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Hannum Wagle & Cline Engineering, Inc. v. American Consulting, Inc.

Court of Appeals of Indiana

November 30, 2016

Hannum Wagle & Cline Engineering, Inc., d/b/a HWC Engineering, Inc., Marlin A. Knowles, Jr., Jonathan A. Day, Tom Mobley, [2] and David Lancet, Appellants/Appellees-Defendants,
v.
American Consulting, Inc., d/b/a American Structurepoint, Inc., Appellee/Appellant-Plaintiff.

         Appeal from the Marion Superior Court The Honorable Heather A. Welch, Special Judge Trial Court Cause No. 49D01-1503-PL-7463

          ATTORNEYS FOR APPELLANTS/APPELLEES [1] HANNUM WAGLE & CLINE ENGINEERING, INC., D/B/A HWC ENGINEERING, INC., MARLIN A. KNOWLES, JR., JONATHAN A. DAY, AND DAVID LANCET David L. Swider Andrew M. McNeil Philip R. Zimmerly Bose McKinney & Evans, LLP Indianapolis, Indiana.

         ATTORNEYS FOR APPELLEE/APPELLANT AMERICAN CONSULTING, INC., D/B/A AMERICAN STRUCTUREPOINT, INC. Michael A. Wukmer David M. Mattingly Mark R. Alson Audrey K. Hagedorn Robert A. Jorczak Ice Miller LLP Indianapolis, Indiana

          Kirsch, Judge.

         [¶1] Civil engineering firm American Consulting, Inc., d/b/a American Structurepoint, Inc. ("ASI") filed a lawsuit for, among other things, breach of contract, against its competitor Hannum Wagle & Cline Engineering, Inc., d/b/a HWC Engineering, Inc. ("HWC") and four of ASI's former employees, namely Marlin A. Knowles, Jr. ("Knowles"), Jonathan A. Day ("Day"), David Lancet ("Lancet") (together, "the Defendants"), and Tom Mobley ("Mobley"), after Knowles, and later Day, Mobley, and Lancet, left ASI's employment and began employment with HWC. The trial court issued amended findings of fact and conclusions thereon that granted a preliminary injunction in favor of ASI against HWC, Knowles, Day, and Lancet[3] pursuant to non-compete and non-solicitation agreements that Knowles, Day, and Lancet each had executed with ASI. Defendants appeal the injunction and raise the following restated and consolidated issues:

I. Whether the trial court abused its discretion when it entered a preliminary injunction enforcing non-competition restrictions contained within Knowles's employment agreement with ASI; and
II. Whether the trial court abused its discretion when it entered a preliminary injunction enforcing non-solicitation restrictions contained within the Knowles, Day, and Lancet employment agreements.

         [¶2] Several months after issuing the injunction, the trial court granted Knowles's motion to partially dissolve the preliminary injunction as to Knowles. ASI appeals that decision and raises two issues that we consolidate and restate as:

III. Whether the trial court abused its discretion when it granted Knowles's motion and dissolved the injunction as it pertained to him.

         [¶3] We affirm.[4]

         Facts and Procedural History[5]

         The Parties

         [¶4] ASI and HWC are civil engineering, architecture, planning and design firms in Indiana. ASI's and HWC's clients include public bodies, such as municipal governments and entities in Indiana, including Indiana Department of Transportation ("INDOT"), Hamilton County, Hancock County, Boone County, Indianapolis, Carmel, and Franklin.[6] Public bodies typically award their engineering and transportation projects through a qualification-based selection ("QBS") system designed to allow them to select engineers and professional consultants for projects based on qualifications rather than price. After the public entity selects the engineering firm, the parties then negotiate the project's fee, the project's scope, and other contract terms.

         [¶5] Knowles is a former employee and former owner of ASI. Knowles began his employment with ASI in 1994 as an hourly construction inspector, working his way up the ranks in the company, and in 2004 or 2005, Knowles was promoted to Vice President of Sales Administration. Knowles held this position until he resigned from ASI in May 2014. Among other responsibilities, Knowles was responsible for overseeing ASI's sales and was actively involved in the sales process, including "making the pitch" for clients to select ASI in the QBS process. HWC Appellants' App. at 30.[7] As part of his sales duties, Knowles was involved in building business relationships and goodwill on behalf of ASI. Knowles was the assigned "principal in charge" for many ASI clients, including Cicero, Delaware County, Fishers, Grant County, Greendale, Hamilton County, Hancock County, INDOT, LaGrange County, Lawrenceburg, Morgan County, Noblesville, Orange County, and Putnam County. Id. at 17, 71. To help obtain business for ASI and to build relationships with clients, Knowles attended business development activities, such as breakfasts, lunches, dinners, charitable functions, golf outings, trips, sporting events, industry conferences, networking events, receptions, and political functions. ASI paid for his attendance at these activities.

