Opinion
Cause No. TH00-0311-C-T/H
February 26, 2001
ENTRY ON PLAINTIFF'S MOTION FOR PRELIMINARY INJUNCTION
Though this entry is being made available to the public on the court's web site, it is not intended for commercial publication either electronically or in paper form. Under the law of the case doctrine, it is presumed that the ruling or rulings in this entry will govern throughout the litigation before this court. See, e.g., Tr. of Pension, Welfare, Vacation Fringe Benefit Funds of IBEW Local 701 v. Pyramid Elec., 223 F.3d 459, 468 n. 4 (7th Cir. 2000); Avitia v. Metro. Club of Chicago, Inc., 49 F.3d 1219, 1227 (7th Cir. 1995). It should be noted, however, that this district judge's decision has no precedential authority and, therefore, is not binding on other courts, other judges in this district, or even other cases before this district judge. See, e.g., Howard v. Wal-Mart Stores, Inc., 160 F.3d 358, 359 (7th Cir. 1998) ("a district court's decision does not have precedential authority"); Malabarba v. Chicago Tribune Co., 149 F.3d 690, 697 (7th Cir. 1998) ("district court opinions are of little or no authoritative value"); Old Republic Ins. Co. v. Chuhak Tecson, P.C., 84 F.3d 998, 1003 (7th Cir. 1996) ("decisions by district judges do not have the force of precedent"); Anderson v. Romero, 72 F.3d 518, 525 (7th Cir. 1995) ("District court decisions have no weight as precedents, no authority.").
Plaintiff, Barnes Group Inc., d/b/a Barnes Distribution, Bowman Distribution and Curtis Industries, moves for a preliminary injunction against Defendants, Jerome L. Rinehart, and Defendants James Riggle and Susan Riggle, as individuals and together d/b/a Automotive Products. The Defendants oppose the motion. This entry constitutes the court's findings of fact and conclusions of law in ruling on that motion.
FINDINGS OF FACT
Any Finding of Fact that should more properly be considered a Conclusion of Law should be so construed, and vice versa. The labels given herein are not controlling.
Plaintiff Barnes Group Inc. ("Barnes Group") is a corporation organized and existing under the laws of Delaware with its principal place of business at 123 Main Street, Bristol, Connecticut.
2. Barnes Distribution is an unincorporated operating division of Barnes Group with its principal place of business at 1301 East 9th Street, Cleveland, Ohio. Barnes Distribution is composed of Bowman Distribution (formerly, the Bowman Distribution Products Co., and formerly, Bowman Distribution Products Division of Associated Springs Corporation), an unincorporated business unit, and Curtis Industries (formerly, Curtis Industries, Inc.), also an unincorporated business unit.
3. Barnes Group purchased the assets of Curtis Industries, Inc. ("Curtis Industries" or "Curtis") on April 27, 2000. This included but is not limited to intangible assets such as goodwill and proprietary and confidential business information.
4. Barnes Distribution, through its two business units, Bowman Distribution and Curtis Industries, is a wholesale manufacturer, seller and distributor to the maintenance, repair and operating supplies ("MRO") market. Barnes Distribution is engaged in the manufacture and sale of key blanks and key machines, and in the sale and distribution of industrial fasteners, fittings and connectors, chemicals and adhesives; automotive, truck, farm and fleet equipment; and industrial supplies, tools, and hardware products. Representative customers of Barnes Distribution include car dealerships, automobile manufacturers, garages, operators of vehicle fleets and industrial plants.
5. At all relevant times, Barnes Distribution has sold and distributed its products primarily through its sales personnel, which constitute Barnes Distribution's primary asset. Barnes Distribution provides training to its sales personnel as well as comprehensive information including computer equipment, policy manuals, bulletin and bulletin books, sales catalogs, price lists, order books, route books, Customer Information Sheets, customer lists and records, which constitute Barnes Distribution's proprietary and confidential information and trade secrets.
6. Barnes Distribution's business is highly competitive both in terms of price and service in part because of the nature of the product line and because there are significant numbers of competitors that have similar lines.
7. As a result, Barnes Distribution treats certain information, including customer information and price information, as confidential. If such information were to become available to a competitor or made publicly known, Barnes Distributions' competitive advantage would be compromised, Barnes Distribution would suffer a loss of goodwill with customers, and the competitor would gain a potential competitive advantage in part by knowing who the appropriate customer contacts are and in understanding Barnes Distributions' pricing strategy, and the buying habits and preferences of specific customer accounts.
8. Barnes Distribution's primary and, generally, only personal contact with its customers is through its sales representatives; the sales representatives' contacts with Barnes Distribution's customers are frequent and regular; and Barnes Distribution has developed long-term relationships with its customers. The sales representatives are responsible for developing goodwill, trust and a relationship with the customer. These relationships often last 5 to 15 years. The same was true for Curtis Industries.
9. Each sales representative of Barnes Distribution signs an agreement containing restrictive covenants, prohibitions against sidelines and non-disclosure and duties provisions.
10. Defendant Jerome L. Rinehart is an adult individual who is a citizen of Indiana, residing in Vincennes, Indiana. He is a former Area Manager for Curtis Industries/Barnes Distribution and is now working on behalf of Automotive Products as a sales representative in direct competition with Barnes.
11. JR-SR Incorporated is an Indiana corporation with its principal place of business at 1217 College Avenue, Vincennes, Indiana. JR-SR Incorporated does business as Automotive Products (hereinafter "Automotive Products").
12. Automotive Products is a competitor of Barnes Distribution in the MRO market in Indiana, Kentucky and Illinois, selling products that are similar to and competitive with the products of Barnes Distribution.
13. Defendant James Riggle is an adult individual who is a citizen of Indiana, residing in Vincennes, Indiana. He is the President and a 50% co-owner of the shares of JR-SR, Inc. d/b/a Automotive Products. He is a former salesman for Curtis Industries. He terminated his employment with Curtis Industries, Inc. in May of 1999.
14. Defendant Susan Riggle is an adult individual who is a citizen of Indiana, residing in Vincennes, Indiana. She is the Secretary and 50% co-owner of shares of JR-SR, Inc. d/b/a Automotive Products. She helps maintain the books for the company. She also is the wife of Defendant James Riggle.
15. James and Susan Riggle purchased Automotive Products from Robert Hohler, a former Curtis Industries sales representative, on May 20, 1999, paying him $50,000, in part for the goodwill developed for Automotive Products. No documentation exists pertaining to the Riggles' acquisition of Automotive Products.
16. During his employment with Curtis Industries, James Riggle recruited Defendant Jerome L. Rinehart to apply for a sales opening that was left vacant upon Mr. Hohler's voluntary resignation. Mr. Rinehart and Mr. Riggle are friends and have been for the past seventeen years.
17. Defendant Rinehart applied for the sales opening and was subsequently hired by Curtis Industries.
18. As a result of his successful recruitment efforts, Defendant James Riggle was paid a recruitment fee by Curtis Industries in the amount of $1,025. This represents a part of the cost of Curtis' investment in Mr. Rinehart as a sales representative.
19. Defendant Rinehart began working for Curtis Industries on or about June 2, 1997, as an Area Manager. He was employed by Curtis Industries until April 27, 2000 and employed by Barnes Group, Inc. from April 27, 2000 until he voluntarily resigned on May 18, 2000.
20. Prior to his employment with Curtis Industries, Defendant Rinehart had sales experience, but he did not have any sales experience in selling MRO products.
21. On June 2, 1997, and as a condition of being employed by Curtis Industries, Mr. Rinehart signed an Area Manager Agreement and a Supplement to this Agreement (hereinafter the "Agreement").
22. The Agreement contains restrictive covenants, prohibitions against sidelines and confidentiality, non-disclosure and duties provisions. Under the terms of the Agreement, Defendant Rinehart was "appointed as a sales representative" for Curtis Industries "to solicit and obtain orders for the Company's products on an exclusive basis within the territories and/or specific accounts as Area Manager may be assigned by the Company in its sole discretion." (Pl.'s Ex. 2 at 1.) The Agreement states that:
. . . the business of the Company is highly competitive, [and] it is essential that certain matters connected with and arising out of or pertaining to the Company's business be kept confidential; and the Company's relationship and goodwill with its customers have been established at substantial cost and effort, and irreparable damage will result to the Company if the Company's customer lists and records, or its sales methods and procedures, are obtained or used by competitors of the Company.
( Id.) By signing the Agreement, Defendant Rinehart acknowledged that he had certain duties, including that he would devote his "full time and attention during normal business hours to solicit orders for the Company's products within the territories and/or from the accounts assigned to Area Manager in accordance with the policies, terms and conditions published in the Company's catalogs, price lists, manuals and other written materials." ( Id.)
23. Defendant Rinehart also agreed to be bound by certain restrictive covenants that would apply both during his employment with Curtis Industries and also for a period of one (1) year following the termination of his employment:
During the period of this agreement, and for a period of one (1) year after termination, for whatever reason such termination may come about, Area Manager will not, directly or indirectly, for himself, as an agent, or on behalf of any person, firm or corporation:
Engage in any business competing directly or indirectly with the Company in the sale of any product directly or indirectly competitive with the products of the Company to any customer or account which Area Manager has called on or sold to while employed by the company.
Call upon or cause to be called upon, or solicit, assist in the solicitation of, or in any manner correspond for the purpose of selling or otherwise supplying any product directly or indirectly competitive with the products of the Company to any customer or account which Area Manager has called on or sold to while employed by the Company.
Call upon or cause to be called upon, or solicit, assist in the solicitation of, or in any manner correspond with another employee or independent agent of the Company, for the purpose of having that employee or independent agent terminate his Agreement and/or employment with the Company, or to engage in a business which directly or indirectly competes with the Company.
(Pl.'s Ex. 2, ¶ 7.) Mr. Rinehart initialed this section of Agreement in addition to signing the entire Agreement. By initialing this section, he acknowledged the importance of the restrictive covenants:
This Section 7 is of the essence of this Agreement and shall be construed as independent of any other section of this Agreement. The existence of any claim or cause of action by Area Manager against the Company, whether based on this Agreement or otherwise, shall not constitute a defense to the enforcement by the Company of this Section. It is expressly acknowledged and agreed that this Section 7 survives any termination of this Agreement.
( Id.) He also acknowledged and agreed that his failure to abide by Section 7 of the Agreement may cause Curtis Industries irreparable harm with no adequate remedy at law, that Curtis had the right to seek injunctive relief to enforce the Agreement, and that should it succeed in obtaining damages or injunctive relief against him for violation of the restrictive covenant, he would be responsible for attorneys' fees and costs. ( Id.) The purpose of these restrictive covenants is to maintain a duty of loyalty for and establish goodwill on behalf of Curtis Industries. The one year period is necessary to provide Curtis an opportunity to transition the goodwill that exists within the customer base to a new sales representative.
