Presto-X-Company v. Ewing

• Decision Date: 14 June 1989
• Docket Number: A,PRESTO-X-COMPAN,No. 88-635,88-635
• Parties: Nebraska Corporation, Appellant, v. Weldon EWING, Appellee.
• Court: Iowa Supreme Court

Page 85

442 N.W.2d 85

PRESTO-X-COMPANY, A Nebraska Corporation, Appellant, v. Weldon EWING, Appellee.

No. 88-635.

Supreme Court of Iowa.

June 14, 1989.

Michael J. O'Bradovich, Council Bluffs, for appellant.

Bruce Swanson of Swanson & Boeye, Red Oak, for appellee.

Considered by HARRIS, P.J., and LARSON, SCHULTZ, LAVORATO and NEUMAN, JJ.

LAVORATO, Justice.

After being employed as a pest control technician for several years by the Presto-X-Company, Weldon Ewing was terminated because of his poor driving record in company vehicles. He was not given the fourteen-day termination notice provided for in his employment agreement. Ewing subsequently started his own pest control business and serviced many of the same customers who were part of his Presto-X route.

Upon learning that Ewing was servicing some of his former Presto-X customers, the company sued him for breach of the covenant not to compete in his employment agreement. Presto-X sought both temporary and permanent injunctions as well as an accounting of its lost profits. Ewing counterclaimed for the damages caused by the company's failure to give him the required termination notice.

The district court rejected Presto-X's request for the injunctions. The court also determined that the company's damages resulting from Ewing's improper solicitation of one former Presto-X customer were approximately equal to his damages resulting from the company's failure to give him a proper termination notice.

In its appeal, Presto-X argues that the district court erred in applying the restrictive covenant in the way it did, in not granting the requested permanent injunction, and in not ordering an accounting of Presto-X's lost profits. We agree. Accordingly, we reverse the district court's judgment and remand the case for entry of a permanent injunction and for determination of Presto-X's damages, including its lost profits.

I. Background Facts and Proceedings.

The Presto-X-Company is a pest control business with its headquarters in Omaha. It is authorized to perform its services in Iowa.

Presto-X employed Weldon Ewing beginning in March 1980, when he signed an employment agreement with the company. The agreement provided that Ewing was "to devote all his time to the solicitation and servicing of pest control contracts and accounts of [Presto-X]." The agreement also contained this restrictive covenant:

for a period of two years after the termination of this Agreement by either party hereto for any reason whatsoever, ... [Ewing] will not, directly or indirectly, through any person, firm or corporation, solicit or attempt to solicit business from or ... perform any services or work for any customer of [Presto-X] for whom [he] shall have performed services or work at the request and order of [Presto-X] during the term of this contract or any renewal hereof.... [I]n consideration of the contracts and orders to be assigned to [him] pursuant to ... this Agreement, [Ewing] voluntarily accepts the restrictive covenant herein imposed. [Ewing] agrees that violation of this restrictive covenant will subject him to injunction to restrain such violation and damages resulting therefrom.

(Emphasis added.) The agreement further provided that it was terminable "by either party at any time and for any reason by notice in writing to the other party, fourteen (14) days prior to the effective date of termination."

Before working for Presto-X, Ewing had had no experience in pest control. As part of his employment, Presto-X trained him so that he could receive state certification. Following this certification, Ewing provided pest control services to a regular route of Presto-X customers. According to a company official, Ewing performed his duties satisfactorily during the seven years he worked for Presto-X.

On more than one occasion, however, Ewing had accidents and received citations while driving company vehicles. The vehicles were sometimes damaged extensively. In February 1985 the company warned that additional accidents could result in termination of his employment. Ewing had another accident in July 1987 and was terminated on that August 27, 1987.

At trial, the parties disputed whether Ewing was given the fourteen-day termination notice required under the employment agreement. The cross-examination testimony of the company official who fired Ewing seemed to settle the matter:

Q. ... Did you give a fourteen-day written notice or not? A. No.

Q. Yes or no? A. No.

This official also testified, however, that he did not order Ewing to cease work immediately on the day of the firing.

After his termination, Ewing sent a note to several customers on his Presto-X route. The note stated his name, home address, and telephone number, and then said:

Ladies and Gentlemen,

As of 9-1-87 I am no longer employed by Presto-X-Co. although I am still certified by state of Iowa. I thank you for your business throughout the past years.

