Core and Main, LP v. McCabe

Background

Core and Main, LP purchased the assets of Minnesota Pipe and Equipment Company in 2017 and hired Ron McCabe, one of that company’s owners, as a salesperson. McCabe signed an Employment Agreement with Core and Main on October 5, 2017, and the parties signed a separate Noncompetition Agreement on October 6, 2017.

The Employment Agreement prohibited competition during McCabe’s employment and for twelve months afterward. The separate Noncompetition Agreement imposed a 24-month restriction beginning on October 6, 2017, and stated that it was the parties’ entire agreement concerning its subject matter and superseded prior or contemporaneous agreements. The court held that this agreement superseded the Employment Agreement’s noncompetition provision and that the restriction expired on October 6, 2019.

Core and Main alleged that, while McCabe was still employed, he encouraged a Core and Main customer to switch from American Flow Control fire hydrants to Mueller fire hydrants, which Core and Main alleged benefited Dakota Supply Group. McCabe resigned on June 1, 2021, began working for Dakota Supply Group on June 7, 2021, and later presented training about fire-hydrant installation and maintenance.

Core and Main brought five claims: breach of the duty of loyalty against McCabe; breach of the duty of confidentiality against McCabe; breach of contract against McCabe; tortious interference with contractual relationships against Dakota Supply Group; and tortious interference with prospective contractual relationships against Dakota Supply Group. The defendants moved to dismiss under Rule 12(b)(6), which permits dismissal for failure to state a legally sufficient claim. They alternatively sought summary judgment on the duty-of-loyalty claim, but the court declined to consider summary judgment because discovery had not occurred.

Analysis and Rulings

Count I: Breach of the Duty of Loyalty

The court denied the motion to dismiss Count I. Under Minnesota law, an employee’s duty of loyalty generally prohibits soliciting the employer’s customers for the employee’s own benefit or otherwise competing with the employer while still employed.

Core and Main alleged that McCabe encouraged one of its customers to switch suppliers while he was still employed, that the switch could harm Core and Main’s relationship with American Flow Control, and that the conduct favored Dakota Supply Group, a competitor. The court concluded that, drawing reasonable inferences in Core and Main’s favor, these allegations could constitute a breach of the duty of loyalty. The court did not decide whether McCabe actually breached that duty.

Count II: Breach of the Duty of Confidentiality

The court granted the motion to dismiss Count II. A common-law duty of confidentiality arises when an employer gives fair notice that information is confidential and treats the information as confidential.

Core and Main alleged that McCabe disclosed its internal billing practices to the defendants’ attorney. But the materials cited by Core and Main referred only generally to “issues with certain people and practices at Core and Main” and did not identify specific billing or business information. The court held that these vague allegations did not plausibly show a breach of confidentiality.

Count III: Breach of Contract

The court granted the motion to dismiss Count III. It held that the Noncompetition Agreement superseded the Employment Agreement’s noncompetition provision because the separate agreement was expressly about noncompetition and contained a merger clause covering prior and contemporaneous agreements.

Because the Noncompetition Agreement’s 24-month restriction began on October 6, 2017, it expired on October 6, 2019. Core and Main alleged that McCabe breached the noncompetition provision through conduct in 2021. The court held that McCabe therefore had no contractual duty not to compete at the time of the alleged conduct, so Core and Main had not plausibly alleged a breach of contract.

Count IV: Tortious Interference with Contractual Relationships

The court granted the motion to dismiss Count IV. Core and Main alleged that Dakota Supply Group interfered with its Employment Agreement with McCabe by hiring him to benefit from his business relationships and by soliciting confidential billing information.

The court held that the first theory failed because Core and Main had not alleged an enforceable noncompetition obligation during the relevant 2021 period. The second theory failed because Core and Main had not plausibly alleged that McCabe breached the confidentiality provision. As a result, Core and Main had not stated a claim for tortious interference with contractual relationships.

Count V: Tortious Interference with Prospective Contractual Relationships

The court granted the motion to dismiss Count V. Core and Main alleged that Dakota Supply Group interfered with its prospective customer relationships through McCabe, in violation of his noncompetition obligations.

Because the operative noncompetition obligations had expired before the alleged conduct, the court held that any interference could not have been wrongful on the facts alleged. Core and Main therefore failed to state a claim for tortious interference with prospective contractual relationships.

Disposition

Judge Wilhelmina M. Wright’s order granted the defendants’ motion to dismiss as to Counts II, III, IV, and V, and denied it as to Count I. The order did not grant summary judgment.