Opinion
No. 49A02-0003-CV-208
July 31, 2000
Appeal from the Marion Superior Court. The Honorable Steven R. Eichholtz, Judge, Cause No. 49D05-0002-CP-248.
Michael A. Wilkins, Michael A. Wukmer, Phillip J. Fowler, Ice Miller Donadio Ryan, Indianapolis, Indiana, Robert Owen Vegler, John W. Bowers, Beers Mailers Backs Salin, Fort Wayne, Indiana, attorneys for appellant.
R. Troy Mulder, Michael Patrick Dugan, J. Richard Moore, Riley Bennett Egloff, Indianapolis, Indiana, attorneys for appellee.
STATEMENT OF THE CASE
Donald Norman challenges the trial court's grant of a preliminary injunction enforcing the non-competition agreement with his former employer, Morrell, Inc. ("Morrell"). He presents several issues for our review, which we consolidate and restate as:
Norman also challenges the trial court's issuance of a temporary restraining order ("TRO") against him on behalf of Morrell. The TRO, however, extended only through March 27, 2000. Since the TRO is no longer in effect, the issue is moot. See Matter of Tina T., 579 N.E.2d 48, 52 (Ind. 1991) (observing that appeal or issue becomes moot when parties lack legally cognizable interest in outcome).
1. Whether Morrell established a reasonable likelihood of success at trial to justify the entry of a preliminary injunction.
2. Whether Morrell established it would suffer irreparable harm in the absence of a preliminary injunction.
We affirm.
FACTS AND PROCEDURAL HISTORY
Morrell is a Michigan-based corporation engaged in the manufacturing, sale, and distribution of motion control devices throughout the United States, Canada, Europe, and the Far East. Within the State of Indiana, Morrell's business involves the distribution of fluid power devices such as pumps and valves to companies like Navistar, Cummins, Ford, and Chrysler.
Norman was an employee of Hy Tech Corporation for fifteen years until Morrell acquired the company in 1995. He then became an employee of Morrell, holding the position of Sales Manager for all of its Indiana offices excluding Gary. In July 1998, Norman was promoted to the position of General Manager of Morrell's Indiana operations, making him the highest-ranking employee in the state and the twelfth highest-ranking employee in the company. As General Manager, he reported directly to Steve Tallman, Morrell's owner and president.
Norman's promotion resulted in a twenty thousand dollar increase in annual salary and a greater involvement with the development of Morrell's corporate strategy. In particular, he engaged in key discussions regarding the sales, marketing, and pricing strategies of Morrell, as well as compensation for the company's sales associates. These discussions also involved confidential information concerning Morrell's price margins, the viability of new and existing product lines, the strengths and weaknesses of the vendors and customers Morrell represented, and the accounts to be targeted. In executing his duties as General Manager, Norman routinely received data about Morrell's products, operations, financial status, and markets. In addition, he received confidential daily reports on Morrell's production and sales for all of its facilities, including Indiana, Illinois, Michigan, Ohio, and Canada.
Due to his heightened access to confidential information and his direct involvement in the development of corporate strategy, Norman executed a non-competition agreement with Morrell. The agreement reads in pertinent part as follows:
2. During the term of [Norman's] employment with Morrell Companies and for a period of two (2) years after the termination thereof (irrespective of the time, manner or cause of such termination), the Employee will not directly or indirectly:
(i) as an individual proprietor, partner, stockholder, officer, employee, director, joint venturer, investor, lender or any other capacity whatsoever (other than as the holder of not more than three (3%) percent of the total outstanding stock of a publicly held company), engage in the RESTRICTED BUSINESS within the States of Michigan, Ohio, Indiana, Illinois and Wisconsin. This prohibition shall apply to all previous customers of Morrell Companies wherever located; or
The non-competition agreement defines "RESTRICTED BUSINESS" as:
[T]he business of selling, distributing and manufacturing motion control products. The term RESTRICTED BUSINESS shall also refer to any other business (i) engaged in by the Morrell Companies, and (ii) of which [Norman] acquired knowledge in the course of [his] employment with the Morrell Companies. The Morrell Companies have carried on and continue to carry on the RESTRICTED BUSINESS throughout the United States, Canada, Europe, and the Far East.