24. The Agreement also contains a confidential information provision which prohibits Defendant Rinehart, both during and after his employment, from using or disclosing Curtis Industries' customer lists or records, its sales methods or procedures, or any of its other confidential, proprietary or trade secret information as follows:
FURTHER, during the term of and after termination of this Agreement, for whatever reason such termination may come about, Area Manager will not, directly or indirectly, for himself, as an agent, or on behalf of any person, firm or corporation, use or disclose to any person except a duly authorized employee or representative of the Company, the Company's customer lists or records, or the Company's sales methods or procedures, or such additional proprietary information which the Company may from time to time identify as constituting confidential, proprietary or trade secret data, or in any manner, directly or indirectly, aid or be a party to any acts the effect of which will tend to diminish the goodwill or business of the Company.
(Pl.'s Ex. 2, § 7.) The purpose of this non-disclosure provision is to protect Curtis Industries' confidential information relating to customers, customer contacts, sales, market methods, and pricing strategies.
25. Mr. Rinehart also agreed in the Agreement to return to Curtis Industries all of its information and equipment within ten (10) days of termination of his employment as follows:
Area Manager shall return to the Company, within ten (10) days after the termination of this Agreement, in good condition, all computer equipment, policy manuals, bulletins and bulletin books, sales catalogs, price lists, order books, route books, customer lists and records, other written materials, and other selling equipment and materials used by Area Manager in the course of his or her activities on behalf of the Company, and all copies thereof, if any, in the possession or control of Area Manager. Notwithstanding any other provision of this Agreement, the Company shall, after notice of termination of this Agreement is either given or received by it, have the right to postpone any statement, payment or settlement with Area Manager until all such property and materials have been delivered to the Company and may charge to Area Manager's account, or apply any commission or other sums which might otherwise be or become payable to Area Manager, toward all reasonable costs, attorney's fees and expenses incurred as a result of Area Manager's failure to deliver such property and materials or to obtain them for the Company.
(Pl.'s Ex. 2, § 8.) The purpose of this provision is to protect and preserve the confidential information that's provided to a sales representative and to ensure that information is returned to Curtis.
26. The Agreement contains a "sideline" provision which provides:
Area Manager is expressly prohibited from promoting the business or products of any other company, partnership or individual, or engaging in any other business activity during normal business hours without the prior written consent of the Company. Further, Area Manager is prohibited from promoting the business or products of any other company, partnership, or individual which business or products are directly or indirectly competitive with the business or products of the Company, during normal business hours or otherwise, while an employee of the Company, and is further restricted as described in Section 7 hereof.
(Pl.'s Ex. 2, § 4.) The purpose of this sideline provision is to prevent sales representatives from representing more than one company because that potentially damages the goodwill that Curtis has with its customers.
27. The Agreement contains provisions regarding assignment and the applicable law, which state that:
This Agreement is freely assignable by the Company to a successor to the Company's business, but is not assignable by Area Manager without the written consent of the Company.
This Agreement shall be binding upon the parties hereto, their successors, assigns, heirs and legal representatives, and shall be interpreted in accordance with the laws and judicial decisions of the State of Ohio.
(Pl.'s Ex. 2, § 9.) Curtis Industries assigned Rinehart's Area Manager Agreement to Barnes Group on May 10, 2000.
28. As a Curtis Industries sales representative, Defendant Rinehart received sales training in Curtis' unique business and selling methods and Curtis products. Immediately upon commencement of his employment, Curtis Industries provided him with a week of sales training and product training in Cleveland, Ohio, which he did not have to pay for. Curtis Industries also paid for the travel expenses that he incurred in connection with this training. In addition to this initial training, Mr. Rinehart received periodic training and visits from a district or regional manager, including field reports which contained the manager's suggestions and observations. Mr. Rinehart also received training from Mr. Riggle.
29. Curtis Industries expends around half a million dollars each year in corporate training. These costs include the initial training of new sales representatives, ongoing training provided, the cost of having sales representatives in the field, and the costs associated with a sales representative's on the job training in becoming familiar with the customers.
30. Defendant Rinehart participated in Curtis Industries' subsidy compensation program, whereby he was paid a bi-weekly subsidy, in addition to his commissions. He received $16,200.00 in total subsidies from Curtis. This subsidy was part of the investment that Curtis Industries was making in him to become a successful sales representative.
31. Mr. Rinehart was given an existing sales territory and an existing customer base when he began his employment with Curtis Industries. As a sales representative, he was responsible for soliciting and servicing prospective and existing customers, determining who was the decision-maker for each customer, building rapport and goodwill with each customer's decision-maker and then convincing the decision-maker to purchase products from Curtis.
32. The existing sales territory produced sales on an annual basis in excess of $100,000 worth of MRO products for Curtis. During the time that he was employed by Curtis Industries and thereafter until he voluntarily terminated his employment with Barnes Distribution, Defendant Rinehart's sales territory consisted of Dubois County, Gibson County, Posey County, Spencer County and Vanderburgh County, all of which are located in Indiana, and Henderson County, Kentucky (hereinafter the "Sales Territory").
33. The Sales Territory had been Robert Hohler's before he resigned from Curtis Industries. Mr. Hohler had a contract containing a covenant not to compete with Curtis Industries.
34. When a Curtis Industries sales representative leaves Curtis and violates his or her covenant not to compete, Curtis retains at most 25% of that sales representative's business. When a Curtis Industries sales representative leaves Curtis and does not violate his or her covenant not to compete, Curtis typically retains 60 to 80% of that sales representative's business.
35. Mr. Rinehart retained close to 100% of the business in the Sales Territory. His ability to retain this percentage of the business indicates that after Mr. Hohler resigned from Curtis Industries he did not continue to sell to his former Curtis Industries in any substantial manner and did not take Curtis' goodwill with him.
Mr. Rinehart testified based on his sighting of Mr. Hohler on two or three occasions at customers' places of business that Mr. Hohler continued to sell to his former Curtis customers after he resigned. Mr. Rinehart also testified that he twice reported to Tom Hart, his superior, that Mr. Hohler was competing against him and Mr. Hart said he would forward the information to the appropriate parties. In contrast, William J. Paul, Curtis Industries' Director of Sales testified that Mr. Rinehart reported one incident of competitive activity by Mr. Hohler.
Two or three sightings is insufficient evidence to establish that Mr. Hohler was actively and openly violating his covenant not to compete with Curtis. Further, Mr. Rinehart's ability to retain close to 100% of the accounts in the Sales Territory further suggests that Mr. Hohler was not actively competing for his former Curtis customers, or if he was, he was not successful and the competition was quite minimal indeed.
This alleged competition from Mr. Hohler is qualitatively and quantitatively different from the competition by Mr. Rinehart following his resignation from Curtis Industries. Mr. Rinehart's sales on behalf of Automotive Products were almost all, if not all, to his former Curtis customers. Mr. Hohler's testimony that when he left Curtis he continued to sell to almost all the accounts he sold to for Curtis simply was not credible. Curtis Industries took steps to confirm the competitive activity by Mr. Hohler and sent Mr. Hohler a letter demanding him to stop any activity in violation of his Curtis restrictive covenant not to compete. The sales data suggested that Mr. Hohler stopped making sales calls on his former Curtis customers after the letter was sent. Moreover, Mr. Hohler's testimony suggests that the products he sold on behalf of Automotive Products to Curtis customers were different than the products he could have sold on behalf of Curtis. ( See Tr. Prelim. Inj. at 154.) Mr. Hohler also testified that although some district managers knew about his interest in Automotive Products, it was kept "hush hush" as long as he made sales for Curtis Industries. ( Id. at 156.)
36. As a sales representative, Defendant Rinehart received certain valuable and confidential information pertaining to Curtis Industries' business and trade secrets to be used solely in conducting Curtis' business, including price books, price lists, price brochures, customer lists, Customer Information Sheets, customer records, policy manuals, sales manuals, bulletins and bulletin books, sales catalogs, copies of customer invoices, and customer sales analyses ranking Curtis customers by volume and gross margin. Such information is not readily available to the general public, nor is it possible for such information to be properly acquired by others. Such information has been developed at great effort and cost to Curtis Industries, and Curtis requests the return of confidential information upon the resignation or termination of its sales representatives. Mr. Rinehart considered this information to be confidential and understood, therefore, that these materials were not to be used by him in competition with Curtis Industries.
37. Defendant Rinehart regularly received Curtis Industries' price schedules. This pricing information was important to Defendant Rinehart so he would know what price he previously charged his customer and so his new price would not be substantially higher or lower as this established and furthered customer goodwill.
38. Defendant Rinehart considers Curtis Industries/Barnes Distribution's pricing information to be confidential. If such pricing information were to fall into the hands of a competitor, then the competitor would gain a competitive advantage and could undersell Curtis/Barnes while maintaining acceptable margins.
39. Defendant Rinehart also received on a bi-weekly basis a document entitled, "Sales Performance and Comparison Report — by Sales Rep." This report included an analysis of total sales and bad debt, a breakdown of sales volume by type of product, information related to total number of orders, size of orders and account information such as year-to-date, prior quarters and prior years information.
40. The Customer Information Sheets contained the following information: the customer's name, address, and phone number; basic contact information; total sales; and the identity of the types of product purchased, the quantity and price at which that customer previously purchased products, and the commission level. Curtis Industries' development of this type of customer information required a significant investment of time and resources.
41. Defendant Rinehart considers Curtis Industries/Barnes Distribution's customer information to be confidential. Such information is advantageous in terms of efficiency, effectiveness, and a sales representative's credibility.
42. In addition to the provisions of the Curtis Industries Agreement, which specifically describe certain Curtis Industries information as confidential, Curtis also stamps certain information as being "Confidential — Property of Curtis Industries." Curtis controls distribution of such information, distributing such information only to its employees.
43. Because Curtis Industries' pricing and customer information was stamped as confidential, Defendant Rinehart understood that this information was, in fact, to be treated confidentially.
44. After a sales representative resigns from Curtis Industries, it is Curtis Industries' policy to request that the sales representative return to Curtis its confidential information and sales equipment.
45. Consistent with its policy, Curtis Industries requested that Defendant Rinehart, following his resignation, return all of his sales equipment, which included Curtis's confidential sales information, such as Curtis' price books and sales forms.
46. Defendant Rinehart did not return all of the information which was requested to be returned. Instead, he destroyed nearly three feet worth of materials, including such things as pricing books, by either throwing the material away or burning it. The information that he did return, he delayed returning.
47. If Curtis Industries' customer information was obtained by a competitor, it would provide that competitor with a competitive advantage. Similarly, if a Curtis Industries salesperson resigned and used Curtis' information such as its customers, addresses, type and quantity of products purchased and the frequency with which products are purchased in a given territory, he or she would be in a substantially better position than any other Curtis competitor. Curtis Industries' customer information such as the name of its customers, the type of products that they purchased and the quantity of products that they purchased over a given year is not available from public sources.
