Filed October 30, 2001.
Appeal from the District Court, Hennepin County, File No. CT014014.
Wynn Curtiss, (for respondent)
Gene A. Hoff, (for appellant LaFond)
D. Scott Klemp, (for appellant Joseph Catering)
Considered and decided by Hanson, Presiding Judge, Randall, Judge, and Foley, Judge.
This opinion will be unpublished and may not be cited except as provided by Minn. Stat. § 480A.08, subd. 3 (2000).
Appellant argues that the district court abused its discretion by issuing a temporary injunction to enforce the noncompete agreement contained in his employment contract with respondent, his former employer. We affirm.
Appellant Daniel LaFond worked for respondent Twin City Catering (Twin City) for one year before he signed a written employment agreement in 1995 that contained a noncompete clause. The agreement prevented LaFond from selling or providing services for a two-year period to any of Twin City's clients and from working within 30 miles of Twin City's office as a salesperson or event manager for a competing company.
Prior to signing the agreement, LaFond's salary was $2,000 per month in addition to a five percent sales commission. Twin City altered LaFond's pay structure after he signed the noncompete to a blended commission schedule. LaFond would receive five percent commission from certain sales and two percent from others. After signing the agreement, LaFond's commission sales rose from less than $100,000 to $400,000 annually.
Twin City also implemented improvements in the manner and scope of support for its sales staff after it asked LaFond and another salesperson to sign noncompete agreements. Specifically, Twin City began providing sales leads to LaFond and altered his job duties.
LaFond left Twin City in January 2001 and began working for respondent Joseph Catering, Inc., a competitor of his former employer. LaFond contacted Twin City customers in order to announce his new position with Joseph Catering.
On March 16, 2001, Twin City filed a complaint against LaFond and Joseph Catering alleging that LaFond breached his employment agreement and misappropriated trade secrets. The complaint also accused Joseph Catering of tortiously interfering with Twin City's contract with LaFond.
The district court issued a temporary injunction on March 27, 2001 which prevented LaFond from: (1) contacting Twin City's customers, clients, and employees; (2) soliciting or accepting business from Twin City's customers or clients; and (3) working as an event manager or salesperson within 30 miles of Twin City for any other employer that provides picnic catering or other catering services to corporations. The injunction also prohibited Joseph Catering from using any information obtained by LaFond regarding Twin City's customers and from employing LaFond in a manner that would violate his noncompete agreement.
The decision to grant a temporary injunction is within the district court's discretion and this court will reverse only if there was a clear abuse of that discretion. Carl Bolander Sons Co. v. City of Minneapolis, 502 N.W.2d 203, 209 (Minn. 1993).
A district court's findings will not be set aside unless clearly erroneous. LaValle v. Kulkay, 277 N.W.2d 400, 402 (Minn. 1979). An appellate court "will view the facts alleged in the pleadings and affidavits as favorably as possible to the party who prevailed below." Pac. Equip. Irrigation, Inc. v. Toro Co., 519 N.W.2d 911, 914 (Minn.App. 1994), review denied (Minn. Sept. 16, 1994).
The purpose of a temporary injunction is to "maintain the status quo until a case can be decided on the merits." Village of Blaine v. Indep. Sch. Dist. No. 12, 265 Minn. 9, 13, 121 N.W.2d 183, 187 (1963).
When deciding whether to issue a temporary injunction, a court should consider five factors: (1) the nature of the parties' relationship; (2) the balance between the harms to be suffered by both parties; (3) the likelihood of the moving party's success on the merits; (4) public policy considerations; and (5) any administrative burdens. Dahlberg Bros., Inc. v. Ford Motor Co., 272 Minn. 264, 274-75, 137 N.W.2d 314, 321-22 (1965).
The district court found that Twin City demonstrated a need for a temporary injunction under Dahlberg. Only two of the Dahlberg factors — likelihood of success of the merits and balance of harms are in dispute on appeal.
