Dearborn v. Everett J. Prescott, Inc.,

• Decision Date: 30 April 2007
• Docket Number: No. 1:07-cv-0078-DFH-WTL.,1:07-cv-0078-DFH-WTL.
• Citation: 486 F.Supp.2d 802
• Parties: Christopher J. DEARBORN, Plaintiff, v. EVERETT J. PRESCOTT, INC., Defendant.
• Court: U.S. District Court — Southern District of Indiana

486 F.Supp.2d 802

Christopher J. DEARBORN, Plaintiff, v. EVERETT J. PRESCOTT, INC., Defendant.

No. 1:07-cv-0078-DFH-WTL.

United States District Court, S.D. Indiana, Indianapolis Division.

April 30, 2007.

COPYRIGHT MATERIAL OMITTED

Danny E. Glass, Fine & Hatfield, Evansville, IN, for Plaintiff.

Brent D. Taylor, Emily Claire Paavola, Baker & Daniels, Indianapolis, IN, for Defendant.

ENTRY ON MOTION FOR PRELIMINARY INJUNCTION

HAMILTON, District Judge.

In this diversity jurisdiction case, defendant Everett J. Prescott, Inc. ("EJP") has moved for a preliminary injunction to prevent a former sales representative, plaintiff Christopher Dearborn, from working for a competitor in the central Indiana sales territory where Dearborn formerly worked for EJP. The court heard evidence and argument on April 20, 2007, and now states its findings of fact and conclusions of law as required by Rules 52 and 65 of the Federal Rules of Civil Procedure. Substance shall govern whether a particular item is treated as a finding of fact or a conclusion of law. As explained below, EJP's motion for a preliminary injunction is denied.

A party seeking a preliminary injunction must first show that it has a reasonable likelihood of success on the merits, that it has no adequate remedy at law, and that it will suffer irreparable harm if preliminary relief is denied. Promatek Industries, Ltd. v. Equitrac Corp., 300 F.3d 808, 811 (7th Cir.2002); Abbott Laboratories v. Mead Johnson & Co., 971 F2d 6, 11 (7th Cir.1992). If the moving party satisfies those requirements, the court must then consider the balance of harms to the parties that would result from an erroneous grant or denial of preliminary relief, as well as the public interest, meaning the consequences of the decision for non-parties. Promatek Industries, 300 F.3d at 811; Abbott Laboratories, 971 F.2d at 11-12. In this case, the decisive step is the first one. EJP has not shown a reasonable likelihood of success on the merits. Indiana's choice of law rules apply to this case. Indiana courts would apply Indiana substantive law and hold the non-competition covenant to be unenforceable. The Indiana courts would decline to apply the choice of Maine law in the contract itself as contrary to an important Indiana public policy governing covenants not to compete.

I. Dearborn's Employment and Resignation

Plaintiff Christopher J. Dearborn is a citizen of Indiana who lives in Indianapolis. Defendant Everett J. Prescott, Inc. is a Maine corporation with its principal place of business in Maine. Dearborn filed this action on January 22, 2007 seeking declaratory and injunctive relief barring EJP from enforcing a three-year non-competition agreement, as well as damages for alleged breaches of contract. The matter in controversy exceeds $75,000. The court has jurisdiction pursuant to 28 U.S.C. § 1332.

EJP sells and distributes water, sewer, and drain pipe, as well as valves, fittings, fire hydrants, pumps, and related equipment. Its principal customers are municipal and private water and sewer systems, and contractors who build water, sewer, and drain systems in public and private construction projects. EJP is based in Gardiner, Maine. It has a total of 32 offices and distribution centers in a total of nine states, six in New England, plus New York, Ohio, and Indiana. In Indiana, EJP has offices in Indianapolis, Fort Wayne, Mishawaka, Lafayette, and Jeffersonville.

EJP employed plaintiff Dearborn for approximately ten years in several sales and management positions, all in Indiana. He began his employment in Mishawaka where he was a sales representative and branch manager for several years. In early 2003, Dearborn moved to. Indianapolis and became the sales manager for all of Indiana. At the end of 2003, he became an outside sales representative with the title of marketing representative in the Indianapolis office. His compensation in that position was significantly higher than in his position as sales manager for Indiana. As marketing representative in Indianapolis, Dearborn's territory included Marion and Hamilton Counties, and surrounding areas reaching the cities of Anderson, Tipton, Lebanon, and Plainfield.

