[00:00:01] Speaker 02: The next case this morning is 23-3136 Lawson v. Spirit arrow system. [00:00:08] Speaker 02: Counsel for the appellant, if you would make your appearance and proceed, please. [00:00:16] Speaker 05: Thank you, Your Honor, and may it please the Court. [00:00:19] Speaker 05: I'm Joseph Baio, counsel for the plaintiff appellant, Larry Lawson. [00:00:24] Speaker 05: Your Honors, this is a contract case. [00:00:27] Speaker 05: where the terms of the contracts as well as their impact on the parties and the public must be examined under Kansas law. [00:00:37] Speaker 05: Mr. Lawson respectfully submits that in reaching its decision, the district court ignored important contractual language and ultimately applied the wrong legal standard. [00:00:50] Speaker 05: And it did that when it held that the non-compete clause in this case is enforceable [00:00:57] Speaker 05: to forfeit the bulk of the compensation that Mr. Lawson had already earned as spirit CEO without any consideration of whether the terms of the clause are unreasonable or overbroad. [00:01:13] Speaker 02: Help me with this point about already earned. [00:01:17] Speaker 02: I thought the question was that these stock options had to vest and that they had not vested at that time. [00:01:24] Speaker 02: Is that not right? [00:01:26] Speaker 05: Well, Your Honor, there is a vesting requirement, but the award of the stock itself is compensation. [00:01:34] Speaker 02: But these options had no monetary value, right, until they'd vest. [00:01:39] Speaker 05: They had a great deal of monetary value. [00:01:43] Speaker 05: It just couldn't be converted into cash unless it passed the vesting. [00:01:49] Speaker 05: But that's what we are challenging. [00:01:51] Speaker 05: We're challenging [00:01:53] Speaker 05: the enforceability of the provision that prevented him from getting the money. [00:01:59] Speaker 05: Obviously, in every case where there is a challenge of the provision that is non-compete, something is not met. [00:02:10] Speaker 05: So the vesting did not occur. [00:02:13] Speaker 05: But all of the cases and the judge himself in the trial court, in the findings, [00:02:19] Speaker 05: said this was earned, the stock was earned, and the stock has value, because only one person testified about it, to the tune of $28 million. [00:02:30] Speaker 02: OK, let me just clarify for my own purposes. [00:02:35] Speaker 02: Isn't there a distinction with a difference between a scenario in which, let's say, there is a concrete pot of money, named $10 million, that the company says, [00:02:47] Speaker 02: If you go through this period where you're a consultant for us for a year, [00:02:52] Speaker 02: you will get your $10 million. [00:02:55] Speaker 02: This is your money. [00:02:56] Speaker 02: All you have to do is do your year, and you get the $10 million. [00:03:00] Speaker 02: Isn't there a distinction between that and a scenario in which? [00:03:04] Speaker 02: And so it is his money. [00:03:05] Speaker 02: I mean, they've given it to him. [00:03:07] Speaker 02: They just say you can't claim it. [00:03:09] Speaker 02: Isn't there a distinction? [00:03:10] Speaker 05: I don't think so, Your Honor. [00:03:11] Speaker 05: And I think the Varney case really, really rejects that notion. [00:03:16] Speaker 05: The fact is that he had these stock rights. [00:03:20] Speaker 05: And they were taken away. [00:03:22] Speaker 05: The value was taken away by virtue of the clause. [00:03:27] Speaker 05: The same thing happens when you're talking about a pot of money. [00:03:30] Speaker 05: This is like a pot of money that is sitting there. [00:03:33] Speaker 05: Now there is something that needs to occur before you can get the pot of money. [00:03:39] Speaker 05: But that's what this was. [00:03:40] Speaker 05: This was a defined body of stock that [00:03:47] Speaker 05: that if he was entitled to it would be the equivalent of $28 million. [00:03:50] Speaker 02: Yes, but you have to meet certain conditions in order to get the money. [00:03:54] Speaker 02: And I guess what I'm trying to get at is isn't there a distinction between a situation in which you have to meet certain conditions. [00:04:01] Speaker 02: You're alleged not to have met the conditions. [00:04:03] Speaker 02: Therefore, you forfeit that in a situation in which actually somebody is taking money out of your pocket. [00:04:10] Speaker 02: In other words, a scenario in which it is your money and if you do this, you will face a penalty. [00:04:17] Speaker 02: We will take X amount of money from you. [00:04:20] Speaker 05: A couple of things, Your Honor. [00:04:21] Speaker 05: I think it's the same thing. [00:04:23] Speaker 05: I do think... There's no distinction between those two scenarios. [00:04:27] Speaker 05: There's no difference in connection with is it a pot of money or is it stock. [00:04:32] Speaker 02: that's worth 10 million dollars. [00:04:43] Speaker 02: between a situation in which you face a penalty in the sense that somebody takes something from you that you have, okay, says, okay, if you don't do this, you've got to pay us $10 million. [00:04:54] Speaker 02: A difference between that and a scenario in which if you don't do this, we won't give you 10 million. [00:05:00] Speaker 05: I don't think so, Your Honor. [00:05:01] Speaker 05: I think it's the same thing. [00:05:03] Speaker 05: It's $10 million that's sitting there, whether it's in the form of stock that was awarded. [00:05:08] Speaker 05: And by the way, the stock was awarded [00:05:10] Speaker 05: and got its value because Mr. Lawson did his job. [00:05:14] Speaker 05: He turned around a company that was in desperate shape. [00:05:20] Speaker 05: So the stock itself was the reward and