Slisz v. Munzenreider Corp.

• Citation: 411 N.E.2d 700
• Decision Date: 29 October 1980
• Docket Number: No. 1-879A222,1-879A222
• Parties: Dan SLISZ, Appellant (Defendant Below), v. MUNZENREIDER CORPORATION and Greg Hunt, Appellees (Plaintiffs Below).
• Court: Court of Appeals of Indiana

Page 700

411 N.E.2d 700

Dan SLISZ, Appellant (Defendant Below), v. MUNZENREIDER CORPORATION and Greg Hunt, Appellees (Plaintiffs Below).

No. 1-879A222.

Court of Appeals of Indiana, Fourth District.

Oct. 29, 1980.

Richard S. Harrison, Harrison & Erickson, Bloomington, for appellant.

Joseph D. O'Conner, III, Bunger, Harrell & Robertson, Bloomington, for appellees.

MILLER, Judge.

In the instant appeal defendant-appellant Slisz seeks to set aside the trial court's two-year injunction ¹ from operating his Bloomington retail business in violation of a covenant not to compete which he signed in connection with a partnership agreement as the store manager for plaintiff-appellee Munzenreider Corporation. Munzenreider is also engaged in retail furniture sales in Bloomington. In light of the broad language utilized in the instant agreement-which purported in part to prohibit involvement in any city where Munzenreider operated a store, in any business "similar or of a competitive nature to " that carried on by the partnership-combined with the fact it does not appear Slisz possessed any trade secrets, customer lists, or other special or confidential information regarding Munzenreider's operation, we conclude this restrictive language is void, and that the trial court's injunction must accordingly be reversed.

We first consider the factual background of the case at bar, since it is evident the authorities involving covenants not to compete frequently turn on subtle, but significant, evidentiary distinctions which must be garnered by examining the facts and circumstances surrounding each case. Captain & Co., Inc. v. Towne, (1980) Ind.App., 404 N.E.2d 1159, 1161, citing Frederick v. Professional Building Maintenance Industries, Inc., (1976) 168 Ind.App. 647, 344 N.E.2d 299.

The evidence reveals Slisz first became involved with Munzenreider Corp. as a part-time employee during the period when he worked as a high school teacher in Muncie. Slisz had previously graduated from Ball State University with a B. S. in physical education. Slisz testified he ultimately was forced to choose between the jobs, and at that time elected to work full-time with Munzenreider at its Muncie store, apparently under the supervision of one Hunt, manager of that store and vice-president of the national organization. Hunt testified Slisz worked approximately eight to nine months in Muncie, during which time Hunt trained him, in a manner facilitated by the corporation's national training program, ² in how to run a retail furniture store, including instruction in "advertising, how to merchandise, different sales techniques, different suppliers that we do business with, how to set up financial contracts for the retail customers, how to do bookkeeping, take inventory, etc." Slisz did not have previous full-time experience in the furniture selling business.

Thereafter, Slisz was made a managing partner at the corporation's furniture store in Eagledale Shopping Plaza in Indianapolis, a position he held for only two months before being transferred to the store in Bloomington, then known as United Freight Sales (now called United Furniture Sales), which is central to the instant appeal. Slisz testified he acted as an assistant manager at United Freight Sales for one and one-half months, and was then made manager, a position he held for approximately five years until December 1978. The pleadings and evidence further disclose that on or about March 10, 1975 Slisz signed an agreement with Munzenreider providing that, as "managing partner" of United Freight Sales, Slisz would receive 100% of the first $7,800 in annual net profits of the store plus an additional percentage-beginning at 10% the second year, and increasing 10% each thereafter up to 50%-in return for management duties performed by Slisz. The agreement provided Slisz could terminate the relationship upon one month's notice, and that Munzenreider Corp. could also terminate his employment for various causes specified. It was further provided:

"11. The managing partner agrees that he will not at any time, directly or indirectly, divulge to any person, firm or corporation, or use himself, any information he has gained or that he may hereafter acquire during the term of the partnership relating to or regarding the nature of the partnership business, method of operation, its advertising techniques, its past, present or potential customers and any other matter of confidential or secret nature, and that he will at all times hold inviolate the knowledge of the operation of this partnership.

