Nike, Inc., v. McCarthy

• Decision Date: 29 September 2003
• Docket Number: No. CIV. 03-1128-MA.,CIV. 03-1128-MA.
• Citation: 285 F.Supp.2d 1242
• Parties: NIKE, INC., Plaintiff, v. Eugene R. McCARTHY, Defendant.
• Court: U.S. District Court — District of Oregon

285 F.Supp.2d 1242

NIKE, INC., Plaintiff, v. Eugene R. McCARTHY, Defendant.

No. CIV. 03-1128-MA.

United States District Court, D. Oregon.

September 29, 2003.

Amy Joseph Pedersen, Karin L. Guenther, Tonkon Torp LLP, Portland, OR, for Plaintiff.

Christopher T. Carson, Kilmer, Voorhees & Laurick, Portland, OR, Steven L. Manchel, Davidson, Manchel & Brennan, Newton, MA, for Defendant.

OPINION & ORDER

MARSH, District Judge.

Plaintiff filed this action against a former employee seeking temporary and permanent injunctive relief prohibiting defendant from maintaining employment with Reebok, International. Plaintiff seeks specific performance of a written covenant not to compete. On August 26, 2003, I granted plaintiff's motion for a temporary restraining order. On September 23-24, 2003, an evidentiary hearing was conducted on plaintiff's motion for a preliminary injunction. On September 24, 2003, I granted plaintiff's motion for a preliminary injunction. The following constitutes my findings of fact and conclusions of law pursuant to Fed.R.Civ.P. 52 and 65.

Standards

To obtain a preliminary injunction, plaintiff must demonstrate either (1) a combination of probable success on the merits and the possibility of irreparable harm, or (2) that serious questions are raised and the balance of hardships tips sharply in favor of the moving party. Tillamook County v. U.S. Army Corps of Engineers, 288 F.3d 1140, 1143 (9th Cir. 2002); Sardi's Restaurant Corp. v. Sardie, 755 F.2d 719, 723 (9th Cir.1985). These are not two distinct tests, but rather are opposite ends of a single "continuum in which the required showing of harm varies inversely with the required showing of meritoriousness." Rodeo Collection, Ltd. v. West Seventh, 812 F.2d 1215, 1217 (9th Cir.1987) (citations omitted).

Discussion

First, I note at the outset that this case involves enforcement of a contract. The contract calls for the defendant not to work for any Nike competitor for a 1-year period following severance from his employment with Nike. The contract is plain and unambiguous and does not, in any way, depend upon the reasons for defendant's severance with the company. Whether defendant left voluntarily or was forced to resign is of no moment; however, I find from the evidence presented that the defendant left his position with Nike voluntarily.

Nike is seeking specific enforcement of this contract. Under the plain language of the contract they would be entitled to relief. However, under Oregon law (ORS 653.295), we must engage in an additional inquiry to determine whether enforcement of this contract would be unfair because defendant was compelled to execute the agreement after receiving a bona fide advancement rather than contemporaneous with that decision. Oregon law requires that a non-competition agreement be entered into "upon" a bona fide advancement. Execution of a non-competition agreement with an employee at any time after an initial hiring or promotion is ineffective. See IKON Office Solutions, Inc. v. American Office Products, Inc., 178 F.Supp.2d 1154 (2001) (invalidating non-competition contract executed 17 days after employment commenced), aff'd 61 Fed. Appx. 378 (9th Cir.2003).

Findings

The defendant has been employed by Nike in various capacities for the last twenty years. In June of 1995, defendant became a Key Account Sales Manager (KAM) in Philadelphia, Pennsylvania. Up until his KAM position, defendant had not been asked to execute any non-competition agreements as a condition of his employment. He did sign such an agreement after receiving the KAM job. In late February or early March of 1997, defendant was approached by his immediate superior, John Petersen about a promotion to the position of Regional Footwear Sales Manager (RFSM) for the eastern region.

There is no dispute that:

(a) McCarthy received a "bona fide promotion" in the Spring of 1997;

(b) McCarthy's salary increase for his new position became effective April 1, 1997;

(c) His salary increased and his job duties and responsibilities were expanded with his new title of Regional Footwear and Sales Manager;

(d) McCarthy received and signed the non-compete agreement on March 27, 1997.

Defendant was hired by Peterson as part of a new, reorganized team at a time when Nike was undergoing a significant company-wide management reorganization.

Testimony elicited at the preliminary injunction hearing establishes that defendant did begin to perform some of his new job duties in March of 1997; I also find that Brian Forde, defendant's predecessor in the Regional Footwear Sales Manager position, performed some of the duties of his new job with the WWC in March of 1997. Both Forde and McCarthy performed some of the duties of their previous jobs throughout March of 1997. All of this evidence lends support to plaintiff's contention that job changes in the upper echelons of the Nike management structure involved a "transitional period."

In the summer of 1999, defendant was promoted to the position of Global Sales for Brand Jordan.¹ In late April of 2003, defendant became dissatisfied with his job and he received indication from Larry Miller, President of the Jordan Division, that he would probably be re-assigned to some other division or position within the company. Defendant feared a demotion, but Miller testified that his intent was to transfer defendant to another comparable position.

In April of 2003, defendant began talks with Reebok about a possible job. On April 17 and May 27, 2003, defendant traveled to Reebok's headquarters in Canton, Massachusetts for interviews. On May 30, 2003, defendant received a formal written offer of employment with Reebok for the position of Vice President, U.S. Footwear Sales & Merchandising. Defendant told Bob Munroe of Reebok that he did not have a non-competition agreement with Nike, however, Reebok agreed to provide legal counsel to McCarthy in the event Nike attempted to prevent his employment with Reebok.

There is a direct conflict in the testimony of the defendant and Cathy Redmond, Nike's HR Director for Brand Jordan about what defendant knew about his non-competition agreement and when he knew it. I find the testimony of Cathy Redmond regarding her discussions with the defendant about his non-competition agreement fully credible. I find that the defendant was aware of the fact that he had a non-compete agreement with Nike by the time of his negotiations with Reebok and that Ms. Redmond attempted to provide him with a copy of that agreement within a few days of his initial inquiry. Thus, there is no unfairness or undue surprise to the defendant by Nike's decision to enforce the agreement.

On June 12, 2003, defendant notified Nike of his intent to resign. He submitted a written letter to this effect on June 18, 2003. On July 2, 2003, Nike sent a written response advising defendant that it intended to hold him to the terms of his non-competition agreement.²

I find that Nike has established that it had legitimate reasons for insisting that defendant sign a non-competition agreement given the nature of defendant's former position with Nike and his access to sensitive and confidential marketing and product information. The fact that defendant may not have used any confidential information in his new position with Reebok only shows that he has not violated other provisions of the non-compete agreement. What remains is that the parties agreed to abide by the terms of the non-compete regardless of any demonstrated specific need. I allowed considerable leeway in the testimony and evidence regarding the circumstances surrounding defendant's separation from Nike and his assumption of duties with Reebok for the limited purpose of determining whether enforcement of the contract would be unconscionable and I find nothing to support such a conclusion.

Similarly, the fact that defendant may have been forced out of the company bears no direct relation to the validity of the contract — the severance pay package alleviates any unfairness, unconscionability or "unclean hands" in enforcing the non-compete for a 1-year period. Further, nothing in the terms of the contract invalidates its provisions based upon the voluntary or involuntary nature of defendant's separation from the company.

Conclusions of Law

Unlike the relatively simple question of deciding when an employee commences an initial term of employment, determining exactly when a...