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COA divided on noncompete agreement, injunction

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Even though Indiana courts strongly disfavor noncompete clauses in employment contracts as restraints of trade, the majority of Indiana Court of Appeals judges affirmed the grant of a preliminary injunction against a Porter County man. They found the company had a legitimately protectable interest in the man’s knowledge of its customers and market.

In Steven E. Coates v. Heat Wagons, Inc., et al., No. 64A03-1004-PL-232, Steven Coates, a former employee of Heat Wagons Inc. and Manufacturers Products, appealed the preliminary injunction granted against him to prevent him from operating a side business, Second Source, which was also involved in the sale of portable heater parts. Manufacturers Products (MPI) had a portable heater parts division, Portable Heater Parts (PHP), that Coates was also involved in.

When Coates’ father died and the company was sold, the new owners retained Coates as an employee and he signed an employment agreement, which contained a noncompete clause. Just before he was retained by the new owners, Coates changed the name of Second Source to S&S and concealed his involvement with the company. S&S often sold parts to MPI.

After Coates was fired in 2009, the company discovered his involvement with S&S and filed the complaint to enjoin him from continued operation of S&S. It later filed a petition for preliminary and permanent injunction. The trial court granted the preliminary injunction against Coates.

Judges L. Mark Bailey and Patricia Riley upheld the injunction and affirmed the trial court in all respects except with regard to the part of the injunction that prevented any use by Coates of heatersandparts.com and a red “H&P” mark on its website and printed materials. PHP used a red “PHP” mark and its website is portableheaterparts.com. There was no evidence that Coates’ use of the website or mark created any confusion among its current or potential customers, wrote Judge Bailey. The judges also found the relief to be overly broad, because by restricting the use of the web address and mark, the trial court effectively restricted Coats from using these means of advertising in the U.S. and globally.

The majority found the trial court didn’t err in determining MPI faced a risk of irreparable harm and lacked adequate remedy at law as a result of any breach by Coates of the agreement not to compete. They also held the trial court didn’t err by determining that MPI has a reasonable likelihood of success on the merits of its case.

Judge James Kirsch dissented because he believed the covenant to not compete failed to be reasonable in terms of both activity and geographic area. He found the purpose of the covenant at issue is solely to prevent competition by restricting Coates from engaging in competition with the employer “in any capacity whatsoever” and prevent Coates from competing in any way.

He also found the geographic scope of the restriction, which applied to all the states in which MPI had done business, was without regard to whether Coates actually had any involvement in such states. Judge Kirsch also questioned the trial court’s re-writing of the contract as a matter of policy. The trial court “blue penciled” the contract, including the scope of the provisions of the covenant to strike out the 13 states which Coates had no contact, and made other changes.

“Here, as a result of re-writing the employer’s contract by the trial court, a contract that is unreasonable in its scope and unenforceable as over-broad becomes enforceable against the employee,” he wrote. “I believe that the restrictive covenant is unenforceable in its entirety.”

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  1. Frankly, it is tragic that you are even considering going to an expensive, unaccredited "law school." It is extremely difficult to get a job with a degree from a real school. If you are going to make the investment of time, money, and tears into law school, it should not be to a place that won't actually enable you to practice law when you graduate.

  2. As a lawyer who grew up in Fort Wayne (but went to a real law school), it is not that hard to find a mentor in the legal community without your school's assistance. One does not need to pay tens of thousands of dollars to go to an unaccredited legal diploma mill to get a mentor. Having a mentor means precisely nothing if you cannot get a job upon graduation, and considering that the legal job market is utterly terrible, these students from Indiana Tech are going to be adrift after graduation.

  3. 700,000 to 800,000 Americans are arrested for marijuana possession each year in the US. Do we need a new justice center if we decriminalize marijuana by having the City Council enact a $100 fine for marijuana possession and have the money go towards road repair?

  4. I am sorry to hear this.

  5. I tried a case in Judge Barker's court many years ago and I recall it vividly as a highlight of my career. I don't get in federal court very often but found myself back there again last Summer. We had both aged a bit but I must say she was just as I had remembered her. Authoritative, organized and yes, human ...with a good sense of humor. I also appreciated that even though we were dealing with difficult criminal cases, she treated my clients with dignity and understanding. My clients certainly respected her. Thanks for this nice article. Congratulations to Judge Barker for reaching another milestone in a remarkable career.

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