its value was the result of what he did. [00:05:28] Speaker 05: Go ahead, Your Honor. [00:05:30] Speaker 03: I assume you're going at the distinction that we've been looking at with the wording of the contract, a condition preceded. [00:05:38] Speaker 03: Yes. [00:05:38] Speaker 03: Which is, you can contract for that, and it's a condition of which, if you meet, you get it. [00:05:46] Speaker 03: If you don't meet it, you don't get it. [00:05:49] Speaker 03: I mean, that's the way a condition preceding works. [00:05:52] Speaker 05: Well, yes, Your Honor, except that the condition preceding here, the foundation of it is a non-compete clause, which itself is over-broad. [00:06:00] Speaker 05: Well, that's what we're arguing about right now. [00:06:02] Speaker 03: Yes. [00:06:02] Speaker 03: Or what you're arguing about. [00:06:03] Speaker 05: That's correct. [00:06:05] Speaker 05: Now, we end up, just to make it clear, even if it's just a forfeiture, this is not a forfeiture for competition. [00:06:15] Speaker 05: provision, it is an out and out prohibition, Your Honor. [00:06:20] Speaker 05: Prohibition for what? [00:06:22] Speaker 05: Prohibition to do any of the things that he did. [00:06:25] Speaker 03: It's not just a forfeiture provision. [00:06:27] Speaker 03: They specifically adopted in the consulting agreement the employment agreement. [00:06:33] Speaker 03: That comes in that way. [00:06:36] Speaker 03: But he's not being denied [00:06:38] Speaker 03: employment is denied the opportunity to earn under the condition preceded. [00:06:44] Speaker 05: But the clause, when you read the language, it's all prohibitive. [00:06:50] Speaker 05: Even the court, the panel before this, concluded that not only did it prevent him from competing, it prevented him from that very long daisy chain [00:07:07] Speaker 03: Which starts with no competition. [00:07:08] Speaker 03: Did this prevent him from doing anything that he otherwise could have done under the terms of the contract? [00:07:16] Speaker 03: Absolutely. [00:07:17] Speaker 05: It prevented him from not competing but working or having a consultancy arrangement [00:07:22] Speaker 05: with a company, Elliot, that didn't compete. [00:07:25] Speaker 05: That's a huge, I mean, that's the problem with the clause. [00:07:29] Speaker 05: And that's exactly what this court, what the trial court enforced. [00:07:34] Speaker 03: But he understood that from the get-go because I have to admit when I was reading the district court's order the second time around, the gentleman saw a problem to the point of where according to the district court, he can't lose. [00:07:52] Speaker 03: because he's been indemnified. [00:07:54] Speaker 03: But the indemnification is... He can't lose. [00:07:57] Speaker 03: I mean, there's nothing he's losing. [00:07:59] Speaker 05: Sure, he does, Your Honor. [00:08:01] Speaker 05: First of all, the indemnification has nothing to do with whether Kansas is going to enforce an overbroad non-compete. [00:08:08] Speaker 03: It really... No, my point is he recognizes that there is a problem here in entering into all of this. [00:08:15] Speaker 03: Well, he actually... Otherwise, he wouldn't have agreed [00:08:17] Speaker 03: He wouldn't have an indemnification for himself. [00:08:20] Speaker 05: They threatened him. [00:08:21] Speaker 05: They said out and out, you are violating. [00:08:24] Speaker 05: They didn't say that we're just going to forfeit. [00:08:26] Speaker 05: They said you are violating the non-compete clause here. [00:08:30] Speaker 05: That's what they told him. [00:08:32] Speaker 05: Of course he sought, if he could get it, coverage. [00:08:35] Speaker 05: He did not get complete coverage, by the way. [00:08:38] Speaker 05: There's still $5 million that he's out as a result of what was done. [00:08:42] Speaker 05: But that has nothing to do with whether the reasonableness test [00:08:47] Speaker 05: is supposed to apply. [00:08:48] Speaker 03: And the court here, the lower court, well, excuse me for interrupting you, but your argument is that there's automatically a violation of the reasonableness because it wasn't even considered. [00:09:03] Speaker 03: Well, no, it's two parts, Your Honor. [00:09:06] Speaker 05: The first part is, reasonableness test in Kansas applies. [00:09:11] Speaker 05: It applies to every non-compete clause, irrespective of the remedy that's sought. [00:09:17] Speaker 05: It's not remedy driven, it's what is the restriction. [00:09:20] Speaker 05: That was made very clear in the Idbiss case. [00:09:23] Speaker 05: So the restriction itself here is, I think everybody has recognized, over-broad, very, very, very broad. [00:09:33] Speaker 05: In fact, no one has cited a single case that has enforced the clause that goes that far. [00:09:42] Speaker 02: The question is, [00:09:44] Speaker 02: whether this is a traditional non-compete and is consistent with or tracks the policies that have been in play that requires a reasonableness test. [00:09:54] Speaker 02: And part of those policies is the question of [00:09:58] Speaker 02: whether you were prohibited from working. [00:10:02] Speaker 04: Yes. [00:10:03] Speaker 02: And you aren't prohibited. [00:10:05] Speaker 02: Well, to some extent, there were things that he could do. [00:10:09] Speaker 02: He could not be in that lane that involved him being directly in competition with his former firm. [00:10:16] Speaker 02: But I think there's stuff in the record that suggests there are things he could do. [00:10:20] Speaker 05: No, I don't think there is, Your Honor. [00:10:22] Speaker 05: In fact, there is nothing in the record that says he could do X or Y. In fact, because he's not allowed to have an indirect interest in a