48. Mr. Rinehart became a successful sales representative in his assigned Sales Territory.
49. In 1997, Defendant Rinehart sold approximately $63,000 in merchandise on Curtis Industries' behalf. Approximately 90% of those sales were to existing Curtis customers that were provided to him when he was hired.
50. In 1998, Defendant Rinehart sold approximately $140,000 in merchandise on Curtis Industries' behalf. He conceded that it was possible that at least 90% of this sales amount was to existing Curtis customers that were given to him when he was hired.
51. From 1998 to 1999, Defendant Rinehart grew his Sales Territory, increasing his sales by about $30,000.
52. Because he was a successful sales representative, Defendant Rinehart received, in addition to his commissions, free trips from Curtis Industries and Barnes Distribution for satisfying certain sales targets. He also received cash bonuses, which totaled approximately $5,700.00.
53. In approximately August of 1999, approximately 9 months before Mr. Rinehart resigned from Curtis Industries, James Riggle requested that he help him out in making some sale calls on Automotive Products customers that were already on Mr. Rinehart's Curtis sales route.
54. Defendant Rinehart then began selling products for Automotive Products to his existing Curtis customers with the knowledge, assistance and encouragement of Defendant James Riggle. All of the products sold by Mr. Rinehart for Automotive Products could have been sold for Curtis Industries.
55. Because Mr. Rinehart was selling products on behalf of Automotive Products to his Curtis customers while employed with Curtis, he built a customer relationship and goodwill with the Curtis customers on behalf of Automotive Products. These customers became accustomed to receiving invoices and billings from Automotive Products. In addition, the information relating to the quantity, price, and type of product sold to Mr. Rinehart's Curtis customers on behalf of Automotive Products while Mr. Rinehart was still employed with Curtis was put into Automotive Products' computer database.
56. Jerome Rinehart made less than $4,800.00 assisting James Riggle with his sales route in 1999 until he terminated his employment with Barnes Distribution/ Curtis Industries on May 18, 2000.
57. At the time of his resignation, Defendant Rinehart had approximately 136 active accounts to which he sold products on behalf of Curtis Industries/Barnes Distribution. These accounts are reflected on Plaintiff's Trial Exhibit 25. Mr. Rinehart has admitted that approximately 88 of these were his accounts, but the preponderance of the evidence establishes that all 136 accounts were his during his employment with Curtis Industries/Barnes Distribution.
58. Mr. Riggle had made it clear to Mr. Rinehart that he had a job at Automotive Products waiting for him once he quit working for Curtis Industries/Barnes Distribution.
59. Defendant Rinehart's sidelining was done without the knowledge or consent of Curtis Industries in violation of his restrictive covenants, the prohibitions against sidelining and in violation of his duties as a sales representative.
60. Defendant Rinehart sold in excess of $21,000 worth of products on behalf of Automotive Products and received approximately $6,000 in commissions from Automotive Products. To generate $21,000 in sales on behalf of Automotive Products, Defendant Rinehart made anywhere from 150-200 separate sales.
61. Since his resignation from Curtis Industries/Barnes Distribution, and thereafter, Defendant Rinehart has engaged and continues to engage in the business of selling and attempting to sell products directly or indirectly competitive with the products of Curtis/Barnes to Curtis/Barnes customers that he called on and sold to while he was employed by Curtis/Barnes.
62. All of the products that Mr. Rinehart sold to customers on behalf of Automotive Products, both before and after his resignation from Curtis Industries, were the same or similar type of product that he actually sold or could have sold on behalf of Curtis/Barnes.
63. Defendant Rinehart has sold products on behalf of Automotive Products to a minimum of 42 customers that he had previously sold to while he was working for Curtis/Barnes.
64. The Automotive Products customer invoices produced by the Defendants support the finding that Automotive Products did not make a sale to most of these customers until Mr. Rinehart began selling for Automotive Products. Such customers include but are not limited to St. Mary's Medical Center, Wright Motors, Black Equipment, Dempewolf Ford, Town and Country Ford, Styline Diesel Service in Troy, Indiana, South Gibson School Corporation, and Don Moore Toyota, some of the 20 largest accounts Mr. Rinehart had for Automotive Products.
65. As for the largest accounts to whom Automotive Products had made a sale prior to Mr. Rinehart's commencement of sales on behalf of Automotive Products, the invoices produced establish that with the exception of Evansville Truck Center, Keck Motor Company and Romain Buick, those customers were stale accounts-no sales had been made for several years. These stale accounts include but are not limited to Styline Diesel Service, Expressway Dodge, and Uebelhor Sons Motor Co.
66. The Automotive Products customer invoices produced by the Defendants further evidence all Defendants' efforts at deception of Curtis/Barnes and concealment of Mr. Rinehart's sales activity on behalf of Automotive Products. This evidence reveals the Riggles' knowledge of and complicity in Mr. Rinehart's breach of his restrictive covenant not to compete with Curtis.
67. When Defendant Rinehart resigned from Barnes Distribution, he believed that his former customers would follow him to Automotive Products. He expected to retain his former Curtis/Barnes customer base due to the loyalty and goodwill that he had established with these customers on behalf of Curtis/Barnes.
68. Defendant Rinehart did not change any of his Curtis/Barnes sales practices and procedures once he began calling upon and selling products on behalf of Automotive Products. He followed the same sales cycle and sales pattern on behalf of Automotive Products with the same customers that he had serviced while he was employed by Curtis/Barnes.
69. Automotive Products did not provide Defendant Rinehart with any training, subsidy compensation, commission bonuses, sales materials, policy manuals or customer lists.
70. Defendant James Riggle was aware at the time Mr. Rinehart began selling for Automotive Products and throughout all relevant time periods, that Mr. Rinehart had signed an Agreement with Curtis Industries containing restrictive covenants that applied to specific Curtis customers. Mr. Riggle had signed an Area Manager Agreement similar in all pertinent respects to the Agreement of Defendant Rinehart when he began working for Curtis Industries. In addition, Defendant Riggle told Defendant Rinehart that he had signed a similar covenant not to compete. Mr. Riggle knew that Mr. Rinehart would be in violation of his covenant not to compete if he sold on behalf of Automotive Products to customers he had sold to on behalf of Curtis Industries. Nevertheless, he made a conscious business decision to have Mr. Rinehart sell to Curtis/Barnes customers on behalf of Automotive Products, both before and after Mr. Rinehart's resignation from Curtis/Barnes.
71. Defendant Susan Riggle was unaware of Mr. Rinehart's covenant not to compete with Curtis before his resignation from Curtis/Barnes. She was, however, aware that he violated that covenant by selling to his former Curtis customers when he worked full-time for Automotive Products. Yet, she took no action to direct him to stop violating his covenant.
72. While Mr. Rinehart was selling products to the Curtis Industries customers on behalf of Automotive Products, he was building up customer goodwill and relationships for Automotive Products. In addition, information regarding the quantity, price, and type of product that he sold to the Curtis customers while still with Curtis but selling on behalf of Automotive Products was acquired by Automotive Products.
73. Following his resignation from Curtis Industries/Barnes Distribution and continuing until December 11, 2000, Defendant Rinehart sold approximately $30,000 to $40,000 to his former Curtis/Barnes Distribution customers. These same customers are being serviced by Automotive Products at the present time.
74. At the time of his resignation from Barnes Distribution, Defendant Rinehart's immediate supervisor, Mr. Daniel Hirsh, had asked Defendant Rinehart why he was resigning. Defendant Rinehart responded that he was resigning because he had "lost his drive to sell." Defendant Rinehart never told Mr. Hirsch or anyone else at Barnes Distribution that he was leaving so that he could become a sales representative for Automotive Products.
The court wonders whether his "drive to sell" was affected by his split loyalties, as he was selling for two competing companies at the same time. He may have found the stress of trying to keep his sales for Automotive Products secret from Curtis an additional drain on his energy.
75. Defendant Rinehart did not give Barnes Distribution any notice that he was resigning, which made it difficult for Barnes Distribution to replace Mr. Rinehart with a new sales representative in his Sales Territory and also made it more difficult for Barnes Distribution to determine whether or not Mr. Rinehart was violating his covenant not to compete.
76. There is no documentary evidence that would suggest that Mr. Rinehart was working for Automotive Products. He did not sign any employment papers, and Automotive Products does not have a personnel file for him. Rinehart is an independent contractor for Automotive Products.
77. Defendant Rinehart did not leave business cards when he called on existing Curtis/Barnes Distribution customers on behalf of Automotive Products. He also left no copies of orders. He called on customers without leaving any telephone number and periodically checked back to see if they wanted to place an order.
78. Although Defendant Rinehart directly sold numerous products on behalf of Automotive Products to his former Curtis Industries/Barnes Distribution customers from May 22, 2000 until December 11, 2000, none of his sales are reflected on Automotive Products' invoices for this same time period. Rather, these invoices reflect that Defendant Rinehart's sales were made by Mr. Hohler, the former owner of Automotive Products. These invoices were, in fact, sent to Automotive Products' customers, containing the name of Mr. Hohler.
79. The President of Automotive Products, Defendant James Riggle, was unable to offer a credible explanation as to why Defendant Rinehart was not shown as the sales representative on these Automotive Products invoices. Mr. Riggle explained that he did not change the default name of Mr. Hohler in the computer. However, there is evidence that Mr. Hohler was listed as the sales representative for brand new accounts, for example St. Mary's Medical Center, Wright Motor, Black Equipment Company, South Gibson School Corporation, and Don Moore Toyota, that were opened more than a year after Mr. Hohler sold the business to the Riggles and after Mr. Rinehart began selling full time for Automotive Products. Perhaps the most telling evidence is revealed through Exhibit 424 which are Automotive Products' invoices for Romain Buick. An invoice dated May 18, 1997, shows Mr. Hohler as the sales representative. Invoices for January 9, 2000, through April 4, 2000, show Mr. Riggle as the sales representative. Then, beginning with an invoice dated May 23, 2000, through an invoice dated November 9, 2000, Mr. Hohler is again shown as the sales representative. When these accounts were set up, someone at Automotive Products, most likely Mrs. Riggle, had to manually and consciously insert Mr. Hohler's name as the sales representative even though he was not a sales representative for Automotive Products at that time. The invoices post-dating Mr. Hohler's sale of Automotive Products to the Riggles and pre-dating Mr. Rinehart's resignation from Curtis Industries reveal that someone changed the sales representative for that account to Mr. Riggle and then subsequently changed the sales representative back to Mr. Hohler about the time Mr. Rinehart began selling for Automotive Products full time. Mr. Hohler's explanation for the Hohler-Riggle-Hohler sequence on these invoices — that the account could have been set up twice under the same account number-was wholly incredible.
