Auto-Chlor System of The Mid-South, LLC v. Doug Ehlert

COURT OF APPEALS
DECISION NOTICE
DATED AND FILED This opinion is subject to further editing. If
published, the official version will appear in
the bound volume of the Official Reports.
August 5, 2021
A party may file with the Supreme Court a
Sheila T. Reiff petition to review an adverse decision by the
Clerk of Court of Appeals Court of Appeals. See WIS. STAT. § 808.10
and RULE 809.62.

Appeal No. 2020AP1768 Cir. Ct. No. 2019CV817

STATE OF WISCONSIN IN COURT OF APPEALS
DISTRICT IV

AUTO-CHLOR SYSTEM OF THE MID-SOUTH, LLC,

PLAINTIFF-APPELLANT,

V.

DOUG EHLERT,

DEFENDANT-RESPONDENT.

APPEAL from an order of the circuit court for Dane County:
FRANK D. REMINGTON, Judge. Affirmed.

Before Blanchard, P.J., Kloppenburg, and Fitzpatrick, JJ.

¶1 KLOPPENBURG, J. Auto-Chlor System of the Mid-West, LLC,
sued Doug Ehlert for breach of a noncompetition agreement. Ehlert moved for
summary judgment on the ground that the noncompetition agreement is
unenforceable. Auto-Chlor agrees that the noncompetition agreement is
No. 2020AP1768

unenforceable if it is subject to WIS. STAT. § 103.465 (2019-20), which governs
noncompetition agreements in employment contracts.1 Auto-Chlor argues that the
circuit court erred in concluding that the noncompetition agreement is subject to
§ 103.465 and, on that basis, erred in granting summary judgment for Ehlert and
dismissing Auto-Chlor’s complaint. Specifically, Auto-Chlor argues that the court
erred in determining that the noncompetition agreement by its unambiguous terms
required Ehlert to sign the noncompetition agreement as a condition of his
employment with Auto-Chlor. We reject Auto-Chlor’s argument and, therefore,
affirm.

BACKGROUND

¶2 The following facts are undisputed for purposes of summary
judgment.

¶3 Auto-Chlor manufactures, rents, and sells sanitizing and washing
equipment, chemical dispensers, linen washing chemicals, and various
compounds, solutions, and materials for sanitizing and washing eating utensils and
linen washing.

¶4 Ehlert’s parents, Brian and Elizabeth Ehlert, owned a business called
B&E Services, Inc., which was a competitor of Auto-Chlor. Ehlert was a “key
employee” of his parents’ business. On July 5, 2016, Auto-Chlor executed a Sale
of Assets Agreement and Bill of Sale between “BRIAN AND ELIZABETH
EHLERT, DBA AS B & E SERVICES INC, herein called ‘Seller,’ and AUTO-

1
All references to the Wisconsin Statutes are to the 2019-20 version unless otherwise
noted.

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CHLOR SYSTEM OF THE MID SOUTH, LLC, a Delaware LLC, herein called
‘Buyer,’” for Auto-Chlor’s purchase of Ehlert’s parents’ business.

¶5 On the same day, Auto-Chlor and Ehlert executed a contract titled
“Noncompetition Agreement.”

¶6 We will discuss in detail the pertinent provisions of the
noncompetition agreement in our analysis below. Here, it suffices to state that the
agreement makes clear that Ehlert was required to sign the noncompetition
agreement in order for Auto-Chlor to employ Ehlert after the sale of the business
and also for Auto-Chlor to close on the sale of the business.

¶7 On the same day that these agreements were signed, Auto-Chlor
closed on the sale of Ehlert’s parents’ business, and later that month Ehlert became
employed by Auto-Chlor. Ehlert ended his employment with Auto-Chlor in
December 2016.

¶8 Auto-Chlor subsequently filed this action against Ehlert alleging that
he breached the noncompetition agreement. Ehlert moved for summary judgment
on the grounds that the noncompetition agreement violates WIS. STAT. § 103.465
and that, even if it does not violate the statute, Auto-Chlor breached the
agreement. The circuit court granted the motion on the first ground asserted by
Ehlert and dismissed the complaint.

DISCUSSION

¶9 The parties agree to the following three propositions. First, Auto-
Chlor cannot enforce the noncompetition agreement if the agreement is subject to
WIS. STAT. § 103.465.

