135 N.E.3d 150
Ind.2019Background:
- Robert Kolbe signed a Zimmer noncompetition agreement containing an employee nonsolicitation covenant barring solicitation of "any individual employed" by Zimmer after separation.
- Zimmer had been the exclusive U.S. distributor of a Heraeus product; Heraeus later formed Heraeus Medical and hired Kolbe, who recruited former Zimmer employees.
- Zimmer sued Kolbe and Heraeus Medical and obtained a preliminary injunction restraining Kolbe from recruiting Zimmer employees.
- The Court of Appeals held the nonsolicitation clause overbroad but reformed it under a reformation clause to limit protection to employees in whom Zimmer had a protectable interest.
- Indiana Supreme Court granted transfer to decide whether a reformation clause permits a court to add terms to an unreasonable restrictive covenant and whether the clause here is severable; it held courts may delete but not add language and vacated the injunction provision enforcing the nonsolicit covenant.
Issues:
| Issue | Zimmer's Argument (Plaintiff) | Heraeus's Argument (Defendant) | Held |
|---|---|---|---|
| Whether a contractual reformation clause authorizes a court to add language to an unenforceable restrictive covenant | Reformation clause permits courts to modify wording to give effect to parties' intent and make the covenant enforceable | Allowing courts to add terms would eviscerate the blue pencil doctrine and encourage overbroad drafting | Reformation clauses do not allow courts to add terms; blue pencil permits deletion only, not rewrite |
| Whether the Kolbe nonsolicitation covenant is severable/blue-pencilable | The covenant can be narrowed to reasonable scope (e.g., employees with a protectable interest) | The covenant is facially overbroad and contains no divisible language that can be excised to leave a reasonable restriction | Covenant covers "any individual employed" and is not divisible; it cannot be blue-penciled and is void and unenforceable; injunction provision enforcing it vacated |
Key Cases Cited
- Cent. Ind. Podiatry, P.C. v. Krueger, 882 N.E.2d 723 (Ind. 2008) (describing blue pencil doctrine and reasonableness standard for noncompetition agreements)
- Dicen v. New Sesco, Inc., 839 N.E.2d 684 (Ind. 2005) (applying blue pencil severance of unreasonable covenant language)
- Licocci v. Cardinal Assocs., Inc., 445 N.E.2d 556 (Ind. 1983) (courts may not create reasonable restrictions the parties did not make)
- Sharvelle v. Magnante, 836 N.E.2d 432 (Ind. Ct. App. 2005) (refusing to add terms to an overbroad noncompetition provision)
- Smart Corp. v. Grider, 650 N.E.2d 80 (Ind. Ct. App. 1995) (interpreted by the Court but disapproved to the extent it suggested courts may rewrite covenants)
- Prod. Action Int'l, Inc. v. Mero, 277 F. Supp. 2d 919 (S.D. Ind. 2003) (criticizing judicial reformation of overbroad covenants and warning against encouraging overreaching drafting)