Clark's Sales & Serv., Inc. v. John D. Smith & Ferguson Enters., Inc., No. 49A02–1306–PL–552.

Docket NºNo. 49A02–1306–PL–552.
Citation4 N.E.3d 772
Case DateFebruary 20, 2014
CourtCourt of Appeals of Indiana

4 N.E.3d 772

CLARK'S SALES AND SERVICE, INC., Appellant–Plaintiff,
v.
John D. SMITH and Ferguson Enterprises, Inc., Appellees–Defendants.

No. 49A02–1306–PL–552.

Court of Appeals of Indiana.

Feb. 20, 2014.


[4 N.E.3d 775]


Andrew M. McNeil, Philip R. Zimmerly, Bose McKinney & Evans, LLP, Indianapolis, IN, Attorneys for Appellant.

Danny E. Glass, Adam E. Glass, Fine & Hatfield, PC, Evansville, IN, Robert M. Baker, III, Law Office of Robert M. Baker III, Ronald E. Weldy, Weldy & Associates, Indianapolis, IN, Attorneys for Appellees.


OPINION

CRONE, Judge.
Case Summary1

Clark's Sales & Service, Inc. (“Clark's”), appeals the trial court's order denying Clark's motion for preliminary injunction as to a restrictive covenant Clark's sought to enforce against former Clark's employee, John D. Smith, and his new employer, Ferguson Enterprises, Inc. Smith worked for Clark's for approximately fourteen years before leaving to work for Ferguson. During his employment with Clark's, Smith signed an employment agreement which included a restrictive covenant/noncompetition provision. The trial court concluded that the restrictive covenant that Clark's drafted is overly broad and unreasonable, and therefore unenforceable. On appeal Clark's asserts that the trial court clearly erred when it concluded that the restrictive covenant is unreasonable and unenforceable. Clark's maintains that even assuming the restrictive covenant is unreasonable and unenforceable as written, this Court should apply the blue pencil doctrine to make the covenant reasonable and enforceable. Concluding that the trial court's judgment is not clearly erroneous and that the blue pencil doctrine is inapplicable under the circumstances presented, we affirm.

Facts and Procedural History

Smith worked for HH Gregg Appliances and Electronics (“Gregg”) for four years

[4 N.E.3d 776]

prior to commencing employment with Clark's in 1998. While working for Gregg, Smith became familiar with and sold high-end appliances. Clark's, a family-owned business since it was founded in 1913, is involved in builder-distributor appliance sales and service in Indiana and concentrates its efforts in high-end appliance sales. Clark's generated approximately $750,000 in sales in 1986, when Bob Clark purchased the business from his parents, and he grew the business to a peak of $28 million in sales during the first decade of the 2000s. Clark's seeks to hire sales consultants with prior appliance experience, but does not consider its business to be similar to that of Sears, Lowes, or Gregg, which do business in a traditional retail setting offering low-end, middle, and high-end appliances. Smith acquired knowledge, skill, and information in connection with his employment as an appliance sales representative with Clark's.

In 2004, one of Clark's high-level managers left to join Gregg in a position that Clark's viewed to be a competitive role. As a result, in September 2004, Clark's asked Smith and other employees to sign a written employment agreement, which contained both a nondisclosure clause and a restrictive covenant. The restrictive covenant provides in relevant part as follows:

7. Restrictive Covenants. During the term of Employee's employment and this Agreement and for a period of two (2) years following the termination of Employee's employment, Employee agrees not to, directly or indirectly, whether individually or as a partner, shareholder, officer, director, employee, independent representative, broker, agent, consultant or in any capacity for any other individual, partnership, firm, corporation, company or other entity, engage in the following prohibited activities:

...