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¶10 Second, if WIS. STAT. § 103.465 does not apply to the
noncompetition agreement, the agreement is subject to the common law “rule of
reason,” which generally permits greater restrictions on employees and under
which the agreement may be enforceable in whole or in part. See The Selmer Co.
v. Rinn, 2010 WI App 106, ¶19 and n.7, 328 Wis. 2d 263, 789 N.W.2d 621 (under
§ 103.465, a noncompetition agreement that imposes any unreasonable restriction
is entirely unenforceable, but under the common law “rule of reason” a
noncompetition agreement that imposes one or more unreasonable restrictions
may be reformed and enforced to the extent that it is reasonable to do so); id., ¶20
(noncompetition agreements ancillary to the sale of a business are “subject neither
to the ‘exacting scrutiny’ mandated by § 103.465, nor the statute's prohibition on
partial enforcement”); Star Direct, Inc. v. Dal Pra, 2009 WI 76, ¶65, 319 Wis. 2d
274, 767 N.W.2d 898 (explaining that § 103.465 was enacted in response to
Wisconsin supreme court decisions “authorizing courts to modify unreasonable
[noncompetition agreements] to make them reasonable and enforceable.”); id., ¶19
(explaining that noncompetition agreements subject to § 103.465 are “disfavored
at law” and “to be construed in favor of the employee”).

¶11 Third, if Ehlert was required to sign the noncompetition agreement
before he could be employed with Auto-Chlor then WIS. STAT. § 103.465 applies,
and if it was not a condition of employment then § 103.465 does not apply.

¶12 Bearing in mind these agreed propositions, the issue on appeal is
whether, as Ehlert contends, he is entitled to summary judgment and dismissal of
Auto-Chlor’s complaint on the ground that his employment with Auto-Chlor was
conditioned on his signing the noncompetition agreement. We conclude that
Ehlert is entitled to summary judgment on this issue because the unambiguous
language in the noncompetition agreement establishes that Ehlert’s signing the

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noncompetition agreement was required as a condition of Ehlert’s employment
with Auto-Chlor.

¶13 We first summarize the applicable standard of review and legal
principles, next provide additional pertinent background, and then explain our
conclusion and why we reject Auto-Chlor’s arguments to the contrary.2

A. Standard of Review and Legal Principles3

¶14 We review the circuit court’s grant of summary judgment de novo,
construing the facts and reasonable inferences from those facts in the nonmoving
party’s favor. Strozinsky v. School Dist. of Brown Deer, 2000 WI 97, ¶32, 237
Wis. 2d 19, 614 N.W.2d 443. Summary judgment “shall be rendered if the
pleadings, depositions, answers to interrogatories, and admissions on file, together

2
We appreciate both counsel’s compliance with the Rules of Appellate Procedure in
citing in the table of authorities in their briefing each and all of the pages on which each citation
appears, instead of using passim. This facilitates our careful review of the arguments, while use
of passim often hinders it.

On another briefing note, we observe with dismay that Auto-Chlor’s briefing fails to
include any citations to the record. It includes citations to its appendix in the facts section of its
initial brief but does not include citations either to the record or to the appendix in its argument
section or in most of its argument in its reply brief. The appendix is not the record. United
Rentals, Inc. v. City of Madison, 2007 WI App 131, ¶1 n.2, 302 Wis. 2d 245, 733 N.W.2d 322.
We admonish counsel that WIS. STAT. § 809.19(1)(e) requires citations to parts of the record
relied on in the argument section of the brief. Compliance with the Rules of Appellate Procedure,
particularly those rules regarding accurate record citation, is not optional and is essential in
allowing this court to timely perform our duties. See Keplin v. Hardware Mut. Cas. Co., 24
Wis. 2d 319, 324, 129 N.W.2d 321 (1964). This court has no obligation to scour the record to
review arguments unaccompanied by adequate record citation. Roy v. St. Lukes Med. Ctr., 2007
WI App 218, ¶10 n.1, 305 Wis. 2d 658, 741 N.W.2d 256.
3
The noncompetition agreement contains a choice of law provision requiring that any
dispute be resolved by the application of Delaware law, but neither of the parties argues that any
law but Wisconsin law applies here, and we follow the lead of the parties on this in applying only
Wisconsin law.

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with the affidavits, if any, show that there is no genuine issue as to any material
fact and that the moving party is entitled to a judgment as a matter of law.” WIS.
STAT. § 802.08(2).

