Opinion
No. CX-02-368.
Filed December 3, 2002.
Appeal from the Olmsted County District Court, File No. C9092335.
Mark W. Delehanty, Klampe, Delehanty Morris, (for respondent)
Roger M. Stahl, Wendland Utz, Ltd., (for appellant)
Considered and decided by Minge, Presiding Judge, Willis, Judge, and Wright Judge.
This opinion will be unpublished and may not be cited except as provided by Minn. Stat. § 480A.08, subd. 3 (2002).
UNPUBLISHED OPINION
Appellant challenges a preliminary injunction issued to enforce the noncompete agreement contained in his employment contract with respondent. Appellant argues (a) the district court abused its discretion in concluding the noncompete agreement was ancillary to the original employment contract; (b) the court's conclusions and credibility assessments were not supported by the evidence; and (c) the court abused its discretion in requiring a bond of only $2,000. We affirm.
FACTS
Appellant worked as a general manager for respondent from May 8, 2000, until October 2001. Appellant interviewed with company president Steven Murphy for the position on April 12, 2000. Murphy testified that he told appellant during the interview that a noncompete agreement would be a part of the employment arrangement. According to Murphy, appellant represented that he was familiar with noncompete agreements and accepted the noncompete agreement as a condition of employment. Murphy testified that appellant also claimed he could assist in drafting an agreement. Murphy stated that he explained to appellant that an earlier experience with a key employee who left for a competitor adversely affected Murphy's business and led him to insist on a noncompete agreement. Murphy further testified that he told appellant that $5,000 to $10,000 of appellant's salary would serve as consideration for appellant signing a noncompete agreement. Appellant testified that he had no recollection of any discussion of a noncompete agreement during his initial interview.
Murphy offered appellant the job on April 18, 2000. On April 19, 2000, appellant e-mailed Murphy and accepted the position. The relevant portion of that e-mail says:
Steve,
I gave Forrest and Mary my notice today. Lisa and I have a few questions.
1. Did we agree that we would be entering into a signed agreement?
Wages / Job description
Vacations
No compete
Any other issues
* * * *
Dave Waraxa
With respect to the e-mail, appellant testified:
I'm not sure why I wrote down noncompete. * * * It's likely the reason I had wrote down [sic] noncompete because [my former employers] were trying to talk me out of taking the position with Tonna. And they may have brought it up. I don't recall why it's there.
On April 27, 2000, appellant and Murphy met at a Baker's Square restaurant in Rochester. Appellant's wife, Lisa Waraxa, and their daughter were present, as was Murphy's wife. Murphy and Lisa Waraxa both testified that the noncompete agreement was discussed. While both Murphy and Lisa Waraxa agreed that Lisa asked what a noncompete agreement was and that appellant explained it to her, there was a discrepancy as to when that conversation occurred. Lisa Waraxa further testified that she discussed the noncompete with appellant in the car on the way back to LaCrosse. Appellant testified he did not remember any such conversations. Although the Waraxas had been divorced by the time of trial, there is nothing in the record to indicate that this had any relevance to Lisa Waraxa's testimony.
Appellant began work with respondent on May 8, 2000. An attorney for respondent drafted a noncompete agreement for appellant to sign. Murphy received the draft of the noncompete on May 26, 2000. The draft was blank as to the date of the agreement, name of the employee, geographic area, and duration of the noncompete. Murphy testified he gave the draft to appellant and said, "Look for any corrections of what you think needs to be done to this thing and take it from there." Murphy further testified:
[Appellant] came back, I believe, later with it all filled in, all typed out. We went through it together, and we signed it together.
Appellant testified he saw the draft of the noncompete agreement and discussed it with Murphy sometime between May 26, 2000, and June 2, 2000. Appellant testified it was the first time he saw any noncompete agreement relating to his employment with respondent.
In response to being asked whether Murphy told appellant what to put in the blanks of the draft of the noncompete, appellant testified:
We sat down, and I had a yellow pad. And I asked him, I said, "Well, what counties are we looking at have [sic] this cover? What length of terms are we looking at for this?" We discussed it. I wrote it on the yellow pad. And then I typed it into the document.
