly, this action concerns the enforceability and interpretation of noncompetition and nonsolicitation provisions in a contract between Horter and Defendant Cutter. The contextual facts relevant to this contract and its aftermath are set forth below.

         A. Facts[2]

         1. Horter's business

         Horter is a registered investment advisory (“RIA”) firm located in Cincinnati, Ohio that is licensed with the Securities and Exchange Commission. Investment advisor representatives (“IARs”) have the option to operate under their own RIA or to contract with an RIA such as Horter. The benefit of the latter is assistance with overhead, including licensing, compliance, fund managers and custodians, and administrative support. In practice, individual investment clients contract with IARs, who then provide investment offerings through their IAR's RIA. The RIA charges a fee for services to the individual investment clients (the “Gross Client Revenue”)-a portion of which goes to the IAR according to the contract between the RIA and IAR. IARs in this scenario are independent contractors.

         Because IARs secure and maintain individual investment client relationships, an RIA's profitability is tied to its roster of IARs. To attract more IARs, RIAs frequently partner with field marketing organizations (“FMOs”) that, like RIAs relative to investment products, assist those who are selling insurance products (e.g., annuities and life insurance). Many IARs also are licensed to sell insurance products; by partnering with an FMO, an RIA gains access to the FMO's IAR pool for recruitment. In this case, Horter had partnered with an FMO called 3-Mentors. If a 3-Mentors IAR registered his investor license with Horter, 3-Mentors was entitled to a referral fee. This partnership was not exclusive; 3-Mentors was contractually free to, and did, partner with RIAs other than Horter.

         2. Cutter and Lang join Horter

         Cutter and Pete Lang[3] were IARs who had registered their investor licenses with Horter. Cutter first joined Horter in late 2011, and Lang joined around the same time.[4] Horter required that its IARs sign an independent contractor agreement. Horter's form IAR agreement contains restrictive covenants. In March of 2014, Cutter executed a new IAR Agreement (the “2014 IAR Agreement”) that contained provisions unique to Cutter. The portion of the 2014 IAR Agreement that forms the basis of this controversy is the following:

3. Non-competition. In consideration of this Agreement and fees to be received for the performance of his/her duties hereunder, [Cutter] hereby agrees that, as long as this Agreement remains in full force and effect and for a period of twelve (12) months after the termination of this Agreement, whether by the action of Horter or [Cutter], [Cutter] will not, directly or indirectly, own, have a proprietary interest of any kind in, be employed by, be a partner in, or serve as a consultant to or in any other capacity with any firm, partnership, corporation, business enterprise or individual which is engaged in competition with Horter for the providing of financial planning or investment advise [sic] that is located within sixty (60) miles of Hamilton County, Ohio. [Cutter] further hereby agrees that, during the term of this Agreement and for a period of twelve (12) months after the termination of this Agreement, [Cutter] will not directly or indirectly set up his own/or any affiliated Registered Investment Advisor firm, solicit any employee, or contractor of Horter for employment with [Cutter] himself/herself or with any other company or organization with which [Cutter] associates himself/herself. [Cutter] may go to another Registered Investment Advisor firm.
1) [Cutter] or any associated entities or persons will not establish a Registered Investment Advisor firm.
2) [Cutter] or any associated entities or persons will not solicit any employees or contractors/advisors (other than those directly recruited by [Cutter]) of Horter[.]
3) [Cutter] may go to another Registered Investment Advisor firm but not of an associated entity or person.
4) [Cutter] or any associated entities or persons may not recruit any ELITE advisors of Horter that [Cutter] is currently affiliated with.
5) [Cutter] or any entities or persons is also prohibited from using any Horter Training Materials including the Horter websites at any time after Termination.
4. This prohibition against soliciting any Horter employee, Horter advisors (other than those directly recruited under Independent Contractor/Jeffrey Cutter/Cutter Financial Group “Cutter” or affiliated entity direct recruits), meaning also Independent Contractor/Jeffrey Cutter/Cutter Financial Group[5] “Cutter” cannot recruit any Elite Advisors, contractor (advisor) or money manager is absolute, regardless of the type of business or employment or whether or not it is in competition, direct or indirect, with Horter . . . .

(Pl.'s Second Am. Compl., Ex. A, ¶¶ 3, 4 at PageID 390-91, Doc. 43-1.) The numbered paragraphs 1-5 set out by parentheses and the final paragraph (4.) are the provisions unique to Cutter's 2014 IAR Agreement.

