Opinion
Civil No. 04-1597 ADM/AJB
April 30, 2004
Laura A. Pfeiffer, Esq., and Mark A. Pihart, Esq., Winthrop Weinstine, P.A., Minneapolis, MN, appeared on behalf of Plaintiffs
Ronald J. Lee, Esq., Faegre Benson, L.L.P., Minneapolis, MN, appeared on behalf of Defendant
MEMORANDUM OPINION AND ORDER
I. INTRODUCTION
This matter is before the undersigned United States District Judge on Plaintiffs Cannon Services, Inc., Whitewater Outdoors, Inc. ("Whitewater"), and Robinson Outdoors, Inc.'s (collectively, "Plaintiffs") Motion for a Preliminary Injunction ("PI") [Docket No. 3]. Based on an alleged violation of the non-compete agreement between the parties, Plaintiffs seek to prohibit Defendant Steve Culhane ("Defendant") from continuing his present employment. For the reasons set forth below, the PI Motion is denied.
II. BACKGROUND
Plaintiffs are involved in the design, manufacture and supply of hunting apparel and products, which are sold throughout the country at various retail outlets. Defendant was employed by Plaintiffs from approximately May 1, 2003, to January 28, 2004. He has nearly 20 years of experience in the hunting apparel industry and is currently working for a competitor of Plaintiffs, Mossy Oak Apparel ("Mossy Oak), a division of Russell Corporation, in Atlanta, Georgia.
During late Winter and early Spring of 2003, Defendant engaged in multiple discussions with Whitewater President Scott Shultz ("Shultz") and other company representatives regarding potential employment as Plaintiffs' Vice President of Product Development and Manufacturing. At the time, Defendant was working in a managerial position for Cabela's, a hunting and fishing retailer, where he had been employed for nearly eight years. Defendant orally accepted Plaintiffs' offer for the position on April 5, 2003, at a meeting in Minnesota. Culhane Decl. ¶¶ 6-7. Defendant began work on April 30, 2003, at which time he filled out personnel paperwork, including signing an Employment Agreement which contains the following non-compete clause:
COVENANT NOT TO COMPETE. During the term of Employee's employment with Company, and for a period of two (2) years thereafter, Employee shall not:
a. within North America, own, manage, operate or control . . . or be employed by . . . any corporation, partnership, person, firm or other entity that is engaged in any business that is then conducted by Company . . .
Employee expressly acknowledges that the multi-state region for which the non-compete applies is reasonable because Employee is responsible for operations in the various states in which Company conducts business, Employee will have access to confidential information relating to all of Company's offices, and Employee will have relationships with Company's customers in various states.
Employment Agreement sec. 3.3 (Compl. Ex. A). This provision additionally precludes employees from soliciting business from Plaintiffs' customers and attempting to induce other employees to engage in any of the prohibited conduct. Id.
Shultz submits that he reminded Defendant on several occasions during employment negotiations and discussions that the position was contingent upon signing a covenant not to compete. Shultz Aff. ¶¶ 4-6, 12. Defendant denies this, claiming that no one informed him he would be required to sign such an agreement and that the written proposal and job description he received at the April 5, 2003 meeting did not include any non-competition terms. Culhane Decl. ¶¶ 6, 9, 10, Ex. A (proposal memo).
