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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. So that none are misinformed by my posting wihtout a non de plume here, please allow me to state that I am NOT an Indiana licensed attorney, although I am an Indiana resident approved to practice law and represent clients in Indiana's fed court of Nth Dist and before the 7th circuit. I remain licensed in KS, since 1996, no discipline. This must be clarified since the IN court records will reveal that I did sit for and pass the Indiana bar last February. Yet be not confused by the fact that I was so allowed to be tested .... I am not, to be clear in the service of my duty to be absolutely candid about this, I AM NOT a member of the Indiana bar, and might never be so licensed given my unrepented from errors of thought documented in this opinion, at fn2, which likely supports Mr Smith's initial post in this thread: http://caselaw.findlaw.com/us-7th-circuit/1592921.html

  2. When I served the State of Kansas as Deputy AG over Consumer Protection & Antitrust for four years, supervising 20 special agents and assistant attorneys general (back before the IBLE denied me the right to practice law in Indiana for not having the right stuff and pretty much crushed my legal career) we had a saying around the office: Resist the lure of the ring!!! It was a take off on Tolkiem, the idea that absolute power (I signed investigative subpoenas as a judge would in many other contexts, no need to show probable cause)could corrupt absolutely. We feared that we would overreach constitutional limits if not reminded, over and over, to be mindful to not do so. Our approach in so challenging one another was Madisonian, as the following quotes from the Father of our Constitution reveal: The essence of Government is power; and power, lodged as it must be in human hands, will ever be liable to abuse. We are right to take alarm at the first experiment upon our liberties. I believe there are more instances of the abridgement of freedom of the people by gradual and silent encroachments by those in power than by violent and sudden usurpations. Liberty may be endangered by the abuse of liberty, but also by the abuse of power. All men having power ought to be mistrusted. -- James Madison, Federalist Papers and other sources: http://www.constitution.org/jm/jm_quotes.htm RESIST THE LURE OF THE RING ALL YE WITH POLITICAL OR JUDICIAL POWER!

  3. My dear Mr Smith, I respect your opinions and much enjoy your posts here. We do differ on our view of the benefits and viability of the American Experiment in Ordered Liberty. While I do agree that it could be better, and that your points in criticism are well taken, Utopia does indeed mean nowhere. I think Madison, Jefferson, Adams and company got it about as good as it gets in a fallen post-Enlightenment social order. That said, a constitution only protects the citizens if it is followed. We currently have a bevy of public officials and judicial agents who believe that their subjectivism, their personal ideology, their elitist fears and concerns and cause celebs trump the constitutions of our forefathers. This is most troubling. More to follow in the next post on that subject.

  4. Yep I am not Bryan Brown. Bryan you appear to be a bigger believer in the Constitution than I am. Were I still a big believer then I might be using my real name like you. Personally, I am no longer a fan of secularism. I favor the confessional state. In religious mattes, it seems to me that social diversity is chaos and conflict, while uniformity is order and peace.... secularism has been imposed by America on other nations now by force and that has not exactly worked out very well.... I think the American historical experiment with disestablishmentarianism is withering on the vine before our eyes..... Since I do not know if that is OK for an officially licensed lawyer to say, I keep the nom de plume.

  5. I am compelled to announce that I am not posting under any Smith monikers here. That said, the post below does have a certain ring to it that sounds familiar to me: http://www.catholicnewworld.com/cnwonline/2014/0907/cardinal.aspx

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