Softchoice, Inc. v. Schmidt

• Court: Minnesota Court of Appeals
• Writing for the Court: Connolly
• Citation: Softchoice, Inc. v. Schmidt, 763 N.W.2d 660 (Minn. App. 2009)
• Decision Date: 07 April 2009
• Docket Number: No. A08-0763.,No. A08-0965.,A08-0763.,A08-0965.
• Parties: SOFTCHOICE, Inc., Appellant (A08-0763), Respondent (A08-0965), v. Martin SCHMIDT, et al., Respondents (A08-0763), Martin Schmidt, Defendant (A08-0965), Michael Johnson, Appellant (A08-0965).

763 N.W.2d 660

SOFTCHOICE, Inc., Appellant (A08-0763), Respondent (A08-0965), v. Martin SCHMIDT, et al., Respondents (A08-0763) Martin Schmidt, Defendant (A08-0965) Michael Johnson, Appellant (A08-0965).

No. A08-0763.

No. A08-0965.

Court of Appeals of Minnesota.

April 7, 2009.

Joseph G. Schmitt, Teresa J. Kimker, Katie Connolly, Halleland Lewis Nilan & Johnson, PA, Minneapolis, for appellant/respondent Softchoice, Inc.

John B. Gordon, Daniel G. Wilczek, Bruce Jones, Joel P. Schroeder, W.T. Roberts, III, Faegre & Benson, LLP, Minneapolis, for respondents/defendant/appellant Martin Schmidt, et al. and Michael Johnson.

Considered and decided by HUDSON, Presiding Judge; CONNOLLY, Judge; and PORITSKY, Judge.^*

OPINION

CONNOLLY, Judge.

Alleging violations of a non-competition and a non-solicitation agreement, Softchoice Inc. (Softchoice) sought temporary injunctions against two former employees, Martin Schmidt and Michael Johnson. The district court granted a temporary injunction against Johnson but not Schmidt. In these consolidated appeals, Softchoice (A08-0763) challenges the district court's refusal to issue a temporary injunction against Schmidt, and Johnson (A08-0965) challenges the district court's decision to issue a temporary injunction against him. Because the district court did not abuse its discretion, we affirm.

FACTS

Softchoice & Schmidt (A08-0763):

Schmidt worked for Softchoice from 1999 to 2001. After leaving Softchoice, Schmidt began working for Software Plus, Ltd. (Software). Schmidt worked approximately six years for Software as a business-development manager until it was acquired by Softchoice. Softchoice and Software were essentially in the same business, acting as intermediaries between software vendors and end-use corporate consumers.

Prior to Softchoice's acquisition of Software, Schmidt was offered the opportunity to participate in an employee-retention plan. The retention plan provided that Schmidt would potentially receive monetary retention credits by Software that would be paid out if certain events occurred. At the same time he was offered the opportunity to participate in the retention plan, Schmidt was told that it was necessary to sign a stand-alone non-competition agreement if he wished to participate in the retention plan. Schmidt signed both agreements on November 28, 2006.¹

Section 2 of the retention plan, under the heading "Award of Retention Credits," provides:

Simultaneously with the establishment of the [retention plan] and each fiscal year of [Software], the Board may award credits ("Retention Credits") to Participants. The Retention Credits for each fiscal year of Company shall be allocated to Participants in amounts as determined solely in the Board's discretion. Such Retention Credits shall be paid into a Participant's Retention Trust within thirty (30) days after the award, which is anticipated to be at the time of Participant's annual review.

(Emphasis added.)

The retention plan also contained a non-competition clause. If a plan participant violated this clause, then they would "not be entitled to receive any Employment Retention Benefit." In December 2006, Software deposited $25,000 into Schmidt's account.

In addition to the non-competition clause contained within the retention plan, Schmidt signed a stand-alone non-competition agreement as a condition of participating in the retention plan. This non-competition agreement provided that, for a period of one year following the termination of Schmidt's employment, he could not compete within the State of Minnesota without the consent of Software. The stand-alone agreement stated that Schmidt's consideration for entering into the agreement was his "inclusion in the Software Plus Employee Retention Plan."

In essence, if Schmidt violated the non-competition agreement contained within the retention plan, he would lose any benefit he was entitled to under the plan. It did not purport to prevent Schmidt from competing against Software; rather, it imposed a penalty, the forfeiture of any accrued retention credits, for competing against Software. In contrast, the stand-alone non-competition agreement did purport, in exchange for Schmidt's participation in the retention plan, to prevent Schmidt from engaging in competitive practices against Software.