During his employment with Plaintiffs, Defendant spent most of his time developing a new clothing line. Plaintiffs allege that as a high-level executive, Defendant had access and was privy to all Plaintiffs' confidential and proprietary information, including pricing, costs, license and vendor arrangements, product designs and specifications and business plans. After working for Plaintiffs for approximately nine months, Defendant resigned, stating he wished to move to Atlanta to be with his girlfriend, who worked in product development for Mossy Oak, a direct competitor of Plaintiffs. According to Plaintiffs, Defendant specifically represented that he did not intend to work for Mossy Oak. Recently, Plaintiffs learned of Defendant's position with Mossy Oak, prompting the instant Motion. They allege that he has attempted to solicit business for Mossy Oak from Wal-Mart, one of Plaintiffs' most significant customers, using contacts and information he gained from his employment with Plaintiffs. Second Shultz Aff. ¶¶ 14-15. Defendant counters that he had no role in arranging the cited meeting, that Wal-Mart is a long-time customer of Mossy Oak, and that he had a business relationship with the Wal-Mart buyer that preexisted his employment with Plaintiffs. Culhane Decl. ¶¶ 14, 16, 17; Tate Decl. ¶ 4. He denies disclosing or intending to disclose any confidential information. Culhane Decl. ¶¶ 12, 21, 23; see Tate Decl. ¶ 9.
In his Second Affidavit, Shultz additionally states he has received reports of Defendant contacting two of Plaintiffs' licensors on behalf of Mossy Oak, seeking to obtain rights to the same product designs and lines licensed to Plaintiffs. Id. ¶¶ 11-13. Therefore, Plaintiffs aver, Defendant has blatantly breached the non-compete covenant in multiple respects and must be enjoined to prevent further unfair competition.
Shultz asserts Defendant contacted W.L. Gore Company ("Gore") and ALS Enterprises ("ALS").
III. DISCUSSION
A party seeking a preliminary injunction bears the burden of showing the following factors weigh in favor of such relief:
(1) the threat of irreparable harm to the movant; (2) the state of the balance between this harm and the injury that granting the injunction will inflict on other parties litigant; (3) the probability that movant will succeed on the merits; and (4) the public interest.Dataphase Sys., Inc. v. C.L. Sys., Inc., 640 F.2d 109, 113 (8th Cir. 1981). While no one factor is determinative, likelihood of success on the merits is generally the touchstone inquiry. Id.; see SM Contractors, Inc. v. Foley Co., 959 F.2d 97, 98 (8th Cir. 1981). The Court will accordingly begin with this analysis.
Plaintiffs focus this Motion on their assertion that Defendant violated the non-compete provision of his employment agreement. Defendant counters that the covenant is invalid and therefore Plaintiffs cannot succeed on this claim.
Non-competition agreements, though disfavored by Minnesota courts, are enforceable if they serve a legitimate employer interest and are no broader than necessary to protect this interest. See Kallok v. Medtronic, Inc., 573 N.W.2d 356, 361 (Minn. 1998). They will not be upheld, however, when introduced after the initial employment agreement and unsupported by additional consideration. Sanborn Manuf. Co. v. Currie, 500 N.W.2d 161, 164 (Minn.Ct.App. 1993).
The testimony of the involved parties is directly contradictory regarding whether or not Defendant was aware of the terms of the non-compete provision prior to accepting the position with Plaintiffs. Shultz maintains he repeatedly reminded Defendant of the requirement of this restriction throughout discussions of Defendant's prospective employment. Defendant submits that no one ever mentioned a non-competition covenant, and proffers the proposal memo, which reflects the negotiations surrounding Defendant's acceptance of the position on April 5, 2003, to show this was not a part of the initial employment agreement. See Culhane Decl. Ex. A. Such circumstances present a classic dispute of material fact that precludes finding a decisive likelihood of success by Plaintiffs. Furthermore, while the cases cited by Defendant are not completely analogous, they offer strong legal backing for Defendant's position on the merits. Under Minnesota law, when a restrictive covenant "is not ancillary to the initial oral employment contract, it can only be sustained if supported by independent consideration." Nat'l Recruiters, Inc. v. Cashman, 323 N.W2d 736, 740 (Minn. 1982); Sanborn, 500 N.W.2d at 164 (explaining additional consideration is required because "[w]hen the employer fails to inform prospective employees of noncompetition agreements until after they have accepted jobs, the employer `takes undue advantage of the inequality between the parties'"). Like the defendant employee in Sanborn, at the time Defendant signed Plaintiffs' non-compete covenant "he had already quit his job," packed his things and moved to a new geographic locale. id. at 163. Plaintiffs have not alleged any additional consideration in exchange for the agreement. Thus, if Shultz or another representative did not inform Defendant of the terms of the non-compete at or before the April 5 meeting, it is invalid and cannot justify injunctive relief. See Universal Hosp. Servs., Inc. v. Henderson, No. Civ. 02-951, 2002 WL 1023147, at *3, 5 (D. Minn. May 20, 2002). The terms of the April 5, 2003 job proposal and description do not include a non-competition clause, and given the opposing sworn testimony on this key issue and the lack of further corroborative evidence for either side, Plaintiffs have not shown a probability of success on the breach of covenant claim.