         The parties do not agree on the precise reason that these provisions were incorporated into the 2014 IAR Agreement, but they do not dispute the following with respect to Cutter's position among other IARs. First, in 2012, Cutter created a marketing company called Radical Promoting (“Radical”) with a partner, Leibel Sternbach, which was designed to streamline marketing and branding for investment professionals. Horter knew that Radical worked with certain of Horter's IARs, but there was no contract between Radical and Horter governing Radical's relationship with Horter IARs. Second, Cutter and Drew Horter, Horter's president and founder, had negotiated additional compensation to Cutter for referring IARs to Horter, though this arrangement was not reduced to a written agreement.[6] Third, both Cutter and Lang were considered “ELITE” IARs, a term distinctive to Horter and that refers to its ten most valuable IARs based on assets under management.

         3. Creation of a new RIA: PCM

         Toward the end of 2014, Cutter actively began pursuing a path out of Horter. Earlier in 2014, Cutter had met Ryan Borer, who had an ownership interest in an entity called Fusion. While Fusion already operated an RIA at that time, Cutter was looking for an RIA with a model more focused on its IARs. Cutter and Borer both admired the “Keller Williams” business model, in which IARs eventually could benefit from ownership/profit sharing with their RIA. At this time, Lang was also planning to leave Horter, though the parties disagree on what ultimately triggered his departure.[7]

         Toward the end of 2014, Borer, Cutter, and Lang communicated about an RIA modeled on the ideas that they had discussed. In November of 2014, Borer took the formal steps to create PCM.[8] PCM is a Texas limited liability company with its principal place of business in Texas, while also maintaining an office in Ohio. PCM contracted with Radical for marketing and technology services.[9]

         Lang and Cutter resigned from Horter effective February 2, 2015 and February 4, 2015, respectively, and registered with PCM.

         4. Horter/3-Mentors partnership terminates and twenty-four Horter IARs go to PCM

         In early 2015, 3-Mentors entered into a partnership with PCM, similar to that which it had with Horter. Between March 26 and March 27, 2015, 3-Mentors hosted a conference in Atlanta (the “Atlanta Conference”), at which both Cutter, on behalf of Radical, and Borer, on behalf of PCM, made back-to-back presentations. Horter did not attend this conference and ultimately terminated its relationship with 3-Mentors.[10]

         Between early February of 2015 and mid-July of 2015, twenty-four Horter IARs left Horter to register with PCM. All but four of these IARs left Horter subsequent to the Atlanta Conference. Of the twenty-four, Horter considered four of them IARs to be “ELITE” as that term is used in Cutter's 2014 IAR Agreement: Scott Moore, Don Cloud, Rick Durkee, and Pete Lang.

         B. Procedural Posture

         This civil action originally was filed in the Hamilton County Court of Common Pleas on May 22, 2015. PCM removed the lawsuit to the Southern District of Ohio on July 20, 2015.

         Cutter and Borer/PCM have moved for summary judgment as to each claim asserted against them in Horter's Second Amended Complaint. Against Cutter, Horter alleges breach of contract, breach of fiduciary duty, and tortious interference with business relations. Against Borer/PCM, Horter alleges tortious interference with contract and tortious interference with business relations. Horter seeks injunctive relief against all Defendants. The Motions are ripe for adjudication.

         II. STANDARD OF LAW

         Although a grant of summary judgment is not a substitute for trial, it is appropriate “if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a). The process of evaluating a motion for summary judgment and the respective burdens it imposes upon the movant and the non-movant are well-settled. First, “a party seeking summary judgment always bears the initial responsibility of informing the district court of the basis for its motion, and identifying those portions of [the record] which it believes demonstrate the absence of a genuine issue of material fact[.]” Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986); see LaPointe v. United Autoworkers Loc. 600, 8 F.3d 376, 378 (6th Cir. 1993). This burden may be satisfied, however, by the movant “pointing out to the court that the [non-moving party], having had sufficient opportunity for discovery, has no evidence to support an essential element of his or her case.” Barnhart v. Pickrel, Schaeffer & Ebeling Co., L.P.A., 12 F.3d 1382, 1389 (6th Cir. 1993).

         Faced with such a motion, the opposing party must submit evidence in support of any material element of the claim or defense at issue in the motion on which it would bear the burden of proof at trial. Celotex, 477 U.S. at 331-32. As “the requirement [of the Rule] is that there be no genuine issue of material fact, ” the Supreme Court has made clear that “[o]nly disputes over facts that might affect the outcome of the suit under the governing law will properly preclude the entry of summary judgment.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986) (emphasis in original). Ancillary factual disputes, those “that are irrelevant or unnecessary[, ] will not be counted.” Id. Furthermore, “[t]he mere existence of a scintilla of evidence in support of the [non-movant's] position will be insufficient; there must be evidence on which the jury could reasonably find for the [non-movant].” Id. at 252. Instead, the opposing party must present “significant probative evidence” demonstrating that “there is [more than] some metaphysical doubt as to the material facts” to survive summary judgment and proceed to trial on the merits. Moore v. Philip Morris Cos., Inc., 8 F.3d 335, 339-40 (6th Cir. 1993) (applying Anderson, 477 U.S. at 249-50; Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986)).