(C) Solicit or provide, or offer to solicit or provide, services competitive to those offered by Employer, or those provided by Employee on behalf of Employer, to any business account or customer of Employer who was a business account or customer of Employer during the term of Employee's employment, including but not limited to any business account or customer serviced or contacted by Employee, or for whom Employee had direct or indirect responsibility, on behalf of Employer within the 12–month period preceding the termination [of] Employee's employment or about whom Employee obtained Confidential Information;

(D) Work in a competitive capacity for HH Gregg's in Indianapolis, Indiana, within the State of Indiana, or in any state or municipal corporation, city [,] town, village, township, county or other governmental association in which HH Gregg's does business, or for an individual partnership, firm, corporation, company or other entity providing services similar or competitive to those offered by Employer to the residential or commercial builder and remodeling business sectors during the term [of] Employee's employment with Employer, including but not limited to providing those services performed by Employee while employed by or working for Employer, within Marion County, Indiana, any county contiguous to Marion County, Indiana (including Hamilton County, Hancock County, Shelby County, Johnson County, Morgan County, Hendricks County, and Boone County), any county in Indiana in which Employer provided services or has at least one customer or client, the State of Indiana,

[4 N.E.3d 777]

or within a 50 mile radius of Employee's principal office with Employer.

(E) Otherwise attempt to interfere with Employer's business or its relationship with its business accounts, consultants, customers, employees, vendors, or suppliers.

Appellant's App. at 27–28. Smith signed the employment agreement. Some employees signed an employee handbook, which contained a nondisclosure clause but not a restrictive covenant.


Smith was made an assistant store manager in 2009 at Clark's Castleton showroom. Smith's duties involved inside sales in the showroom and did not include visiting or calling on customers. Smith did not have assigned customers or a book of business of his own.

After approximately fourteen years working for Clark's, Smith tendered his resignation on April 13, 2012.2 Prior to tendering his resignation, Smith emailed copies of Clark's 2010 and 2011 monthly and quarterly sales bonus reports for all of Clark's sales personnel to his personal email account from his company email address, even though he was not authorized to do so. The reports contained information about all of the sales made by each of Clark's salespeople and included customer and builder contact information, the price of the materials sold, Clark's costs on those items, and Clark's profit margin on each sale. Smith provided this information to his attorney, but to no third parties.3 On April 18, 2012, Smith accepted an offer of employment with Ferguson.

Ferguson was also in the business of high-end appliance sales and service, although it was principally engaged in the plumbing and lighting business. Smith currently works for Ferguson at its builder and designer showroom in Carmel as an appliance manager. The showroom is within a fifty-mile radius of Smith's former principal office with Clark's. Smith's employment does not involve direct sales, but does include the training of sales employees, coordinating with vendors, and assisting with service, installation, and delivery. Smith's position is salaried, and he is compensated for the overall growth of the department.

Clark Cutshaw, Ferguson's sales manager for the Indianapolis area, testified that the information contained in Clark's sales reports is of no value to Ferguson because Ferguson's corporate office dictates cost and pricing. He further testified that Smith was expected to develop close relationships with building and remodeling contractors, but had no direct selling responsibilities. John Hoover, Ferguson's general manager for the central Indiana area and Cutshaw's boss, testified that appliances constituted only one percent of Ferguson's sales to customers and that he was trying to increase those sales. He testified that he expected Smith to “[close] the loop” with Ferguson's customers on appliance sales. Tr. at 354. In other words, Smith was expected to convince builders, remodelers, and kitchen designers who had not previously done so to purchase appliances from Ferguson.

Although Smith claimed that he had no direct sales responsibility, he confirmed that he worked on landing sales through

[4 N.E.3d 778]

focusing on builder and remodeler referral sources, and then allowed a salesperson to complete the actual sale. While working for Ferguson, Smith has solicited and offered to provide competitive services to business accounts and customers of Clark's.

On June 1, 2012, Clark's filed an amended verified complaint for preliminary and permanent injunctive relief and compensatory damages against Smith and Ferguson based upon Smith's alleged violation of the nondisclosure provision and the restrictive covenant in the employment agreement. Smith and Ferguson responded with affirmative defenses and also counterclaimed for damages. Specifically, Smith and Ferguson asserted that Clark's first breached the employment agreement when it failed on multiple occasions to properly pay salary and bonuses to Smith, and therefore Clark's forfeited any right to enforce the agreement. A preliminary injunction hearing was held on June 8, 2012. Thereafter, on July 3, 2012, the trial court issued its findings of fact and conclusions thereon, granting Clark's request for a preliminary injunction based upon the terms of the nondisclosure provision in the employment agreement and denying in part Clark's request for a preliminary injunction as to the restrictive covenant in the agreement. The trial court's denial of the preliminary injunction regarding the restrictive covenant was based on its conclusion that the provision was not supported by adequate consideration.

