Webb Pub. Co. v. Fosshage, C1-87-2444

• Decision Date: 21 June 1988
• Docket Number: No. C1-87-2444,C1-87-2444
• Citation: Webb Pub. Co. v. Fosshage, 426 N.W.2d 445 (Minn. App. 1988)
• Parties: WEBB PUBLISHING COMPANY, Respondent, v. Neal T. FOSSHAGE, Appellant.
• Court: Minnesota Court of Appeals

Page 445

426 N.W.2d 445

WEBB PUBLISHING COMPANY, Respondent, v.Neal T. FOSSHAGE, Appellant.

No. C1-87-2444.

Court of Appeals of Minnesota.

June 21, 1988.

Syllabus by the Court

1.Trial court did not abuse its discretion in granting a temporary injunction enforcing a restrictive covenant, but the scope of the injunction is limited to the interest protected by the covenant.

2.Trial court did not abuse its discretion in setting bond or in issuing the temporary restraining order.

Gregory J. Stenmoe, Michael Thomas Miller, Minneapolis, for respondent.

Jerry W. Snider, Jeff H. Eckland, Minneapolis, for appellant.

Heard, considered and decided by LANSING, P.J., and KALITOWSKI and SHORT, JJ.

OPINION

LANSING, Judge.

After terminating appellantNeal Fosshage's employment as an account executive, respondentWebb Publishing Co. brought suit for damages and an injunction to enforce a noncompetition agreement allegedly signed by Fosshage.The trial court entered an ex parte temporary restraining order and, after a hearing attended by counsel for both parties, ordered a temporary injunction.Fosshage appeals.

FACTS

Webb's custom publishing division creates, designs, prints and distributes custom magazines for companies across the United States.Webb is one of approximately 12 major national custom publishers, although there are several smaller operations.

In January 1980 Webb hired Neal Fosshage, who had 27 years of experience in marketing, as an account executive.His duties were not specified, but Fosshage's affidavit states that he solicited business and assisted Webb's clients in developing marketing strategies.Fosshage was the primary contact between Webb and four of its clients: Mobil, Melroe Company, American Cyanamid, and Valmont Industries.Those four clients produced $1.7 million of Webb's annual $3.8 million in custom publishing revenue.

On September 28, 1987, Webb terminated Fosshage's employment, allegedly because his aggressive style conflicted with corporate policy.In October 1987 Fosshage formed his own custom publishing corporation and solicited the business of American Cyanamid and Valmont Industries, both of which notified Webb of their intent to cancel their contracts with Webb.Webb brought this action seeking injunctive relief and damages based on Fosshage's noncompetition agreement.

Before the hearing on the temporary restraining order, Fosshage's counsel received Webb's motion papers and the name of the judge assigned to hear the motion.Fosshage's counsel did not appear at the hearing, and they dispute that they received notice of the time and place.Webb supported its TRO motion with affidavits alleging that in April 1986, in consideration for an increase in annual salary to $40,000 and an increased rate of commission, Fosshage signed the following noncompetition agreement:

For a period of 18 months from termination of employment, I shall not, directly or indirectly, engage in or solicit or have any interest in any person, firm, corporation, or business that engages in or solicits, the publication or marketing of any custom publication, promotion piece, catalog, calendar, or any other printed material for any customer that has done business with the custom publishing division of Webb within the period of one year immediately prior to my termination of employment.

The notation "40M" appeared under Fosshage's signature on the agreement.

Webb's affidavits say that Fosshage was reminded of the noncompetition agreement the day after his termination, but said that he would not be stopped from talking to his friends.When told that his severance pay was conditioned on not contacting customers, Fosshage replied that they might as well not pay him.

Webb alleged that Fosshage had solicited the business of American Cyanamid and Valmont Industries, and if he successfully solicited the other two of his major clients, Webb's custom publishing division would lose approximately 45 percent of its revenue.Webb further alleged that the permanent loss of the business would affect Webb's business reputation and revenue, resulting in future indeterminable loss.

The trial court, without specific findings or conclusions, granted the temporary restraining order prohibiting Fosshage until further order from soliciting any customers with which Webb had done business since September 1986.Bond was set at $2,000, and a hearing on the request for a temporary injunction was set for December 3, 1987.