company, [00:10:36] Speaker 05: that invests in, or services, or has ever consulted another company, which company is not even a competitor. [00:10:45] Speaker 05: It's in the same business, which is very broadly defined. [00:10:49] Speaker 05: That takes out a universe, as he testified. [00:10:54] Speaker 05: And as Ms. [00:10:55] Speaker 05: Marnick testified for the other side, he could do only what they allowed him to do. [00:11:02] Speaker 05: It was that broad. [00:11:04] Speaker 05: That's what her testimony was. [00:11:05] Speaker 05: And the judge said, well, that's kind of ridiculous, right? [00:11:10] Speaker 05: It can't be that we're going to enforce such a thing as that. [00:11:14] Speaker 05: That was the first go-around. [00:11:15] Speaker 03: I admit. [00:11:16] Speaker 03: I thought the court was saying the question then becomes, is it severable? [00:11:20] Speaker 03: Well, severable then becomes another. [00:11:23] Speaker 05: Well, shall I turn to severable, or is there more I should give you, Judge Holmes? [00:11:29] Speaker 02: You can turn to whatever you want to turn to. [00:11:31] Speaker 05: I want to turn to whatever's bothering you. [00:11:33] Speaker 05: Well, then what's bothering me is severable. [00:11:36] Speaker 05: OK. [00:11:37] Speaker 05: Well, Your Honor, let's talk about severability. [00:11:41] Speaker 05: The clause is written only as a prohibition. [00:11:44] Speaker 05: Nobody disagrees with that, right? [00:11:47] Speaker 05: As it was written, it's a prohibition. [00:11:50] Speaker 05: There's no choice in that agreement that allows Mr. Lawson to compete and only give up the money. [00:11:59] Speaker 05: It's the exact opposite of what's in Weber. [00:12:04] Speaker 05: Weber says you can't compete. [00:12:07] Speaker 05: Alternatively, you can pay six months of your bonus to us and then you can compete. [00:12:15] Speaker 05: And the court applied the reasonableness test, even where there was a choice. [00:12:20] Speaker 05: In our case, there is no choice. [00:12:23] Speaker 05: And the challenge prohibition itself determines the enforceability, not the remedy sought. [00:12:30] Speaker 05: And the court below, it's not even clear what was severed. [00:12:35] Speaker 05: There's no language that's identified. [00:12:38] Speaker 05: There's no term that was stricken, no provision that was stricken. [00:12:43] Speaker 05: that then allows the rest of it to be enforced. [00:12:46] Speaker 02: That wasn't done. [00:12:53] Speaker 02: He did, look, he was a part of this company that invested in a competitor of his former employer. [00:13:00] Speaker 02: So he did compete. [00:13:01] Speaker 02: He just wants the benefit that he was deprived of. [00:13:04] Speaker 05: No, I don't think, the court certainly didn't find that he competed. [00:13:08] Speaker 05: What was the conduct that brings us here now? [00:13:10] Speaker 05: They found the opposite. [00:13:12] Speaker 05: The court found the opposite, that even Arconic didn't compete. [00:13:17] Speaker 05: So it's not about competition. [00:13:20] Speaker 05: It went way beyond competition. [00:13:23] Speaker 05: He lost all that he earned, or the bulk of what he earned, as a result of the enforcement of that provision. [00:13:32] Speaker 05: That's the reality. [00:13:35] Speaker 05: It had nothing to do with competition. [00:13:37] Speaker 05: In fact, they even say, that his spirit even says, [00:13:42] Speaker 05: that we're not talking about competition here. [00:13:44] Speaker 05: We were trying to protect confidential information. [00:13:47] Speaker 02: Well, are you saying then that the conduct in which he engaged in was not within the scope of the agreement? [00:13:54] Speaker 05: No, that was already found. [00:13:56] Speaker 05: We're challenging the scope. [00:13:58] Speaker 05: We're not saying it didn't fall within the scope. [00:14:01] Speaker 02: Well, if it fell within the scope and it is a non-competition provision, then he competed, right? [00:14:07] Speaker 05: No, that's assuming that that's what the court found. [00:14:10] Speaker 05: He did not compete. [00:14:12] Speaker 05: There's no finding that he competed. [00:14:14] Speaker 05: It's called a non-compete clause, but its problem is its overbreath. [00:14:19] Speaker 05: Its problem isn't how you're going to enforce it. [00:14:23] Speaker 05: The term expanding the ability to forfeit money or to take away anything from him as a result of doing what is not allowed there is to take away all of his money. [00:14:39] Speaker 05: And nothing changed. [00:14:41] Speaker 05: Nothing about competition is actually in there. [00:14:45] Speaker 05: They didn't want it. [00:14:46] Speaker 05: And if I can, could I? [00:14:48] Speaker 05: Yes. [00:14:49] Speaker 04: I haven't had a chance and I've got a couple of things I wanted to ask you about. [00:14:52] Speaker 04: Yes, Your Honor. [00:14:53] Speaker 04: Just backing up on to severability. [00:14:56] Speaker 00: Yes. [00:14:56] Speaker 04: Could you explain why severability matters? [00:15:01] Speaker 04: The issue matters when spirit is disavowed, seeking an injunction or [00:15:05] Speaker 04: damages, and the issue is really whether the Weber reasonable test must be applied. [00:15:10] Speaker 05: Well, it's whether the reasonable test. [00:15:12] Speaker 05: I agree with that, Your Honor, but not the severability issue. [00:15:18] Speaker 05: I don't think that the court shies away from the language of the prohibition. [00:15:27] Speaker 05: And here I'm thinking of the Ibbdai's case, right, where the court specifically said, it's not the remedy. [00:15:34] Speaker 05: It's certainly not the remedy that the party chooses to pursue. [00:15:40] Speaker 05: It's the terms of the