Both Mr. Hohler and Mr. Riggle testified that Mr. Hohler had made sales to St. Mary's, Black Equipment, Wright Motors, South Gibson School Corporation, and Don Moore Toyota for Automotive Products after he had left Curtis Industries. However, the invoices admitted into evidence reflect no sale by Automotive Products to any of these customers before Mr. Hohler's sale of Automotive Products to the Riggles and Mr. Rinehart's resignation from Curtis Industries/Barnes Distribution and until he joined Automotive Products full time. In light of the lack of any documentary evidence that Mr. Hohler sold to such accounts, the court finds the testimony of Mr. Hohler and Mr. Riggle in that regard incredible.
Mr. Hohler testified that he taught Mrs. Riggle how to work Automotive Products' computer and that she would have created the invoices with his name as the sales representative for new accounts opened after he sold the business to the Riggles and that she was involved in sending out invoices to customers. When asked who prepared the invoices, Mr. Riggle testified that he did the packing slips, which the court understands to be different than the invoices. Mr. Riggle did not directly contradict Mr. Hohler's testimony that Mrs. Riggle would have prepared the invoices. Mrs. Riggle did not testify at the preliminary injunction hearing.
80. Automotive Products' invoices for the time period after Defendant Rinehart stopped directly selling products to his former Barnes Distribution customers (post-December 11, 2000) indicate that Defendant Rinehart in fact made the sale. This reflects a conscious decision on someone's part at Automotive Products to change the name of the sales person on the invoice.
81. Because there is not a single Automotive Products invoice from May 22, 2000, through December 11, 2000, indicating Defendant Rinehart made a sale on behalf of Automotive Products, it would be extremely difficult for a Barnes Distribution sales representative to determine, even if he or she could obtain a copy of an Automotive Products invoice, that Defendant Rinehart was selling products to the Barnes Distribution customer by looking at the relevant Automotive Products' paperwork.
82. On May 22, 2000, following Mr. Rinehart's resignation on May 18, 2000, Curtis Industries/Barnes Distribution sent Defendant Rinehart a letter by certified mail reminding him of his obligations under the Agreement, including that he was restricted against competing with Curtis for a period of one year following his resignation. (Pl.'s Ex. 35.) Mr. Rinehart was sent two other letters on that same date, requesting him to return all Curtis materials, including his sales kit, sales equipment and merchandise. (Pl.'s Exs. 32, 33.)
83. Defendant Rinehart understood that Barnes Distribution expected him to abide by the terms of the Agreement. Nevertheless, Defendant Rinehart, on behalf of Automotive Products, solicited and called on those former Curtis Industries/Barnes Distribution customers whom he had serviced on behalf of Curtis/Barnes. Mr. Rinehart made a conscious business decision to violate his covenant not to compete with Curtis Industries.
84. As early as May 2000, Curtis/Barnes received reports that Mr. Rinehart might be competing in his former Curtis account base. Barnes attempted to confirm the reports, but its efforts were made more difficult because of Mr. Rinehart's lack of notice of his resignation-it did not have a sales representative in place in the field. In addition, Mr. Rinehart was not leaving business cards or copies of orders with customers when he made a sale on behalf of Automotive Products and every Automotive Product invoice for sales by Mr. Rinehart listed Mr. Hohler's name as the sales representative on the account.
85. Barnes Distribution sent a warning letter to Defendant Rinehart via certified mail, dated May 30, 2000. This letter stated that Barnes Distribution had "received numerous reports that you [Defendant Rinehart] are soliciting customers that you previously serviced on behalf of Curtis Industries." (Pl.'s Ex. 36.) The letter further reminded Defendant Rinehart of his obligations under the restrictive covenants of the Agreement, requested that Defendant Rinehart cease all of his unlawful conduct, and warned him that it is Curtis' "policy to consistently enforce its non-compete agreements by all available measures, including litigation." ( Id.)
86. Defendant Rinehart received another warning letter, dated July 18, 2000, from Barnes Group. Automotive Products also received this same warning letter. Similar to the first warning letter, this letter warned that unless Defendant Rinehart stopped his wrongful conduct, Barnes Distribution would not "hesitate to institute legal proceedings against you [Defendant Rinehart] and Automotive Products." (Pl.'s Ex. 37 at 3.) This letter also advised both Defendant Rinehart and Automotive Products that " it is a violation of your Area Manager Agreement with Curtis to engage in prohibited sales activities or the disclosure or use of confidential information indirectly through another Automotive Products employee or agent ." ( Id.) (Dual emphasis in original).
87. Mr. Rinehart and Mr. Riggle discussed what they would do if Curtis Industries/Barnes Distribution took legal action against Mr. Rinehart for violating his restrictive covenants not to compete, and they decided that they would switch customer accounts.
88. Beginning on December 11, 2000, Mr. Rinehart and Mr. Riggle switched accounts so that Mr. Riggle now calls upon and services Mr. Rinehart's former accounts and vice versa in an effort to avoid violation of Mr. Rinehart's covenant not to compete with Curtis Industries/Barnes Distribution. After the switching of accounts, Defendant Riggle has sold products on behalf of Automotive Products to Mr. Rinehart's former Curtis Industries customers such as St. Mary's Medical Center. When Mr. Riggle made the calls on Mr. Rinehart's former accounts, he was not making cold calls. The decision to switch accounts was a conscious business decision made on behalf of Automotive Products, by its President Defendant James Riggle.
89. Mr. Riggle did receive some information from Mr. Rinehart about the accounts that they switched. Mr. Rinehart specifically admitted that he might have received some names of contact persons on some of the accounts from Mr. Rinehart.
90. In addition, Mr. Riggle received, though indirectly, further information on the switched accounts, including information such as the types, quantities and prices of products the customer had purchased from Mr. Rinehart. This type of information would have been stored on Automotive Products' computer through sales invoices and other paperwork. Mr. Riggle had access to this information.
91. Moreover, though Mr. Rinehart knew who the contact person was for most of the accounts that Mr. Riggle had serviced for Automotive Products prior to the switching of accounts, he did receive some names of contact persons for accounts from Mr. Rinehart. In addition, Mr. Rinehart had introduced Mr. Riggle to the contact person for at least one of his former accounts (Wright Motor) before the accounts were switched.
92. It was only after Mr. Rinehart and Mr. Riggle switched accounts that Mr. Rinehart began using business cards and distributing them to his Automotive Products customers.
93. The total profit made from sales by Mr. Rinehart on behalf of Automotive Products for January 1, 2000 through December 2, 2000, which is before Mr. Rinehart and Mr. Riggle switched accounts, was $36,587.00 rounded to the nearest dollar. This amount represents the total commission paid Mr. Rinehart and the remaining profits to Automotive Products.
94. Though Jim Riggle determines the price of products that Mr. Rinehart sells on behalf of Automotive Products most of the time, Mr. Riggle and Mr. Rinehart do work together to determine the price to sell a particular product to a particular customer.
Both Mr. Rinehart and Mr. Riggle testified at the preliminary injunction hearing that Mr. Riggle sets the prices for the products sold by Automotive Products and Mr. Riggle also testified that Mr. Rinehart does not make any decisions in regard to price; however, in his deposition, Mr. Rinehart testified that he and Mr. Riggle worked together to determine price, and Mr. Riggle similarly testified in his deposition that though he set the price, he and Mr. Rinehart might have discussed it. The court believes that Mr. Rinehart's deposition testimony in this regard is more likely credible than the testimony at the hearing.
95. Curtis Industries/Barnes Distribution's prices are typically in place for a year. A price increase is typically on a selective group of products and rarely across the board. Though some of Curtis Industries/Barnes Distribution's prices have changed since Mr. Rinehart's resignation, the changes were marginal — within a few percentage points.
96. The Barnes sales representative that took over Mr. Rinehart's Sales Territory has been unsuccessful in retaining the customer base, retaining less than 25% of the business.
Some of this is due in part to the fact that the sales representative was not in place until three or four months following Mr. Rinehart's resignation. Barnes did, however, during that time service Mr. Rinehart's former accounts through the District Manager. It is noted that some of the delay in replacing Mr. Rinehart was due to Mr. Rinehart's failure to give any notice to Curtis/Barnes of his resignation.
97. It is very difficult to calculate Barnes' losses due to Mr. Rinehart's competition in violation of his Curtis Agreement. But Barnes has lost a significant sales volume and customer relationships.
98. No evidence has been presented that the Defendants would be unable to earn a successful living or that Automotive Products could not survive as a successful business if Mr. Rinehart's non-compete agreement were enforced through a preliminary injunction.
99. There are a significant number of MRO prospects within driveable geographic areas including within the counties of Indiana, Kentucky, and Illinois which Defendant James Riggle testified were in the sales territory of Automotive Products.
Plaintiff's evidence suggests that these prospects number 17,200. The court's own experience and knowledge of the relevant counties, however, leads to the conclusion that the number of prospects is not nearly that great. Nevertheless, there are a substantial number of MRO prospects in the area with whom the Defendants can do business without violating the terms of Mr. Rinehart's Curtis non-compete agreement.
100. Mr. Rinehart and Automotive Products may sell to Barnes Distribution customers in Mr. Rinehart's former Curtis Sales Territory provided that they were serviced by other Curtis/Barnes Distribution sales representatives.
101. Based upon Defendant's Rinehart's demonstrated skill as a sales representative and success at Curtis Industries, he has the ability to open new customer accounts and develop a customer base, having done so while he was a Curtis employee.
PROCEDURAL BACKGROUND
On November 27, 2000, Plaintiff Barnes Group Inc., d/b/a Barnes Distribution, Bowman Distribution and Curtis Industries commenced this action by filing its Verified Complaint, invoking the court's diversity jurisdiction. The Complaint contains five count: Count One alleges breach of contract against Defendant Rinehart; Count Two alleges misappropriation of confidential and trade secret information against all defendants; Count Three alleges tortious interference with existing and prospective business relations against all defendants; Count Four alleges tortious interference with contractual relations against the Riggles; and Count Five alleges unfair competition against all defendants.
Also on November 27, 2000, Plaintiff's Motion For Preliminary Injunction was filed. Plaintiff seeks a preliminary injunction (1) enjoining Defendant Jerome L. Rinehart and all persons acting in concert with him or on his behalf from: (a) engaging in any business competing directly or indirectly with Barnes Distribution in the sale of any product directly or indirectly competitive with the products of Barnes Distribution to any customer or account which Rinehart called on or sold to while employed by Barnes Distribution; (b) calling upon, or causing to be called upon, or soliciting, assisting in the solicitation of, or in any manner corresponding for the purpose of selling or otherwise supplying any product directly or indirectly competitive with the products of Barnes Distribution to any customer or account which Rinehart called on or sold to while employed by Barnes Distribution; and (c) using or disclosing any of Barnes Distribution's customer lists or records, sales methods or procedures, price books or other proprietary and confidential information and trade secrets; and (2) enjoining James and Susan Riggle in their individual capacities and d/b/a Automotive Products and their employees, agents, servants, and all persons acting in concert with them or on their behalf from (a) encouraging, soliciting, authorizing or allowing Rinehart to call, solicit or assist in the solicitation of, or in any manner correspond for the purpose of selling or otherwise supplying any product directly or indirectly competitive with the products of Barnes Distribution to any customer or account which Rinehart called on or sold to while employed by Barnes Distribution; and (b) using or disclosing any of Barnes Distribution's customer lists or records, sales methods or procedures, price books or other proprietary and confidential information or trade secrets. The Defendants oppose the motion.