Clark's appealed, and on March 8, 2013, another panel of this Court issued a memorandum decision reversing the trial court's conclusion regarding the...

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20 practice notes
  • Taylor v. Taylor, Docket No. 48380
    • United States
    • United States State Supreme Court of Idaho
    • January 6, 2022
    ...through severance or restriction of the offending clause, which ... is not invariably the case"); Clark's Sales & Serv., Inc. v. Smith , 4 N.E.3d 772 (Ind. 2014) (discussing Indiana's blue pencil doctrine, which allows a court to strike unreasonable restrictions in a noncompete clause and e......
  • Taylor v. Taylor, 48380
    • United States
    • United States State Supreme Court of Idaho
    • January 6, 2022
    ...through severance or restriction of the offending clause, which . . . is not invariably the case"); Clark's Sales & Serv., Inc. v. Smith, 4 N.E.3d 772 (Ind. 2014) (discussing Indiana's blue pencil doctrine, which allows a court to strike unreasonable restrictions in a noncompete clause and ......
  • Lamb Mech. Servs. v. Mattson (In re Mattson), 18-09103-JMC-7A
    • United States
    • United States Bankruptcy Courts. Seventh Circuit. U.S. Bankruptcy Court — Southern District of Indiana
    • March 7, 2022
    ...the non-compete and non-solicitation clauses were unenforceable. In Debtor's Trial Brief, citing Clark's Sales and Servs., Inc. v. Smith, 4 N.E.3d 772 (Ind.Ct.App. 2014), Debtor's counsel argued that the three-year duration of the non-compete and non-solicitation clauses made them unenforce......
  • Mid-American Salt, LLC v. D.J.'s Lawn Serv., Inc., CASE NUMBER: 1:16 CV 280
    • United States
    • United States District Courts. 7th Circuit. United States District Court of Northern District of Indiana
    • June 24, 2019
    ...the law extends additional precautions when evaluating those types of restrictive covenants. See Clark’s Sales & Serv., Inc. v. Smith , 4 N.E.3d 772, 780 (Ind. Ct. App. 2014).Outside of the employer/employee context, Indiana has held that noncompetition agreements ancillary to the sale of a......
  • Request a trial to view additional results
21 cases
  • Taylor v. Taylor, Docket No. 48380
    • United States
    • United States State Supreme Court of Idaho
    • January 6, 2022
    ...through severance or restriction of the offending clause, which ... is not invariably the case"); Clark's Sales & Serv., Inc. v. Smith , 4 N.E.3d 772 (Ind. 2014) (discussing Indiana's blue pencil doctrine, which allows a court to strike unreasonable restrictions in a noncompete clause and e......
  • Taylor v. Taylor, 48380
    • United States
    • United States State Supreme Court of Idaho
    • January 6, 2022
    ...through severance or restriction of the offending clause, which . . . is not invariably the case"); Clark's Sales & Serv., Inc. v. Smith, 4 N.E.3d 772 (Ind. 2014) (discussing Indiana's blue pencil doctrine, which allows a court to strike unreasonable restrictions in a noncompete clause and ......
  • Lamb Mech. Servs. v. Mattson (In re Mattson), 18-09103-JMC-7A
    • United States
    • United States Bankruptcy Courts. Seventh Circuit. U.S. Bankruptcy Court — Southern District of Indiana
    • March 7, 2022
    ...the non-compete and non-solicitation clauses were unenforceable. In Debtor's Trial Brief, citing Clark's Sales and Servs., Inc. v. Smith, 4 N.E.3d 772 (Ind.Ct.App. 2014), Debtor's counsel argued that the three-year duration of the non-compete and non-solicitation clauses made them unenforce......
  • Mid-American Salt, LLC v. D.J.'s Lawn Serv., Inc., CASE NUMBER: 1:16 CV 280
    • United States
    • United States District Courts. 7th Circuit. United States District Court of Northern District of Indiana
    • June 24, 2019
    ...the law extends additional precautions when evaluating those types of restrictive covenants. See Clark’s Sales & Serv., Inc. v. Smith , 4 N.E.3d 772, 780 (Ind. Ct. App. 2014).Outside of the employer/employee context, Indiana has held that noncompetition agreements ancillary to the sale of a......
  • Request a trial to view additional results

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