non-compete itself. [00:15:43] Speaker 04: Are they too raw? [00:15:44] Speaker 04: All right. [00:15:44] Speaker 04: I guess just to put a finer point on it, if we address the severability issue and decide it one way or another, is that really what is going to determine the outcome of this appeal? [00:15:58] Speaker 04: It seems to me what we're really talking about is your argument that the Weber test ought to apply to the non-compete clause. [00:16:06] Speaker 05: Yes, that's part of it, but also the severability that occurred didn't change anything. [00:16:12] Speaker 05: That's a different one. [00:16:14] Speaker 02: All right, all right. [00:16:15] Speaker 02: Isn't that the whole point? [00:16:18] Speaker 02: At least as I understood Judge Matheson, if it didn't change anything and it's not relevant, then why do we need to talk about that? [00:16:25] Speaker 05: Well, because that's what the court told the district court to do, and I think [00:16:29] Speaker 05: They started with the proposition of, is this like any ordinary non-compete clause? [00:16:37] Speaker 05: And what the trial court said was, no, it's not the same. [00:16:40] Speaker 05: It's more burdensome. [00:16:42] Speaker 05: That's the difference between it. [00:16:44] Speaker 05: It's not that it's different in some other way. [00:16:47] Speaker 05: And it's also not one that gave him an alternative. [00:16:50] Speaker 05: He doesn't have any alternative there. [00:16:52] Speaker 05: Really, what the court has done is they've made this an employer's choice jurisdiction. [00:16:58] Speaker 05: The employer can say anything in a non-compete against an official like him. [00:17:04] Speaker 05: Anything. [00:17:04] Speaker 05: I've got one other. [00:17:06] Speaker 04: And they've been enforcing. [00:17:08] Speaker 04: One other question. [00:17:11] Speaker 04: that we haven't talked about, but you argue that if we decide that the Weber test does apply, that we should go ahead and apply it. [00:17:20] Speaker 04: Yes. [00:17:21] Speaker 04: My question to you, though, and considering that the previous panel called that a fact-intensive inquiry, do we really have all the facts that we would need to decide that issue? [00:17:33] Speaker 05: You absolutely do, Your Honor. [00:17:35] Speaker 05: There was a nine-day trial. [00:17:37] Speaker 05: There's extensive testimony. [00:17:39] Speaker 05: Some of it was put before you. [00:17:41] Speaker 04: Wouldn't it be better for the district court to decide that in the first instance? [00:17:44] Speaker 04: After all, it presided at the trial, knows the evidence, heard the witnesses. [00:17:48] Speaker 04: Why would we want to dive into that if that's where we end up here? [00:17:53] Speaker 05: Yeah, I think the first reason is why the court actually decided what business meant. [00:17:59] Speaker 05: I mean, the trial court didn't do that, but the circuit court said, well, look, we know the language and we have the record, so we can decide that. [00:18:09] Speaker 05: The identical thing can be done here. [00:18:11] Speaker 05: I don't know why it's different. [00:18:13] Speaker 05: In fact, what we're relying on is the findings by the trial court about the fact that he earned the money, the fact that its value was because he performed. [00:18:24] Speaker 05: the fact that spirit received the full benefit of what he did. [00:18:29] Speaker 05: Spirit isn't harmed by anything that was done. [00:18:32] Speaker 05: That's already been found. [00:18:33] Speaker 05: He didn't compete, he didn't do anything that hurt them, he didn't undermine their business, he didn't disclose any confidentialities, he didn't do anything. [00:18:44] Speaker 05: So I think, Your Honor, that I hope that answers the question. [00:18:49] Speaker 05: I'm not sure if it does. [00:18:51] Speaker 05: You can tell me if I did. [00:18:52] Speaker 05: You may not agree with it. [00:18:54] Speaker 05: I understand that. [00:18:56] Speaker 05: But that's what happened. [00:18:58] Speaker 05: And right now, we have findings on every important subject. [00:19:02] Speaker 05: And let's remember that the four-part test and the threshold is, was it supposed to be applied? [00:19:10] Speaker 05: Kansas has applied it in every situation. [00:19:14] Speaker 05: To a condition precedent situation? [00:19:18] Speaker 05: Whatever it's called, the condition precedent. [00:19:21] Speaker 04: To a condition precedent situation. [00:19:23] Speaker 04: Is there a Kansas case that's on all fours, applying the Weber test, or something like this? [00:19:28] Speaker 05: Yes, there's not a case on all fours, but the condition precedent shouldn't change whether the court analyzes and considers the scope of the restriction. [00:19:38] Speaker 05: That's why we're here, is to determine that, right? [00:19:41] Speaker 05: Yes. [00:19:43] Speaker 05: Well, I wanted to save two minutes if I can, Your Honor. [00:19:47] Speaker 02: I don't know whether that's going to play out, but you will get some rebuttal time. [00:19:50] Speaker 02: You're already 538 over. [00:19:52] Speaker 02: Oh, I will. [00:19:53] Speaker 02: I'm over? [00:19:54] Speaker 02: Yes, sir. [00:19:55] Speaker 05: Sorry, Your Honor. [00:19:56] Speaker 05: I missed it. [00:19:57] Speaker 05: Thank you. [00:20:01] Speaker 01: May it please the Court, Morgan Ratner for Spirit Aero Systems. [00:20:05] Speaker 01: I want to be clear that there are three independent grounds for affirming here. [00:20:10] Speaker 01: The first is what the District Court correctly found, which is conditions to future payment are not traditional non-competes, and Kansas does not review those for reasonableness. [00:20:23] Speaker 01: Also, part of that is, as the District Court correctly