In re King

• Decision Date: 22 January 2009
• Docket Number: Adversary No. 08-6031.,Bankruptcy No. 07-02042-JDP.
• Citation: 403 B.R. 86
• Parties: In re Christopher R. KING, dba, CK Construction, LLC, Debtor. JB Construction, Inc., an Idaho corporation, Plaintiff, v. Christopher R. King, dba, CK Construction LLC, Defendant.
• Court: U.S. Bankruptcy Court — District of Idaho

403 B.R. 86

In re Christopher R. KING, dba, CK Construction, LLC, Debtor JB Construction, Inc., an Idaho corporation, Plaintiff, v. Christopher R. King, dba, CK Construction LLC, Defendant.

Bankruptcy No. 07-02042-JDP.

Adversary No. 08-6031.

United States Bankruptcy Court, D. Idaho.

January 22, 2009.

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David V. Nielsen, Boise, ID, for Plaintiff.

Patrick J. Geile, Foley Freeman, Meridian, ID, for Defendant.

MEMORANDUM OF DECISION

JIM D. PAPPAS, Bankruptcy Judge.

Introduction

Plaintiff JB Construction, Inc. ("Plaintiff") seeks a determination that Defendant Christopher R. King ("Defendant") willfully and maliciously breached an agreement between the parties, such that Plaintiff's claim for damages should be excepted from discharge in Defendant's bankruptcy case under § 523(a)(6)¹ of the Bankruptcy Code.

Background and Facts

Plaintiff is an Idaho company that specializes in the placement of concrete for both commercial and residential builders.

In 1999, Defendant began working for Plaintiff as an hourly employee, earning $9.00 per hour. Defendant started as a general laborer, but received regular promotions and pay increases. On May 6, 2000, Plaintiff promoted Defendant to foreman. In this position, Defendant was responsible for preparing "take-offs,"² which were used in compiling Plaintiff's estimates and bids for projects.

In January, 2006, Defendant was again promoted, this time to a supervisor, and his wage was increased to $24.00 per hour. As a supervisor, Defendant was the primary contact with many of Plaintiff's customers, and he was responsible for scheduling projects and ensuring that the job proceeded smoothly. John Bernstrom, Plaintiff's owner and President, testified that one of Defendant's responsibilities as a supervisor was to establish and foster a positive rapport with Plaintiff's customers, so that Plaintiff would be positioned to obtain repeat business from these customers. It was in connection with this promotion that Plaintiff had Defendant sign a written contract, which contained a "non-compete" clause, discussed in detail below.

A year later, on January 29, 2007, Defendant's employment with Plaintiff was terminated. At that time, Bernstrom reminded Defendant that he had signed a non-compete agreement.

Defendant sought the advice of an attorney regarding the validity of the covenant not to compete with Plaintiff contained in the agreement. The lawyer informed him that the non-compete provision was void and unenforceable under Idaho law.

Thereafter, on February 20, 2007, Defendant formed CK Construction, LLC, a new concrete placement business. Defendant, acting through his company, immediately began to solicit work from potential customers, several of whom were customers of Plaintiff with whom he had contact while employed by Plaintiff.

Defendant's business failed, and on December 28, 2007, he filed a voluntary petition for relief under chapter 7 of the Bankruptcy Code.³ Plaintiff commenced this adversary proceeding against Defendant on March 19, 2008. The Court conducted a trial on December 4, 2008, at which both parties appeared and presented evidence and testimony. At their request, the parties submitted their closing arguments via written briefs. Docket Nos. 36-39.

Having carefully considered the record, the evidence and testimony, and the arguments of the parties, this Memorandum constitutes the Court's findings of fact and conclusions of law, and disposition of the issues. Rules 9014, 7052.

Discussion and Disposition of the Issues

I.

Though not generally favored in the employment context in Idaho, non-compete agreements may nonetheless be valid and enforceable when their terms are reasonable as applied to the parties to the agreement and the general public. Bybee v. Isaac, 145 Idaho 251, 178 P.3d 616, 622 (2008) (citing Stipp v. Wallace Plating, Inc., 96 Idaho 5, 523 P.2d 822, 823 (1974)). Put another way, a covenant not to compete may be enforced 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." Freiburger v. J-U-B Engineers, Inc. 111 P.3d 100, 105 (Idaho 2005) (citing RESTATEMENT (SECOND) OF CONTRACTS § 188 (1981)). The Idaho Supreme Court, although acknowledging that other courts apply different standards of reasonableness, has explained that the approach for testing non-compete contracts in this state is "to simply determine whether or not the clause is no more restrictive than necessary to protect the employer's legitimate business interests." Id.

