Curtis 1000, Inc. v. Youngblade
Decision Date | 27 January 1995 |
Docket Number | No. C 94-4117.,C 94-4117. |
Citation | 878 F. Supp. 1224 |
Court | U.S. District Court — Northern District of West Virginia |
Parties | CURTIS 1000, INC., Plaintiff, v. Daniel YOUNGBLADE, Defendant. |
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Roger T. Stetson, Belin, Harris, Lamson, McCormick, Des Moines, IA, for plaintiff Curtis 1000.
James C. Hanks and Douglas L. Phillips, Klass, Hanks, Stoos, Stoik, Mugan & Villone, Sioux City, IA, for defendant Youngblade.
This application for a preliminary injunction requires the court to confront a number of intriguing questions raised by a covenant not to compete in an employment contract. First, the court must decide whether a covenant not to compete in an employment contract should be enforced according the law chosen in the contract between the parties (Delaware), which is the law of a forum with no substantial contacts with the parties or the transaction, or the law of the state in which the contract was substantially performed (Iowa). Second, the court must decide whether the covenant is valid and enforceable under the law of either state, identifying in the process significant differences between those bodies of law concerning covenants not to compete. Third, the court must decide whether issuing a preliminary injunction is appropriate in the circumstances of this case. This third issue requires the court to consider what standards apply to the determination of whether the injunction should issue, state law, federal law, or a clause of the contract between the parties which purportedly establishes a lower threshold for this court's exercise of such equitable powers.
An employer, a nationally-recognized manufacturer of business forms and papers, seeks a preliminary injunction against a former top sales representative enjoining the sales representative from violating a covenant not to compete found in the sales representative's employment contract. The sales representative, who was terminated from his position shortly after filing a declaratory judgment action in Iowa district court seeking to determine his rights under the covenant not to compete, has found employment with another local business, and has allegedly been contacting customers he originally obtained for his former employer. Some of those customers have switched allegiance to the sales representative's new company, allegedly causing or potentially causing his former employer serious economic harm and other injuries. The court notes that from at least late 1993, the employee's repeated indications that he could do better elsewhere and could probably take some of his customers with him when he went "hung like the sword of Damocles over the heads of" the employer. The value of the Damoclean sword is "that it hangs â not that it drops." LaSociete Generale Immobiliere v. Minneapolis Community Development Agency, 44 F.3d 629, 637 (8th Cir.1994) ( ). When it did drop in this case, it may have severed more than the employee anticipated.
This matter comes before the court pursuant to the motion of plaintiff Curtis 1000, Inc. ("Curtis 1000"), for a preliminary injunction filed December 22, 1994, in an action filed the same day. On January 6, 1995, an amended complaint was filed by Curtis 1000. Curtis 1000's amended complaint seeks, in Count I, an injunction for breach of contract, and, in Count II, an injunction for violation of Iowa's Uniform Trade Secrets Act, Iowa Code § 550.3 (1993). A return of service was executed on defendant Daniel Youngblade on January 11, 1995.
On December 29, 1994, Youngblade also filed a lawsuit, but in the Iowa District Court for Woodbury County, in a case styled Youngblade v. Curtis 1000, Inc., Equity No. 110095C. In his lawsuit, Youngblade seeks a declaratory judgment with respect to the parties' rights pursuant to a covenant not to compete found in an employment contract between the parties. On January 19, 1995, Curtis 1000 removed that action to this court on the ground that diversity of citizenship exists between the parties, and the court therefore has jurisdiction in that case pursuant to 28 U.S.C. § 1332. On January 19, 1995, Curtis 1000 filed a motion to consolidate this action with the action for declaratory judgment filed by Youngblade.1 Also, on January 19, 1995, Youngblade filed his answer which raises the following defenses: that despite Youngblade's intention to continue working for Curtis 1000, he was fired; that his termination was contrary to public policy, because it was motivated by his filing of a declaratory judgment action concerning the covenant not to compete in Iowa district court; that Curtis 1000 has no protectible interest in enforcing the covenant; that the covenant is not supported by adequate consideration; that Curtis 1000 has breached the contract; that the equities balance in favor of Youngblade and against enforcement of the covenant; and that the covenant is excessive in its scope and therefore is unenforceable; that Youngblade cannot be restricted under the covenant from pursuing customers outside of the specified geographical area originally identified in the contract of employment; enforcement of the contract is contrary to the public interest; and that the application for preliminary injunction is impermissibly based on allegations of possible future conduct only.
A hearing on Curtis 1000's motion for preliminary...
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