found, any application of this particular covenant [00:20:31] Speaker 01: aside from that condition to future payment. [00:20:34] Speaker 01: is not an issue and would be severable if it were a problem. [00:20:38] Speaker 01: Second, independent ground is, even if this is viewed as a traditional non-compete, it is reasonable under the four-part Weber test. [00:20:47] Speaker 01: And third, independent ground, if for whatever reason this would be unenforceable, then Mr. Lawson still can't come in here and demand that spirit pay. [00:20:57] Speaker 01: This was the nub of the bargain. [00:20:59] Speaker 01: So if it goes, then both sides' obligations go as well. [00:21:04] Speaker 01: So, a lot of the questions, I think, relate to this first argument. [00:21:08] Speaker 01: So, let me talk through a factual and a legal point that I want to be clear on. [00:21:12] Speaker 02: And before you do that, let me be clear. [00:21:14] Speaker 02: What is your view, following up on Judge Matheson's point earlier, as it relates to the second, if we got to the point where we were actually applying the Weber test and of reasonableness, why wouldn't we let the district court do that as opposed to us doing it? [00:21:31] Speaker 01: So I think the district court has almost applied that in the alternative. [00:21:35] Speaker 01: I would point you to pages 22 to 24 of the district court's opinion, where the district court went through all of the many factors this court would look to. [00:21:44] Speaker 01: It said, this is not oppressive. [00:21:46] Speaker 01: This was a bespoke agreement. [00:21:48] Speaker 01: Mr. Lawson was not kept from making a living. [00:21:51] Speaker 01: This does not hurt the public interest. [00:21:54] Speaker 01: Basically, all of the four Weber factors, the district court already discussed. [00:21:59] Speaker 01: So given that this litigation has been going on for six years now, I think this court has everything in front of it that it would need to affirm on that second ground if you want to. [00:22:07] Speaker 01: Okay. [00:22:07] Speaker 02: I know conclusion and finality is a good thing, but the point is almost all or all? [00:22:13] Speaker 02: I mean, do you think that there is anything else that needs to be fleshed out before we make a determination if we got to that? [00:22:19] Speaker 01: I do not. [00:22:20] Speaker 01: I think you have the first factor. [00:22:22] Speaker 01: Is there a legitimate interest? [00:22:24] Speaker 01: There is clearly under Kansas law a legitimate interest in protecting confidential information. [00:22:29] Speaker 01: We are talking about protecting a former CEO and current consultant. [00:22:34] Speaker 01: Recall that this applies only during his current consultancy term. [00:22:38] Speaker 01: from participating in a particular segment of the aerospace industry. [00:22:43] Speaker 01: On the second webber prong, Undo Burden, the aerostruction and aircraft components is one of five or six segments in the aerospace industry. [00:22:53] Speaker 01: So yes, the conditions are written broadly, but only for that narrow segment. [00:22:58] Speaker 01: The consequences are also narrow. [00:23:00] Speaker 01: He can go work for Elliott. [00:23:02] Speaker 01: He could go work for Arconic. [00:23:04] Speaker 01: What he can't do is get a paycheck from Spirit. [00:23:06] Speaker 01: At the same time, it gets a paycheck from someone involved in a competitor. [00:23:10] Speaker 01: On the public welfare ground, Kansas courts are pretty clear that the only time that's implicated is if, say, you have a shortage of doctors in a particular area. [00:23:20] Speaker 02: I heard your opposing counsel, if I heard him correctly, say, [00:23:24] Speaker 02: that Arconic was not a competitor, a spirit. [00:23:28] Speaker 01: Yeah, so that's incorrect as found by the district court. [00:23:34] Speaker 01: In its most recent decision, it described Arconic as a major supplier and sometimes competitor. [00:23:40] Speaker 01: This court's previous decision described Arconic as a maker of some of the same [00:23:46] Speaker 01: aerostructures and aircraft components as spirits. [00:23:49] Speaker 01: So you can call that whatever you want, but I think in common parlance we would call that a competitor. [00:23:54] Speaker 01: And recall that we're talking about the majority shareholder in that competitor, and we're talking about a former CEO advising that majority shareholder on the strategic direction of a competitor. [00:24:07] Speaker 01: I don't think that there's any [00:24:10] Speaker 01: circumstance in which a Kansas court would say that that's not pursuing a legitimate interest. [00:24:15] Speaker 01: The last point on Weber is reasonable territorial in time. [00:24:20] Speaker 01: Two years is sort of the standard on time. [00:24:22] Speaker 01: On territory, there's been some hints at possibly a dispute about whether Spirit has a geographical range that's international. [00:24:31] Speaker 01: I would point the court to page 103 where Mr. Lawson agreed that it does and page 137 where the district court already found that. [00:24:40] Speaker 01: So given all that, I think a Weber decision is pretty straightforward here, the second of the options. [00:24:46] Speaker 01: I described, but I do want to address the first option as well. [00:24:50] Speaker 01: The factual point that we should start with is this is a condition to future payment. [00:24:57] Speaker 01: This is not earned in the sense that Mr. Lawson was entitled to it in any way. [00:25:03] Speaker 01: I think the undisputed record is if he had retired, these shares would have lapsed. [00:25:09] Speaker 01: That's at appendix 351, district court finding of fact. [00:25:14] Speaker 01: