Merrimack Valley Wood Prods., Inc. v. Near
| Decision Date | 09 May 2005 |
| Docket Number | No. 2004–447.,2004–447. |
| Citation | 876 A.2d 757,152 N.H. 192 |
| Court | New Hampshire Supreme Court |
| Parties | MERRIMACK VALLEY WOOD PRODUCTS, INC. and another. v. Glen NEAR. |
McLane, Graf, Raulerson & Middleton, P.A., of Manchester (Thomas J. Donovan and Jennifer L. Parent on the brief, and Ms. Parent orally), for the plaintiffs.
Nixon Peabody LLP, of Manchester (Jamie N. Hage and Gordon J. MacDonald on the brief, and Mr. Hage orally), for the defendant.
The plaintiffs, Merrimack Valley Wood Products, Inc. and American Cabinet Corp., appeal an order of the Superior Court (Coffey , J.) finding a restrictive covenant in an employment agreement entered into with the defendant, Glen Near, unenforceable. We affirm.
The record supports the following facts. Plaintiff Merrimack Valley Wood Products, Inc. (Merrimack Valley) manufactures and sells what is referred to as "millwork": doors, window units, moldings, stair parts, etc. Plaintiff American Cabinet Corp. manufactures and distributes kitchen cabinets and countertops. On February 28, 1994, the defendant began working for the plaintiffs as an outside sales representative. An outside sales representative solicits new customers and services current customers, and is paid on commission.
Prior to his employment with the plaintiffs, the defendant worked at Rivco, another millwork manufacturing company, beginning in 1978. He worked as an outside salesman at Rivco from approximately 1981 until 1991, when he started his own home construction business. He worked as a home builder until he began working for the plaintiffs in 1994.
The defendant was brought to the Merrimack Valley offices for an interview by his friend, vice-president of sales for Merrimack Valley, Gregory Dow. The defendant had worked with Dow at Rivco, and had a longstanding friendship with him. The defendant had only one interview with Dow and James Derderian, vice president and general manager of Merrimack Valley. When he started working for the plaintiffs, the defendant was given a price book, a confidential document that outlines the pricing structure used by the plaintiffs.
Dow and Derderian did not explain to the defendant at his interview that he would be required to sign a "salesman agreement," which contained a covenant not to compete and a covenant not to disclose. The defendant worked for the plaintiffs for six months before he was asked to sign the salesman agreement in September 1994. At that time, the defendant was informed that his continued employment with the plaintiffs was contingent upon signing the agreement. The defendant gave the agreement a cursory review and signed it. The agreement provides:
The defendant left the plaintiffs' employ in February 1999. Before leaving, he returned his price book to Dow. The defendant was hired that same month by A & B Lumber, one of the plaintiffs' direct competitors, as an outside sales representative. The defendant continued to solicit sales from the customer base he had developed while working for the plaintiffs and from his previous experience in the industry.
On May 7, 1999, the plaintiffs filed a motion for an ex parte temporary restraining order, claiming that the defendant "wrongfully solicited, directly or indirectly, the [plaintiffs'] customers or clients and wrongfully disclosed confidential and proprietary information to others." The Superior Court (McHugh , J.) granted the plaintiffs' motion. The order restricted the defendant from disclosing information regarding the plaintiffs' customers and soliciting those customers of the plaintiffs who had transacted business with the plaintiffs during the twelve months prior to the defendant's last day of work. The order did not require a bond:
C. The [plaintiffs] are not seeking to terminate the [defendant's] employment with his new employer and, therefore, are not seeking to prevent [him] from gainful employment with a competitor. Because it does not appear that the [defendant] will suffer damages by reason of any temporary restraining order or injunction issued on this matter, the [plaintiffs] are not ordered to pay bond.
The defendant moved to dissolve the ex parte temporary restraining order and objected to the plaintiffs' petition for a preliminary injunction. In his motion the defendant requested that the court order the plaintiffs to post a bond in the amount of $250,000. The court denied the defendant's request to dissolve the ex parte temporary restraining order, and scheduled the case for a full evidentiary hearing. The court did not address the bond issue in its order, but stated: "The issue of monetary damages by either party as a result of the other party's actions will be heard at a later date." Within ten days, the defendant filed a motion for reconsideration and for a limited evidentiary hearing. The defendant did not specifically mention that he wanted the court to reconsider its May 7, 1999 decision not to require a bond, but did request that the court "[g]rant such other further relief as justice may require." The court denied the defendant's motion for reconsideration because it had determined that the covenant language was not too broad. The court again did not address its failure to require a bond, but indicated that "[t]he other issues will be addressed at the evidentiary hearing."
The Trial Court (Coffey , J.) held a full evidentiary hearing and found in favor of the defendant. The court found that the non-compete covenant was unreasonable because it was too broad. The court also found reformation unwarranted, because it found that the plaintiffs had not acted in good faith. The court also examined the covenant not to disclose, and found that the injunction, based upon that portion of the contract, failed because the plaintiffs did not present evidence that the defendant possessed or intended to disclose any confidential information.
The defendant then filed a motion for assessment of costs and damages against the plaintiffs for wrongful injunction. The trial court addressed the issue of whether the "absence of a bond ... precludes the defendant from recovering damages for wrongful injunction." The court found that it had erred in not requiring a bond when the ex parte temporary restraining order was issued, and awarded damages to the defendant as if a bond had been posted. The plaintiffs appealed that decision to this court. We issued an order on January 14, 2002, remanding the case to the trial court because we found that the trial court made a factual error in finding that the covenant covered "all Merrimack clients" within a 200–mile radius of Dover. In light of the trial court's error in its factual findings, we held that the trial court's decision concerning the "reasonableness" of the restrictive covenant and subsequent decisions stemming from that factual finding should be reconsidered.
On remand, the trial court again found that the covenant was unreasonable. The court found that, because the non-compete covenant applied to all of the plaintiffs' customers, regardless of whether the defendant had any contact with them, it was broader than necessary to protect the plaintiffs' legitimate interest in protecting their goodwill. The court again found reformation unwarranted, due to the lack of good faith in the execution of the salesman agreement. The court also found that the covenant not to disclose was an insufficient basis to support a permanent injunction. Finally, the court again found that it had erred by not requiring the plaintiffs to post a bond when they filed the original ex parte motion. It awarded damages and attorney's fees to the defendant. This appeal followed.
On appeal, the plaintiffs argue that: (1) the covenant not to compete was reasonable, and therefore was enforceable; (2) even if the covenant was unreasonable, it was executed in good faith and, therefore, the trial court should have reformed it; and (3) the court erred in awarding damages to the defendant in the absence of a bond.
First we address the plaintiffs' argument that the covenant not to compete is reasonable. A covenant's reasonableness is a matter of law for this court to decide. We review the trial court's factual findings for clear error. Concord Orthopaedics Prof. Assoc. v. Forbes, 142 N.H. 440, 443, 702 A.2d 1273 (1997).
We have stated that "the law does not look with favor upon contracts in restraint of trade or competition." Technical Aid Corp. v. Allen, 134 N.H. 1, 8, 591 A.2d 262 (1991) (quotation omitted). Such contracts are to be narrowly construed. Nonetheless, restrictive covenants are valid and enforceable if the restraint is reasonable, given the particular circumstances of the case. Id.
To determine the reasonableness of a restrictive covenant ancillary to an employment contract, we employ a three-pronged test: first, whether the restriction is greater than necessary to protect the legitimate interests of the employer; second, whether the restriction imposes an undue...
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