Softchoice acquired Software on December 11, 2007.² Following the acquisition, Schmidt spoke with Softchoice's director of enterprise sales, Chris Illingworth, regarding the agreements he had entered into with Softchoice. Illingworth informed Schmidt that Softchoice was willing to pay out the money in his employee-retention account in exchange for Schmidt's agreement to sign a "waiver and release." The waiver and release provided that Schmidt would receive the money if he would "acknowledge" that the non-competition agreement contained within the employee retention plan would "remain" in effect. Schmidt later e-mailed Illingworth to see if he was correct in his understanding that if he didn't sign the waiver and release, then he wouldn't be subject to the non-compete agreement contained within the plan. Illingworth did not respond to Schmidt, and Schmidt never signed the waiver and release. The retention plan and the stand-alone agreement are governed by Missouri law pursuant to a choice-of-law clause contained in both documents.

Schmidt tendered his resignation on December 21, 2007. On January 3, 2008, he began working for En Pointe Technologies, Inc. (En Pointe). Based on our review of the record before us, it is beyond dispute that Schmidt's new position with En Pointe violated the stand-alone non-competition agreement as well as the non-competition agreement contained within the retention plan. It is also undisputed that Schmidt has forfeited any right to the retention credits he may have had as a result of his violation of the non-competition agreement contained within the retention plan. What is in dispute is whether the stand-alone non-competition agreement is legally binding. The answer to this question, in turn, depends on whether the stand-alone agreement was supported by adequate consideration. The district court concluded it was not, saying:

The employee benefit plan is not sufficient consideration for the [stand-alone non-compete] agreement. Both parties agree that Schmidt never received any money from the employee retention plan, nor will he. National Motor Club of Mo. v. Noe, 475 S.W.2d 16 (Mo.1972).

Softchoice & Johnson (A08-0965):

Softchoice hired Johnson as a sales representative on March 12, 2001. At the end of December 2006, a branch manager position for Softchoice's Minneapolis office became available. Johnson was interviewed for the position on January 7, 2007 by a panel of Softchoice employees that included Douglas Stabenow, Softchoice's director of sales for the central region and Johnson's supervisor. Later that day, Stabenow informed him in an e-mail that he had received the promotion. At this time, Johnson was informed by Stabenow that he should expect a "formal offer out of HR" and that it would "finalize everything." The following day Stabenow sent an e-mail to all Softchoice employees in the United States and Canada that informed them of Johnson's promotion. While Johnson may have had a general idea regarding the responsibilities his new position entailed from the interview process and his experience as an employee, Johnson had not yet received any information regarding the terms and conditions of his new position.

On January 16, 2007, Softchoice's human resources department sent a formal offer letter of promotion to Johnson, detailing the benefits and responsibilities of a branch manager. Under the heading "Terms and Conditions," the offer letter listed Johnson's salary, long-term incentive package, car-and cell-phone allowance, benefits, expense plan, and who Johnson would report to. Although the letter was dated January 16, 2007, it stated that the promotion's effective date was January 2, 2007, which was before Johnson interviewed for the position.³

The offer letter also contained a non-solicitation agreement. Regarding the non-solicitation agreement, the letter stated: "[I]n accepting this role the Company expects a higher level of demonstrated responsibility from you with respect to confidentiality of information along with your agreement that you will not solicit employees or customers as detailed below if you choose to leave Softchoice." (Emphasis added.) The duration of the agreement was for one year after Johnson left Softchoice. Following the non-solicitation agreement, the offer letter provided:

Please carefully review and consider the terms of this letter and, if you so desire, obtain independent advice with respect to it. Please sign the enclosed copy and return it within three (3) business days so as to signify your acceptance of the terms of your employment with the Company. If we do not receive a signed offer within the stated time frame this offer becomes null and void.

(Emphasis added.)

Johnson signed and returned the offer letter to Softchoice on January 17, 2007.⁴ On December 27, 2007, Johnson informed his supervisor that he was resigning from Softchoice. In January 2008, Johnson began working for En Pointe. Based on our review of the record, it is not disputed that Johnson violated the terms of the non-solicitation agreement contained in his offer letter. What the parties do dispute, however, is whether the agreement was supported by adequate consideration. Specifically, Johnson argues that his promotion cannot act as consideration for the non-solicitation agreement because his promotion was effective prior to receiving the offer letter that contained the non-solicitation agreement.

In its findings of fact regarding Johnson, the district court stated that "his promotion was contingent on signing the agreement containing the nonsolicitation provision." The district court then granted Softchoice's ...