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Court affirms injunction preventing violations of non-compete clauses

November 30, 2016

After several employees from one civil engineering firm began soliciting employees from a competitor, the Indiana Court of Appeals held Wednesday that a trial court correctly issued a preliminary injunction to force the employees to comply with non-compete and non-solicitation clauses they had signed.

In the case, American Structurepoint Inc. and HWC Engineering Inc. are two civil engineering firms who serve clients such as municipal governments and the Indiana Department of Transportation.

Marlin Knowles worked for ASI for 20 years before leaving in 2014. In 2008 when he became an owner of ASI, he signed a non-disclosure and non-compete agreement which contained non-competition and non-solicitation clauses. Similarly, Jonathan Day and David Lancet also signed non-solicitation agreements with ASI that prevented them from soliciting or recruiting their former coworkers.

Knowles became unsatisfied with his work at ASI and eventually resigned to become HWC’s vice president of operations, with HWC telling him that such a role would not violate his agreement with ASI. When he joined HWC, the company circulated a press release to a list of people and entities Knowles had identified as “key clients.”

Day and Lancet also left to take jobs at HWC, with Day testifying that he did not remember signing the non-solicitation agreement. Day then created a list of various ASI employees who he believed would be interested in joining HWC. The list was sent to Knowles, and Day called various ASI employees to gauge their interest in working for HWC.

In November 2014, ASI employee Tom Mobley received a job offer from HWC and urged an ASI co-worker to submit a resume to HWC. The coworker was not interested and reported his conversation with Mobley to management. ASI then began an internal investigation and learned that HWC had made offers of employment to six of its construction inspectors, including Lancet and Mobley, who were subsequently fired from ASI.

In March 2015, ASI filed for injunctive relief and damages, making claims against HWC, Knowles, Day, Lancet and Mobley for breach of contract, breach of fiduciary duty of loyalty, unfair competition and other similar allegations. ASI then moved for a preliminary injunction to enjoin the defendants from directly or indirectly communicating with or serving ASI’s former, current or prospective customers and to prohibit them from communicating with or recruiting ASI employees.

The trial court granted the preliminary injunction against all defendants except Mobley. Then in January 2016, the trial court issued an amended order that clarified that Knowles could continue to serve in an operations role at HWC but was preliminarily enjoined from directly or indirectly selling, providing or assisting a person in the sale or provision of any competing products, soliciting or communicating with customers with the intent of selling competing products and soliciting or hiring ASI employees. Day and Lancet were enjoined from soliciting ASI employees.

In April 2016, Knowles filed for the partial dissolution of his preliminary injunction on May 14 because a 24-month restriction in his agreement with ASI would expire on that day. The trial court agreed, and ASI appealed. ASI’s appeal was consolidated with the defendants’ appeal of the injunction.

In a 41-page opinion issued on Wednesday, the Indiana Court of Appeals held that the trial court had not erred or abused its discretion when it entered a preliminary injunction enforcing Knowles’ agreement, holding that the lower court correctly found that Knowles was engaged in conduct that posed a present and imminent threat to ASI’s future business.

Similarly, the appellate court found that the trial court had not abused its discretion in enjoining Knowles, Day and Lancet from violating the non-solicitation provisions of their agreements because of the presented evidence, such as the shared list of potential recruits to HWC from ASI.

But the Court of Appeals also affirmed the trial court’s decision to dissolve Knowles’ preliminary injunction, finding that existing caselaw supported its decision and that the doctrine of equitable estoppel did not apply to ASI’s situation.

Judge John Baker concurred, but wrote in a separate opinion that he had “serious concerns” with the clause in Knowles’ agreement that said he could not solicit or communicate with any such customers for the purpose of selling…Competing Products/Services.”

“To tell a person who works in sales that he may not even communicate with past or potential clients is to take away his proverbial bread and butter,” Baker wrote.

The case is Hannum Wagle & Cline Engineering, Inc., d/b/a/ HWC Engineering, Inc., Marlin A. Knowles, Jr., Jonathan A. Day, Tom Mobley, and David Lancet v. American Consulting, Inc. d/b/a American Structurepoint, Inc., 49A05-1601-PL-33.
 

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