Nelson v. Agro Globe Engineering, Inc.

• Decision Date: 28 May 1998
• Docket Number: No. 96-1929,96-1929
• Citation: 578 N.W.2d 659
• Parties: 14 IER Cases 253 Dave NELSON, Appellee, v. AGRO GLOBE ENGINEERING, INC., Appellant.
• Court: Iowa Supreme Court

Page 659

578 N.W.2d 659

14 IER Cases 253

Dave NELSON, Appellee, v. AGRO GLOBE ENGINEERING, INC., Appellant.

No. 96-1929.

Supreme Court of Iowa.

May 28, 1998.

David L. Charles and Margaret C. Callahan of Belin Lamson McCormick Zumbach Flynn, P.C., Des Moines, for appellant.

Kenneth L. Butters of Dreher, Simpson & Jensen, P.C., Des Moines, for appellee.

Considered by McGIVERIN, C.J., and LARSON, LAVORATO, ANDREASEN, and TERNUS, JJ.

ANDREASEN, Justice.

We granted Agro Globe Engineering, Inc.'s (AGE) application for further review from a decision of the court of appeals modifying the district court's rewriting of a restrictive covenant in an employment agreement. We find neither the court of appeals nor the district court properly considered the restrictive covenant in the employment agreement between Dave Nelson and AGE. We vacate the decision of the court of appeals and reverse and remand to the district court with instructions.

I. Background Facts and Proceedings.

AGE is a wholly owned subsidiary of SASS Enterprises, Ltd., a steel structural manufacturer that produces equipment for use in drying agricultural seed products. AGE provides project management services to seed producers who purchase equipment from SASS. The company subcontracts out the construction of the actual facilities. Most of AGE's business is obtained through competitive bidding. The company has pursued projects around the world, but with one exception of a project in Canada, has only successfully bid on projects in the United States. AGE has bid on projects involving many different types of seeds but has only obtained contracts for corn and soybean facilities.

Dave Nelson began working for AGE in November, 1990. He was hired for his expertise and contacts in the project management business. As with many new businesses, AGE was not immediately profitable. SASS provided the financing AGE needed. In 1994, SASS was faced with financial problems and needed to recoup funds loaned to AGE. Six individuals invested a combined total of $166,000 in AGE. The investors viewed Nelson as critical to the success of AGE and conditioned their investment on his signing a new employment contract.

When he first started work for AGE, Nelson signed an employment contract. The contract contained a noncompete agreement that limited his employment upon his leaving AGE. The agreement restricted his activities for one year in a 600-mile area surrounding Des Moines. In December 1994, Nelson executed a new agreement (1994 agreement). Curiously, the new agreement did not contain a covenant not to compete similar to the prior agreement. Instead, the 1994 agreement had a clause restricting Nelson's activities, the term of which coincided with the term of the agreement. The clause provided:

Until December 31, 1998, [Nelson] will not without the written consent of the Company, directly or indirectly, engage, assist or have any active interest in (whether as a principal, partner, stockholder, officer, director or otherwise) or enter the employment of or act as an agent for or adviser or consultant to any person, corporation or business entity which is or is about to become directly or indirectly engaged in, the development, manufacture, or sale of any product or service which competes with or is similar to any product or service of the Company, or any affiliate of the Company.

The foregoing restriction shall be limited to the United States of America and those foreign countries and those states, provinces, districts or similar subdivisions of foreign countries in which the Company manufactures or sells or proposes to manufacture or sell any of its products or services.

Nelson resigned his position with AGE effective October 31, 1995. Subsequently, he received an offer to work for a competitor. After the competitor was notified of the terms of the employment agreement between Nelson and AGE, the offer was withdrawn. Nelson brought a declaratory relief action seeking reformation of the restrictive covenant in the 1994 agreement on the basis that it was unreasonable in both its geographical and temporal limitations.

The district court found the covenant in the 1994 agreement was unreasonable. On September 4, 1996, the court ordered

that until October 31, 1997, Dave Nelson shall not solicit, divert or appropriate to any Competing Business, directly or indirectly, on his own behalf or in the service of or on behalf of any Competing Business, or attempt to solicit, divert or appropriate to any such Competing Business any person or entity who was a customer of AGE during the time that Dave Nelson was employed by AGE. For the purposes of this Order "Competing Business" means any business engaged in the design and fabrication of plants and equipment, or facilities for the separation, classification, treatment or other processing of corn or soybeans.

AGE appealed the decision of the district court. We transferred the matter to the court of appeals. On December 29, 1997, the court of appeals modified the order of the district court by adding a restriction which prohibited Nelson from working for AGE's four main competitors.

AGE petitioned for further review from this court. The basis for the petition rested on two grounds. First, that the modification by the court of appeals was essentially of no effect since the period of the noncompete order as rewritten by the district court had expired before the court of appeals modified the order. AGE argues, based on our holding in Presto-X Co. v. Ewing, 442 N.W.2d 85 (Iowa 1989), the duration of the noncompete agreement should have been extended by the court of appeals. Second, AGE urges both the district court and the court of appeals erred in finding the restrictive covenant was unreasonable as originally written.

II. Scope of Review.

The parties to this action disagree as to the scope of review. Thus, it falls on this court to determine the nature of the dispute. The pleadings, relief sought, and nature of the case ordinarily determine whether a declaratory judgment action is legal or equitable. Ernst v. Johnson County, 522 N.W.2d 599, 602 (Iowa 1994). One important test in declaratory judgment actions for determining whether a case was tried in equity or law is whether the court ruled on evidentiary objections. Id.

Nelson styled his petition as a law action. The record, although a bit muddled because the trial court ruled on some objections but reserved ruling on others, indicates the case was tried at law. Our review therefore is for error.

III. Covenant for Exclusive Services.

AGE urges the district court and the court of appeals erred when they examined the restrictive covenant of the 1994 agreement as a traditional post-employment noncompete agreement. AGE makes a distinction between noncompete agreements which limit an employee's activities once he or she ceases to work for the employer from the clause in the 1994 agreement which AGE claims only limited Nelson's activities during the term of the contract. The restrictive covenant in the 1994 agreement, AGE...