A preliminary injunction hearing was held on February 8, 2001, and oral argument was heard on February 21, 2001.
CONCLUSIONS OF LAW A. Preliminary Injunction Standard
"[A] preliminary injunction is an extraordinary and drastic remedy, one that should not be granted unless the movant, by a clear showing, carries the burden of persuasion." Mazurek v. Armstrong, 520 U.S. 968, 972 (1997) (quotation omitted); see also Café 207, Inc. v. St. Johns County, 989 F.2d 1136, 1137 (11th Cir. 1993) ("A preliminary injunction is a drastic remedy[.]") (quotation omitted). A party seeking a preliminary injunction must make a showing of (1) some likelihood of success on the merits, (2) irreparable harm if the preliminary injunction is denied, and (3) the inadequacy of any remedy at law. See, e.g., Ty, Inc. v. Jones Group, Inc., 237 F.3d 891, 895 (7th Cir. 2001); Cooper v. Salazar, 196 F.3d 809, 813 (7th Cir. 1999). If this showing is made, then the court must balance the harm to the party seeking the preliminary injunction if the preliminary injunction is denied against the harm to the nonmoving party if the preliminary injunction is granted, as well as the public interest. See, e.g., id. The court uses what the Seventh Circuit has called the sliding scale approach; "the more likely the [movant] will succeed on the merits, the less the balance of irreparable harms need favor the [movant]'s position." Id. This approach "is not mathematical in nature, rather it is more properly characterized as subjective and intuitive, one which permits district courts to weigh the competing considerations and mold appropriate relief." Id. at 895-96 (quotation omitted).
Likelihood of Success on the Merits
During oral argument, counsel for Plaintiff acknowledge that though Plaintiff seeks an injunction based on all theories asserted in its Complaint, showing a likelihood of success on its breach of contract theory enables it to obtain all the injunctive relief it seeks. In the interests of efficiency, then, the court considers only whether Plaintiff has demonstrated a likelihood of success on the merits of its breach of contract theory. Consideration of the other theories is left for another day.
It does seem, however, based on the evidence presented at the preliminary injunction hearing that Barnes has some likelihood of prevailing on at least some of its other theories at trial. A likelihood of success under these other theories would further support the court's decision in this entry.
A federal court sitting in diversity must apply the forum state's choice of law rules. Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487 (1941); S.A. Healy Co. v. Milwaukee Metro. Sewerage Dist., 50 F.3d 476, 478 (7th Cir. 1995). Indiana choice of law rules provide that residents may contract concerning the choice of law applicable to their contracts. See Barnes Group, Inc. v. O'Brien, 591 F. Supp. 454, 459 (N.D.Ind. 1984). The court must accept the parties' choice of law "unless the public policy interests of this state outweigh those of the state chosen by the parties involved." Barnes Group, 591 F. Supp. at 459 (citing South Bend Consumers Club, Inc. v. United Consumers Club, Inc., 572 F. Supp. 209, 212 (N.D.Ind. 1983)). The Agreement contains a choice of law provision pursuant to which it is to be interpreted under Ohio law. Thus, the court must apply Ohio law in deciding Barnes' breach of contract claim unless Indiana's public policy interests outweigh those of Ohio.
Restrictive covenants not to compete are disfavored by both Indiana and Ohio law. Ackerman v. Kimball Int'l, Inc., 652 N.E.2d 507, 509-10 (Ind. 1995); Licocci v. Cardinal Assocs., Inc., 445 N.E.2d 556, 561 (Ind. 1983); Norlund v. Faust, 675 N.E.2d 1142, 1154 (Ind.Ct.App.), clarified on reh'g, 678 N.E.2d 421 (Ind.Ct.App. 1997), trans. denied.; Robert W. Clark, M.D., Inc. v. Mt. Carmel Health, 706 N.E.2d 336, 340 (Ohio Ct.App. 1997). However, such covenants may be enforced under the law of both states if reasonable. Id.
The parties suggest that Ohio law has an additional requirement that a restrictive covenant not to compete be part of an employment agreement. (See Pl.'s Proposed Findings Fact Concl. Law at 59, ¶ 214 and Tr. Br. Defs.' at 6 (citing inter alia Briggs v. Butler, 45 N.E.2d 757, 761 (Ohio 1942) and Barnes Group, Inc. v. O'Brien, 591 F. Supp. 454, 459 (N.D.Ind. 1984)). The court, however, does not understand this to be a separate requirement. Even if it were a requirement for enforcement of a restrictive covenant not to compete against a former employer, the evidence presented at the preliminary injunction hearing establishes that Mr. Rinehart signed and initialed the restrictive covenants as a condition of his employment with Curtis. Thus, the court finds that the restrictive covenants are part of his employment contract with Curtis.
Under both Indiana and Ohio law, a restrictive covenant restraining an employee from competing with his or her former employer is reasonable if it is no greater than necessary to protect the legitimate interests of the party of whom the restraint is in favor, does not impose an undue hardship on the party upon whom the restraint is imposed, and not against public policy. See Ackerman, 652 N.E.2d at 510; Licocci, 445 N.E.2d at 561; Norlund, 675 N.E.2d at 1154; Raimonde v. Van Vlerah, 325 N.E.2d 544, 547 (Ohio 1975); Briggs, 45 N.E.2d at 761-62; Robert W. Clark, M.D., 706 N.E.2d at 340. The determination of reasonableness of a covenant not to compete is based on the facts and the totality of the circumstances. Ackerman, 652 N.E.2d at 510; Licocci, 445 N.E.2d at 561; Raimonde, 325 N.E.2d at 547; Robert W. Clark, M.D., 706 N.E.2d at 340. In determining reasonableness, the court should consider the legitimate business interests of the employer, the geographic and temporal limits, and the types of conduct or activity restrained. See Ackerman, 652 N.E.2d at 510; Licocci, 445 N.E.2d at 561; Norlund, 675 N.E.2d at 1154. A plaintiff seeking to enforce a restrictive covenant bears the burden of proving the reasonableness of the covenant. Licocci, 445 N.E.2d at 561; Robert W. Clark, M.D., 706 N.E.2d at 340.
Courts have enforced restrictive covenants similar to that entered into by Mr. Rinehart in the instant case, finding them reasonable and necessary to protect the employer's business, including customer goodwill. See, e.g., Barnes Group, Inc. v. Harper, 653 F.2d 175, 177, 179-80 (5th Cir. 1981) (holding restrictive covenant contained in employment contract between corporation and salesman that salesman would not sell or attempt to sell same or similar product as those sold by corporation to customers to whom salesman made one or more sales within last two years of his employment with corporation was reasonable and enforceable), cert. denied, 455 U.S. 921 (1982); Barnes Group, Inc. v. O'Brien, 591 F. Supp. 454 (N.D.Ind. 1984) (holding restrictive covenant was reasonable and enforceable under both Ohio and Indiana law). The restrictive covenant in O'Brien was included in the sales agent agreement, restricted the sales agent from competing with the employer Bowman for two years, and required the agent to refrain from selling competing products to the same customers to whom he had made sales on behalf of Bowman within the last two years. See id. at 457, 460. The covenant also required the agent to refrain from competing with Bowman while he was working as a Bowman sales agent and required him to return Bowman equipment upon the termination of his employment. Id. at 457. The district court found that the covenant was "necessary to protect Bowman's proprietary interest in its customers, customer goodwill, sales and other confidential information." Id. In making this finding, the district court reasoned that Bowman had no retail stores and did not conduct any catalogue sales; rather, its sales agents were its only contact with customers. In addition, the evidence showed that when the former sales agents complied with their restrictive covenants, the employer generally retained 90 to 100 percent of the business with that agent's customers. However, when an agent violated the covenant, the employer lost 70 to 100 percent of its business with that agent's customers. See id. The district court further found that the restrictive covenant did not impose an undue hardship on the sales agent as he was restricted from selling to those Bowman customers to which he had made a sale within the last two years-only approximately 43 customers. The agent was not prohibited from servicing non-Bowman customers or customers of other Bowman sales agents. See id. at 461. Thus, the restrictive covenant at issue in O'Brien is much like that at issue here.
Further, courts applying both Indiana and Ohio law have recognized and enforced restrictive covenants not to compete that protect customer lists, customer requirements, customer contacts, and goodwill, that restrict competition for one or more years, and are limited by sales territory or by customer. See, e.g., Licocci v. Cardinal Assocs., Inc., 445 N.E.2d 556, 563 (Ind. 1983) (covenant protecting customer lists, requirements and contacts for one year within former sales territory and with customer restriction); Woodward Ins., Inc. v. White, 437 N.E.2d 59, 67 (Ind. 1982) (recognizing that goodwill is protectable by contract and reversing trial court's grant of summary judgment on covenant not to compete); McGlothen v. Heritage Envtl. Servs., L.L.C., 705 N.E.2d 1069, 1072-73 (Ind.Ct.App. 1999) (stating an employer is entitled to contract to protect the goodwill of the business which includes the names and addresses and requirements of customers and the advantage acquired through representative contact); 4408, Inc. v. Losure, 373 N.E.2d 899, 900-02 (Ind.Ct.App. 1978) (restrictive covenant preventing former employee from participating in the same or similar type of business conducted by former employer, covenant restricted competition for three years with restriction limited to employee's area of operation); Briggs v. Butler, 45 N.E.2d 757, 762 (Ohio 1942) (enforced restrictive covenant protecting customer goodwill for five years prohibiting competition in the United States and Canada); Raimonde, 325 N.E.2d at 544 (three years); Extine v. Williamson Midwest, Inc., 200 N.E.2d 297 (Ohio 1964) (restriction by customers serviced by former employee), overruled on other grounds Raimonde v. Van Vlerah, 325 N.E.2d 544 (Ohio 1975). Thus, the court concludes that the law governing enforcement of restrictive covenants not to compete that are part of an employment contract are similar, if not the same, under both Indiana and Ohio law. Accordingly, the public policy of Indiana is not offended by application of Ohio law to Barnes's breach of contract claim arising from the alleged violations of Mr. Rinehart's covenants not to compete with Curtis Industries, and the court will apply Ohio law in deciding whether the restrictive covenants contained in the Agreement are enforceable.
Application of Indiana law leads to the same result.