It is uncontested, however, that Defendant had previously been subject to such an agreement at a late juncture in his prior employment, and signed Plaintiffs' contract without questioning the terms of the restriction or requesting to consult an attorney.
Plaintiffs' assertion that the proposal's listed contingency of "[s]atisfactory resolution of any covenants not to compete" refers to their non-compete clause, rather than any previously signed non-competition agreements, requires a strained reading of this language, particularly since the fourth contingency of the proposal is the "completion of a formal Employment Application." Culhane Decl. Ex. A at 2.
Similarly, the controverted and uncertain nature of the evidence regarding Defendant's disclosure of confidential information militates against an early determination of the likelihood of either party's success on the duty of loyalty claim. Though Plaintiffs, through Shultz, have averred Defendant possesses a great deal of confidential data and has had contact with three of Plaintiffs' business affiliates since beginning work at Mossy Oak, Defendant has declared under penalty of perjury that he has and will not reveal any such information. Additionally, Mossy Oak President Mark Tate states in his declarations that the referenced contacts between Defendant and Wal-Mart, Gore and ALS, respectively, were all based on pre-established, on-going relationships between Mossy Oak and these companies, and had nothing to do with Plaintiffs' business. Second Tate Decl. ¶¶ 2-4. These allegations, however, do raise the specter of the first Dataphase factor, irreparable harm.
Although Plaintiffs' have not submitted sufficient evidence of record to establish irreparable harm or a likelihood that Defendant has wrongfully used or revealed trade secrets, he undisputedly was given access to extensive inside information regarding Plaintiffs' pricing, designs, and contractual arrangements. See IBM v. Seagate, 941 F. Supp. 98, 101 (D. Minn. 1992) ("Merely possessing trade secrets and holding a comparable position with a competitor does not justify an injunction."). Defendant is forewarned that he remains bound by his common law duty "not to disclose or use confidential information gained at the expense of his employer" and will be responsible for damages in the event of a finding at trial for Plaintiffs. Saliterman v. Finney, 361 N.W.2d 175, 179 (Minn.Ct.App. 1985). He will also be held to account for his actions when leaving his employment with Plaintiffs, including the purported erasure of his hard drive and representations that he would not seek employment with any competitors for two years. Shultz Aff. ¶¶ 16, 17.
Finally, the balance of the harms and the public interest do not tip sufficiently in favor of Plaintiffs to meet the burden required for injunctive relief. Though Plaintiffs' concern for protecting proprietary and secret information is understandable, restraints on trade and free employment are not well received as a matter of public policy, and plainly Defendant has a significant interest in pursuing a career in his area of specialization for the last 20 years.
Based upon the controverted material facts and the disfavor with which the law looks upon covenants not to compete, the balance of theDataphase factors does not warrant an injunction at this point. Determinations of credibility and the inferences to be drawn from suspicious circumstances are the province of the jury, and as such, Plaintiffs have a remedy at law in the form of compensatory damages.
IV. CONCLUSION
Based on the foregoing, and all the files, records and proceedings herein, IT IS HEREBY ORDERED that Plaintiffs' Motion for Preliminary Injunction [Docket No. 3] is DENIED.