/s/ Weldon Ewing

Coincidentally, on September 1, just after Ewing was terminated, Presto-X instituted a price increase for its services to these same customers. Ewing eventually began servicing several of them, including one former Presto-X customer whom he had approached in person about service.

When Presto-X learned of Ewing's new business, it brought suit against him seeking to enjoin, under the restrictive covenant of the employment agreement, his servicing of former Presto-X customers. The company also asked for an accounting of the profits it had lost because of Ewing's alleged breach of the covenant.

In his answer Ewing maintained that, among other things, he had been wrongfully discharged in that he was not given a proper termination notice, thus excusing his alleged violation of the restrictive covenant. He also contended that enforcement of the restrictive covenant would not be reasonably necessary to protect Presto-X's interests, would unduly limit his ability to earn a living, and would adversely affect the public interest. In addition, Ewing counterclaimed for the wages he lost as a result of Presto-X's failure to give him the required fourteen-day termination notice.

The district court found that Ewing's note to his former Presto-X customers was not a prohibited solicitation under the restrictive covenant. It also found that only the one instance of personal contact with a former customer had constituted improper solicitation. The court determined that Ewing's damages under his counterclaim were approximately equal to the company's damages resulting from the one improper solicitation. Accordingly, the court dismissed both Presto-X's petition and Ewing's counterclaim. The court later denied Presto-X's motions for a new trial and for enlargement of the court's findings.

In its appeal, Presto-X contends the district court erred in finding that the restrictive covenant was breached only by one instance of solicitation, in denying the requested permanent injunction, and in not ordering an accounting of lost profits. Ewing waived the filing of an appellate brief.

Because the district court treated this case as an equity action, so do we. See In re Receivership of Mt. Pleasant Bank & Trust Co., 426 N.W.2d 126, 129 (Iowa 1988) (this court's scope of review governed by how the case was tried in district court). As such, our review is de novo. Iowa R.App.P. 4. We give weight to the fact findings of the district court, but we are not bound by them. Iowa R.App.P. 14(f)(7).

II. Whether the District Court Erred Regarding Breach of the Restrictive Covenant.

Presto-X argues that the district court erroneously failed to enforce the restrictive covenant as written. We agree.

As a preliminary matter, we note that the contentions Ewing made at trial, including his challenge to the reasonableness of the restrictive covenant, are not at issue in this appeal. See Iowa Glass Depot, Inc. v. Jindrich, 338 N.W.2d 376, 381 (Iowa 1983) ("A proposition advanced at trial but not argued on appeal is deemed waived."). In other cases, however, we have held that similar or even more restrictive covenants were reasonable and enforceable. See, e.g., Iowa Glass, 338 N.W.2d at 382, 383 (citing several cases in which restraints were upheld because of employee's regular contact with employer's customers, especially involving designated service areas or routes); Ehlers v. Iowa Warehouse Co., 188 N.W.2d 368, 369, 373 (Iowa 1971) (former employee had close contact with customers; two-year restraint on competition with employer within 150-mile radius of employer's location); Orkin Exterminating Co. v. Burnett, 259 Iowa 1218, 1221-23, 146 N.W.2d 320, 323-24 (1966) ("route" case; three-year restraint on all competition, not limited to customers of employer, within ten miles of any location serviced for employer); Larsen v. Burroughs, 224 Iowa 740, 741, 277 N.W. 463, 464 (1938) (physician restrained for ten years from competing with clinic that was former employer). For purposes of this appeal, we assume that the covenant here is also reasonable and enforceable.

Since we assume the covenant here is enforceable, the next matter of concern is whether the district court correctly applied the restraints. In our view, it clearly did not.

The covenant in question here prohibited Ewing from either soliciting or servicing his former Presto-X customers in any direct or indirect way. As for the soliciting issue, we disagree with the district court's conclusion that the note Ewing sent to his former customers was not a solicitation. In the note, Ewing specifically told the Presto-X customers that he was still certified in Iowa as a pest controller even though he would no longer be working for Presto-X. The note also provided the customers with his home address and telephone number, which they did not previously have. Although the note was not worded as an overt solicitation, the implication of it, we think, was that Ewing remained available for employment by the Presto-X customers and...