The evidence establishes that the restrictive covenants' duration is for the period of Mr. Rinehart's employment with Curtis and for one year from the date of Mr. Rinehart's resignation. The court finds that such a limited duration is reasonable under Ohio law. See, e.g., Nat'l Interstate Ins. Co. v. Perro, 934 F. Supp. 883, 890-91 (N.D.Ohio. 1996) (concluding that one-year restriction in restrictive covenant is reasonable under Ohio law); O'Brien, 591 F. Supp. at 457, 460 (enforcing restrictive covenant for two-year time period as reasonable under Indiana and Ohio law).
The evidence establishes that the scope of conduct and activity prohibited by the restrictive covenants is limited. Mr. Rinehart is prohibited from directly or indirectly "call[ing] upon or caus[ing] to be called upon, or solicit[ing], assist[ing] in the solicitation of, or in any manner correspond[ing] for the purpose of selling or otherwise supplying any product directly or indirectly competitive with the products of the Company to any customer or account which [he] . . . called on or sold to while employed by the Company." (Pl.'s Ex. 2, ¶ 7.) Such customer restrictions have been found reasonable under Ohio law and have been enforced by the courts. See Premix, Inc. v. Zappitelli, 561 F. Supp. 269, 273, 276 (N.D.Ohio. 1983) (holding restrictive covenant which prohibited employee from soliciting, diverting, or otherwise attempting to take away customers or suppliers of employer for two years was valid and binding under Ohio law); O'Brien, 591 F. Supp. at 460; Extine, 200 N.E.2d at 298-99 (holding valid and enforceable a restrictive covenant prohibiting employee within two years after his termination from directly or indirectly diverting or attempting to divert from employer any business, particularly as to the customers with whom he dealt); accord Norlund, O.D. v. Faust, M.D., 675 N.E.2d 1142, 1154 (Ind.Ct.App. 1997) (holding reasonable a covenant not to compete that prohibited optometrist hired by opthalmologist from contacting for two years 122 optometrists who had referred patients to opthalmologist during his employment), clarified on reh'g, 678 N.E.2d 421 (Ind.Ct.App. 1997), trans. denied.
The restrictive covenants not to compete are necessary to protect Barnes' legitimate interests in its customer goodwill as well as its confidential customer, pricing and other business and trade information. An employer's business goodwill including secret or confidential information is an interest protectable by a restrictive covenant not to compete. See Woodward Ins., 437 N.E.2d at 63 (recognizing that employer is entitled to protect business goodwill including secret or confidential information such as customers' names, addresses and requirements and the business advantage acquired through salesman's customer contacts, but not the skill the employee acquires or the general knowledge or information he obtains not directly related to goodwill or value of business); Licocci v. Cardinal Assocs., Inc., 445 N.E.2d 556, 563 (Ind. 1983) (holding that under the circumstances of the case, repeat business for certain products was a protectable interest rendering restrictive covenant to protect that interest reasonable); McGlothen v. Heritage Envtl. Servs., L.L.C., 705 N.E.2d 1069, 1072-73 (Ind.Ct.App. 1999) (holding former employer had interest in goodwill and confidential information protectable by covenant not to compete); Norlund, 675 N.E.2d at 1154 (concluding employer has an interest in the goodwill created by a salesman on the employer's behalf that may be protected with a covenant not to compete as may an employer's interest in trade secrets); 4408, Inc. v. Losure, 373 N.E.2d 899, 901 (Ind.Ct.App. 1978) (holding salesman's familiarity with customers and their accounts is an interest justifying restraint).
The evidence establishes that the Barnes' sales representatives are its primary asset, that Barnes' customers' only personal contact with Barnes is through its sales representatives, and the sales representatives are responsible for developing goodwill, trust and a relationship with the customer. The evidence is that if a Curtis Industries sales representative leaves Curtis and does not violate his or her covenant not to compete, Curtis typically retains 60 to 80% of that sales representative's business; however, if the sales representative violates the covenant not to compete, Curtis retains at most 25% of that sales representative's business.
The same was true for Curtis Industries.
The evidence also establishes that information pertaining to Curtis Industries' customers, pricing, and other business and trade information was to be used solely in conducting Curtis' business. Curtis controls distribution of such information, treats it as confidential, and takes steps to ensure confidentiality, including marking the information as confidential and requesting the return of such information upon the termination of a sales representative's employment. Such confidential information is not readily available to the general public, nor is it possible for such information to be properly acquired by others, and it has been developed at great effort and cost to Curtis Industries. The confidential customer, pricing, and other business and trade information is highly valuable to Curtis and would give a competitor a significant advantage if it became known to such competitor.
To the extent the Defendants argue that it is unnecessary to protect Curtis/Barnes' confidential customer, pricing and other information with respect to Mr. Rinehart's former Curtis accounts to whom Automotive Products had made a sale prior to Mr. Rinehart's commencement of sales on behalf of Automotive Products, this argument fails. The evidence is that any such customers represent stale accounts so that information Automotive Products had about such customers prior to Mr. Rinehart's involvement would not be particularly accurate or valuable.
The Defendants argue that a restrictive covenant is not necessary to protect Barnes' legitimate interests because historically enforcement of restrictive covenants not to compete has been unnecessary in the relevant sales area. The Defendants argue that though Curtis Industries had restrictive covenants with Robert Hohler and James Riggle, it did not enforce those covenants and its failure to do so did not negatively impact Curtis' business. True, Curtis did not initiate legal action against either Mr. Hohler or Mr. Riggle for breach of their restrictive covenants. But there are several reasons why this does not lead to the conclusion that enforcement of Mr. Rinehart's restrictive covenants are unnecessary in the instant case. First, the alleged competition from Mr. Hohler is qualitatively and quantitatively different from the competition by Mr. Rinehart. Two or three sightings is insufficient evidence to establish that Mr. Hohler was actively and openly violating his covenants not to compete with Curtis; rather, it seems that any competition in violation of Mr. Hohler's restrictive covenant was de minimis. Mr. Rinehart's ability to flourish as a Curtis sales representative — retaining close to 100% of the accounts in the Sales Territory — suggests either that Mr. Hohler was not actively competing for his former Curtis customers, or that if he was, he was not successful and his competition was insignificant. Further, Mr. Hohler's testimony suggests that the products he sold on behalf of Automotive Products to Curtis customers were different than the products he could have sold on behalf of Curtis. As for Mr. Riggle, no evidence has been presented to establish that any competition in violation of his covenant not to compete was more than de minimis.
Even assuming that Mr. Hohler, Mr. Riggle or both were competing against Curtis in violation of their restrictive covenants, no evidence has been presented to support a finding that Curtis had sufficient evidence to commence legal action against either of them. The evidence does not show a pattern of inaction on the part of Curtis to enforce its restrictive covenants. Rather, the evidence shows that Curtis took steps to confirm whether Mr. Hohler was competing against Mr. Rinehart and sent Mr. Hohler a letter demanding him to stop any activity in violation of his Curtis restrictive covenant not to compete. Thereafter, it appeared that any conduct violating the covenant had ceased and, therefore, legal action was unnecessary.
Defendants further argue that the alleged non-enforcement of the restrictive covenants of Mr. Hohler and Mr. Riggle can be considered a modification of Mr. Rinehart's covenants not to compete implied from the conduct of the parties. Given the lack of evidence that any breach by Mr. Hohler or Mr. Riggle of their restrictive covenants not to compete was qualitatively or quantitatively similar to that by Mr. Rinehart or that Curtis had sufficient evidence of such a breach, the fact that Curtis did not sue either Mr. Hohler or Mr. Riggle cannot be reasonably understood to be a modification of Mr. Rinehart's covenants not to compete. In addition, if Curtis' conduct in not suing either Mr. Hohler or Mr. Riggle modified anyone's restrictive covenant, surely it would have been the restrictive covenants of Mr. Hohler and Mr. Riggle and not the restrictive covenants of Mr. Rinehart.
Moreover, the restrictive covenants not to compete do not impose an undue hardship on Mr. Rinehart, or for that matter, the Riggles and Automotive Products. Mr. Rinehart is not restricted from selling in his former Sales Territory in its entirety; rather, the restrictive covenants prohibit him from directly or indirectly selling or servicing only his former Curtis/Barnes customers. The evidence is that at the end of his employment with Curtis/Barnes he had 136 customers. He can still sell to other Curtis/Barnes customers as long as they were not his former customers. In addition, he can sell to a great number of MRO prospects in driveable geographic areas. Further, the restriction was for a limited time period-during Mr. Rinehart's employment with Curtis/Barnes and for one year thereafter. This period reasonably relates to the amount of time it would take Curtis/Barnes to place a new salesperson into the territory and get him or her up to speed in order to compete.
Finally, the restrictive covenants are not against the public policy of either Indiana or Ohio. To justify the refusal to "`enforce a right of action accruing under the laws of another state as against the policy of [Indiana] the prosecution of such action must appear to be against good morals or natural justice, or prejudicial to the general interests of the citizens of this state.'" Schaffert by Schaffert v. Jackson Nat'l Life Ins. Co., 687 N.E.2d 230, 234 (Ind.Ct.App. 1997) (quoting Wabash R. Co. v. Hassett, 83 N.E. 705, 709 (Ind. 1908)), trans denied. Defendants have not argued that Ohio law on restrictive covenants is against good morals or natural justice nor prejudicial to the general interests of Indiana's citizens. If they had, their argument would fail as the court has determined that Indiana and Ohio law on enforcement of restrictive covenants is substantially the same. Furthermore, both Indiana and Ohio have an interest in freedom of contract and in holding parties to their agreements.
The Defendants have argued that the switching of accounts between Mr. Rinehart and Mr. Riggle renders the issuance of a preliminary injunction unnecessary. The court disagrees. The switching of accounts does not foreclose a finding that Mr. Rinehart continues to breach his covenants not to compete. The covenants prevent him from either directly or indirectly engaging in certain competition with Curtis/Barnes. Evidence was presented that Mr. Rinehart paved the way for Mr. Riggle's sales to Mr. Rinehart's former Curtis customers before the accounts were switched. Mr. Riggle's calling on and servicing of Mr. Rinehart's former Curtis customers is indirectly engaging in competition that is prohibited under the Agreement. Further, during the time that Mr. Rinehart sold products on behalf of Automotive Products to his Curtis customers, both before and after his resignation from Curtis/Barnes, Automotive Products acquired valuable Curtis/Barnes customer information, including for example the customer contacts, the types and quantity of products the customers purchased, and buying patterns as well as price. Once Automotive Products acquired this type of information any subsequent sale on behalf of Automotive Products whether by Mr. Rinehart or Mr. Riggle or someone else to Mr. Rinehart's former Curtis/Barnes customers draws on this information and amounts to at the least indirect competition prohibited under the Agreement.
