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Clark's Sales & Service v. Smith

Court of Appeals of Indiana

February 20, 2014

CLARK'S SALES AND SERVICE, INC., Appellant-Plaintiff,
v.
JOHN D. SMITH and FERGUSON ENTERPRISES, INC., Appellees-Defendants

Page 773

[Copyrighted Material Omitted]

Page 774

APPEAL FROM THE MARION SUPERIOR COURT. The Honorable Timothy W. Oakes, Judge. Cause No. 49D13-1205-PL-20492.

ATTORNEYS FOR APPELLANT: ANDREW M. McNEIL, PHILIP R. ZIMMERLY, Bose McKinney & Evans, LLP, Indianapolis, Indiana.

ATTORNEYS FOR APPELLEES: DANNY E. GLASS, ADAM E. GLASS, Fine & Hatfield, PC, Evansville, Indiana; ROBERT M. BAKER, III, Law Office of Robert M. Baker III, Indianapolis, Indiana; RONALD E. WELDY, Weldy & Associates, Indianapolis, Indiana.

CRONE, Judge, BARNES, J., and PYLE, J., concur.

OPINION

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CRONE, Judge.

Case Summary[1]

Clark's Sales & Service, Inc. (" Clark's" ), appeals the trial court's order denying Clark's motion for preliminary injunction as to a restrictive covenant Clark's sought to enforce against former Clark's employee, John D. Smith, and his new employer, Ferguson Enterprises, Inc. Smith worked for Clark's for approximately fourteen years before leaving to work for Ferguson. During his employment with Clark's, Smith signed an employment agreement which included a restrictive covenant/noncompetition provision. The trial court concluded that the restrictive covenant that Clark's drafted is overly broad and unreasonable, and therefore unenforceable. On appeal Clark's asserts that the trial court clearly erred when it concluded that the restrictive covenant is unreasonable and unenforceable. Clark's maintains that even assuming the restrictive covenant is unreasonable and unenforceable as written, this Court should apply the blue pencil doctrine to make the covenant reasonable and enforceable. Concluding that the trial court's judgment is not clearly erroneous and that the blue pencil doctrine is inapplicable under the circumstances presented, we affirm.

Facts and Procedural History

Smith worked for HH Gregg Appliances and Electronics (" Gregg" ) for four years

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prior to commencing employment with Clark's in 1998. While working for Gregg, Smith became familiar with and sold high-end appliances. Clark's, a family-owned business since it was founded in 1913, is involved in builder-distributor appliance sales and service in Indiana and concentrates its efforts in high-end appliance sales. Clark's generated approximately $750,000 in sales in 1986, when Bob Clark purchased the business from his parents, and he grew the business to a peak of $28 million in sales during the first decade of the 2000s. Clark's seeks to hire sales consultants with prior appliance experience, but does not consider its business to be similar to that of Sears, Lowes, or Gregg, which do business in a traditional retail setting offering low-end, middle, and high-end appliances. Smith acquired knowledge, skill, and information in connection with his employment as an appliance sales representative with Clark's.

In 2004, one of Clark's high-level managers left to join Gregg in a position that Clark's viewed to be a competitive role. As a result, in September 2004, Clark's asked Smith and other employees to sign a written employment agreement, which contained both a nondisclosure clause and a restrictive covenant. The restrictive covenant provides in relevant part as follows:

7. Restrictive Covenants. During the term of Employee's employment and this Agreement and for a period of two (2) years following the termination of Employee's employment, Employee agrees not to, directly or indirectly, whether individually or as a partner, shareholder, officer, director, employee, independent representative, broker, agent, consultant or in any capacity for any other individual, partnership, firm, corporation, company or other entity, engage in the following prohibited activities:
(C) Solicit or provide, or offer to solicit or provide, services competitive to those offered by Employer, or those provided by Employee on behalf of Employer, to any business account or customer of Employer who was a business account or customer of Employer during the term of Employee's employment, including but not limited to any business account or customer serviced or contacted by Employee, or for whom Employee had direct or indirect responsibility, on behalf of Employer within the 12-month period preceding the termination [of] Employee's employment or about whom Employee obtained Confidential Information;
(D) Work in a competitive capacity for HH Gregg's in Indianapolis, Indiana, within the State of Indiana, or in any state or municipal corporation, city[,] town, village, township, county or other governmental association in which HH Gregg's does business, or for an individual partnership, firm, corporation, company or other entity providing services similar or competitive to those offered by Employer to the residential or commercial builder and remodeling business sectors during the term [of] Employee's employment with Employer, including but not limited to providing those services performed by Employee while employed by or working for Employer, within Marion County, Indiana, any county contiguous to Marion County, Indiana (including Hamilton County, Hancock County, Shelby ...

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