Record at 130.
(ii) recruit, solicit, induce or attempt to induce any employee or employees of the Morrell Companies to terminate their employment with, or otherwise cease the relationship with, the Morrell Companies; or
(iii) solicit, divert, take away or attempt to divert or take away, the business or patronage of any of the clients, customers, members, groups, contacts, vendors, suppliers or accounts or prospective clients, customers, members, groups, contacts, vendors, suppliers or accounts of the Morrell Companies of which [Norman] acquired knowledge or could have reasonably acquired knowledge while [Norman] was employed by the Morrell Companies.
Record at 131-32.
In January of 2000, Norman terminated his employment with Morrell and commenced employment as the Director of Sales and Market. Development for Neff Management. Neff Management is closely affiliated with Neff Engineering, which is Morrell's biggest competitor in the motion control device industry. Both companies are owned by the same individuals and share joint offices in Indianapolis.
Norman's job description is defined by Neff Management as follows:
The position carries responsibility for managing the execution of sales and market development activities for each of the Neff Companies. [Salespersons and Sales Managers] are accountable to the Director of Sales and Market Development for forecasting, planning, personal development and individual plan performance measurement. . . . Further, . . . the job carries supervisory responsibility for all traditional marketing activities of the Neff [C]ompanies.
Record at 186. His duties, as specifically enumerated by Neff Management, include the hiring and training of salespersons, sales management development and evaluation, market research, market/customer measurement and evaluation, customer sales planning, integrated supply initiatives, and service development. Norman admitted that "some seven of [the responsibilities identified in the Neff Management job description] also involve duties that [he performed as General Manager for] Morrell." Record at 172.
As a result of Norman's employment with Neff Management, Morrell filed a complaint for injunctive relief on February 18, 2000, alleging violation of the parties' non-competition agreement. Following a hearing, the trial court entered findings of fact and conclusions thereon in support of a preliminary injunction enforcing the non-competition agreement. The court enjoined Norman from obtaining or maintaining employment with Neff Management, Neff Engineering, or any other Neff company during pendency of the litigation. He now appeals.
DISCUSSION AND DECISION Standard of Review
We extend our appreciation to the parties and commend them for the quality of their written briefs. Their exceptional advocacy greatly facilitated our determination of the issues on appeal.
The granting of a preliminary injunction is within the discretion of the trial court, and our review is limited to a determination of whether the trial court clearly abused that discretion. Norlund v. Faust, 675 N.E.2d 1142, 1149, (Ind.Ct.App. 1997), clarified on denial of rehearing, 678 N.E.2d 421 (Ind.Ct.App. 1997), trans. denied. Nevertheless, the power to issue an injunction should be used sparingly, and much relief should not be granted except in rare circumstances in which the law and facts are clearly in the moving party's favor. McGlothen v. Heritage Envtl. Servs. L.L.C., 75 N.E.2d 1069, 1073 (Ind.Ct.App. 1999). Indiana Trial Rule 52(A) requires a trial court to make special findings of fact and state its conclusions thereon when it issues a preliminary injunction. Norlund, 675 N.E.2d at 1149. In determining whether the trial court abused its discretion, we look to the trial court's findings. McGlothen, 705 N.E.2d at 1074. We must assess whether the findings validly support the trial court's decision. Id. In so doing, we will consider the evidence only in a light most favorable to the trial court's decision. Norlund, 675 N.E.2d at 1149. The findings will not be set aside unless clearly erroneous, that is, unless the record lacks any facts or reasonable inferences to support them. McGlothen, 705 N.E.2d at 1074.
A trial court's discretion to grant or deny a preliminary injunction is measured by four factors:
(1) whether the movant's remedies at law are inadequate, causing irreparable harm pending resolution of the substantive action; (2) whether the movant has demonstrated at least a reasonable likelihood of success at trial by establishing a prima facie case; (3) whether the threatened injury to the movant outweighs the potential harm the grant of the injunction would occasion on the nonmovant; and (4) whether the public interest will be disserved.