The Defendants maintain that Mr. Rinehart's restrictive covenants with Curtis Industries are not enforceable by Barnes. They contend that although the Agreement is assignable, enforcement by Barnes amounts to a modification of the Agreement's terms regarding the entity against whom Mr. Rinehart could be enjoined from competing. This argument is absurd. Without question, the Agreement contains an assignment provision which states: "This Agreement is freely assignable by the Company to a successor to the Company's business. . . ." (Pl.'s Ex. 2, § 9.) Thus, the Agreement expressly provides for assignment of the Agreement by Curtis Industries to a successor to the business. The Agreement further states that it "shall be binding upon the parties hereto, their successors, assigns, heirs and legal representatives. . . ." ( Id.) It is undisputed that Barnes Group purchased the assets of Curtis Industries and that Curtis Industries assigned Rinehart's Agreement to Barnes Group. Such assignment was proper under the terms of the Agreement. Thus, the Defendants offer a tortured construction of the assignment provision in the Agreement which would render that provision entirely meaningless. Their construction is rejected as it borders on the frivolous.
Barnes has demonstrated through evidence presented at the preliminary injunction hearing that based on the facts and the totality of the circumstances, Mr. Rinehart's restrictive covenants not to compete against Curtis are reasonable. Barnes also has shown a reasonable likelihood of success on the merits of its claim that Defendant Rinehart has breached the restrictive covenants not to compete through its evidence that after his resignation from Barnes, he knowingly and intentionally sold both directly and indirectly through Mr. Riggle on behalf of Automotive Products, a direct competitor of Barnes Distribution, MRO products that are the same as or similar to the kind of products sold by Barnes to customers to whom he called on or sold to while employed by Barnes.
The evidence also establishes that Mr. Rinehart violated the sideline provision of his Agreement. Because that provision pertains to conduct that took place while Mr. Rinehart was employed by Curtis/Barnes and he is no longer so employed, such breach by itself does not warrant the issuance of a preliminary injunction. The breach of the sideline provision, however, does reflect Mr. Rinehart's knowing and intentional violation of his restrictive covenants as well as the knowledge of and assistance of Mr. Riggle in those breaches.
C. Irreparable Harm and Inadequate Remedy at Law
In the context of a trademark infringement action, the Seventh Circuit wrote that "it is virtually impossible to ascertain the precise economic consequences of intangible harms, such as damage to . . . loss of goodwill. . . ." Ty, Inc. v. Jones Group, Inc., 237 F.3d 891, 902 (quotation omitted). Thus, injury to goodwill is presumably irreparable. Id.; see also Gateway E. Ry. Co. v. Terminal R.R. Ass'n of St. Louis, 35 F.3d 1134, 1140 (7th Cir. 1994) ("We have stated that showing injury to goodwill can constitute irreparable harm that is not compensable by an award of money damages.") If there is a reason why this rationale should be limited to the context of a trademark infringement action, it is not readily apparent.Courts in other contexts, including actions to enforce the terms of a covenant not to compete, have concluded that loss of goodwill constitutes irreparable harm. See Gateway E. Ry. Co., 35 F.3d at 1140 (affirming issuance of preliminary injunction to enforce railroad trackage rights agreement); Standard Register Co. v. Cleaver, 30 F. Supp.2d 1084, 1099-1100 (N.D.Ind. 1998) (finding loss to customer goodwill constituted irreparable harm; employer entitled to preliminary injunction to prohibit former salesperson from violating non-disclosure and non-solicitation provisions of sales agreement); Ram Prods. Co. v. Chauncey, 967 F. Supp. 1071, 1085-86 (N.D.Ind. 1997) (stating in action alleging violation of non-competition agreement in employment contract and tortious interference with business contract that loss of customer goodwill may constitute irreparable injury and loss of fair competition resulting from such a breach of non-compete may cause irreparable injury); Economou v. Physicians Weight Loss Ctrs. of America, 756 F. Supp. 1024, 1039 (N.D.Ohio. 1991) (stating that protecting against loss of goodwill and loss of reputation is a sufficient ground for finding irreparable injury; restrictive covenants in franchise agreements); McGlothen v. Heritage Envtl. Servs., L.L.C., 705 N.E.2d 1069, 1074-75 (Ind.Ct.App. 1999) (citing evidence of irreparable harm in terms of damage to employer's reputation and goodwill). Thus, it seems that in the context of a breach of a restrictive covenant not to compete injury to customer goodwill constitutes irreparable harm.
Barnes has presented evidence of irreparable harm caused by the violation of Mr. Rinehart's covenants not to compete. This irreparable harm is the loss of customer goodwill and the competitive advantage obtained by Automotive Products through the confidential information concerning Curtis/Barnes' customer contact persons, their preferences and buying habits as well as Curtis/Barnes' pricing strategy and other trade secret information. Barnes competes in a highly competitive industry and its sales representatives are charged with developing customer goodwill. In fact, a customer's only contact with Barnes is through its sales representative. As further evidence of this, upon his resignation from Curtis/Barnes, Mr. Rinehart expected to retain his former Curtis/Barnes customer base due to the loyalty and goodwill that he had established.
Barnes' approximate six month delay in bring this action and seeking a preliminary injunction is a consideration in determining whether Barnes will suffer irreparable injury if a preliminary injunction is not issued. See, e.g., Ty, Inc. v. Jones Group, Inc., 237 F.3d 891, 903 (7th Cir. 2001) ("Delay in pursuing a preliminary injunction may raise questions regarding the plaintiff's claim that he or she will face irreparable harm if a preliminary injunction is not entered."). In deciding whether a plaintiff's delay lessens a claim of irreparable injury, courts consider "[w]hether the defendant has been lulled into a false sense of security or had acted in reliance on the plaintiff's delay. . . ." Id. (citation omitted). The Defendants have neither argued nor presented any evidence that Barnes' delay in seeking a preliminary injunction lulled them into a false sense of security or that they acted in reliance on the delay. Thus, Barnes' delay in seeking a preliminary injunction is insufficient to weaken Barnes' showing of irreparable harm.
That Barnes seeks damages on its claims is no bar to the conclusion that the remedy at law is inadequate. This is because damages may be insufficient to fully compensate Barnes. See Ram Prods. Co., 967 F. Supp. at 1086 (citing Glenwood Bridge, Inc. v. City of Minneapolis, 940 F.2d 367, 369 (8th Cir. 1991)). Further, a damages award may be inadequate where the nature of the Plaintiff's loss makes calculation of damages extremely difficult. Roland Mach. Co. v. Dresser Indus., Inc., 749 F.2d 380, 386 (7th Cir. 1984). Barnes has presented evidence that money damages would not be sufficient to compensate it for the loss of customer goodwill and a preliminary injunction is a more appropriate remedy.
Barnes Group has no adequate remedy at law. A damages award would at worst be highly speculative, requiring a crystal ball to predict the future affects of the customer goodwill lost by Curtis/Barnes to Mr. Rinehart and Automotive Products. At best, calculation of damages would be extremely difficult. Though one could look at lost profits for Mr. Rinehart's former Curtis Sales Territory following his resignation to ascertain damages, this would be only a partial measure of damages. It fails to account for the likely growth potential in Mr. Rinehart's former accounts or Barnes' cost of retrieving the business and goodwill which has been lost. And, it would be virtually impossible to separate Curtis/Barnes' lost sales and customer goodwill attributable to the breach of Mr. Rinehart's covenants not to compete from the lost sales and customer goodwill attributable to some other factor such as customer choice uninfluenced by activity in breach of Mr. Rinehart's covenants.
Balancing of the Harms and the Public Interest
When weighing the interests of the parties and the public, the court should attempt to "minimize the costs of being mistaken. Ty, Inc. v. Jones Group, Inc., 237 F.3d 891, 902 (7th Cir. 2001) (quotation omitted). Because Barnes has made a showing of a strong likelihood of success on the merits, its burden of showing that the balance of harms is in its favor is slight. Id. at 903. It is noted that where a movant has made a showing of a strong likelihood of success on the merits, a preliminary injunction may be appropriate even if against the public interest. MacDonald v. Chicago Park Dist., 132 F.3d 355, 361 (7th Cir. 1997).
The court finds that Barnes has carried its burden of showing that the balance of harms is in its favor. The evidence establishes that Mr. Rinehart continually has breached both directly and indirectly his covenants not to compete and that this has caused Barnes substantial loss of customer goodwill and sales. Barnes has lost approximately 75% of the business in Mr. Rinehart's former Sales Territory due in large part to the competition of Mr. Rinehart and Automotive Products and Mr. Rinehart's transfer of Curtis/Barnes' goodwill to Automotive Products. On the other hand, there has been no evidence that the issuance of a preliminary injunction would preclude Mr. Rinehart, Mr. Riggle or Mrs. Riggle from making a substantial living; nor is there any evidence that a preliminary injunction would virtually drive Automotive Products out of business. Instead, the evidence is that there is a substantial number of MRO prospective customers in an area easily reachable by Automotive Products and that Mr. Rinehart is quite capable of developing a new customer base. The evidence suggests that Mr. Riggle, too, has had success in developing a customer base. Automotive Products had its own customer goodwill and sales to customers independent of the sales to Mr. Rinehart's former Curtis customers. The fact that in 1997 Mr. Hohler sold Automotive Products to the Riggles for $50,000 supports the finding that Automotive Products had an existing customer base and goodwill. Given the evidence, Barnes has shown that the harm to Barnes outweighs the harm to the Defendants and weighs in favor of the issuance of a preliminary injunction.
Moreover, the public interest will be served by the issuance of a preliminary injunction. True enough, Automotive Products would be unable to sell to Mr. Rinehart's former Curtis/Barnes customers, and consequently such customers would be unable to purchase products from Automotive Products, including Mr. Rinehart and Mr. Riggle, thus restraining competition to an extent. But there is no evidence that these customers would be unable to purchase the same or similar products from another vendor at competitive prices. Further, the public has a strong interest in protecting the freedom of contract and enforcing parties' contractual obligations. See, e.g., Cabot Corp. v. King, 790 F. Supp. 153, 158 n. 7 (N.D.Ohio. 1992); Trimble v. Ameritech Pub., Inc., 700 N.E.2d 1128, 1129 (Ind. 1998); Peoples Bank Trust Co. v. Price, 714 N.E.2d 712, 716 (Ind.Ct.App. 1999), trans. denied.
The Authority to Enjoin the Riggles and Automotive Products
Defendants contest the court's authority to enjoin the Riggles and Automotive Products because they were not parties to Mr. Rinehart's covenant with Curtis Industries. They also argue that if Barnes wants to enjoin JR-SR, Inc. d/b/a Automotive Products then it should have brought suit against JR-SR. Maybe JR-SR should have been named a party to this action, but its absence as a party is no bar to an injunction against the Riggles if otherwise proper. Even if JR-SR were a party, it is well-established that a corporation can act only through its agents. Hibschman Pontiac, Inc. v. Batchelor, 362 N.E.2d 845, 848 (Ind. 1977). As shareholders and employees of JR-SR, the Riggles are its agents.