¶15 WISCONSIN STAT. § 103.465 applies to any agreement by an
employee “not to compete with his or her employer … during the term of the
employment … or after the termination of that employment.” Sec. 103.465. It is
undisputed that the noncompetition agreement here provides that Ehlert was
required to sign it in order to begin employment with Auto-Chlor after the
business sale, with the result that he would be bound by its restrictions on his
business-related activities during his employment for five years after the sale.
Thus, the agreement comes within the statutory language, and Auto-Chlor makes
no argument to the contrary. See Karsten v. Terra Eng’r & Constr. Corp., No.
2016AP2025, unpublished slip op. (WI App Sept. 7, 2017), ¶13 (unpublished
opinion that we may cite for persuasive value, see WIS. STAT. RULE 809.23(3)(b))
(explaining that § 103.465 applies by its explicit terms to any agreement by an
employee “not to compete with his or her employer … during the term of the
employment … or after the termination of that employment,” and that the quoted
language, when read literally, applied to the agreement at issue there). As we
noted in Karsten, id. at ¶14, this court has interpreted § 103.465 to apply to a
noncompetition agreement in circumstances in which the agreement “cannot be
separated from the employment relationship—either because the [agreement] is a
condition of employment, or because the employer possesses an unfair bargaining
advantage vis-à-vis the employee.” Selmer Co. v. Rinn, 2010 WI App 106, ¶23,
328 Wis. 2d 263, 789 N.W.2d 621. Thus Selmer establishes a two-pronged test:
when a noncompetition agreement is a condition of employment or when the

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employer possesses an unfair bargaining advantage vis-à-vis the employee, then
§ 103.465 applies.

¶16 As stated, the first prong of the Selmer rule is that the
noncompetition agreement be a condition of employment.4 Whether the
noncompetition agreement here is a condition of employment requires that we
interpret the noncompetition agreement de novo, according to standard rules of
contract interpretation. See Farm Credit Servs. of North Cent. Wis., ACA v.
Wysocki, 2001 WI 51, ¶¶8-12, 243 Wis. 2d 305, 627 N.W.2d 444 (applying on de
novo review the “standard rules of contract interpretation” to the interpretation of
noncompetition agreements); Runzheimer Int’l, Ltd. v. Friedlen, 2015 WI 45,
¶18, 362 Wis. 2d 100, 862 N.W.2d 879, (stating that noncompetition agreements
are contracts, the interpretation of which is a matter of law that we review de
novo). We construe contracts “‘to ascertain the true intentions of the parties as
expressed by the contractual language,’” recognizing that “the best indication of
the parties’ intent is the language of the contract itself,” because “that is the
language the parties ‘saw fit to use.’” Town Bank v. City Real Estate Dev., LLC,
2010 WI 134, ¶33, 330 Wis. 2d 340, 793 N.W.2d 476 (citation omitted). “‘If the
contract is unambiguous, our attempt to determine the parties’ intent ends with the
four corners of the contract, without consideration of extrinsic evidence.’” Id.

4
Because our conclusion that Ehlert was required to sign the noncompetition agreement
as a condition of employment is dispositive, we do not address whether Auto-Chlor possessed an
unfair bargaining advantage over Ehlert. See League of Women Voters of Wis. Educ. Network,
Inc. v. Walker, 2013 WI App 77, ¶93 n.13, 348 Wis. 2d 714, 834 N.W.2d 393 (“[A]ppellate
courts need not address non-dispositive issues.”).

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B. Additional Background

¶17 The specific language of the noncompetition agreement between
Ehlert and Auto-Chlor reads:
THIS NONCOMPETITION AGREEMENT (this
“Agreement”), dated as of July 5, 2016, is made and
entered into by and between AUTO-CHLOR SYSTEM OF
THE MID-SOUTH, LLC, a Delaware limited liability
company (the “Company”), and DOUG EHLERT (Mr.
Ehlert).

RECITALS

A. The Company and B&E Services Inc are parties
to a contract for Sale of Assets Agreement dated as of the
date hereof (the “Sale of Assets Agreement”), a copy of
which is attached hereto as Exhibit 1.

B. As a material inducement for the Company to
enter into the sale of Assets Agreement, the Company is
requiring Mr. Ehlert to execute and deliver this Agreement.

C. Mr. Ehlert will receive significant personal
benefits by reason of the Company’s execution of the Sale
of Assets Agreement.

AGREEMENTS

….

5. Noncompetition.

(a) As an inducement for the Company to enter into
the sale of Asset Agreement and for the benefits Mr. Ehlert
will receive as a result of the Sale of Asset Agreement, Mr.
Ehlert agrees that for a period of 5 years after completion
of the sale of assets by B&E to Auto-Chlor as expressed in
the Contract for Sale of Assets Agreement (the
“Noncompetition Period”), Mr. Ehlert shall not, directly or
indirectly, whether as a principal, agent, employee,
employer, shareholder, co-partner or in any other individual
or representative capacity whatsoever, engage in any
Prohibited Activities (as defined in section 5(b) below)
with any person or entity in who was a Customer of B&E
Services Inc in the Territory at any time within the 12-
month period before the commencement of the
Noncompetition Period.