You can also look at supplemental appendix 213 to 224, which are the particular awards at issue. [00:25:20] Speaker 01: And if that weren't enough, you could look at appendix 106 that specifically says, if you leave spirit, you will be entitled to retain [00:25:31] Speaker 01: only those shares previously that have otherwise vested at that time. [00:25:36] Speaker 01: So as a factual matter, this is a condition to future payment. [00:25:42] Speaker 01: And then the question is, Chief Judge Holmes' question, does that matter? [00:25:46] Speaker 01: Does it matter legally? [00:25:48] Speaker 01: But I think it does. [00:25:49] Speaker 01: There's a very significant difference, a distinction with a difference here between a circumstance like this and a circumstance like in Varney. [00:25:59] Speaker 01: And the difference is, if it is a condition, it is a choice, not a penalty. [00:26:05] Speaker 01: You can never be worse off for having that choice. [00:26:08] Speaker 01: And that means you can never be essentially deprived of the opportunity to earn a living. [00:26:15] Speaker 01: which is the fundamental reason why Kansas courts consider traditional non-competes for reasonableness in the first place. [00:26:24] Speaker 01: So that's a real economic difference. [00:26:29] Speaker 04: You said you were turning to the legal side of this, not the factual side of it. [00:26:37] Speaker 04: There is an economic difference. [00:26:39] Speaker 04: It seems like we're sliding back into the facts. [00:26:42] Speaker 04: What I'm interested in is whether you have a Kansas case that resolves this. [00:26:48] Speaker 01: I think the Kansas case we have is Miller. [00:26:50] Speaker 01: The Miller case involved a retirement agreement that said, if you retire from our law firm and you want to keep collecting retirement payments, great. [00:27:00] Speaker 01: If you'd like to go work in the legal profession, your retirement payments will stop. [00:27:05] Speaker 01: We think that's exactly on all fours factually. [00:27:07] Speaker 01: Now, the bulk of the Miller decision was addressing that as a legal ethics rule. [00:27:13] Speaker 01: But at the back half of the opinion, the court then turned to Kansas public policy and more generally said, and this is why it's part legal and part factual, Your Honor, said when we're not dealing with something that's coercive, when we're dealing with something that's a choice, there's no implication for Kansas public policy. [00:27:33] Speaker 04: Did the district court rely on Miller? [00:27:36] Speaker 01: The district court didn't, it cited Miller in its initial analysis, but then did not in this particular section. [00:27:42] Speaker 01: I think it relied on, I would consider there sort of four indicators of Kansas law here. [00:27:48] Speaker 01: Miller being one, the district court relied on the three others. [00:27:52] Speaker 01: One is the Varney decision, which Mr. Lawson points to, which draws the line at we review something as a non-compete for reasonableness. [00:28:03] Speaker 01: This is a quote from 1016, if the effect of the provision is to prevent a withdrawn partner from earning income by competing. [00:28:13] Speaker 01: Again, that's where the legal and the economic blend together. [00:28:15] Speaker 01: The rule, the line drawn in Varney is, is this keeping you from earning a living? [00:28:23] Speaker 01: And so that line in Varney, we think, dovetails perfectly with Miller. [00:28:27] Speaker 01: The district court then looks to the other indicators of Kansas public policy, one being Kansas' very strong background. [00:28:36] Speaker 01: as a contractual freedom state. [00:28:38] Speaker 01: It follows Delaware a lot in that regard, and the Delaware Supreme Court as the party's 28th. [00:28:44] Speaker 04: But it also has Weber tests, which other states have not adopted. [00:28:49] Speaker 01: You know, I don't think that's right, Your Honor. [00:28:52] Speaker 01: Most states do subject traditional... Well, all states. [00:28:55] Speaker 01: I'm not sure about all states, but most states subject traditional noncompliance to review of the reasonableness. [00:29:01] Speaker 04: Well, you know, you're both asking us to make a prediction of what the Kansas Supreme Court would say on this issue. [00:29:07] Speaker 04: And we have full briefing on a motion to certify. [00:29:11] Speaker 04: Why shouldn't we let the Kansas Court decide this? [00:29:14] Speaker 04: It's their law. [00:29:15] Speaker 01: So I think it's not timely and it's not necessary. [00:29:19] Speaker 01: On the timely side, again, this case has been going on for six years now. [00:29:23] Speaker 01: We've had this exact issue briefed previously before this court, in the district court, and now this court again. [00:29:29] Speaker 01: So I think to give plaintiffs, or to give Mr. Lawson a third bite of the apple, [00:29:35] Speaker 01: at this late stage is not consistent with the court's ordinary certification practice. [00:29:40] Speaker 01: But more to the point, we have indicators from Kansas on a traditional... I assume there is an ordinary practice, but go ahead. [00:29:49] Speaker 01: The best I can tell from this court's practice. [00:29:52] Speaker 01: I think more to the point that it's not necessary. [00:29:55] Speaker 01: The question for certification is usually, is this a novel point where we don't have guidance? [00:30:00] Speaker 01: from Kansas. [00:30:01] Speaker 01: Here we have Kansas has guidance on traditional non-competes and why we have them. [00:30:06] Speaker 01: We have guidance in Miller on conditions to future payments. [00:30:10] Speaker 01: We have guidance on penalty payment provisions in Varney and why the line is drawn there. [00:30:17] Speaker 