         At this summary judgment stage, it is not the Court's role “to weigh the evidence and determine the truth of the matter but [rather] to determine whether there is a genuine issue for trial.” Anderson, 477 U.S. at 249. In so doing, “[t]he evidence of the non-movant is to be believed, and all justifiable inferences are to be drawn in [its] favor.” Id. at 255 (citing Adickes v. S.H. Kress & Co., 398 U.S. 144, 157-59 (1970) (citing United States v. Diebold, Inc., 369 U.S. 654, 655 (1962))). Adherence to this standard, however, does not permit the Court to assess the credibility of witnesses. See Adams v. Metiva, 31 F.3d 375, 378 (6th Cir. 1994) (citing Anderson, 477 U.S. at 255)).

         III. ANALYSIS

         The central issue in this controversy is whether the restrictive covenants in Cutter's 2014 IAR Agreement are enforceable, as it underpins the breach of contract and tortious interference with contract claims, and is relevant to whether Defendants tortiously interfered with Horter's business relations. Thus, the Court will decide this question before addressing each of the discrete counts of Plaintiff's Second Amended Complaint.

         A. Enforceability of the 2014 IAR Agreement[11]

         To succeed on a breach of contract claim under Ohio law, which the parties agree governs this dispute, Horter must establish (1) the existence of a binding contract or agreement, (2) that it performed its contractual obligations, (3) that the other party failed to fulfill its contractual obligations without legal excuse, and (4) that it suffered damages as a result of the breach. Garofalo v. Chicago Title Ins. Co., 104 Ohio App.3d 95, 108, 661 N.E.2d 218, 226 (Ohio Ct. App. 8 Dist. 1995) (citing Nat'l City Bank v. Erskine & Sons, 158 Ohio St. 450, 110 N.E.2d 598 (1953)). The parties strenuously dispute the first element as it pertains to the noncompetition and nonsolicitation provisions of the 2014 IAR Agreement (together, the “Restrictive Covenants”).

         Courts must carefully scrutinize contracts with restrictive covenants. Lake Land Emp. Group of Akron, LLC v. Columber, 101 Ohio St.3d 242, 244, 804 N.E.2d 27, 30 (2004) (“Generally, courts look upon noncompetition agreements with some skepticism and have cautiously considered and carefully scrutinized them.”) (internal citation omitted). Nevertheless, they are a fact of “modern economic realities” and are not strictly prohibited. Id. Under Ohio law, restrictive covenants may be enforced against independent contractors as well as traditional employees. Americare Healthcare Svcs., Inc. v. Akabuaku, No. 10AP-777, 2010 WL 4705148, at *7 (Ohio Ct. App. 10 Dist. Nov. 18, 2010). The Court will begin with whether there was consideration for the 2014 IAR Agreement before turning to its substance.

         1. Consideration

         Cutter argues that a failure of consideration renders the 2014 IAR Agreement unenforceable. In support of this argument, he characterizes the Ohio Supreme Court's decision in Lake Land as directing courts to investigate the adequacy of consideration in contracts with restrictive covenants. (Def.'s Mot. Summ. J. at PageID 1061-62, Doc. 71.) The Court finds that this is a mischaracterization, the Lake Land court having in fact stated: “We concur in the view that in cases involving noncompetition agreements, as in other cases, it is still believed to be good policy to let people make their own bargains and their own valuations.” Lake Land, 804 N.E.2d at 32-33 (internal quotation omitted). Where, as here, the relationship between the parties is at-will, “consideration exists to support a noncompetition agreement when, in exchange for the assent of an at-will employee to a proffered noncompetition agreement, the employer continues an at-will employment relationship that could legally be terminated without cause.” Id. at 32.

         Cutter urges that while continued at-will employment may in certain cases constitute adequate consideration, Horter offered additional consideration for the 2014 IAR Agreement- its promise to pay Cutter referral fees. When Horter did not perform, this resulted in a failure of consideration. (Def.'s Reply at PageID 4291, Doc. 88.) While acknowledging an informal agreement between Horter and Cutter about referral fees, Horter disagrees with this premise. Horter maintains that it required the Restrictive Covenants to protect itself, because Cutter, through Radical, was developing relationships with its valuable IARs. Therefore, the only consideration offered, or needed, for this additional protection was a continued at-will independent contractor relationship. (Pl.'s Opp'n Mem. at PageID 2141, 2160-62, Doc. 84.)

