Momar, Inc. v. Watcon, Inc.

66 N.E.3d 1006 (Table)

MOMAR, INC., Appellant–Defendant,

v.WATCON, INC., Appellee–Plaintiff.

No. 71A03–1603–PL–621.

Court of Appeals of Indiana.

Nov. 3, 2016.

Andrew M. McNeil, Bryan H. Babb, Mark A. Wohlford, Bose McKinney & Evans LLP, Indianapolis, IN, Attorneys for Appellant.

David R. Pruitt, Brian E. Casey, Barnes & Thornburg LLP, South Bend, IN, Attorneys for Appellee.

MEMORANDUM DECISION

FRIEDLANDER, Senior Judge.

[1] In this companion case to Michael Janowiak v. Watcon, Inc., No. 71A04–1512–PL–2154 (Ind.Ct.App. August 11, 2016), Momar, Inc. appeals the trial court's grant of a preliminary injunction enjoining it from aiding its employee, Michael Janowiak, in soliciting orders from customers of Watcon, Inc., Janowiak's previous employer; from accepting orders from Watcon customers whose business Momar had previously solicited with aid from Janowiak; and from using or divulging any of Watcon's confidential information. Concluding that the grant of the preliminary injunction was proper, we affirm.

[2] Momar presents three issues for our review, which we consolidate, reorder, and restate as:

1. Whether the trial court erred in determining that Watcon was entitled to a preliminary injunction.

2. Whether the trial court erred in fashioning the terms of its preliminary injunction order.

[3] Watcon, Inc. is a company headquartered in South Bend that provides water treatment services and related products for industrial, commercial, and institutional customers. In late 1988, Janowiak began working for Watcon as a field engineer, providing sales and service to Watcon customers. On December 1, 1988, Janowiak and George Resnik, as President of Watcon, entered into a contract (the Agreement) which contains clauses regarding non-competition, confidentiality, and non-solicitation. Janowiak worked for Watcon from 1988 to September 1, 2015, with access to its customer list, customer contact information, customer order history, and price lists. He was also one of Watcon's most successful sales representatives, acquiring new accounts and increasing his sales each year.

[4] On September 1, 2015, Janowiak tendered to Watcon a letter stating that he was terminating the Agreement between the two parties effective, September 15, 2015; however, the Agreement was terminated prior to that date. On September 8, 2015, Janowiak signed a Sales Employment Agreement with Momar, Inc., a Georgia corporation with a water treatment division called Aquatrol. Although executed on September 8, the agreement states that Janowiak's employment commenced on September 1, 2015. Prior to hiring Janowiak, Momar was not selling Aquatrol products in the territory in which Janowiak had sold Watcon products. Upon commencing employment with Momar, Janowiak solicited business from some of his Watcon customers and sold to them Aquatrol products and services that directly compete with those of Watcon.

[5] On October 16, 2015, Watcon filed a complaint against Janowiak for damages, preliminary injunction, and permanent injunction. A hearing was held on Watcon's request for a preliminary injunction on November 16, 2015. The parties submitted proposed findings and conclusions, and, on November 24, 2015, the court issued findings of fact and conclusions granting a preliminary injunction in favor of Watcon.

[6] After learning that Momar was continuing to sell to and service Watcon customers, Watcon filed an amended complaint and added Momar as a defendant in January 2016. In addition, Watcon filed a motion to show cause, or, in the alternative, a motion to modify the preliminary injunction to also enjoin Momar. The trial court held a hearing on Watcon's motion on March 17, 2016. On March 21, 2016, the court issued its order modifying the preliminary injunction issued against Janowiak, by extending it to also enjoin Momar.¹ This appeal ensued.

1. Requirements of Preliminary Injunction

[7] The grant or denial of a preliminary injunction rests within the sound discretion of the trial court, and appellate review is limited to whether there was a clear abuse of that discretion. Apple Glen Crossing, LLC v. Trademark Retail, Inc., 784 N.E.2d 484 (Ind.2003). In granting or refusing a preliminary injunction, the trial court is required to make special findings of fact and state its conclusions thereon. Barlow v. Sipes, 744 N.E.2d 1 (Ind.Ct.App.2001), trans. denied; Ind. Trial Rule 52(A). On appeal, we must determine if the findings support the judgment. Barlow, 744 N.E.2d 1. The findings or judgment shall not be set aside unless clearly erroneous. T.R. 52(A). Findings of fact are clearly erroneous when the record lacks evidence or reasonable inferences from the evidence to support them. Barlow, 744 N.E.2d 1. A judgment is clearly erroneous when a review of the record leaves us with a firm conviction that a mistake has been made. Gleeson v. Preferred Sourcing, LLC, 883 N.E.2d 164 (Ind.Ct.App.2008). Due regard shall be given to the opportunity of the trial court to judge the credibility of the witnesses. T.R. 52(A). On appellate review, we consider the evidence only in the light most favorable to the judgment and construe findings together liberally in favor of the judgment. Barlow, 744 N.E.2d 1.

