Central Adjustment Bureau, Inc. v. Ingram Associates, Inc., s. 81-CA-121-M

• Court: Kentucky Court of Appeals
• Writing for the Court: GUDGEL
• Citation: Central Adjustment Bureau, Inc. v. Ingram Associates, Inc., 622 S.W.2d 681 (Ky. Ct. App. 1981)
• Decision Date: 04 September 1981
• Docket Number: Nos. 81-CA-121-M,81-CA-325-MR,s. 81-CA-121-M
• Parties: CENTRAL ADJUSTMENT BUREAU, INC., Appellant, v. INGRAM ASSOCIATES, INC., H. Preston Ingram, Kathleen Garrison and David Powers, Appellees. INGRAM ASSOCIATES, INC., H. Preston Ingram, Kathleen Garrison, David Powers, and Anthony Schweitzer, Cross-Appellants, v. CENTRAL ADJUSTMENT BUREAU, INC., Cross-Appellee.

Page 681

622 S.W.2d 681

CENTRAL ADJUSTMENT BUREAU, INC., Appellant, v. INGRAM ASSOCIATES, INC., H. Preston Ingram, Kathleen

Garrison and David Powers, Appellees.

INGRAM ASSOCIATES, INC., H. Preston Ingram, Kathleen

Garrison, David Powers, and Anthony Schweitzer, Cross-Appellants, v. CENTRAL ADJUSTMENT BUREAU, INC., Cross-Appellee.

Nos. 81-CA-121-MR, 81-CA-325-MR

Court of Appeals of Kentucky.

Sept. 4, 1981.

Discretionary Review Denied Nov. 17, 1981.

R. Van Young, Eric L. Ison, Sara E. Noyes, Louisville, for appellant-cross-appellee.

Rob L. Smith, Stephen S. Johnson, Louisville, for appellees-cross-appellants.

Before GANT, GUDGEL and HOWERTON, JJ.

GUDGEL, Judge.

This is an appeal and cross-appeal from a judgment entered by the Jefferson Circuit Court. The principal issue is whether covenants not to compete, signed by three employees of appellant subsequent to the date of their employment, are valid and enforceable. The court below adjudged that the covenants are unenforceable because they are not supported by consideration.

Appellant, Central Adjustment Bureau, Inc. (CAB) is a national company which provides various collection services to clients. The company has offices in twenty-five cities. Although its business is highly competitive, CAB has been able to acquire approximately 30% of the collection market, and has pioneered the use of computer accounting in the industry. In the conduct of its business, CAB makes use of promotional material and acquires extensive information about its clients. Much of its success depends upon satisfactory personal contact between its sales and collection employees and its clients, and those employees have free access CAB's business records and confidential files.

Apparently concerned about the adverse impact which direct competition from former employees might have, CAB elected about eight or nine years after it commenced operations, to require its sales and collection employees to execute covenants not to compete. Under the terms of the covenant, the employee agrees that during the term of his employment with CAB, and for a period of two years thereafter, he will not compete with the company within the United States, either directly or indirectly (1) by being employed by, or owning a proprietary interest in, a business entity in competition with CAB, (2) by divulging or making use of information about CAB's business which he has acquired, or (3) by contacting clients who had been customers of the company while he was employed by CAB.

Appellees, H. Preston Ingram, Kathleen Garrison, and David Powers, each executed a covenant as described subsequent to their employment by CAB. Ingram was employed on March 1, 1971, and the covenant he signed was acknowledged before a notary public on March 22, 1971. Garrison was employed on September 8, 1975, and the covenant she signed was acknowledged on November 12, 1975. Powers was employed on April 1, 1975, and the covenant he signed was acknowledged on May 15, 1975. Ingram voluntarily resigned from his employment with CAB on February 22, 1979. Garrison and Powers did likewise on April 1, 1979. It is undisputed that these employees made plans and took actions prior to their resignation to acquire a proprietary interest in a collection business which was intended to operate in direct competition with CAB. In fact, the business, appellee Ingram Associates, Inc., was organized and had two offices operating in Louisville and Nashville by April 1979, each of which was staffed by former CAB employees.

CAB filed this action on April 4, 1979. It sought an injunction prohibiting Ingram, Garrison, Powers, and cross-appellant, Anthony Schweitzer, from operating a business in competition with CAB in violation of the covenants not to compete each had signed. A restraining order, and thereafter, a temporary injunction, were issued. A trial on the merits of CAB's claim for permanent injunctive relief followed. Findings were rendered on April 14, 1980. The court found that the covenants signed by Ingram, Garrison, and Powers are unenforceable because they were executed subsequent to their employment by CAB, and therefore, are not supported by consideration. However, the court found that the covenant not to compete signed by cross-appellant Schweitzer was valid and enforceable because it was signed simultaneously with his employment. The court also adjudged that all four former employees breached their fiduciary relationship to CAB for which conduct they must respond in damages, but reserved the amount of damages recoverable for future adjudication. The judgment also failed to specifically grant or deny any of the injunctive relief which had been demanded by CAB. This appeal and cross-appeal followed.

We are immediately faced with a procedural question of whether any portion of the court's judgment is final and appealable. Neither party has raised this issue. Nevertheless, this Court is required to do so. Hook v. Hook, Ky., 563 S.W.2d 716 (1978).

CAB's complaint asked for injunctive relief against (1) appellees' continued violation of their covenants not to compete; (2) their enticement or interference with CAB's employees, and (3) their solicitation and use of confidential and/or proprietary business information of CAB. Additionally, CAB sought an order requiring that they turn over to CAB all customer lists and other written information in their possession related to the business and affairs of CAB. CAB also sought money damages for a breach of appellees' fiduciary relationship to the company.

It is evident that CAB's complaint asserted several distinct and separate claims for relief. However, the only claim that was finally adjudicated by the court's judgment was the claim for injunctive relief to prohibit appellees, Ingram, Garrison, and Powers from continuing to violate their covenants not to compete. We reach this conclusion only because such an adjudication was implicit in the court's adjudication that those covenants were invalid and unenforceable.

Aside from this adjudication, we have determined that the remainder of the judgment appealed from is interlocutory and not reviewable by this Court. Therefore, we dismiss the portions of the direct appeal and the cross-appeal which contend that the court erred (1) by failing to grant CAB injunctive relief prohibiting appellees from continuing to breach their fiduciary relationship, (2) by finding that the covenant not to compete executed by cross-appellant Schweitzer, is valid and enforceable, and (3) by finding that all four former employees breached their fiduciary relationship to CAB and must respond in damages. This action on our part is necessitated because the court made no final adjudications in its judgment with respect to these contentions.

While CAB sought equitable relief with respect to appellees' alleged breach of their fiduciary relationship, the court's judgment neither granted nor denied such relief. Similarly, while the court found that the covenant not to compete signed by Schweitzer is valid and enforceable, the court's judgment fails to grant any equitable relief enforcing the covenant. Likewise, although the court's judgment adjudged that all four employees breached their fiduciary relationship to CAB, it specifically reserved the issue of damages recoverable on that claim for future adjudication. Thus, except for that portion of the judgment which adjudges that the covenants not to compete signed by appellees, Ingram, Garrison, and Powers, are invalid and unenforceable, we are not authorized to review any of the remaining adjudications made in the court's judgment. CR 54.01; CR 54.02; Hook v. Hook, supra; Hale v. Deaton, Ky., 528 S.W.2d 719 (1975).

Appellant contends that the court erred by finding that the covenants not to compete signed by Ingram, Garrison, and Powers are invalid for lack of consideration. We agree.

The basis for the court's finding was its belief that to confront an existing employee at will with such a...