Fosshage made no motion to dissolve the TRO for procedural defects, but did submit an affidavit and memorandum in opposition to the temporary injunction.His affidavit states that although his signature on the noncompetition agreement appeared to be genuine, he did not recall having seen it before, had twice since April 1986 refused Webb's requests to sign noncompetition agreements, and did not learn they were claiming that he had signed one until October 1987.He stated that the salary and commission increases were not consideration for signing the agreement and that he did not have access to any confidential or proprietary information on custom publication.Finally, Fosshage asserted that his termination was contrary to his understanding that he would not be terminated without cause; he was never reminded of the noncompetition agreement; Webb had failed to pay commissions on sales which were not billed until after termination; and he would be forced to file for bankruptcy if Webb's motion were granted.

The trial court granted a temporary injunction barring Fosshage for 18 months from soliciting any customer with which Webb had done business for a year prior to termination.The $2,000 bond was continued as security.In its memorandum the trial court found that Fosshage had entered into the noncompetition agreement for consideration which included an increase in annual salary and increased commissions; that Fosshage had solicited customers in violation of the agreement; that the agreement was individually negotiated by Fosshage; that Fosshage could still earn a living in custom publishing if he refrained from contacting Webb's customers; that if the temporary injunction were denied Webb would suffer irreparable harm to its current customers and its reputation; and that Fosshage had produced no persuasive evidence justifying his breach and it was likely Webb would succeed on the merits.The court concluded that Webb was entitled to injunctive relief, and Fosshage appeals.

ISSUES

1.Did the trial court abuse its discretion in granting a temporary injunction enforcing the noncompetition agreement?

2.Did the trial court abuse its discretion in setting the bond at $2,000 or in issuing the temporary restraining order?

ANALYSIS

I

A temporary injunction should be granted only when it is clear that the rights of a party will be irreparably injured before a trial on the merits can be held.Miller v. Foley, 317 N.W.2d 710, 712(Minn.1982).The issue on review is whether, viewing the facts most favorably to the prevailing party, the trial court clearly abused its discretion by a disregard of either the facts or applicable principles of equity.Paradata of Minnesota, Inc. v. Fox, 356 N.W.2d 852, 854(Minn.Ct.App.1984)(citingCramond v. AFL-CIO, 267 Minn. 229, 234-35, 126 N.W.2d 252, 256-57(1964)).

The factors to be considered in determining whether to grant an injunction include:

(1) The nature and background of the relationship between the parties preexisting the dispute giving rise to the request for relief.

(2) The harm to be suffered by plaintiff if the temporary restraint is denied as compared to that inflicted on defendant if the injunction issues pending trial.

(3) The likelihood that one party or the other will prevail on the merits when the fact situation is viewed in light of established precedents fixing the limits of equitable relief.

(4) The aspects of the fact situation, if any, which permit or require consideration of public policy expressed in the statutes, State and Federal.

(5) The administrative burdens involved in judicial supervision and enforcement of the temporary decree.

Dahlberg Brothers, Inc. v. Ford Motor Co., 272 Minn. 264, 274-75, 137 N.W.2d 314, 321-22(1965).No statutory policies or administrative burdens appear, and there is no fiduciary or other significant relationship between the parties.We therefore focus on the balance of harm and the likelihood of success on the merits.

1.Balance of harm.Irreparable injury can be inferred from the breach of a restrictive covenant if the former employee came into contact with the employer's customers in a way which obtains a personal hold on the good will of the business.Menter Co. v. Brock, 147 Minn. 407, 410, 180 N.W. 553, 554-55(1920);see alsoThermorama, Inc. v. Buckwold, 267 Minn. 551, 552-53, 125 N.W.2d 844, 845(1964)(systematic solicitation of former employer's customers supports inference of irreparable harm).However, the inference may be rebutted by evidence that the former employee has no hold on the good will of the business or its clientele.SeeRosewood Mortgage Corp. v. Hefty, 383 N.W.2d 456, 459-60(Minn.Ct.App.1986).

The evidence in this case sufficiently supports the court's inference of irreparable harm.Fosshage worked closely with Webb's clients, considered them friends, and at least one client considered him part of "a winning team."His success in soliciting their business demonstrates the "personal hold"he had on them.Loss of American Cyanamid and Fosshage's other customers would cost Webb 45 percent of its custom publishing revenue, and the damage to its business reputation in that area would be substantial and not easily measured.

It is less clear that harm to Webb outweighs harm to Fosshage.Custom publishing appears to produce only a small percentage of Webb's total revenue.On the other hand, Fosshage produced no evidence of harm except for the assertion in his affidavit that he would be forced...