Appellant further testified that was the only time appellant and Murphy discussed the counties covered and the duration of the noncompete agreement. Appellant and respondent stipulated that appellant was not given a pay raise upon signing the noncompete agreement. Ultimately the agreement was signed and dated as of June 2, 2000. It precluded appellant from working for a competitor for three years after ceasing employment with respondent in 15 named counties in southeastern Minnesota.
In October 2001, appellant's employment with respondent was terminated. In January 2002, appellant began working for KS Heating of Rochester, one of respondent's competitors. Respondent filed suit, and on February 20, 2002, the district court entered a preliminary injunction that prohibits appellant from working for KS.
DECISION
A district court's decision to issue a temporary or preliminary injunction will not be overturned absent a clear abuse of discretion. Carl Bolander Sons Co. v. City of Minneapolis, 502 N.W.2d 203, 209 (Minn. 1993). On review, this court views the facts in the light most favorable to the prevailing party. Queen City Const., Inc. v. City of Rochester, 604 N.W.2d 368, 372 (Minn.App. 1999), review denied (Minn. Mar. 14, 2000).
I.
A court considers five factors when determining whether to issue a temporary injunction: (1) the relationship between the parties before the dispute, (2) the relative harms to the parties if the injunction is or is not granted, (3) the likelihood that one party will prevail on the merits, (4) the public interest involved, and (5) the administrative burden in enforcing the injunction. Dahlberg Bros., Inc. v. Ford Motor Co., 272 Minn. 264, 274-75, 137 N.W.2d 314, 321-22 (1965); Medtronic, Inc. v. Advance Bionics Corp., 630 N.W.2d 438, 451 (Minn.App. 2001). In this case, appellant challenges the district court's findings on the third factor: the likelihood that one party will prevail on the merits.
The bar is high for enforcement of noncompete agreements. Such agreements partially restrain trade by limiting the right of a party to work and earn a livelihood. Bennett v. Storz Broad. Co., 270 Minn. 525, 533, 134 N.W.2d 892, 898 (1965). Noncompete agreements are enforced only to the extent reasonably necessary to protect a legitimate business interest. Id. at 534, 134 N.W.2d at 899. Courts look upon such contracts with disfavor and scrutinize them with care. Freeman v. Duluth Clinic, Ltd., 334 N.W.2d 626, 630 (Minn. 1983); Nat'l Recruiters, Inc. v. Cashman, 323 N.W.2d 736, 740 (Minn. 1982); Bennett, 270 Minn. at 533, 134 N.W.2d at 898.
Noncompete agreements are invalid unless bargained for and supported by adequate consideration. Nat'l Recruiters, 323 N.W.2d at 740. A noncompete agreement signed after employment commences is presumed unenforceable unless clearly ancillary to the employment agreement or supported by adequate additional consideration. Sanborn Mfg. Co. v. Currie, 500 N.W.2d 161, 164 (Minn.App. 1993) (citing Nat'l Recruiters, 323 N.W.2d at 740). This requirement reflects the fact "that employers and employees have unequal bargaining power," especially after employment has commenced. Sanborn Mfg. Co., 500 N.W.2d at 164. When the employer fails to inform prospective employees of noncompetition agreements until after they have accepted jobs, the employer "takes undue advantage of the inequality between the parties." Nat'l Recruiters, 323 N.W.2d at 741. Continued employment is not sufficient consideration for a noncompetition agreement. Id. at 740.
Appellant argues that the district court abused its discretion in determining that the noncompete agreement was ancillary to the original employment agreement. Appellant further argues that the court should not have issued the temporary injunction. In this case, we are not making a determination as to the ultimate validity of the noncompete agreement. Rather, we are reviewing whether the district court abused its discretion in determining that respondent's likelihood of success on the merits warranted the issuance of a temporary injunction.
In National Recruiters, the court held that the noncompete agreements employees were required to sign after starting employment were not ancillary. National Recruiters, 323 N.W.2d at 740. The employees in National Recruiters
agreed to work for National and, in fact, did begin work before being presented with the noncompetition clause and told they were required to sign it. The clause was not bargained for. It was not ancillary to the employment agreement.