I. Balance of Harms
A temporary injunction should be issued "only when it is clear that the rights of a party will be irreparably injured before a trial on the merits is held." Miller v. Foley, 317 N.W.2d 710, 712 (Minn. 1982). The courts recognize, however, that irreparable harm "is not susceptible of precise proof." Thermorama, Inc. v. Buckwold, 267 Minn. 551, 552, 125 N.W.2d 844, 845 (1964). Consequently, in some situations, the court can infer irreparable harm. Id. at 553, 125 N.W.2d at 845.
Irreparable injury can be inferred from the breach of a restrictive covenant if the former employee came into contact with the employer's customers in a way which obtains a personal hold on the good will of the business.
Webb Publ'g Co. v. Fosshage, 426 N.W.2d 445, 448 (Minn.App. 1988).
In Medtronic, Inc. v. Advanced Bionics Corp., 630 N.W.2d 438, 445, 456-57 (Minn.App. 2001), this court upheld the district court's issuance of a temporary injunction preventing Medtronic's former employee from breaching his noncompete agreement. The employee resigned in order to work for Advanced Bionics, one of Medtronic's competitors. Id. at 445. "The district court found that the loss to Advanced Bionics of one employee in a certain role is `of far less significance than what is at stake' for Medtronic." Id. at 451. The district court granted the injunction in part because "Medtronic demonstrated that it was likely to suffer irreparable harm in the form of loss of customer connections" that the employee had cultivated while working for Medtronic. Id. at 452.
In this case, the district court concluded that the balance of harms between LaFond and Twin City weighed in favor of granting the temporary injunction, finding that LaFond's misuse of customer information would result in irreparable harm to Twin City. Any communications made by LaFond, now in his new position at Joseph Catering, with Twin City's customers could amount to a taking of good will. See id.at 452 (noting that district court found that any contact an employee had on behalf of a new employer with former employer's customers would amount to taking of good will).
Even if LaFond did not misappropriate confidential information from Twin City's customer database, there is still support for the district court's decision to grant the injunction. In Medtronic, the court recognized that even if the employee didn't confiscate internal company documents, "the knowledge he gained while working with Medtronic's customers gives him insight into customer preferences." Id.at 453. Similarly, Lafond's knowledge of Twin City's clients goes beyond mere names and addresses because he had access to specific information regarding (1) clients' needs and preferences and (2) rates charged for previous events.
LaFond and Joseph Catering argue that the harm to LaFond outweighs any harm to Twin City because the injunction prevents LaFond from working in his chosen field. This argument is unpersuasive. LaFond is only prevented from working for Joseph Catering in a capacity that would cause him to violate the noncompete. See id. (finding that harm to employee is small compared to potential harm to Medtronic because employee is only restricted from working with products similar to those he worked on as Medtronic employee). We agree with the district court's conclusion that LaFond is not completely prevented from earning a living.
Since this court reviews the facts alleged in the affidavits in a manner most favorable to Twin City, we conclude that there is sufficient support in the record for the district court's conclusion that a balancing of the harms favors issuance of the injunction.
II. Likelihood of Success on the Merits
The district court found that Twin City has a reasonable possibility of prevailing at trial. But LaFond and Joseph Catering argue that Twin City is unlikely to succeed because the noncompete agreement is unreasonable in scope and unenforceable due to lack of consideration.
A. Reasonableness of the Restriction
The test for determining the reasonableness of a noncompete agreement is whether or not the restraint is necessary for the protection of the business or good will of the employer, and if so, whether the stipulation has imposed upon the employee any greater restraint than is reasonably necessary to protect the employer's business * * *.
LaFond and Joseph Catering argue that the restrictions in the noncompete agreement are greater than necessary to protect any legitimate interest of Twin City. A company's good will, trade secrets, and confidential information are legitimate interests that may be protected. Medtronic, 630 N.W.2d at 456. LaFond acquired confidential customer contact and pricing information while employed with Twin City. Because of his employment with Twin City, he became familiar with its customers' preferences. Twin City could legitimately seek to protect customer preference information with a noncompete agreement. LaFond contends that the customer information is not secret because many Twin City customers can be found in the public domain. Even if the names of Twin City's customers are generally known, Twin City still has a legitimate interest in protecting other types of confidential information which LaFond had access to, such as customer preferences and confidential pricing information.