12. The managing partner agrees that in the event of the termination of the partnership for any reason whatsoever, he will not for a period of two (2) years from the date of such termination, then engage in or accept employment from or become affiliated with or connected with, directly or indirectly or become interested in, directly or indirectly, in any way in any business within the counties of Monroe, Brown, Morgan, Owen, Greene and Lawrence, IN, similar or of a competitive nature to the business carried on by the partnership, or any other city or place wherein the partners operate a store or within thirty (30) miles of said city where a store is maintained by the capital partners. The managing partner further agrees that he will not solicit from or approach in any manner for his own use or for the benefit of any future employer, the customers or suppliers of the present partnership." ³ (Emphasis Added.)

Slisz stated that while he was employed as manager at United Freight Sales, his duties included sales as well as book work, advertising, and other management tasks, and that he supervised two other employees. He indicated he did not have occasion to professionally travel to counties outside of Monroe County, although he did advertise a few times in Owen County, and regularly advertised in the Bloomington Sunday newspaper, which the evidence reveals is circulated in Bedford, located in Lawrence County. ⁴ The evidence further established that after the first several months of 1978, the store was moved to a new location, and that, according to the witness called by Munzenreider, the store has continuously lost money from the time of that move until trial. In December of 1978, Slisz was informed he would be replaced as manager at the Bloomington store, and was offered a job with the Corporation in South Dakota. This he declined, after which Slisz left his employment with Munzenreider and opened his own retail furniture business, at the same location previously occupied by United Freight Sales, on February 1, 1979. His business is called Warehouse Furniture Sales.

The instant litigation was commenced when Munzenreider Corporation and Hunt filed their complaint against Slisz requesting reasonable damages and that Slisz be enjoined from operating his own furniture business or working in another in violation of the agreement, because, it was alleged:

"9. ... (D)efendants is using schedules of prices, advertising materials, and other materials and knowledge that he gained from his relationship with the plaintiff pursuant to the partnership agreement in a way that is presently undercutting the plaintiff's business in Bloomington and surrounding areas.

10. That the defendant's pursuit of this business is in direct contravention of the reasonable provisions of the Partnership Agreement stated in Paragraph 11, 12 and 13. ⁵

11. Because of (sic) the business of Warehouse Furniture Sales is of the identical kind as a business of the plaintiff, plaintiff has been damaged by this breach of the partnership agreement and will continue to be damaged because of the competitive nature of the two businesses."

Following a trial at which Slisz himself testified, along with Hunt and one Honchar, current manager of the Munzenreider's Bloomington store, the trial court determined in its "Discussion of the Law" it was reasonable for Munzenreider to contract against Slisz's acts, which it described as follows:

"Plaintiff had a particular method of doing business: volume purchasing of low end furniture, competitive pricing, and newspaper advertising. The Defendant utilized his method in his own business. Additionally, the Defendant used an advertising format duplicative of the Plaintiff's and the Defendant operated his business at the exact location where the Plaintiff had developed a low end furniture sales market. These acts of direct competition are the very acts that the plaintiff sought to avoid through the covenant not to compete."

Accordingly, the court ordered Slisz enjoined "from operating a furniture business in violation of the no-competition clause," although its Discussion of Law also purported not to reach the question of the outer geographical limits of the covenant, since, "at a minimum, a restriction on competition in the Bloomington area is reasonable."

Consideration of Slisz's subsequent appeal must begin from the general proposition that restraints on competition between an employer and his former employee, similar to that in this case involving a "managing partner," are not favored by the law, but will nevertheless be enforced where 1) the restraint is reasonably necessary to protect the employer's business; 2) it is not unreasonably restrictive of the employee, and 3) the covenant is not antagonistic to the general public interest. Waterfield Mortgage Co. Inc. v. O'Connor, (1977) Ind.App., 361 N.E.2d 924. 54 Am.Jur.2d Monopolies, Restraints of Trade and Unfair Trade Practices, § 543 at 982 (1971).

In applying such test, many courts have held an employer must demonstrate some "special facts" giving his former employee a unique competitive advantage or ability to harm the employer before such employer is entitled to the protection of a noncompetition covenant, and those "special facts" may include (but are not limited to) such things as trade secrets known by the employee, the employee's "unique" services,...