         The Court finds that a reasonable juror could conclude that the only consideration for the 2014 IAR Agreement was continued at-will employment.[12] But, to the extent that a trier of fact was to agree that additional consideration was in play, material issues of fact-regarding terms and compliance-remain.[13]

         2. Reasonableness

         The Ohio Supreme Court has adopted a “reasonableness” standard for restrictive covenants, which is to be determined on a case-by-case basis. Raimonde v. Van Vlerah, 42 Ohio St.2d 21, 25-26, 325 N.E.2d 544, 547 (1975). A party seeking to enforce such a contract must show, by clear and convincing evidence, that the restrictive covenants are “[1] no greater than is required for the protection of the employer, [2] do[] not impose undue hardship on the employee, and [3] [are] not injurious to the public.” FirstEnergy Solutions Corp. v. Flerick, 521 F.App'x 521, 525-26 (6th Cir. 2013) (citing Raimonde, 325 N.E.2d at 544). The determination of reasonableness is a question of law. Id. at 526.

         Courts are to consider the following factors in assessing reasonableness:

[W]hether the covenant imposes temporal and spatial limitations, whether the employee had contact with customers, whether the employee possesses confidential information or trade secrets, whether the covenant bars only unfair competition, whether the covenant stifles the employee's inherent skill and experience, whether the benefit to the employer is disproportionate to the employee's detriment, whether the covenant destroys the employee's sole means of support, whether the employee's talent was developed during the employment, and whether the forbidden employment is merely incidental to the main employment.

Basicomputer Corp. v. Scott, 973 F.2d 507, 512 (6th Cir. 1992) (citing Raimonde, 325 N.E.2d at 544).

         The Court identifies the following seven Restrictive Covenants in the 2014 IAR Agreement:

         Related to competition:

1. 3. [A]s long as this Agreement remains in full force and effect and for a period of twelve (12) months after the termination of this Agreement . . . [Cutter] will not, directly or indirectly, own, have a proprietary interest of any kind in, be employed by, be a partner in, or serve as a consultant to or in any other capacity with any firm, partnership, corporation, business enterprise or individual which is engaged in competition with Horter for the providing of financial planning or investment advise [sic] that is located within sixty (60) miles of Hamilton County, Ohio.
2. 1) [Cutter] or any associated entities or persons will not establish a Registered Investment Advisory firm.
3. 3) [Cutter] may go to another Registered Investment Advisor firm but not of an associated entity or person.

         Related to solicitation:

4. [Cutter] further hereby agrees that, during the term of this Agreement and for a period of twelve (12) months after the termination of this Agreement, [Cutter] will not directly or indirectly set up his own /or any affiliated Registered Investment Advisor firm, solicit any employee, or contractor of Horter for employment with [Cutter] himself/herself or with any other company or organization with which [Cutter] associates himself/herself. [Cutter] may go to another Registered Investment Advisor firm.
5. 2) [Cutter] or any associated entities or persons will not solicit any employees or contractors/advisors (other than those directly recruited by [Cutter]) of Horter.
6. 4) [Cutter] or any associated entities or persons may not recruit any ELITE advisors of Horter that [Cutter] is currently affiliated with.
7. 4. This prohibition against soliciting any Horter employee, Horter advisor (other than those directly recruited under Independent Contractor/Jeffrey Cutter/Cutter Financial Group “Cutter” or affiliated entity direct recruits), meaning also Independent Contractor/Jeffrey Cutter/Cutter Financial Group “Cutter” cannot recruit any Elite Advisors, contractor (advisor) or money manager is absolute, regardless of the type of business or employment or whether or not it is in competition, direct or indirect, with Horter . . . .

         Defendants underscore the inartful drafting of these provisions, which is apparent to the Court. They are not well-integrated into the form IAR agreement language and, with one exception, not contain explicit temporal or geographic limitations. Notwithstanding such defects, however, courts may and have modified restrictive covenants to reach reasonable results. First Energy Solutions Corp. v. Flerick, 521 F.App'x 521, 526 (6th Cir. 2013) (citing Raimonde, 325 N.E.2d at 547). See also MP Totalcare Servs. v. Mattimoe, 648 F.Supp.2d 956, 965 (N.D. Ohio 2009). And in this regard, the Court declines to construe any ambiguity against Horter. Volunteer Energy Servs., Inc. v. Option Energy, LLC, 579 F.App'x 319, 322 (6th Cir. 2014). Horter and Cutter, together, negotiated Cutter's unique Restrictive Covenants. (Confidential App. to Pl.'s Opp'n Mem., Woods Dec. Ex. A-26 at PageID 3999-4002, Doc. 86 (email exchange between Cutter and Drew Horter's related to their negotiation of the 2014 IAR Agreement); Id., Ex. A-5, Cutter Dep. Ex. 4 at PageID 3717-19 (same).)