LaFond and Joseph Catering further argue that a two-year prohibition on working for a competing catering company is unreasonable. A two-year restriction is not by itself unreasonable. In Medtronic, the court affirmed the issuance of a temporary injunction based on a similar two-year prohibition on employment with a competing company. Id. at 445. Moreover, the district court's role was not to make a final determination as to whether the underlying contract is enforceable. A temporary injunction serves only to maintain the status quo until a court can decide the case on its merits. Village of Blaine, 265 Minn. at 13, 121 N.W.2d at 187. We conclude that the district court did not abuse its discretion in finding that Twin City has a "reasonable possibility of prevailing on the merits."
B. Adequacy of the Consideration
A covenant not to compete, signed after the employment relationship has commenced, must be supported by independent consideration. Nat'l Recruiters, Inc. v. Cashman, 323 N.W.2d 736, 740 (Minn. 1982). The adequacy of the consideration for a noncompete contract in an ongoing employment relationship will depend on the facts of each case. Davies Davies Agency, Inc. v. Davies, 298 N.W.2d 127, 130 (Minn. 1980). Continued employment may constitute adequate consideration for a bargained-for covenant not to compete if the agreement provides the employee with real advantages. Id. at 131.
In Davies, the court held that although the employee signed a noncompete agreement after he started working, the benefits he derived constituted adequate consideration. Id. Specifically, "continued employment for 10 years, advancement within the agency, and increased responsibility formed sufficient consideration to support a restrictive covenant in the employment agreement." Nat'l Recruiters, 323 N.W.2d at 740 (discussing its holding in Davies). The court noted that Davies "derived substantial economic and professional benefits from the agency after signing the contract." Davies, 298 N.W.2d at 131.
Conversely, courts are likely to invalidate restrictive covenants for lack of consideration if they fail to provide benefits to the employee. See Jostens, Inc. v. Nat'l Computers Sys., Inc., 318 N.W.2d 691, 703-04 (Minn. 1982) (holding mere continuation of employment is not adequate consideration if the employee received neither a raise nor a promotion and other employees were not asked to sign noncompete agreements); Sanborn Mfg. Co. v. Currie, 500 N.W.2d 161, 164 (Minn.App. 1993) (holding that noncompete agreement lacked consideration because there was no evidence that the employee received a promotion or that the increase in salary was attributable to signing the noncompete agreement).
Twin City contends that the noncompete agreement was supported by adequate consideration because LaFond received benefits from signing the agreement that he would not have otherwise received. After signing the agreement, Twin City promoted LaFond, provided him with more sales support, and altered his job duties and compensation. Specifically, LaFond's sales rose from less than $100,000 to $400,000 annually after he signed the noncompete agreement. Furthermore, LaFond continued to work for Twin City for six additional years after signing the agreement. See Nat'l Recruiters, 323 N.W.2d at 740 (noting that continued employment for 10 years after signing noncompete agreement combined with a promotion and increased responsibility constitutes adequate consideration).
The district court's findings regarding the adequacy of consideration are not clearly erroneous. The benefits LaFond enjoyed after signing the noncompete are similar to those received by the employee in Davies. Each employee's job duties were altered in a way that benefited him and each continued to work for his employer for a number of years after signing the noncompete agreement. In addition, unlike the employer in Jostens, LaFond was not the only employee asked to sign a noncompete agreement. See Jostens, 318 N.W.2d at 703-04 (holding that mere continuation of employment was not adequate consideration, in part because "other employees with similar access were not asked to sign").
We conclude that the district court did not abuse its discretion in finding that Twin City has a reasonable possibility of succeeding on the merits. Even if a party's chances of prevailing at trial are slim, a court nevertheless has the discretion to issue a temporary injunction to maintain the status quo. See Sanborn, 500 N.W.2d at 164-65 ("Where plaintiffs make a strong showing of irreparable harm, but a doubtful showing that they are likely to win the case, trial courts may properly decide to grant an injunction to preserve the status quo until trial.").
There is support for the district court's conclusion that the Dahlberg factors, when looked at as a whole, weigh in favor of granting the injunction, especially in light of the fact that this court views the alleged facts as favorably as possible to Twin City. The district court, therefore, did not abuse its discretion when it granted Twin City's motion for a temporary injunction.