During his work in the Indianapolis office, Dearborn was successful. In 2003, before he took over his assigned territory, EJP's gross sales had been roughly $2 million. In 2004, Dearborn increased the gross sales for the territory to $4.2 million, and in 2005, he increased the gross sales further to $7.5 million. Sales in 2006 were also high, though the details are not in the record. Dearborn's compensation increased with his sales, but not to the extent he expected or thought he deserved. EJP also introduced some new features to its commission system, that penalized or "fined" Dearborn for matters that he thought had nothing to do with profitability or his deserved compensation. When he raised his concerns, he was not satisfied with the responses from management. By the autumn of 2006, he was ripe for recruitment by a competitor. He was contacted by Ferguson Enterprises, Inc., which also distributes water, sewer, and drain pipe, and valves, fittings, fire hydrants, pumps, and related equipment. Ferguson competes with EJP in some geographic areas, now including Indiana, where Ferguson opened an office in January 2007.

On January 29, 2007, Dearborn resigned from his position with EJP. He began working as a sales representative for Ferguson in the Indianapolis area. The parties have stipulated that "Dearborn is employed with Ferguson in a sales capacity substantially similar to the role he held at EJP in the years immediately preceding his resignation from EJP." Ex. 36, ¶ 12. Dearborn's sales territory for Ferguson includes all or part of his territory with EJP. Id., ¶ 13. After leaving EJP, Dearborn has contacted at least four potential customers that have been customers of EJP. Id., ¶ 15.

II. The Non-Competition Agreement

Prior to 2005, Dearborn had not been subject to any non-competition agreement with EJP. In 2003 and 2004, however, competitors hired away several EJP sales representatives and managers. In October 2004, Dearborn himself had been offered a job by a different competitor. Dearborn discussed the offer with managers, including EJP president Steven E. Prescott. Prescott raised Dearborn's base compensation $10,000, and Dearborn stayed with EJP. At that same time in late 2004, Prescott was in the process of deciding to require all EJP sales representatives and managers to sign non-competition agreements. Agreements were drafted for all sales representatives and managers. All agreements were identical in form and scope, regardless of the employee's duties and regardless of where the employee worked. All provided they would be governed by Maine law. All provided a token payment of $250 to the employee for signing. EJP officials distributed the agreements to managers at a meeting in Maine in March 2005 and directed them to have other managers and sales representatives sign the agreements.

EJP's Indianapolis manager Jeff Bricker attended the meeting in March 2005. When he returned to Indianapolis, he met with his staff, including Dearborn. The evidence supports the inference that Dearborn and others were required to sign the agreements as a condition of remaining employed with EJP. Dearborn signed the agreement the same day it was presented to him, on March 14, 2005 (though the handwritten date erroneously states 2004).

The agreement is titled "Non-Competition and Non-Disclosure Agreement." The Agreement provides that its term is "the entire time that Employee is employed by Company [EJP] and three (3) years after the termination of employment of Employee for any reason with or without cause." ¶ 1.4. The "Covered Geographic Area" is defined broadly in terms of EJP's entire business: "the marketing and sales areas where Company offers services at the time it seeks to enforce the terms of this Agreement, which includes as of the date of this Agreement the geographical area within a one hundred (100) mile radius of each of the offices, distribution centers, and any other place of business of the Company."

Three key covenants are in dispute here. First is the covenant not to compete in Paragraph 2.1:

Employee will not during the term of this Agreement, directly or indirectly, personally or as a principal, agent, stockholder, director, officer, investor, employee, consultant or counselor or in any capacity in or on behalf of any entity whatsoever, corporate, individual or otherwise, provide or offer to provide services competitive with or similar to those provided by Employer in the Covered Geographic Area....

Second is the covenant not to disclose in Paragraph 2.2:

Employee understands and agrees that all Proprietary Information and Confidential Information is the property of Company, is valuable to Company, and that Employee has no property interest in it. Employee agrees that both during the term of this Agreement and at all times thereafter, Employee will not, without prior written authorization from Company: (i) disclose, permit access to, publish or otherwise make available any Proprietary Information or Confidential Information to any person or entity; or (ii) use any Proprietary Information or Confidential Information for any purpose other than as required to perform Employee's duties to Company.

Third is the covenant not to solicit in Paragraph 2.3:

Employee will not during the term of this Agreement, directly or indirectly, personally or as a principal, agent, stockholder, director, officer, investor, employee, consultant or counselor or in any other capacity in or on behalf of any entity whatsoever, corporate, individual or otherwise:

(a) Solicit any officer or employee of Company to leave the employ of Company or to enter into direct or indirect competition with Company;

(b) Employ or offer to employ any officer or employee of Company;

(c) Solicit or...