4 N.E.3d 772
Ind. Ct. App.2014Background
- Clark's sought a preliminary injunction to enforce a restrictive covenant in Smith's employment agreement against Smith and Ferguson.
- Smith left Clark's after ~14 years to join Ferguson; he signed the covenant in 2004 which restricts activity after employment ends.
- Covenant restricts competition for 2 years and imposes broad geographic and business-area limits tied to Clark's customers.
- Trial court found the covenant overly broad and unenforceable for lack of adequate consideration and reasonableness; injunction denied as to the covenant but granted for nondisclosure.
- This Court previously held that continued employment could be valid consideration; on remand, found the covenant unenforceable as written and refused blue-pencil modification.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Legitimate interest protected by covenant | Clark's argues goodwill/confidential information justify restraint. | Smith/Ferguson contend no protectable interest or overbreadth. | Court affirms legitimate interest exists. |
| Reasonableness of scope: activities and geography | Two-year term and scope reasonably protect interests. | Activities/geography are overly broad and unworkable. | Covenant unreasonable in scope (activities and geography) and not severable. |
| Blue pencil doctrine applicability | Court should blue-pencil to sever/modify to enforce. | Covenant indivisible; blue pencil inapplicable. | Blue pencil doctrine inapplicable; cannot enforce by modification. |
Key Cases Cited
- Seach v. Richards, Dieterle & Co., 439 N.E.2d 208 (Ind. Ct. App. 1982) (past/future restrictions must be reasonable; overbreadth invalid)
- Licocci v. Cardinal Assocs., Inc., 445 N.E.2d 556 (Ind. 1983) (blue pencil/divisible restrictions considered)
- Dicen v. New Sesco, Inc., 839 N.E.2d 684 (Ind. 2005) (blue pencil doctrine requires divisibility)
- Gleeson v. Preferred Sourcing, LLC, 883 N.E.2d 164 (Ind. Ct. App. 2008) (deference to reasonableness; limits on blue pencil)
- Welcome Wagon v. Haschert, 125 Ind. App. 503 (Ind. Ct. App. 1955) (divisible overbroad clauses may be stricken)
- Krueger v. Central Indiana Podiatry, P.C., 882 N.E.2d 723 (Ind. 2008) (reasonableness and protectable interest analyzed together)
- Donahue v. Permacel Tape Corp., 234 Ind. 398 (1955) (protectable interest and reasonableness framework)