Id. If the movant fails to prove any one or more of these requirements, the trial court's grant of an injunction is an abuse of discretion. Id. Norman argues that the trial court abused its discretion when it entered a preliminary injunction enforcing the non-competition agreement with Morrell. Specifically, he claims that Morrell failed to establish two of the four factors set forth in McGlothen: a reasonable likelihood of success at trial and irreparable harm in the absence of a preliminary injunction. We address each claim in turn.
Issue One: Likelihood of Success at Trial
Norman first contends that Morrell failed to establish a reasonable likelihood of success at trial to warrant the entry of a preliminary injunction. Pursuant to Michigan Compiled Laws Section 445.774a, non-competition agreements are enforceable so long as they are reasonable. See Thermatool Corp. v. Borzym, 575 N.W.2d 334, 336 (Mich.Ct.App. 1998). The statute provides:
The parties' non-competition agreement specifies that it shall be construed under and governed by the laws of the State of Michigan. A contract provision that an agreement is to be governed by the law of another state operates only to import the substantive law of that state; the procedural law of the forum state applies to procedural issues. JKL Components Corp. v. Insul-Reps, Inc., 596 N.E.2d 945, 950 (Ind.Ct.App. 1992). trans. denied.
An employer may obtain from an employee an agreement or covenant which protects an employer's reasonable competitive business interests and expressly prohibits an employee from engaging in employment or a line of business after termination of employment if the agreement or covenant is reasonable as to its duration, geographical area, and the type of employment or line of business. To the extent any such agreement or covenant is found to be unreasonable in any respect, a court may limit the agreement to render it reasonable in light of the circumstances in which it was made and specifically enforce the agreement as limited.
MICH. COMP. LAWS § 445.774a(1). Here, Norman alleges that his non-competition agreement with Morrell is unreasonable under the Michigan statute with respect to both the geographical area and the line of business it seeks to limit. We disagree.
A. Geographic Limitation
Geographic limitations in non-competition agreements must be tailored so that the scope of the agreement is no greater than is reasonably necessary to protect the employer's legitimate business interests. Superior Consulting Co. v. Walling, 851 F. Supp. 839, 847 (E.D. Mich. 1994). Even a non-competition agreement containing no specific geographic limitations can be reasonable if the employer actually has legitimate business interests throughout the world. See, e.g., id. (upholding unlimited geographic scope of non-competition provision where employer did business in forty-three states and number of foreign nations); Lowry Computer Prod., Inc. v. Head, 984 F. Supp. 1111, 1116 (E.D. Mich. 1997) (upholding unlimited application of restrictive covenant where employer operated in forty-eight states and various foreign countries). Norman's non-competition agreement with Morrell prohibits him from engaging in the business of selling, distributing, and manufacturing of motion control devices only within the states of Michigan, Ohio, Indiana, Illinois, and Wisconsin. It is undisputed that Morrell does business throughout the United States, Canada, Europe and the Far East, and that Morrell maintains facilities in Michigan, Ohio, Indiana and Illinois. Neff Engineering also has facilities in each of those states and is Morrell's biggest competitor in the motion control device industry.
Norman urges that his responsibilities with Morrell focused primarily on Indiana customers and Indiana operations and that, as such, the non-competition agreement should be applied only to Indiana. But Norman occupied a high managerial position within the company and had broad access to confidential information. The evidence supports a conclusion that the information he obtained and the strategies he developed concerned not only Indiana but also Morrell's other Midwest facilities and included the corporate strategies and practices of Morrell as a whole. Indeed, the record reflects that Norman received data and confidential daily reports on Morrell's production and sales for all of its facilities throughout the Midwest and Canada. Accordingly, the non-competition agreement was reasonable in its geographic limitations.
