JAK Productions, Inc. v. Wiza

• Decision Date: 16 February 1993
• Docket Number: No. 92-1849,92-1849
• Citation: 986 F.2d 1080
• Parties: JAK PRODUCTIONS, INCORPORATED, an Indiana Corporation, Plaintiff-Appellee, v. Edward J. WIZA, III, Defendant-Appellant.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 1080

986 F.2d 1080

JAK PRODUCTIONS, INCORPORATED, an Indiana Corporation Plaintiff-Appellee, v. Edward J. WIZA, III, Defendant-Appellant.

No. 92-1849.

United States Court of Appeals Seventh Circuit.

Argued Oct. 1, 1992.

Decided Feb. 16, 1993.

David J. Carr (argued), David D. Robinson, Johnson, Smith, Densborn, Wright & Heath, Indianapolis, IN, for plaintiff-appellee.

Evan E. Steger, Fred R. Biesecker (argued), Ice, Miller, Donadio & Ryan, Indianapolis, IN, Donald H. Dunnuck, Dunnuck, Teagle & Hunt, Muncie, IN, for defendant-appellant.

Before CUMMINGS and MANION, Circuit Judges, and FAIRCHILD, Senior Circuit Judge.

MANION, Circuit Judge.

JAK Productions, Inc. ("JAK") raised funds for various police organizations nationwide. John Keller, the company's president, hired Edward J. Wiza, III, who signed an employment agreement that included a covenant not to compete. After two and one-half years Wiza quit and formed his own company, taking some of JAK's customers with him. JAK sued and the district court granted a preliminary injunction against Wiza, prohibiting him for a period of one year "from directly or indirectly communicating with, soliciting or providing fund-raising events, projects or services for customers or clients of [JAK]." Wiza appeals on a variety of issues, and we affirm. We agree with the district court that pursuant to the elements of a preliminary injunction, an injunction should issue. We also reject Wiza's arguments concerning the enforcement time period and whether JAK had unclean hands. However, we modify the district court's entry regarding the scope of the word "customers" in the employment agreement, and remand for further proceedings.

I. Background

John Keller has owned and operated JAK since 1983, soliciting charitable contributions for law enforcement associations. On March 24, 1988, Keller hired Edward Wiza to solicit and market JAK's services to various police organizations. Approximately one month later, Wiza signed a written employment contract. The agreement specified Wiza's title as "Regional Sales and Marketing Representative" and summarily described Wiza's employment responsibilities. The agreement also indicated that JAK intended to relocate from Muncie, Indiana, to the southern part of the United States, and that Wiza agreed to the move. ¹ The agreement covered a number of topics including Wiza's compensation, work hours, a "best efforts" provision, the effect on Wiza's territory should additional marketing agents be hired, and a paragraph concerning non-competition. This appeal involves the application and enforcement of the non-compete paragraph, which reads:

Wiza recognizes that he has received from the Corporation [JAK] confidential information and upon the signing of this contract will receive additional confidential information and, therefore, in consideration thereof, he agrees that, in the event of the termination of this agreement, whether by himself or by the Corporation, which termination by the Corporation may be either with or without cause, for a period of one (1) year after such termination that he will not contact any client, customer or show sponsor of the Corporation, telephone managers or solicitors or sales personnel, nor shall he disclose any methods, training techniques or sales material, or other information of the Corporation. Wiza further agrees that for a period of one (1) year after termination, for any cause whatsoever, he shall not, directly or indirectly, own, manage, operate, join, control, be employed by or participate in the ownership, management, operation, or control of, or be connected in any manner in any business which is competitive to the business of the Corporation or its subsidiaries, or any business selling or doing business with the Corporation or its subsidiaries. Wiza acknowledges that information that he has gained by virtue of entering into this agreement with the Corporation and by reason of his performance of said contract thereafter gained information that is unique and extraordinary and he agrees that, in the event of his breach of this agreement, the Corporation shall be entitled to injunctive relief and to such other remedies as may be available to the Corporation.

(Emphasis added.) ² JAK sought to enforce only the emphasized portion of the covenant not to compete. The agreement does not define the terms "client, customer or show sponsor." In JAK's experience in the fund-raising business, police associations sign multi-year contracts that may be canceled after one year. The district court found that this does not mean the business relationship is over, only that the contracts are often renegotiated. Wiza stated in his brief that "[s]ometimes customers would drop one year and come back the next; sometimes they would not come back."