01: This is not an area where you don't have data points and a clear principled way forward. [00:30:22] Speaker 01: And again, I think if the court has any doubt on that, then that's just a reason to affirm on the separate application of the four Weber factors. [00:30:32] Speaker 01: I do want to address severability briefly because that... What about your third grant to affirm? [00:30:40] Speaker 04: Can you just explain that a little bit? [00:30:42] Speaker 01: So we haven't discussed that at all yet. [00:30:45] Speaker 01: But if, in fact, this is an unenforceable provision, so you've already found, first, that you're reviewing it for reasonableness, and second, that it's unreasonable under the four-part test, which I think would be a pretty dramatic conclusion in light of Kansas Court's repeated upholding of these types of provisions. [00:31:06] Speaker 01: If you've done all that, then the question [00:31:09] Speaker 01: Well, does the contract still stand or have we lost an essential part of the bargain? [00:31:15] Speaker 01: And I think it's very clear from the contract itself and from the party's conduct that this provision, this covenant, was an essential part of the reason why Spirit agreed to pay $31 million to Mr. Lawson. [00:31:29] Speaker 01: Remember, we're here not because of anything Spirit is doing, but because Mr. Lawson is saying, I should get paid anyway. [00:31:36] Speaker 01: His argument is that provision was unenforceable, and you still owe me $31 million. [00:31:42] Speaker 01: And so the question is, well, if that provision goes, [00:31:45] Speaker 01: Then what's left of the contract? [00:31:48] Speaker 01: Does Spirit's obligations go as well? [00:31:50] Speaker 01: There are comparable decisions we cite in our brief from the Fourth and the Fifth Circus. [00:31:54] Speaker 04: So when you say that provision goes, what specifically are you referring to? [00:32:00] Speaker 01: So if the covenant to future payments is rendered unenforceable, then the question is, was that the basis for Spirit's agreement to pay $31 million? [00:32:13] Speaker 01: And then it was. [00:32:15] Speaker 01: It was at least one of the essential things that Spirit was getting in the bargain was this agreement by Mr. Lawson. [00:32:23] Speaker 01: So if Spirit's not getting its bargain anymore, then Mr. Lawson doesn't get his bargain either. [00:32:29] Speaker 01: Again, I would point you to the Fourth and Fifth Circuit decisions, in particular the Chalene decision, which is on exactly these types of events. [00:32:37] Speaker 02: But in those cases, those two cases that you're pointing out, wasn't that the only consideration? [00:32:43] Speaker 02: At play? [00:32:44] Speaker 01: It was not, Your Honor. [00:32:45] Speaker 01: The other types of considerations were very similar to things here, like an agreement to leave one's position and not bring any claims and the like. [00:32:54] Speaker 01: And the courts there said, well, you're an at-will employee anyway, so that agreement, sort of the agreement to leave is not worth a whole lot. [00:33:01] Speaker 01: And you don't have any claims that you've raised, so the agreement to give up claims is not really a whole lot. [00:33:06] Speaker 01: And so we know that the nub of the agreement really is the additional agreement to act like an employee, which means to not disclose confidential information and to not compete or participate again in this segment of the industry. [00:33:24] Speaker 01: So I think just as much as the first two grounds, that's a ground that is available for this court. [00:33:29] Speaker 01: I think the sort of logically antecedent ground is for this court to say, look, there's no reason to evaluate this for reasonableness at all, because it is a choice. [00:33:41] Speaker 01: It's a carrot, not a stick. [00:33:42] Speaker 02: So on this third ground, you're saying that this non-competition was the only basis for this arrangement that would result in him being paid or not paid. [00:33:58] Speaker 01: I'm not saying it's the only basis. [00:33:59] Speaker 01: The question is, was it an essential basis? [00:34:02] Speaker 01: And I'm saying it was an essential basis. [00:34:05] Speaker 01: We know that it was repeated at multiple points throughout the contract. [00:34:09] Speaker 01: It's really the only obligation that has some legs to it, that there's not really an independent legal obligation on Mr. Lawson or is negligible in the terms of the Fifth Circuit decision I was pointing to. [00:34:25] Speaker 01: At bottom, I think, again, the first logically antecedent point is the cleanest in many ways. [00:34:33] Speaker 01: This is a choice, not a penalty. [00:34:36] Speaker 01: He could never be worse off for having this choice. [00:34:39] Speaker 01: And at the end of the day, all spirit is saying is that you can collect a paycheck from us or you can collect a paycheck from others in our narrow segment of the industry. [00:34:50] Speaker 02: But what you cannot do is collect both... Speak to me about narrow segment. [00:34:54] Speaker 02: I understood from your opposing counsel that essentially you couldn't do anything. [00:34:58] Speaker 01: I'm not sure why he has that belief. [00:35:02] Speaker 01: It is a broad condition on the types of activities, but it applies only to the aerospace and aircraft components segment, which the testimony at trial is one of five or six segments in the aerospace industry. [00:35:16] Speaker 02: Was Mr. Lawson able, I mean, was there enough testimony as to whether Mr. Lawson was capable of doing anything other than this? [00:35:23] Speaker 01: Yes, so Mr. Lawson had previously been on the defense side, which isn't really related to any of this at all. [00:35:33] Speaker 