A.

Here, Defendant argues that Plaintiff failed to establish a legitimate business interest worthy of protection by the covenant not to compete, such as trade secrets or copyrighted information. He contends that the only evidence presented on this point was Bernstrom's testimony that he did not want Defendant "poaching" his customers.

Although an employer is generally not entitled to protect its business against ordinary competition, it may shield it "from the detrimental impact of competition by employees who, but for their employment, would not have had the ability to gain a special influence over clients or customers." Freiburger, 111 P.3d at 105. "Thus, `the employer has a protectable interest in the customer relationships its former employee established and/or nurtured while employed by the employer, and is entitled to protect itself from the risk that a former employee might appropriate customers by taking unfair advantage of the contacts developed while working for the employer.'" Id. (quoting W.R. Grace & Co. v. Mouyal, 262 Ga. 464, 422 S.E.2d 529, 531 (1992)).

Bernstrom testified without contradiction that a substantial portion of Plaintiff's work is derived from repeat jobs from former customers. By promoting him to a supervisor, Plaintiff placed Defendant in direct contact with its customers. His undisputed testimony showed that one of Defendant's responsibilities as supervisor was to establish a rapport with customers, and to thereby develop Plaintiff's goodwill. Under these circumstances, the Court concludes that Plaintiff had a legitimate business interest in protecting its customer relationships which Defendant helped to develop while in Plaintiff's employ.

B.

Because Plaintiff has established it held a protectable business interest, the Court must next determine whether the particular non-compete provision in the parties' agreement is no more restrictive than necessary to protect Plaintiff's interest. In making this determination, the Court may consider whether the restriction is reasonably limited as to time, scope, and territorial extent. Bybee, 178 P.3d at 622 (citing Vancil v. Anderson, 71 Idaho 95, 227 P.2d 74, 77 (1951)).

The agreement Defendant concedes he executed provides in pertinent part that:

During the term of [Defendant's] employment by [Plaintiff] and for two (2) years after termination of such employment for the Idaho counties of Ada, Canyon, Elmore, Valley and Gem, [Defendant] agrees that [he] will not, without the prior written consent of [Plaintiff], directly or indirectly, whether as an employee, officer, director, independent contractor, consultant, stockholder, partner or otherwise, engage in or assist others to engage in or have any interest in any business which engages in, any attempt to take the business of any past or present clients or projects of [Plaintiff] with which [Defendant] had contact.

Ex. 100.

Defendant is a long-time resident of the Treasure Valley. When his employment with Plaintiff was terminated, he chose to remain in the area and to begin his own concrete placement business. He argues that the geographic restriction imposed upon him by the agreement with Plaintiff is unreasonable because the Treasure Valley is the primary population center in Idaho and Ada, Canyon, Elmore, Gem, and Valley counties represent the entire feasible business region in the area. Since Defendant's new business is based in Ada County, it would be fundamentally unreasonable, he argues, to enforce an agreement that prevents him from operating a successful concrete placement business in this area.

Defendant's argument lacks merit. Although he may be correct in suggesting that the five counties identified in the non-compete clause compose the entire feasible market in this area,⁴ the contract restriction at issue here is not a blanket prohibition against his working in the concrete placement industry in these five counties. For example, nothing in the agreement restricts Defendant from contacting or working with customers that have had no prior business dealings with Plaintiff. Moreover, the agreement does not prohibit Defendant from soliciting work from all of Plaintiff's past customers; it applies only to those with which Defendant had personal contact during his employment with Plaintiff.

The Court declines to conclude that the geographical scope of the non-compete covenant is unreasonable. But even if the Court were to find the geographic reach of the covenant too onerous, because the agreement affects only customers with whom Defendant had contact while employed with Plaintiff, the scope of this restriction is reasonable. See Pinnacle Performance, Inc. v. Hessing, 135 Idaho 364, 17 P.3d 308, 312 (Id.App.2001) (explaining that "an otherwise overly broad geographical limitation may be considered reasonable if the class of persons with whom contact is prohibited is sufficiently limited.").

The Court also concludes that it was reasonable for Plaintiff to require that Defendant refrain from competing for two years. The Idaho Supreme Court has upheld longer restrictions in non-compete agreements. See, e.g., Bybee, 178 P.3d at 623 (five year restriction against competition in the context of a sale of a business is upheld); Marshall v. Covington, 81 Idaho 199, 339...