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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. It is amazing how selectively courts can read cases and how two very similar factpatterns can result in quite different renderings. I cited this very same argument in Brown v. Bowman, lost. I guess it is panel, panel, panel when one is on appeal. Sad thing is, I had Sykes. Same argument, she went the opposite. Her Rooker-Feldman jurisprudence is now decidedly unintelligible.

  2. November, 2014, I was charged with OWI/Endangering a person. I was not given a Breathalyzer test and the arresting officer did not believe that alcohol was in any way involved. I was self-overmedicated with prescription medications. I was taken to local hospital for blood draw to be sent to State Tox Lab. My attorney gave me a cookie-cutter plea which amounts to an ALCOHOL-related charge. Totally unacceptable!! HOW can I get my TOX report from the state lab???

  3. My mother got temporary guardianship of my children in 2012. my husband and I got divorced 2015 the judge ordered me to have full custody of all my children. Does this mean the temporary guardianship is over? I'm confused because my divorce papers say I have custody and he gets visits and i get to claim the kids every year on my taxes. So just wondered since I have in black and white that I have custody if I can go get my kids from my moms and not go to jail?

  4. Someone off their meds? C'mon John, it is called the politics of Empire. Get with the program, will ya? How can we build one world under secularist ideals without breaking a few eggs? Of course, once it is fully built, is the American public who will feel the deadly grip of the velvet glove. One cannot lay down with dogs without getting fleas. The cup of wrath is nearly full, John Smith, nearly full. Oops, there I go, almost sounding as alarmist as Smith. Guess he and I both need to listen to this again: https://www.youtube.com/watch?v=CRnQ65J02XA

  5. Charles Rice was one of the greatest of the so-called great generation in America. I was privileged to count him among my mentors. He stood firm for Christ and Christ's Church in the Spirit of Thomas More, always quick to be a good servant of the King, but always God's first. I had Rice come speak to 700 in Fort Wayne as Obama took office. Rice was concerned that this rise of aggressive secularism and militant Islam were dual threats to Christendom,er, please forgive, I meant to say "Western Civilization". RIP Charlie. You are safe at home.

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