Ample authority supports Plaintiff's argument that the Riggles and Automotive Products may properly be enjoined from acting together or in concert with, aiding or assisting Mr. Rinehart's breach of his covenants not to compete. See, e.g., Burk v. Heritage Food Serv. Equip., 737 N.E.2d 803, 815-16 (Ind.Ct.App. 2000) (upholding injunction to enforce restrictive covenant against nonparties to the covenant who aided party in the breach of that covenant); Norlund, O.D. v. Faust, M.D., 675 N.E.2d 1142, 1155-58 (Ind.Ct.App. 1997) (affirming trial court's preliminary injunction of optometrist's wife and her eye care business from those actions that would constitute a violation of the optometrist's covenant not to compete with former employer where evidence was that wife was acting in concert with husband through her business to assist him in breaching the covenant); McCart v. H R Block, Inc., 470 N.E.2d 756, 760-62 (Ind.Ct.App. 1984) (affirming trial court's order enjoining husband from competing with wife's former employer where he knowingly participated and aided wife in violating her contract with franchiser containing a covenant not to compete), trans. denied.; accord Arwell Div. of Orkin Exterminating Co. v. Kendrick, 267 N.E.2d 352, 353-54 (Ill.Ct.App. 1971) (enforcing covenant not to compete against wife where only husband signed covenant not to compete with former employer where wife was alter ego of husband); Sulmonetti v. Hayes, 198 N.E.2d 297, 301 (Mass. 1964) (enforcing injunction based on covenant not to compete ancillary to sale of business against wife where wife was not a part to her husband's covenant); cf. Planned Parenthood Ass'n of Cincinnati, Inc. v. Project Jericho, 556 N.E.2d 157, 163 (Ohio 1990) (persons acting in concert or participation with a party against whom an injunction has been issued who have actual notice of the injunction may be bound by it). In general, the law "will not permit him to do indirectly, or through [others], what he could not do directly, by himself." Norlund, 675 N.E.2d at 1158 (quoting Eisel v. Hayes, 40 N.E. 119, 119 (Ind. 1895)).
The Defendants seem to argue that the cases relied upon by Barnes are distinguishable because they involved husbands and wives. None of those cases, however, turns on the spousal relationship. Rather, the spousal relationship seems to be a mere coincidence of fact rather than a necessary predicate to enjoining nonparties to a restrictive covenant not to compete. Furthermore, the Burk case did not involve a spousal relationship.
By way of example, in McCart the court entered an injunction against the plaintiffs, Robert and June McCart, pursuant to a covenant not to compete signed only by June. The plaintiffs were enjoined "from participating in any business, either directly or indirectly, or by acting individually, to file, prepare, or assist in preparing income tax returns within fifty (50) miles of the city of Rochester, Indiana." McCart, 470 N.E.2d at 758. After terminating an association with H R Block, June wrote a letter to former clients advising that she would no longer be with the company and expressing her dissatisfaction with Block's price increases. She also advised that she would be helping out her husband in his tax service. In the same envelope, Robert included a letter stating that he was starting a new tax service and would provide the service at a lower price than what the customers had paid the prior year. Id. at 759. Robert instructed the post office that all mail addressed to the McCarts' new office at 900 Main Street should be delivered there, even if addressed to H R Block. The trial court found that the McCarts had acted together to breach her agreement with H R Block and entered an injunction against Robert and June. Though the appellate court found no Indiana case directly addressing the issue, it concluded that "the rule that a stranger to a covenant may be enjoined from aiding and assisting a covenantor in violating his covenant is supported by an overwhelming weight of authority." Id. at 760 (quotation omitted). The court explained that it was not "necessary to show Robert's signature on the agreement before enjoining him from assisting the breach of the agreement by June. The evidence supports the finding that Robert acted together with June to breach her agreement with Block." Id. at 762. The court reasoned that to allow Robert to continue in his tax business would ignore the business realities of the situation and frustrate the purpose of the agreement between June and HR Block. Id.
Furthermore, Rule 65(d) of the Federal Rules of Civil Procedure provides that an order granting an injunction "is binding . . . upon the parties to the action, their officers, agents, servants, employees, and attorneys, and upon those persons in active concert or participation with them who receive actual notice of the order by personal service or otherwise." Fed.R.Civ.P. 65(d). Admittedly, this rule does not state against whom an injunction may be made, but rather, states upon whom an injunction is binding. But the rule nevertheless provides some support for the proposition that an injunction may be made against someone who was not a party to the contract upon which an injunction is based. See, e.g., Norlund, O.D. v. Faust, M.D., 675 N.E.2d 1142, 1155 n. 9 (Ind.Ct.App. 1997) (interpreting similar Indiana Trial Rule 65(D)).
It is noted that Rule 65(d) of Ohio's Rules of Civil Procedure contains analogous language and would likewise provides some support for the conclusion that the court may enjoin the Riggles. See Ohio R. Civ. P. 65(D) ("Every order granting an injunction . . . is binding upon the parties to the action . . . and those persons in active concert or participation with them who receive actual notice of the order whether by personal service or otherwise.")
The evidence establishes that James and Susan Riggle and Automotive Products acted together or in concert with, aided and assisted Mr. Rinehart in violating his covenants not to compete with Curtis Industries. The Riggles were aware of Mr. Rinehart's covenants not to compete, yet took no steps to ensure that he would not breach them. Rather, they encouraged, aided, and assisted him in breaching the covenants. For example, the Riggles participated in intentional acts of deception designed to prevent discovery of Mr. Rinehart's breach of his Curtis covenants. The evidence shows that Mrs. Riggle played a role in preparing the invoices which incorrectly show Mr. Hohler to be the Automotive Products sales representative on Mr. Rinehart's former Curtis accounts. And, Mr. Riggle, with knowledge of Mr. Rinehart's non-compete agreement, invited Mr. Rinehart to sell on behalf of Automotive Products even while Mr. Rinehart was still employed by Curtis/Barnes, thus violating the sideline provision of the Agreement. Mr. Riggle also made a conscious decision to have Mr. Rinehart sell to his former Curtis customers after he had resigned from Curtis/Barnes, knowing that this activity, too, violated Mr. Rinehart's covenants not to compete. The court therefore concludes that James and Susan Riggle and Automotive Products are subject to an injunction enforcing Mr. Rinehart's restrictive covenants not to compete.
Appropriate Time Period for Preliminary Injunction
Barnes seeks a preliminary injunction extending for one year from the date of the court's order issuing the injunction. Barnes argues that under both Ohio and Indiana law, the court may properly issue the injunction for the entire contractual time period, which is one year. The Defendants argue that if the court were to issue an injunction, then it should extend only for a period of one year from the date of Mr. Rinehart's resignation or the date on which Barnes Group first informed him that it had knowledge that he was breaching the restrictive covenants.
Under the terms of the Agreement, Mr. Rinehart agreed to be bound by the restrictive covenants during his employment with Curtis Industries and for a period of one (1) year following the termination of his employment. Barnes' delay in seeking a preliminary injunction is a consideration in determining the period of time over which the injunction shall be in force. Yet, it must be noted that there is evidence that some of the delay is attributable to the intentional deception by the Defendants in concealing Mr. Rinehart's sales activity that breached his covenants not to compete. Barnes makes persuasive arguments that the Defendants' deceptions should not deprive it of the full benefit of a year's worth of protection under the covenants. However, the court believes that it need not resolve these issues at this juncture. Rather, it is sufficient to enter a preliminary injunction extending from the present until August 30, 2001. The court will attempt to advance the trial date of this case on the docket. The time period of the injunction very well may be extended because of Mr. Rinehart's continual noncompliance with his restrictive covenants since at least three days after his resignation from Barnes. Whether an extension of the preliminary injunction should be granted beyond August 30th will be considered if the case cannot be disposed of before that date.
This date is chosen in the following manner: May 30, 2000, was the date on which Barnes notified Rinehart that it had evidence of his repeated violations of the covenants. Barnes clearly should get the benefit of the covenants for one year from that date. The court has added three months to that date because of the delays while this preliminary injunction request was pending. The Plaintiff promptly moved for a preliminary injunction after filing this case and sought an early hearing on the motion. The court allowed the Defendants an opportunity for some extended discovery and delayed the hearing shortly before the first scheduled date to accommodate defense counsel's schedule. Barnes should not lose the effect of the covenants because of the court delays for which it was not responsible. Furthermore, the evidence establishes that Rinehart continued to breach his covenants not to compete following the commencement of this action and the filing of Plaintiff's motion for preliminary injunction. Following the switching of accounts, Rinehart through Riggle indirectly is engaging in competition that is prohibited under the Agreement and Riggle is aiding the continued breach of the covenants.
G. Calculation of Security to be Posted by Plaintiff
Rule 65(c) of the Federal Rules of Civil Procedure requires that a party seeking a preliminary injunction give security before a preliminary injunction may be issued:
"No . . . preliminary injunction shall issue except upon the giving of security by the applicant, in such sum as the court deems proper, for the payment of such costs and damages as may be incurred or suffered by any party who is found to have been wrongfully enjoined or restrained."
Fed.R.Civ.P. 65(c). The court believes that the appropriate sum is derived from the lost earnings to Automotive Products and Mr. Rinehart from the likely sales to Mr. Rinehart's former Curtis customers.
The appropriate amount of security that must be posted by Barnes Group is $18,293.50. This amount is calculated from the total commissions paid to Mr. Rinehart and Automotive Products' total remaining profits on Mr. Rinehart's sales to his former Curtis Industries customers during the time period of January 1, 2000 through December 2, 2000, which date precedes the switching of accounts by Mr. Rinehart and Mr. Riggle. The resulting sum is divided by two because the preliminary injunction will be in effect for at least approximately 6 months, which is one-half of a year. If the preliminary injunction is later extended, the bond may be increased.
CONCLUSION
The evidence presented at the preliminary injunction hearing demonstrates that Defendant Jerome Rinehart has wholly failed to comply with his restrictive covenants not to compete with Curtis Industries. The evidence also demonstrates that the restrictive covenants are reasonable. Thus, Plaintiff Barnes Group has demonstrated that an appropriate preliminary injunction should be issued against Jerome Rinehart, James Riggle, Susan Riggle, Automotive Products, and all other persons acting together or in concert with, aiding or assisting Mr. Rinehart's breach of his restrictive covenants not to compete.
A preliminary injunction will be entered under separate order and become effective immediately upon Plaintiff's posting of security in the amount of $18,293.50 for the payment of such costs and damages as may be incurred or suffered by any party if wrongfully enjoined. The preliminary injunction shall continue in effect until August 30, 2001, unless modified by the court.
ALL OF WHICH IS ORDERED.