         The Court will now discuss whether the Restrictive Covenants are reasonable under Ohio law or, alternatively, whether they can be modified consistent with the Raimonde standard.[14]

         a. Are the Restrictive Covenants no greater than necessary?

         i. First Restrictive Covenant:

         [A]s long as this Agreement remains in full force and effect and for a period of twelve (12) months after the termination of this Agreement . . . [Cutter] will not, directly or indirectly, own, have a proprietary interest of any kind in, be employed by, be a partner in, or serve as a consultant to or in any other capacity with any firm, partnership, corporation, business enterprise or individual which is engaged in competition with Horter for the providing of financial planning or investment advise [sic] that is located within sixty (60) miles of Hamilton County, Ohio.

         This first Restrictive Covenant contains a clear geographic limitation, within “sixty miles of Hamilton County, Ohio[, ]” that removes it from the scope of this controversy. PCM is located in Texas, and therefore this provision cannot reasonably be said to prohibit Cutter's alleged conduct.

         ii. Second Restrictive Covenant: “[Cutter] or any associated entities or persons will not establish a Registered Investment Advisory firm.”

         This second Restrictive Covenant contains no temporal or geographic locations, rendering it unreasonable on its face. The Court notes, however, that the form portion of the IAR agreement references a twelve-month temporal limitation, which is corroborated by email negotiations between Drew Horter and Cutter also referencing a twelve-month period. (See id., Ex. A-5, Cutter Dep. Ex. 4 at PageID 3717 (March 18, 2014 email from Drew Horter to Cutter: “We agreed that you and your group could go but find other Managers and respect what Horter provides for 12 months.”).)

         Cutter urges that, because the twelve-month restriction in Lang's contract has not been enforced, a twelve-month period is effectively unreasonable in this case. (Def.'s Reply at PageID 4290, Doc. 88.) There is insufficient evidence of a pattern/practice of Horter's non-enforcement of the twelve-month restriction to make a finding on that basis. Moreover, settlement of the claims between Horter and Lang is relevant to whether Horter would, absent such a settlement, ordinarily enforce this term of the form IAR contract. Finally, to the extent that Cutter argues that Horter's failure to act on the noncompetition provision in other cases invokes “waiver by estoppel, ” there is no evidence that Horter misled Cutter to believe that such a provision would not be enforced. See Try Hours, Inc. v. Douville, 985 N.E.2d 955, 962 (Ohio Ct. App. 6 Dist. 2013) (holding that “waiver by estoppel” requires a showing that the complaining party was misled by the other party). The Court therefore finds a twelve-month restriction reasonable.

         The parties also do not dispute that Horter's business is national, and therefore the Court does not find that the nationwide interpretation urged by Horter in its Response is unreasonable.[15] See id., 985 N.E.2d at 966 (nationwide noncompete provision reasonable with respect to a nationwide trucking business).

         iii. Third Restrictive Covenant: “[Cutter] may go to another Registered Investment Advisor firm but not of an associated entity or person.”

         This third Restrictive Covenant, which prohibits Cutter from going to the RIA of an “associated entity or person, ” will be read to have the temporal and geographic limitations of the second Restrictive Covenant.

         iv. Fourth Restrictive Covenant:

[Cutter] further hereby agrees that, during the term of this Agreement and for a period of twelve (12) months after the termination of this Agreement, [Cutter] will not directly or indirectly set up his own /or any affiliated Registered Investment Advisor firm, solicit any employee, or contractor of Horter for employment with [Cutter] himself/herself or with any other company or organization with which [Cutter] associates himself/herself. [Cutter] may go to another Registered Investment Advisor firm.