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(b) The term “Prohibited Activities” means any or
all of the following: (i) the supply of equipment, products
or maintenance services for warewashing[5] (whether
through the use of automatic dispensers, warewashing
machines, or any other type of equipment and products,
including those similar to the equipment products and
chemical products employed by Auto-Chlor System);
(ii) the sale, installation or service of the equipment
described in the preceding clause (i) and/or the furnishing
of products and materials therefor; (iii) the supply of
laundry equipment, products or maintenance services; and
(iv) the supply or sale of any other products or services that
compete with Auto-Chlor System products and services.

….

(d) Upon execution of this Noncompetition Agreement and
the Auto-Chlor Employment Agreement, Mr. Ehlert will
enter employment with Auto-Chlor System of the MidSouth,
LLC, as an account executive.

(Italicized emphasis added.)

C. Analysis

¶18 The above-italicized language in the noncompetition agreement
expressly conditions Ehlert’s employment with Auto-Chlor on his signing the
agreement. Because this language unambiguously establishes that Ehlert’s signing
the noncompetition agreement is a condition of his employment with Auto-Chlor,
WIS. STAT. § 103.465 applies. Because Auto-Chlor concedes that the
noncompetition agreement is unenforceable if the statute applies, Ehlert is entitled
to summary judgment and dismissal of Auto-Chlor’s complaint alleging that
Ehlert breached the agreement.

5
The term “warewashing” generally refers to the process of cleaning the wares,
including pots and pans, cutlery, flatware, glasses, kitchenware, serving pans, and trays, used in
preparing or serving food.

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¶19 Auto-Chlor does not argue that this language is ambiguous.
However, Auto-Chlor argues that its import in resolving the issue here is somehow
negated by other language in the noncompetition agreement. Specifically, Auto-
Chlor maintains that the noncompetition agreement is also a condition of Auto-
Chlor’s purchase of Ehlert’s parents’ business, and appears to argue that the
agreement cannot be required as both an employment condition and a sale-of-
business condition. We reject this argument.

¶20 As support for the proposition that the noncompetition agreement is
required before the sale of the business could be accomplished, Auto-Chlor points
to provisions that: (1) require Ehlert to sign the noncompetition agreement as an
inducement for Auto-Chlor to purchase his parents’ business; (2) measure the
prohibitions on certain business-related activities not from the termination of
Ehlert’s employment but from the sale of the business; (3) prevent competition
with former B&E customers and not with Auto-Chlor customers; and (4) do not
“restrict Ehlert’s employment options.” We assume without deciding that these
provisions establish that the agreement is a condition of the sale of the business.
However, Auto-Chlor does not make clear why we should conclude, based on that
assumption, that the agreement is not also a condition of Ehlert’s employment
with Auto-Chlor. And we see no reason that the agreement could not be both a
condition of Ehlert’s employment with Auto-Chlor and also a condition of the sale
of the business. That is, Auto-Chlor fails to explain why the agreement’s being a
condition of employment is not dispositive. See Kartsen, No. 2016AP2025, ¶22
(explaining that the noncompetition agreement there was both a condition of
something other than employment and a condition of employment, and that the
latter condition was dispositive).

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¶21 A noncompetition agreement may require that it be signed as a
condition of any number of obligations outside that agreement. Auto-Chlor’s
argument appears to be that, when a noncompetition agreement requires that it be
signed as a condition of obligations outside the agreement in addition to the
employment by one of the parties of the other party signing the agreement, the
connections with the non-employment obligations negate the employment
connection. This proposition would render the Selmer two-prong test
meaningless, because under Auto-Chlor’s approach whenever the parties enter into
any other contractual obligations (as they will frequently do) the employment
condition would lose all significance. Auto-Chlor cites no statement in Wisconsin
case law that a noncompetition agreement that is a condition of employment is not
subject to WIS. STAT. § 103.465 solely because the agreement is also a condition
of other obligations involving one or both of the parties to the agreement. We
reject Auto-Chlor’s argument as contrary to the unambiguous terms of the
noncompetition agreement and unsupported by Wisconsin law.

