Freiburger v. JUB Engineers, Inc.

Decision Date24 March 2005
Docket NumberNo. 30104.,30104.
Citation111 P.3d 100,141 Idaho 415
PartiesStephen FREIBURGER, Plaintiff-Respondent, v. J-U-B ENGINEERS, INC., Defendant-Appellant.
CourtIdaho Supreme Court

Arkoosh Law Offices, Chtd., Gooding, for appellant. Charles Thomas Arkoosh argued.

Manweiler, Manweiler, Breen & Ball, and Jerry Michael Ward, Boise, for respondent. M. Sean Breen argued.

TROUT, Justice.

Stephen Freiburger brought this declaratory judgment action against J-U-B Engineers, Inc. (J-U-B), seeking a judicial declaration that J-U-B's non-complete clause in his employment contract was invalid and unenforceable under Idaho law. The district court granted summary judgment to Freiburger, from which J-U-B now appeals. Because we agree with the trial court that the clause is unreasonable and greater than necessary to protect J-U-B's legitimate business interests, we affirm.

I. FACTUAL AND PROCEDURAL BACKGROUND

In December 1991, J-U-B hired Stephen Freiburger and, as part of his employment application, he signed an Applicant's Certification and Agreement (Agreement). The Agreement included a restrictive covenant (Covenant), which is at the center of this controversy. That Covenant reads, in part:

Should I become an employee of JUB, it is anticipated that my responsibilities may increase with time and that I may be an official representative to many clients served by JUB. Therefore, I agree that for a period of two years following any date of termination of my employment with JUB, I would not attempt to take, take or join with anyone to take, (without the written consent of JUB) any of past or present clients or projects or any pending clients or projects, for which JUB has or would be providing professional services. (emphasis added).

J-U-B Engineering is one of the largest privately owned engineering firms in the State of Idaho with offices in Boise, Twin Falls, Pocatello, Coeur d'Alene and Nampa, and employs approximately 250 people. It does business throughout the Northwest and has been in business for more than 30 years.

Freiburger became a professional engineer in 1991, just as he joined J-U-B. When he was hired, he had prior experience in consulting engineering and technical expertise in both transportation and solid waste engineering. Freiburger served as J-U-B's project manager in Twin Falls, moving to the Boise office and then to Nampa. While with J-U-B, Freiburger participated in all aspects of client development and knew how J-U-B engaged in client development and client service. He attended manager meetings and was privy to proprietary information concerning existing clients and projects.

According to J-U-B, Freiburger participated in its "inner circle" and in planning efforts to "capture more of the transportation engineering work" available in J-U-B's area of practice. Also, it appears that because of his prominence in the transportation group, he built a relationship base with the Idaho Department of Transportation (IDOT), becoming one of J-U-B's primary liaisons with IDOT, and embodying J-U-B's goodwill effort with IDOT to secure IDOT projects and contracts. On April 25, 2001, Freiburger resigned from J-U-B. About six months later, Freiburger joined Riedesel Engineering, LLC (Riedesel). Soon after Freiburger began his new employment, Riedesel wanted to propose on an IDOT project and tout Freiburger's qualifications in order to secure IDOT projects. At that time, Freiburger wanted to make sure he was not in conflict with the Covenant and, therefore, made several attempts, both directly and through his attorney, to obtain from J-U-B a list of clients that J-U-B considered to be covered under the terms of the Covenant. When J-U-B refused to provide any list of those clients, and simply instructed Freiburger that he should run any potential clients by them first, Freiburger initiated this declaratory judgment action on September 12, 2002, asking the court to declare the Covenant overbroad, unreasonable, void and unenforceable as a matter of law.

J-U-B first sought to disqualify Freiburger's attorney, M. Sean Breen, alleging that Breen had obtained confidential information from J-U-B five years earlier when he had done some regulatory consulting work for a J-U-B project at Freiburger's request. After a hearing on the merits, the trial court found there was no conflict of interest because there was no confidential information belonging to J-U-B ever obtained or used by Breen and, therefore, denied J-U-B's motion to disqualify him.

Freiburger then filed a motion for summary judgment, seeking to have the Covenant declared unenforceable as a matter of law. After oral argument on the matter, the trial court issued its memorandum decision, granting summary judgment to Freiburger. The court found the Covenant unreasonable and fatally overbroad and declined to strike the offending language in the Covenant to make it reasonable, finding that the court would essentially have to rewrite the entire Covenant to make it reasonable. Freiburger then requested costs and attorney fees pursuant to I.C. § 12-120(3). The court granted Freiburger's request, awarding him $117.00 in costs and $9,360.00 in fees. J-U-B timely filed this appeal.