         This fourth Restrictive Covenant is inapplicable to the allegations at bar. This provision expressly deals with solicitation “for employment.”[16] The Court can identify no claim by Horter that the alleged solicitation or recruitment was “for employment.” Rather, the alleged solicitations relate to independent contractors and an FMO, neither of which is eligible for “employment.”

         v. Fifth through Seventh Restrictive Covenants

         The Court addresses the remaining Restrictive Covenants, the fifth through the seventh, together:[17]

[Cutter] or any associated entities or persons will not solicit any employees or contractors/advisors (other than those directly recruited by [Cutter]) of Horter.
[Cutter] or any associated entities or persons may not recruit any ELITE advisors of Horter that [Cutter] is currently affiliated with.
This prohibition against soliciting any Horter employee, Horter advisor (other than those directly recruited under Independent Contractor/Jeffrey Cutter/Cutter Financial Group “Cutter” or affiliated entity direct recruits), meaning also Independent Contractor/Jeffrey Cutter/Cutter Financial Group “Cutter” cannot recruit any Elite Advisors, contractor (advisor) or money manager is absolute, regardless of the type of business or employment or whether or not it is in competition, direct or indirect, with Horter . . . .

         Besides lacking temporal and geographic limitations, these provisions suffer another defect. They fail to qualify the purpose for which Cutter and his associated entities are prohibited from soliciting/recruiting Horter contractors/advisors and ELITE advisors. In particular, the Court finds the seventh provision extremely overbroad. The Court will not enforce a covenant so broad, and is compelled to limit its applicability to what was envisioned by the parties as evidenced by the other, unique additions to the 2014 IAR Agreement: soliciting/recruiting IARs/3-Mentors to register or partner with an RIA that was “established” or “directly or indirectly set up” by Cutter. See Avery Dennison Corp. v. Kitsonas, 118 F.Supp.2d 848, 854 (S.D. Ohio 2000) (modifying the scope of the restrictive covenant to prohibit employment with only those companies that sold products “substantially similar” to, or “competitive” with, the prior employer); Mattimoe, 648 F.Supp.2d at 964 (N.D. Ohio 2009) (reforming a contract's non-compete to limit it to the “wound care” field). Without the language purporting to impose an “absolute” prohibition against recruitment for any purpose, the seventh Restrictive Covenant effectively restates the fifth and sixth. Accordingly, the Court will not give the seventh Restrictive Covenant any effect.

         In view of the above discussion, the Court finds that only the Restrictive Covenants, as modified below, will be evaluated under the standards set forth in Raimonde and Basicomputer, :

a. During the term of this Agreement and for a period of twelve (12) months after the termination of this Agreement, [Cutter] or any associated entities or persons will not establish a Registered Investment Advisory firm, and will not directly or indirectly set up his own/or any affiliated Registered Investment Advisor firm, in any of the forty-nine United States (except Wyoming), the District of Columbia, or the U.S. Virgin Islands.[18]
b. During the term of this Agreement and for a period of twelve (12) months after the termination of this Agreement, [Cutter] may go to another Registered Investment Advisor firm but not of an associated entity or person in any of the forty-nine United States (except Wyoming), the District of Columbia, or the U.S. Virgin Islands.
c. During the term of this Agreement and for a period of twelve (12) months after the termination of this Agreement, [Cutter] or any associated entities or persons will not solicit any contractors/advisors (other than those directly recruited by [Cutter]) of Horter in any of the forty-nine United States (except Wyoming), the District of Columbia, or the U.S. Virgin Islands to register or partner with an RIA established, or directly or indirectly set up, by Cutter.
d. During the term of this Agreement and for a period of twelve (12) months after the termination of this Agreement, [Cutter] or any associated entities or persons may not recruit any ELITE advisors of Horter that [Cutter] is currently affiliated with in any of the forty-nine United States (except Wyoming), the District of Columbia, or the U.S. Virgin Islands to register or partner with an RIA established, or directly or indirectly set up, by Cutter.

         b. Do the Restrictive Covenants protect legitimate interests?

         Where a restrictive covenant imposes unreasonable restrictions, it “will be enforced to the extent necessary to protect the employer's legitimate interests.” Raimonde, 325 N.E.2d at 547. Therefore, before applying the modified Restrictive Covenants to the balance of the reasonableness factors, the Court considers whether Horter has demonstrated that it sought to protect legitimate business interests.

         Borer/PCM state in their Motion that “Ohio Courts have recognized only two legitimate business interests that are sufficient to support enforcement of a noncompetition agreement, ” and that those interests are “preventing the disclosure of the former employer's trade secrets or the use of the former employer's proprietary customer information to solicit the former employer's customers.” (Def.'s Mot. Summ. J. at PageID 1104, Doc. 72 (citing Brentlinger Ents. v. Curran, 141 Ohio App.3d 640, 752 N.E.2d 994 (Ohio Ct. App. 10 Dist. 2001)) (emphasis added).) Not so. Indeed, Borer/PCM's argument demonstrates the danger in trying to formulate black letter law in an area of law that is inherently fact specific-a danger that the Sixth Circuit expressly has cautioned against:[19]

We have cautioned against interpreting too broadly a fact-bound case evaluating a noncompete covenant. . . .
[A]n employer has a legitimate business interest in avoiding unfair competition caused by an employee's misuse of confidential information, but we disagree that this is the only legitimate business interest an employer can seek to protect through a noncompete covenant.