¶22 It does not help Auto-Chlor to argue in addition that undisputed facts
extrinsic to the noncompetition agreement establish that the agreement is a
condition of the business sale. We reject Auto-Chlor’s argument based on
extrinsic evidence absent its citation to any legal authority that, contrary to the
ordinary rule of contract interpretation, would allow for the consideration of
extrinsic evidence for purposes of construing a contract when the contract terms
are unambiguous. See Farm Credit Services, 243 Wis. 305, ¶12 (under the
standard rules of contract interpretation, we do not consider extrinsic evidence
when the contract language is unambiguous). Indeed, Auto-Chlor acknowledges,
as it must, that our interpretation of the agreement must be based on its specific

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language. Nevertheless, for the sake of completeness, we briefly explain why
Auto-Chlor’s reliance on extrinsic evidence fails.

¶23 Most prominently, Auto-Chlor cites to the fact, undisputed for
purposes of summary judgment, that Ehlert was a “key employee” of his parents’
business. This is important, Auto-Chlor suggests, because it establishes that Auto-
Chlor wanted to bind Ehlert to a noncompetition agreement, whether or not he was
employed by Auto-Chlor.6 However, Auto-Chlor cites no Wisconsin law
supporting the proposition that this strong interest in binding Ehlert’s activities
negates the application of WIS. STAT. § 103.465 to a noncompetition agreement
that also expressly requires its signing as a condition of employment.

¶24 Auto-Chlor also points to a separate noncompetition agreement,
which all Auto-Chlor employees were required to sign, that prohibited employees
from soliciting Auto-Chlor customers for twelve months after their employment
with Auto-Chlor ended. Auto-Chlor contrasts that noncompetition agreement,
which it admits is subject to WIS. STAT. § 103.465, with the noncompetition
agreement at issue here, which it argues is not. It apparently intends to argue that
the application of § 103.465 to a noncompetition agreement that expressly requires
its signing as a condition of employment is negated by the existence of another
noncompetition agreement that also expressly requires its signing as a condition of
employment. However, as with its “key employee” argument above, Auto-Chlor

6
Significantly, Auto-Chlor does not argue that Ehlert was a seller of his parents’
business. See General Bronze Corp. v. Schmeling, 208 Wis. 565, 243 N.W. 469, (1932) (a
noncompetition agreement with the seller of a business may be reasonable because the purchaser
is buying the good will of the business from the seller and is entitled to be protect from
competition by the seller). It is undisputed that Auto-Chlor paid Ehlert while he was employed
with Auto-Chlor but that Auto-Chlor did not pay Ehlert any part of the purchase price for his
parents’ business.

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cites no Wisconsin law supporting such a proposition, and we see no basis for that
argument.

¶25 In sum, we conclude that the unambiguous language in the
noncompetition agreement establishes that Ehlert’s signing the noncompetition
agreement was required as a condition of Ehlert’s employment with Auto-Chlor.
Accordingly, the noncompetition agreement is subject to WIS. STAT. § 103.465.
Given Auto-Chlor’s concession that the noncompetition agreement is
unenforceable if it is subject to § 103.465, Ehlert is entitled to summary judgment
and dismissal of Auto-Chlor’s complaint alleging that Ehlert breached the
agreement.7

¶26 Before concluding, we admonish Auto-Chlor’s counsel for making
repeated unprofessional and disrespectful comments about the circuit court that
have no support in the record. These examples suffice to support our
admonishment: “[t]he court could not conceptually appreciate ….”; “the circuit
court’s reliance on seat-of-the pants intuition as a basis for [its] decision .…”;
“[t]he circuit court misapprehended the basic contract principle requiring
consideration ….”; “[t]he circuit court’s understanding of consideration was
myopically limited ….” Zealous advocacy is not furthered by gratuitous,
disrespectful comments from counsel. Counsel are obligated to make supported

7
Auto-Chlor makes a separate argument that the noncompetition agreement is
enforceable because Ehlert received consideration for signing the noncompetition agreement, in
the form of Auto-Chlor’s “promise” to purchase his parents’ business and its agreeing to employ
him. However, Auto-Chlor does not explain how this matters, given its concession that the
noncompetition agreement is unenforceable if it is subject to WIS. STAT. § 103.465, which we
have concluded it is.

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challenges to circuit court actions or decisions that could have legal merit; counsel
are also obligated to avoid making pointless ad hominem attacks of this kind.

CONCLUSION

¶27 For the reasons stated, we affirm the circuit court’s order granting
summary judgment in favor of Ehlert and dismissing Auto-Chlor’s complaint.

By the Court.—Order affirmed.

Not recommended for publication in the official reports.

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