B. Line of Business
The non-competition agreement was also reasonable in its limitation on line of business. A limitation on working in any capacity for a competitor of a former employer is too broad to be enforceable. See Walling, 851 F. Supp. at 842 (holding that non-competition agreement as originally executed was unreasonable because it did not restrict type of work to which it applied). Here, the agreement narrowly limits its application to the "restricted business" of selling, distributing, and manufacturing motion control products. Record at 131; see Head, 984 F. Supp. at 1116 (holding that non-compete clause was reasonable because employee would only be prohibited from selling computer software for barcode systems and related products, not all computer software products); Walling, 851 F. Supp. at 842 (holding that non-competition agreement as amended by trial court was reasonable because it applied only to actual consulting and management work for competitor of employer and only in competitor's healthcare information systems and consulting businesses). Again, given Norman's high managerial position within Morrell and his extensive knowledge of its confidential information and corporate strategy, the breadth of the non-competition agreement's line of work restriction was appropriate under the circumstances.
In sum, the parties' non-competition agreement was reasonable with respect to both geographical limitations and line of work. At this stage, Morrell need not show it is entitled to relief as a matter of law, nor is it required to prove and plead a case which would entitle it to relief upon the merits. See Norlund, 675 N.E.2d at 1149. We conclude that Morrell established a reasonable likelihood of success in proving the validity of the non-competition agreement at trial to justify the entry of a preliminary injunction.
Issue Two: Irreparable Harm
Norman next challenges the trial court's finding that Morrell would suffer irreparable harm if a preliminary injunction were not granted and he were permitted to continue working for Neff Management. In order to establish irreparable injury, the moving party must demonstrate a noncompensable injury for which there is no legal measurement of damages or for which damages cannot be determined with a sufficient degree of certainty. Thermatool, 575 N.W.2d a 377. The injury must be both certain and great, and it must be actual rather than theoretical. Id. Economic injuries are not irreparable because they can be remedied by damages at law. Id.
Here, the trial court found irreparable harm based upon:
damage to relations with customers, vendors, potential customers and vendors, customer confusion, misappropriation of confidential information or trade secrets, actual loss and damage to Morrell's business and employees and other damage to goodwill associated with it.
Record at 97. It is well settled that loss of customer goodwill can support a finding of irreparable harm, because the resulting damages are difficult to calculate. See Basicomputer Corp. v. Scott, 973 F.2d 507, 511-12 (6th Cir. 1992). Similarly, the loss of fair competition that results from the breach of a non-competition agreement is likely to irreparably harm an employer. Id. As the district court expressed in Head:
The more confidential information [the employee] possesses and the higher the likelihood that [the employee] will pass that information on to [the former employer's competitor], the more the other preliminary injunction factors (particularly irreparable injury and public interest) will weigh in favor of granting a preliminary injunction. The loss of consumer goodwill and the weakened ability to fairly compete that would result from disclosure of trade secrets and the breach of a non-compete agreement does establish irreparable injury. In addition, this court has determined that the enforcement of non-compete agreements is in the public interest.
. . . [I]t appears from the submissions of the parties that [the employee] must have at least some confidential information, in the form of customer lists, profit margins and pricing schemes. This court is also wary of [employee's] claim that she will have no occasion to divulge the information in the course of her employment [with her former employer's competitor]. If she is working for a direct competitor in a similar area, her knowledge is bound to have a significant adverse impact on [her former employer's] business. The injury will be irreparable if [the former employer] loses customers it has spent years and significant resources obtaining.
984 F. Supp. at 1116 (citations omitted, emphasis added).
It is undisputed that Norman was the twelfth highest-ranking employee at Morrell. See Scott, 973 F.2d at 513 (observing that defendants were not mere employees, but rather, were "highly-paid managers" who had access to employer's most sensitive pricing and customer information for use in procuring and serving clients). He actively participated in the development of Morrell's sales, marketing, and pricing strategies and had access to highly confidential information, including sensitive pricing, customer, and market data and daily reports on Morrell's products and operations. Use of this information could enable the Neff Companies to undercut Morrell's prices while providing the same products and services. See Walling, 851 F. Supp. at 847; Scott, 973 F.2d at 513. These facts are sufficient to support a finding that Morrell would suffer competitive injury and loss of customer goodwill and, thus, irreparable harm in the absence of a preliminary injunction.
Affirmed.
FRIEDLANDER, J., and MATHIAS, J., concur.