II. STANDARD OF REVIEW

When this Court reviews the district court's ruling on a motion for summary judgment, it employs the same standard as the district court's original ruling on the motion. Farmers Ins. Co. v. Talbot, 133 Idaho 428, 431, 987 P.2d 1043, 1046 (1999) (citing Smith v. Meridian Joint Sch. Dist. No. 2, 128 Idaho 714, 718, 918 P.2d 583, 587 (1996)). Pursuant to I.R.C.P. 56(c), summary judgment must be entered when "the pleadings, depositions, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." When assessing a motion for summary judgment, all facts are to be liberally construed in favor of the nonmoving party and the Court draws any reasonable inferences and conclusions in that party's favor. G M Farms v. Funk Irrigation Co., 119 Idaho 514, 517, 808 P.2d 851, 854 (1991).

III. ANALYSIS
A. The Covenant Not to Compete

J-U-B's primary contention on appeal is that the district court erred in granting Freiburger summary judgment because it has a legitimate interest in protecting its business from former employees who may endeavor to take J-U-B clients and the Covenant contained in the Agreement reasonably protects that interest. Restrictive covenants not to compete in an employment contract, though enforceable, are disfavored and will be strictly construed against the employer. See Stipp v. Wallace Plating, Inc., 96 Idaho 5, 6, 523 P.2d 822, 823 (1974)

; Shakey's Inc. v. Martin, 91 Idaho 758, 762, 430 P.2d 504, 508 (1967). In order to be enforceable, a covenant not to compete must be ancillary to a lawful contract supported by adequate consideration, and consistent with public policy. McCandless v. Carpenter, 123 Idaho 386, 390, 848 P.2d 444, 447 (Ct.App.1993).

In addition, a covenant not to compete contained in an employment contract must be reasonable as applied to the employer, the employee, and the public. See Stipp, 96 Idaho at 6,

523 P.2d at 823; Insurance Ctr., Inc. v. Taylor, 94 Idaho 896, 899, 499 P.2d 1252, 1255 (1972); Marshall, 81 Idaho at 203, 339 P.2d at 508; McCandless, 123 Idaho at 390,

848 P.2d at 447. In other words, a covenant not to compete is reasonable only if the covenant: (1) is not greater than is necessary to protect the employer in some legitimate business interest; (2) is not unduly harsh and oppressive to the employee; and (3) is not injurious to the public. See RESTATEMENT (SECOND) OF CONTRACTS § 188 (1981).

We note that some jurisdictions have applied different standards of reasonableness, depending on the type of restrictive covenant involved and what it is seeking to accomplish. For instance, some courts have held that covenants not to compete ought to be analyzed differently than anti-piracy covenants. See, e.g., Merrill Lynch, Pierce, Fenner Smith Inc. v. Ran, 67 F.Supp.2d 764 (E.D.Mich.1999)

. Under this view, covenants not to compete preclude employees from working in the same business as the employers' for certain periods of time and thus, are strictly construed against employers. See Hilb, Rogal and Hamilton Co. of Arizona, Inc. v. McKinney, 190 Ariz. 213, 946 P.2d 464, 467 (Ct.App.1997). On the other hand, anti-piracy agreements restrict the terminated employee from soliciting customers of his former employer or making use of confidential information from his previous employment. Id. These agreements have been held to a less stringent test of reasonableness than blanket prohibitions of competition, as they are not considered nearly as oppressive and unreasonable as non-compete agreements. See Corroon Black of Ill., Inc. v. Magner, 145 Ill.App.3d 151, 98 Ill.Dec. 663, 494 N.E.2d 785 (1986); Olliver/Pilcher Ins., Inc. v. Daniels, 148 Ariz. 530, 715 P.2d 1218 (1986).

However, we think the more reasoned approach is to simply determine whether or not the clause is no more restrictive than necessary to protect the employer's legitimate business interests. This test can aptly be applied regardless of whether the clause itself seeks to limit the employee's work in the field entirely, or seeks only to limit the employee in approaching former clients. Indeed, we have in the past upheld the application of a restrictive covenant, no matter what it is termed, only after a determination that it was no broader than necessary to protect an employer's legitimate business interest. See Magic Lantern Prod., Inc. v. Dolsot, 126 Idaho 805, 892 P.2d 480 (1995)

; Insurance Center, Inc. v. Taylor, 94 Idaho 896, 499 P.2d 1252 (1972).

1. J-U-B's Legitimate Business Interest

The first issue the Court must consider is whether J-U-B has a legitimate business interest worthy...

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