In the fall of 1991, JAK planned to move its headquarters to Atlanta, Georgia. The change in locations would also involve a change in JAK's business focus; from local to statewide fund-raising. Keller told Wiza that his employment responsibilities would also change, giving him the title of room manager. Rather than make the changes, on November 25, 1991 Wiza quit. Prior to his termination, Wiza had incorporated CJW, Inc., a corporation designed to compete with JAK. Wiza had also solicited Phil Holden, of the Madison County Sheriff's Department Benevolent Association Canine Unit, to contract with Wiza directly, rather than through JAK.

In its ten-year history, as of early 1992, JAK had contracted in fifteen states and serviced over 300 fund-raisers. In 1991, JAK grossed over $4 million. The district court found that before his employment with JAK, Wiza was not familiar with the police association fund-raising industry and had no prior knowledge of JAK's customers. At the time of the injunction hearing, however, Wiza had solicited over fifteen former JAK customers and

had entered into five contracts to perform services as a fund-raising company. All of these contracts were with JAK customers with whom Wiza had direct contact during his employment with JAK. Wiza only knew of these customers by virtue of his employment with JAK. Four of the five customers signed away from JAK by Wiza, had contracts with JAK in the last year of Wiza's employment with JAK.

None of these contracts involved customers under an existing contract with JAK at the time of Wiza's termination. Wiza has no other current contracts.

As to procedural matters, on December 11, 1991 a Delaware County, Indiana Superior Court granted JAK a temporary restraining order enforcing its written employment contract with Wiza. The venue of the case was changed to the Blackford County, Indiana Circuit Court and thereafter, on January 30, 1992, Wiza removed the case to the federal district court. On March 11, 1992, the district court issued a preliminary injunction against Wiza prohibiting him for a period of one year

from directly or indirectly communicating with, soliciting or providing fund-raising events, projects or services for customers or clients of [JAK], defined as those customers or clients from whom [JAK] received a fee for services performed from March 24, 1988 to and including November 25, 1991.

The injunction has not been stayed, and this interlocutory appeal now follows.

II. Discussion

JAK's complaint seeks to enforce only that portion of the covenant not to compete that directs Wiza "for a period of one (1) year after ... termination that he will not contact any client, customer or show sponsor of the Corporation." This appeal is confined to Wiza's challenge to the court's order for a preliminary injunction based on the covenant. The parties leave for trial JAK's claims for a permanent injunction, breach of contract and punitive damages, and Wiza's counterclaims for breach of contract and anti-trust violations.

When a court of appeals considers a preliminary injunction order, which should set forth the judge's reasoning under Fed.R.Civ.P. 65(d), the factual determinations are reviewed under a clearly erroneous standard and the necessary legal conclusions are given de novo review.... However, the ultimate evaluation and balancing of the equitable factors is a highly discretionary decision and one to which this court must give substantial deference.

National People's Action v. Village of Wilmette, 914 F.2d 1008, 1011 (7th Cir.1990), cert. denied, --- U.S. ----, 111 S.Ct. 1311, 113 L.Ed.2d 245 (1991), citing Lawson Products, Inc. v. Avnet, Inc., 782 F.2d 1429, 1437 (7th Cir.1986); cf. United States v. Rural Elec. Convenience Coop. Co., 922 F.2d 429, 432 (7th Cir.1991) (citations omitted).

To support the issuance of a preliminary injunction, a plaintiff must demonstrate: 1) a reasonable likelihood of success on the merits; 2) the inadequacy of a remedy at law; 3) the existence of irreparable harm without the injunction; 4) that the threat of harm to the plaintiff outweighs any harm to the defendant if the injunction were issued; 5) that the public interest would not be disserved if the injunction were granted.

Kellas v. Lane, 923 F.2d 492, 493 (7th Cir.1990). See Henderson v. Lane, 979 F.2d 466, 467 (7th Cir.1992); Rural Elec., 922 F.2d at 432; Brunswick Corporation v. Jones, 784 F.2d 271, 273-74 and n. 1 (7th Cir.1986).

The parties at least agree that the preliminary injunction, if issued, would not harm the public's interests. Beyond that, Wiza disputes the remaining elements required for a preliminary injunction. In addition, Wiza argues that the district court too broadly defined the scope of the enjoined activity, in particular, the enforcement time period and the court's definition of customers covered by the non-competition clause.

A. The elements of an adequate legal remedy, irreparable injury, and the balance of harms.

Wiza argues that JAK possesses an adequate remedy at law and would not suffer irreparable harm absent the injunction. As a matter of Indiana law, however, it is not necessary...