Inergy Propane, LLC v. Lundy

Decision Date13 August 2008
Docket NumberNo. 103,914.,103,914.
Citation219 P.3d 547,2009 OK CIV APP 8
PartiesINERGY PROPANE, LLC, a Delaware corporation, Plaintiff/Appellee, v. David L. LUNDY, individually, and d/b/a Dave Lundy Propane, Defendant/Appellant.
CourtUnited States State Court of Criminal Appeals of Oklahoma. Court of Civil Appeals of Oklahoma

Appeal from the District Court of Oklahoma County, Oklahoma; Honorable Noma D. Gurich, Trial Judge.


Lincoln C. McElroy, Charles E. Geister III, Hartzog Conger Cason & Neville, Oklahoma City, OK, for Plaintiff/Appellee.

Randy L. Goodman, Nicoma Park, OK, for Defendant/Appellant.


¶ 1 David L. Lundy, individually and d/b/a Dave Lundy Propane, appeals from a temporary injunction requiring Lundy to remove any propane tanks from Lincoln, Logan, Pottawatomie and Cleveland counties and to comply with the terms of a non-compete agreement and the terms of a confidentiality and non-solicitation agreement. After reviewing the record and hearing the oral arguments of counsel, we find the evidence in the record sufficient to warrant the issuance of a preliminary injunction and affirm.


¶ 2 Lundy started working in the propane business in 1977. On October 26, 1992, Lundy sold his propane business to Beck & Root Fuel Company (Beck & Root) pursuant to an Asset Purchase Agreement. As part of that transaction, Lundy signed a Covenant Not to Compete (Non-Compete Agreement). The Non-Compete Agreement provided that Lundy would not engage in the propane business in Lincoln, Logan, Pottawatomie and Cleveland counties for a period of 15 years. Separate consideration was agreed for the Non-Compete Agreement in the amount of $300,600, payable in 180 monthly installments of $1,670. Inergy Propane, LLC, is the successor in interest to Beck & Root. The date and terms of this acquisition are not apparent from the record.

¶ 3 After the sale of his propane business, Lundy went to work for Inergy in essentially the same geographic area previously served by the business he sold in 1992. He was employed from 1998 to 2000, and again from June 2002 to January 2005. As partial consideration for his second employment, Inergy required and Lundy signed a Confidentiality and Non-Solicitation Agreement (Non-Solicitation Agreement). That Agreement defined confidential information to include Inergy's customer information and customer lists, its pricing information, business strategies and other trade secrets. Excluded from this definition was information rightfully known to Lundy prior to his employment and information properly within the public domain. The Non-Solicitation Agreement prohibited Lundy from disclosing or using Inergy's confidential information during the term of and after termination of his employment. The Non-Solicitation Agreement also prohibited Lundy, for one year following termination of his employment, from hiring Inergy employees to work for another employer. Finally, the Non-Solicitation Agreement prohibited Lundy, for two years following termination of his employment, from soliciting or diverting the business of any Inergy customer within fifty miles of the Inergy locations to which Lundy had been assigned. A provision in the Non-Solicitation Agreement acknowledges that it is not intended to prohibit competition between Inergy and Lundy or his employment by a competing firm except as prohibited by the terms of the Agreement.

¶ 4 Lundy resigned from his second employment at Inergy in January 2005, and started a new propane business. The customers of Lundy's new business included former Inergy customers and non-Inergy customers located in the four counties mentioned in the Non-Compete Agreement.

¶ 5 Inergy filed suit on August 9, 2005, and moved for a preliminary injunction on March 29, 2006. At the hearing on its motion, Inergy introduced evidence showing that certain customers of Lundy's new business had been Inergy customers, that Lundy utilized old Inergy sales tickets with his new customers, at least some of which did not clearly disclose the identity of Lundy's new operation, and that Lundy had made disparaging remarks to some Inergy customers in an effort to obtain their business. Lundy acknowledges that former Inergy customers are customers of his new business but contends that they sought him out and that he did not solicit their business. The district court granted Inergy's motion for preliminary injunction on October 5, 2006. It is from that order that Lundy appeals.