FirstEnergy, 521 F.App'x at 528 (internal citations omitted) (emphasis added). In fact, other “legitimate interests” have been recognized by Ohio courts:

An employer has a legitimate interest in limiting not only a former employee's ability to take advantage of personal relationships the employee has developed while representing the employer to the employer's established client, but also in preventing a former employee from using his former employer's customer lists or contacts to solicit new customers. . . . In addition, an employer has a legitimate interest in preventing a former employee from using the skill, experience, training, and confidential information the former employee has acquired during the employee's tenure with his employer in a manner advantageous to a competitor in attracting business, regardless of whether it was an already established customer of the former employer.

UZ Engineered Prod. Co. v. Midwest Motor Supply Co., 147 Ohio App.3d 382, 396-97, 2001-Ohio-8779, ¶ 39, 770 N.E.2d 1068, 1080 (Ohio App. 10 Dist. 2001) (internal citations omitted); see also Ak Steel Corp., 2014 WL 11881029, at *12 (recognizing legitimate business interests in protecting confidential information and strategies, even those that do not rise to the level of a trade secret, and customer relationships).

         Cutter also cites Brentlinger in its discussion of whether the Restrictive Covenants protect “legitimate interests.” Focusing on the perceived requirement that Horter show that it was protecting proprietary information, Cutter asserts several reasons why Horter has not made such a showing. First, Cutter argues that the Restrictive Covenants must not be necessary, because Horter would have wanted protection from any of its IARs disclosing proprietary information, but they were only included in Cutter's 2014 IAR Agreement. The Court disagrees. As Cutter himself acknowledges, the form IAR contract contained certain restrictive covenants that could have served the purpose of protecting proprietary information. (See Def.'s Mot. Summ. J. at PageID 1046-47, Doc. 71.) But as discussed (see supra pp. 4-5), because of his recruitment efforts vis-à-vis Radical, Cutter was in a different position than other IARs. Cutter's next argument, that the 2014 IAR Agreement's confidentiality provision negated the need for a separate covenant, is similarly unavailing. The Court does not find anything to suggest that this confidentiality provision and the Restrictive Covenants are mutually exclusive.

         Cutter advances another argument: the nonsolicitation provisions are “unreasonable restraint[s] against the free movement of independent contractors serv[ing] no legitimate purpose.” (Id. at PageID 1066-68.) The cases cited for this argument come from outside Ohio and the Sixth Circuit and, in any event, are distinguishable. Triangle Film Corporation v. Artcraft Pictures, while containing the attributed quote, “[t]hat nobody in his own business may offer better terms to an employe[e], himself free to leave, is so extraordinary a doctrine, that we do not feel called upon to consider it at large[, ]” does not deal with restrictive covenants such as those at issue. Triangle Film Corp. v. Artcraft Pictures 250 F. 981, 983 (2d. Cir. 1918). The quotation cited from LaBriola v. Pullard Group, Incorporated comes from a concurring opinion-the majority having held that the restrictive covenants were unenforceable due to lack of consideration under Washington law. LaBriola v. Pullard Group, Inc., 152 Wash.2d 828, 110 P.3d 791 (2004). Schmorahl, Treloar & Company, P.C. v. McHugh was decided under well-defined Missouri law, which unlike Ohio law, strictly limits enforceability of restrictive covenants to only trade secrets and customer contacts. Schmorahl, Treloar & Company, P.C. v. McHugh , 28 S.W.3d 345, 349 (Mo.Ct.App. 2000). Further, the Schmorahl court did not confront a nonsolicitation clause in conjunction with a noncompetition clause, which could have changed the analysis. Id. at 351 (“The law's policy favors free competition when no agreement provides otherwise[.]) (emphasis added). In National Employment Service Corporation v. Olsten Staffing Service, Inc., “[plaintiff's] employees were light industrial laborers who were not in a position to appropriate the company's goodwill and were without access to sensitive information, ” a fact pattern that is not analogous to the case at bar. National Employment Service Corporation v. Olsten Staffing Service, Inc., 145 N.H. 158, 161 (2000).[20]