01: He could have gone back to the defense side. [00:35:35] Speaker 01: He had asked about an opportunity in avionics, which is [00:35:40] Speaker 01: aviation electronics for a company called L3. [00:35:44] Speaker 01: Avionics is a different segment of the aerospace industry. [00:35:47] Speaker 01: Spirit had no objections to that. [00:35:50] Speaker 01: And so, again, we are talking about a broadly worded clause. [00:35:54] Speaker 01: It is not unprecedented in its wording. [00:35:57] Speaker 01: I would point you, for example, to the Cantor Fitzgerald opinion out of the Delaware Supreme Court that just came down. [00:36:05] Speaker 01: I'd point you to the Kansas' own Foltz [00:36:08] Speaker 01: decision, which upheld a 10-year non-compete. [00:36:11] Speaker 01: It's certainly not unprecedented. [00:36:13] Speaker 01: It's broad, but in a narrow segment and with narrow consequences, the consequences being give up your paycheck from us, get your paycheck from someone else. [00:36:23] Speaker 01: Thank you, counsel. [00:36:23] Speaker 01: If there are no further questions, thank you. [00:36:25] Speaker 05: Two minutes. [00:36:28] Speaker 05: So it seems we agree that this court has [00:36:33] Speaker 05: So it seems we agree that this court has all it needs to be able to resolve whether the reason in this test was satisfied. [00:36:42] Speaker 05: They say it leads to the conclusion that they win, and we say that it leads to the conclusion that we win. [00:36:48] Speaker 05: And for judicial efficiency, I realize that's not the only reason. [00:36:52] Speaker 05: Since there is enough, sending it back is not really required, because the findings are there. [00:37:01] Speaker 05: I don't know how my learned opponent can say that the court found that there was competition here. [00:37:09] Speaker 05: If you look at the findings from 93 to 102, the court describes in meticulous detail how they didn't consider themselves competitors. [00:37:23] Speaker 05: They weren't identified in their public statements as competitors. [00:37:27] Speaker 05: They never competed on any program. [00:37:31] Speaker 05: Spirit had all of its programs tied up, 97% of its business was from two customers on long-term contracts. [00:37:42] Speaker 05: So this went way beyond competition. [00:37:45] Speaker 05: It just did, and I think that's the reality that undermines the main argument separately, Your Honor. [00:37:55] Speaker 05: You know, they rely a lot on these, well, it's just a forfeiture provision. [00:37:59] Speaker 05: every single case they rely on. [00:38:02] Speaker 05: Everyone does not have a prohibition against any future action. [00:38:09] Speaker 05: It only has a provision that says, if you do this, you'll lose the money. [00:38:16] Speaker 05: That's it. [00:38:16] Speaker 05: In fact, almost every case makes the important distinction [00:38:22] Speaker 05: that it's a forfeiture for competition if, in fact, there is no prohibition. [00:38:28] Speaker 05: If there is a prohibition, it is then a non-compete clause, and even in those jurisdictions that accept forfeiture for competition, they say if you have this preclusion, if the words don't let you do it, [00:38:43] Speaker 05: It's over. [00:38:44] Speaker 05: You must have the ability, the choice to do it. [00:38:48] Speaker 05: There was no choice here, Your Honor. [00:38:50] Speaker 02: He could not work. [00:38:51] Speaker 02: I mean, what I heard opposing counsel say a number of times is that he was not worse off. [00:38:59] Speaker 02: He can either take a paycheck from Spirit or he can take a paycheck from somebody else and walk away from this money that he would have gotten, but the money was not his to begin with. [00:39:09] Speaker 02: unless he did what they asked him to do. [00:39:12] Speaker 05: But the question is, did he earn that money, Your Honor? [00:39:14] Speaker 05: And what did he do? [00:39:16] Speaker 05: And I think this is an important consideration. [00:39:19] Speaker 05: He turned around a company. [00:39:21] Speaker 05: They got the full benefit, every possible benefit, from his work. [00:39:26] Speaker 05: The quid pro quo is he gets stock, which if he's successful, it goes up. [00:39:32] Speaker 05: If he stays. [00:39:33] Speaker 05: No, that's only if he vests. [00:39:36] Speaker 05: But that's confusing vesting with what he did and what he got as compensation. [00:39:42] Speaker 05: The stock itself is compensation. [00:39:45] Speaker 05: It's his. [00:39:47] Speaker 05: Now, he can't monetize it, but the non-monetizing... Okay, it's not monetizable. [00:39:54] Speaker 02: But that's true. [00:39:54] Speaker 02: And so I have stock in my pocket that has zero value. [00:39:57] Speaker 02: What good does that do me? [00:39:59] Speaker 05: Well, so does the $10 million that would be sitting in the company's coffers. [00:40:04] Speaker 05: It's the same thing. [00:40:05] Speaker 05: In fact, Varney, and I think Varney's really critical, it says that an economic penalty [00:40:12] Speaker 05: Economic penalty, particularly when it's severe, is just like a preclusion. [00:40:19] Speaker 05: It's the same thing. [00:40:22] Speaker 05: would be concerned. [00:40:24] Speaker 05: And it's restraining his ability because it has an impact on whether he can do something or whether he can't. [00:40:33] Speaker 02: OK, it's my fault that I took you down this road and extended the conversation. [00:40:36] Speaker 02: No, no. [00:40:37] Speaker 02: So I think we need to end now. [00:40:40] Speaker 02: You're over the time that I allotted for a rebuttal. [00:40:44] Speaker 02: This has been a fascinating subject, good arguments on both sides. [00:40:48] Speaker 02: And the court is in recess until 9 AM tomorrow.