In Davies Davies Agency, Inc. v. Davies, a noncompete agreement was not ancillary where although the employee "had been made aware of the existence of the [noncompete agreement] during employment negotiations," he was not given a chance to examine the noncompete agreement despite requesting to see it. Davies Davies Agency, Inc. v. Davies, 298 N.W.2d 127, 133 (Minn. 1980) (the court in Davies noted the employer's failure to provide certain parts of the compensation package contributed to employees leaving). In Midwest Sports Mktg. v. Hillerich Bradsby of Canada, Ltd., a noncompete agreement signed two weeks after the employee began working was not ancillary to the original employment agreement. Midwest Sports Mktg. v. Hillerich Bradsby of Canada, Ltd., 552 N.W.2d 254, 265-66 (Minn.App. 1996), review denied (Minn. Sept. 20, 1996). Although the employee in Midwest Sports knew before beginning work that he would be required to sign a noncompete agreement, he did not know the terms of the noncompete agreement before he began work. Midwest Sports, 552 N.W.2d at 265.
In this case, the district court found that appellant was aware of the existence of a noncompete agreement before beginning employment. Here, as in Davies, there is no evidence to show that appellant had an opportunity to examine and inspect the noncompete agreement before beginning employment. But the district court in this case did find "the noncompete agreement was fully discussed and negotiated and thus ancillary to the offer of employment." This case is distinguished from National Recruiters, Davies, and Midwest Sports on the basis of the finding that the noncompete agreement was "fully discussed and negotiated." In addition, there was evidence that appellant had offered to draft the agreement, that appellant filled in and typed up the terms of his own noncompete agreement, that appellant held a key management position in respondent's business, and that the agreement was limited in scope and duration. There was no evidence of employer overreaching. We conclude that the district court did not abuse its discretion.
II.
Appellant argues the district court's determination that the noncompete agreement was ancillary to the employment agreement was not supported by the testimony presented at the preliminary injunction hearing. Appellant argues that the district court's assessments of credibility were "palpably erroneous and an abuse of its discretion."
"[D]ue regard shall be given to the opportunity of the trial court to judge the credibility of the witnesses." Minn.R.Civ.P. 52.01. In applying Minn.R.Civ.P. 52.01, "we view the record in the light most favorable to the judgment of the district court." Rogers v. Moore, 603 N.W.2d 650, 656 (Minn. 1999) (citation omitted). This court will not reverse the district court's judgment merely because we view the evidence differently. Id. Rather, the court's factual findings must be clearly erroneous or "manifestly contrary to the weight of the evidence or not reasonably supported by the evidence as a whole" to warrant reversal. Id. (citation omitted).
The district court concluded that appellant was aware of the noncompete agreement before beginning employment with respondent. The foregoing discussion of the facts indicates an ample basis for the district court's decision. In reaching its conclusion, the district court described Murphy's testimony as credible because it was supported by e-mails and by the deposition testimony of Lisa Waraxa. The district court chose to believe the testimony of Murphy and Lisa Waraxa over the testimony of appellant. The district court's conclusion and the credibility determination underlying the conclusion were not "clearly erroneous."
III.
Appellant argues that the district court abused its discretion in requiring respondent to post a bond in the amount of only $2,000. Appellant appears to argue that attorney's fees should have been considered when the court set the bond amount.
The district court has wide discretion in setting the amount of the bond. Petition of Giblin, 304 Minn. 510, 524, 232 N.W.2d 214, 223 (1975). On appeal, this court must determine whether the district court committed an abuse of discretion. Paradata of Minnesota, Inc. v. Fox, 356 N.W.2d 852, 855 (Minn.App. 1984).
Minnesota Rule of Civil Procedure 65.03(a) provides:
No temporary restraining order or temporary injunction shall be granted 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.
Id. (emphasis added).
"As a rule attorney's fees are not recoverable in litigation absent a specific contract or statutory authorization." Langeland v. Farmers State Bank, 319 N.W.2d 26, 33 (Minn. 1982). Appellant points to no statutory or contractual authorization for recovery of attorney's fees. Therefore, the district court did not abuse its discretion in not considering appellant's attorney's fees.
Under Minnesota Rule of Civil Procedure 65.03(a), the district court did not abuse its discretion in ordering that a bond of $2,000 be posted.