         Horter has presented evidence of the “legitimate interests” that it sought to protect by the Restrictive Covenants. Cutter was part of Horter's ELITE advisor group. Cutter acknowledges in a November 18, 2014 email to Drew Horter-produced in response to a discovery request and provided in support of his Motion-that he planned to “help on the Elite Advisor platform.” (Aff. to Def.'s Mot. Summ. J., Ex. P at PageID 1867, Doc. 73.) This elite group exchanged beneficial marketing and operational ideas. (Confidential App. to Pl.'s Opp'n Mem., Woods Dec. Ex. A, Drew Horter Dep. 23: 18-22 (May 24, 2016) at PageID 3530; id., Ex. A-18 at PageID 3940, Doc. 86 (December 18, 2015 email from Lang to several former Horter ELITE advisors: “[T]he formation of our elite group was the genesis for the rapid expansion of each of our businesses.”).) Horter sent ELITE advisors to training sessions on an annual basis (id., Ex. A-6, Drew Horter Dep. 29:4-17, June 7, 2016 at PageID 3789) and they were given “special attention” (id., Ex. A-5, Cutter Dep. Ex. 9 at PageID 3737 (December 9, 2014 email from Drew Horter to Cutter: “[I] want to give you and the other ELITE advisors special attention.”). In an email received and produced by Lang, Borer implies that discussions among an RIA investment committee's members could include trade secrets. (Id., Lang Dec. Ex. B-3 at PageID 4139.) Horter's ELITE IARs were not necessarily an investment committee, but the concept could be analogous. More generally, Drew Horter testified that Cutter was in the health care industry prior to coming to Horter in 2011, which suggests that Cutter gained most of his IAR/RIA knowledge through his tenure with Horter. (Id., Woods Dec. Ex. A-6, Drew Horter Dep. 23:3-10 (June 7, 2016) at PageID 3786.)

         The Court concludes that Horter was attempting to protect its legitimate interest in avoiding unfair competition due to the relationships built and information shared as part of the ELITE advisors group-particularly where Cutter had introduced a further means of tying himself to other ELITE advisors through Radical. See UZ Engineered, 770 N.E.2d at 1080; Ak Steel, 2014 WL 11881029, at *12.

         c. Do the Restrictive Covenants unduly burden Cutter?

         Having determined that the modified Restrictive Covenants protect legitimate business interests, the Court addresses the remaining Raimonde reasonableness factors. To be enforced, the Restrictive Covenants may impose hardship, but not “undue” hardship, upon Cutter. AK Steel Corp. v. ArcelorMittal USA, L.L.C., 55 N.E.3d 1152, 1158 (Ohio Ct. App. 12 Dist. 2016). “Undue” hardship requires a greater showing of impact upon a defendant than simple hardship, and should be determined as of the time the agreement was executed. Try Hours, 985 N.E.2d at 962 (internal citations and quotations omitted).

         Other than as related to overbreadth concerns, addressed above, Defendants do not appear to argue that the Restrictive Covenants impose an undue hardship upon Cutter, and the Court finds little in the way of support for such an argument. Even absent any modification by this Court, the Restrictive Covenants allow Cutter to go to another RIA, provided that it is not the RIA “of an associated entity or person.” (Pl.'s Second Am. Compl., Ex. A, ¶ 3 at PageID 390, Doc. 43.) He is expressly permitted to take IARs that he recruited to Horter. (Id.) There is no prohibition related to his individual investment clients. The Court has the impression that the Restrictive Covenants, as modified, deprive Cutter of virtually no opportunities to continue working in his industry in a position largely identical to the position that he had with Horter. See Basicomputer, 973 F.2d at 513 (discussing continued ability to maintain livelihood as weighing against a finding of “undue hardship”); AK Steel, 55 N.E.3d at 1158 (same); Try Hours, 985 N.E.2d at 962 (same). This factor weighs in Horter's favor.

         d. Are the Restrictive Covenants injurious to the public?

         Defendants do not squarely address this factor, which, at base, concerns the promotion of fair business competition. UZ Engineered Products Co., 770 N.E.2d at 398. It is undisputed that there are a multitude of RIA options nationwide. Individual investment clients in the public have many options available for their investment needs and are not restricted in moving their business from one IAR to another as a result of the Restrictive Covenants. Thus, the Court finds that the Restrictive Covenants are not injurious to the public.

         Having reviewed the reasonableness factors set forth in Raimonde, the Court concludes that they weigh in favor of enforcing the Restrictive Covenants as modified.

         B. Breach of Contract

         The Court now turns to whether Horter has demonstrated genuine issues of material fact as to the remaining breach of contract elements: whether Horter performed its contractual obligations, whether Cutter failed to fulfill his contractual obligations without legal excuse, and whether such failure resulted in damages to Horter. See Garofalo, 661 N.E.2d at 226.

         1. Did Horter perform its ...


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