¶ 6 Although the underlying issues in this appeal involve the enforcement of a contract, an action at law, see Pitco Production Company v. Chaparral Energy, Inc., 2003 OK 5, ¶ 12, 63 P.3d 541, 545, the injunctive relief sought by Inergy invoked the district court's equitable jurisdiction. Sharp v. 251st St. Landfill, Inc., 1996 OK 109, ¶ 4, 925 P.2d 546, 549. An injunction is an "extraordinary remedy, and relief by this means is not to be lightly granted." Amoco Prod. Co. v. Lindley, 1980 OK 6, ¶ 50, 609 P.2d 733, 745. Entitlement to injunctive relief must be established by clear and convincing evidence. Sharp, 1996 OK 109 at ¶ 5, 925 P.2d at 549. "The standard of review imposed for the issuance of a temporary injunction is whether the district court abused its discretion or entered a decision against the evidence." Brown v. Oklahoma Secondary Sch. Activities Ass'n, 2005 OK 88, ¶ 11, 125 P.3d 1219, 1225 (footnote omitted). The discretion of the district court to grant an injunction must be made according to well established equitable principles. Cloer v. Gillespie, 1963 OK 195, ¶ 12, 386 P.2d 1015, 1018. In reviewing the decision, the appellate court will consider and weigh the evidence presented to the district court. Board of Regents v. NCAA, 1977 OK 17, ¶ 3, 561 P.2d 499, 502.


¶ 7 Lundy raises four arguments in this appeal. He challenges Inergy's authority to enforce the Non-Compete Agreement arguing it required his consent, which he did not give, before it could be assigned. He argues that the Non-Solicitation Agreement superceded the Non-Compete Agreement and that the later agreement specifically permits competition. He contends that the Non-Compete and Non-Solicitation Agreements are unenforceable as unlawful restraints on trade. He also argues that the extraordinary remedy of a temporary injunction is inappropriate in this case.1

I. Inergy May Enforce the Non-Compete Agreement

¶ 8 Lundy correctly points out that the Non-Compete Agreement is not "assignable by Obligors without the prior written consent of Lundys." Beck & Root and Phillip D. Root, individually, are the parties identified in the Non-Compete Agreement as the Obligors. Although Lundy did consent, in writing, when the company was acquired by Inergy's predecessor, he did not sign any consent when Inergy acquired his former business. He argues, therefore, that Inergy cannot enforce the Non-Compete Agreement. Several problems defeat this argument.

¶ 9 First, it is undisputed that Inergy is the successor to Beck & Root. As a general rule, a successor corporation may enforce the contractual rights of its predecessor. Cf., Farren v. Autoviable Servs., Inc., 1973 OK 4, 508 P.2d 646 (surviving corporation after merger could enforce non-compete agreement between the acquired corporation and its former president).

¶ 10 Second, the language of the Non-Compete Agreement contemplates successors to the interest held by Beck & Root, providing that it is binding on the parties "and their respective successors and assigns." The Non-Compete Agreement also provides that the covenants and agreements "shall be solely for the benefit of, and shall be enforceable only by, the parties hereto of [sic] their respective successors and assigns." Nonetheless, Lundy argues that he has a right to approve any successor to Beck & Root and relies on the following language: "This Agreement and any rights hereunder shall not be assignable by Obligors without the prior written consent of Lundys or their successors and assigns." (Emphasis added.) Obviously absent from this sentence is any reference to Beck & Root's "successors." The only restriction is on assignment of the contract right at issue.

¶ 11 An assignment is the transfer of a contractual right, which extinguishes the assignor's interest and creates that interest in the assignee. Restatement (Second) of Contracts § 317 (1981). Although Phillip D. Root transferred his interest in the Non-Compete Agreement when the business was acquired by Inergy's predecessor, Lundy consented to that assignment. The record does not reflect how Inergy's predecessor acquired Beck & Root's interest. If it acquired that interest by purchase of the company's stock, no assignment occurred. See Cooke v. Tankersley, 1948 OK 23, ¶ 27, 189 P.2d 417, 419 (title to corporate assets is held by the corporation, not individual stockholders). Shares of stock in a corporation are personal property and transferable. 18 O.S. 2001 § 1040. The Non-Compete Agreement prohibits assignment without consent. It does not, however, prohibit the sale of stock or transfer of controlling interest in the corporation, which owns the contractual right Inergy seeks to enforce in this action.

¶ 12 The language of a contract is to govern its interpretation. 15 O.S.2001 § 154. The language of this contract does not require Lundy's consent prior to the sale of Beck & Root stock, even controlling interest in that company.

¶ 13 Third, even if there were some uncertainty regarding what the parties intended by this provision, if "the meaning of the terms used in a written contract is not clear, the subsequent acts of the parties showing the construction they have put upon it themselves are to be looked to by the court." Homa-Okla Oil Co. v. Parsons, 1925 OK 868, ¶ 0, 240 P. 1063 (Syllabus 1). After Inergy...

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