[8] To obtain a preliminary injunction, the moving party has the burden of showing by a preponderance of the evidence: (1) a reasonable likelihood of success at trial; (2) the remedies at law are inadequate, thus causing irreparable harm pending resolution of the substantive action; (3) the threatened harm to the moving party outweighs the potential harm to the nonmoving party from the granting of an injunction; and (4) the requested relief is not contrary to the public interest. Apple Glen Crossing, LLC, 784 N.E.2d 484. If the movant fails to prove any of these requirements, the trial court's grant of an injunction is an abuse of discretion. Id. On appeal, Momar challenges the trial court's determination that Watcon satisfied all four requirements for a preliminary injunction to issue.

A. Likelihood of Success at Trial

[9] Covenants not to compete are in restraint of trade and are not favored by the law. Gleeson, 883 N.E.2d 164. These covenants are strictly construed against the employer and are enforced only if reasonable. Id. To be reasonable, the agreement's covenants (1) must protect legitimate interests of the employer and (2) must contain reasonable terms with regard to time, geography, and types of prohibited activity. Id.

[10] Momar does not dispute the trial court's determination that Watcon has legitimate interests worthy of protection; therefore, we proceed to the second factor affecting the reasonableness of the Agreement. In that regard, Momar contends that the Agreement's terms concerning geography and type of prohibited activity in paragraph 9 are overbroad and unreasonable. Paragraph 9 of the Agreement provides:

9. The obligations imposed upon the Seller by Paragraph 2, and clause (A) of Paragraph 3 above, shall continue in effect regardless of the means or circumstances by which either this agreement or the active solicitation of orders in such territory may be terminated. For a period of two (2) years after the termination of this agreement, by mutual consent or otherwise, the Seller promises that he will not, directly or indirectly, solicit orders from the users of the Companys' [sic] products in said territory, provided that, if the applicable law of such territory fixes a shorter period of restraint, such shorter applicable statutory limitation shall be deemed to fix the maximum limit of such restraint.

Appellant's App. p. 78 (emphasis added).

[11] First, Momar claims that paragraph 9 is overbroad as to its geographic limitation because it extends to all Watcon customers in Janowiak's territory, even those with whom Janowiak did not have a relationship. For instance, the University of Notre Dame and the City of South Bend were Watcon customers located in Janowiak's territory, but they were serviced by a Watcon account representative other than Janowiak. Momar suggests, for that reason, the covenant is unenforceable.

[12] "A covenant not to compete must be sufficiently specific in scope to coincide with only the legitimate interests of the employer and to allow the employee a clear understanding of what conduct is prohibited." Field v. Alexander & Alexander of Ind., Inc., 503 N.E.2d 627, 635 (Ind.Ct.App.1987), trans. denied. One accepted method of limiting a covenant's scope is to impose territorial or geographic boundaries. Id. In addition, our courts have also recognized that "as the specificity of limitation regarding the class of person with whom contact is prohibited increases, the need for limitation expressed in territorial terms decreases." Seach v. Richards, Dieterle & Co., 439 N.E.2d 208, 213 (Ind.Ct.App.1982). Accordingly, a covenant not to compete containing a limitation as to a group of customers instead of a geographic limit can serve the same limiting function to maintain a covenant within reasonable bounds.

[13] Here, the covenant proscribes solicitation of orders from a group of persons—the "users" of Watcon's products. The evidence at the November injunction hearing showed the intent of the parties to the Agreement that the term "users" refers to a specific group of customers. Specifically, the term "users" refers to Janowiak's fifty-three active accounts that he was servicing at the time he left the company. During his cross-examination by Janowiak's counsel, Resnik testified as follows:

Counsel: If I ask you to identify the users of Watcon's products and services as used in that sentence, would your answer be to give me a list of names of customers:

Resnik: Yes.

Counsel: One of the things that you testified about on cross-examination was the customers in his territory, and I take it that the purpose of this case is to try and preserve those relationships, right, for Watcon?

Resnik: Yes.

Counsel: You don't want Mr. Janowiak to go out and take over those relationships or

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