         [¶6] In 2008, Knowles was offered and accepted ownership in ASI. On December 29, 2008, Knowles and ASI entered into an Employment, Non-Disclosure and Non-Competition Agreement ("the Knowles Agreement"), which contained non-competition and non-solicitation restrictive covenants, whereby Knowles agreed to not do the following, directly or indirectly:

(1) sell, provide, attempt to sell or provide, or assist any person or entity in the sale or provision of, any Competing Products/Services to any of the Company's Customers or Active Prospects;
(2)solicit or communicate with any such customers for the purpose of selling, providing, attempting to sell or provide, or assisting any person or entity in the sale or provision of, any Competing Products/Services; and
(3)solicit, recruit, hire, employ, attempt to hire or employ, or assist any person or entity in the recruitment or hiring of any person who is an employee of ASI, or otherwise urge, induce or seek to induce any person to terminate his/her employment with ASI.

Id. at 135-37; Joint Ex. 235.

         [¶7] Like Knowles, Day and Lancet formerly worked at ASI. Each worked as a resident project representative. On Day's first day of employment at ASI, January 3, 2005, he signed a "Terms and Conditions of Employment" agreement with ASI ("the Day Agreement"), which included terms restricting him from soliciting or recruiting his former coworkers. Joint Ex. 8; HWC Appellants' App. at 23. Lancet began working for ASI in 1998; later, in January 2007, Lancet signed a "Terms and Conditions of Employment" agreement with ASI ("the Lancet Agreement"), which contained a non-solicitation provision identical to the one in the Day Agreement. Joint Ex. 234; HWC Appellants' App. at 24.

         [¶8] Eventually, Knowles became unhappy at ASI, and in the winter of 2013 and spring of 2014, he met with the President of HWC, Ed Jolliffe ("Jolliffe"), and its Vice President, Terry Baker ("Baker"). At that time, HWC desired to make improvements to its transportation department, and it was familiar with Knowles because of his experience and reputation in the industry. Knowles told Jolliffe and Baker that he had an employment agreement with ASI and that he intended to abide by his contract. Jolliffe and Baker advised Knowles that HWC would position Knowles in an operations role at HWC to comply with the restrictive covenants in the Knowles Agreement.

         [¶9] On May 5, 2014, Knowles submitted a resignation letter to ASI, and in it, he stated that he would comply with the Knowles Agreement. Joint Ex. 90; HWC Appellants' App. at 26. The letter did not mention that Knowles was joining HWC as its Vice President of Operations. On May 7, ASI's President Rick Conner circulated an announcement to ASI employees that Knowles had resigned. Knowles's last day at ASI was May 14, 2014. On May 19, 2014, HWC issued a press release announcing Knowles had joined HWC, and it circulated the press release to, among others, people and entities Knowles had identified on a list of "Key Clients." Joint Exs. 44, 48, 52; HWC Appellants' App. at 84.

         [¶10] As HWC's Vice President of Operations, Knowles headed up four divisions, including HWC's transportation division. After starting at HWC, Knowles began performing what HWC describes as contract-based activity, which included reviewing fees and verbiage in contracts and tracking down signatures for contracts. Knowles also continued to interact with HWC contacts who were also clients or prospective clients of ASI. Such interactions included going on fishing trips, playing poker, golfing, attending political and not-for-profit fundraisers, and seeing these friends and colleagues at various events and sharing family updates with them. At that time, the head of HWC's transportation division was Randy Hancock ("Hancock"), and Hancock reported directly to Knowles. Hancock was not provided a copy of the Knowles Agreement and was not told what Knowles's restrictions were, such as what clients were off-limits to Knowles. Jolliffe never read the Knowles Agreement and never had a complete list of Knowles's clients at ASI.

         [¶11] In the months that followed Knowles's May 2014 departure from ASI, a number of other ASI employees also left ASI and went to work for HWC. Initially, two days after HWC's May 19 press release about Knowles joining HWC, ASI project-manager Clint Sparks ("Sparks") sent an email, from his home account, to Knowles, indicating that he was planning to submit a resume to HWC and that "my story will be I am retiring and building a home in southern Indiana[.]" Joint Ex. 92; HWC Appellants' App. at 45. Sparks noted "This is sent from my home email so we ought to be OK" and "Cell and this email should be safe for both of us[.]" Joint Ex. 92. On June 12, 2014, Sparks submitted his resume to HWC. Jolliffe and Hancock discussed Sparks's qualifications with Knowles, and on July 13, HWC made a written offer to Sparks, which he accepted on July 17, 2014. Sparks thereafter resigned from ASI and told ASI that he was retiring; Sparks began working at HWC on August 11, 2014.

         [¶12] Also shortly after Knowles left, Day visited HWC's website, saw job openings for construction inspectors and, on June 24, 2014, submitted a resume to HWC. That same day, Knowles met with Lancet at a restaurant. Thereafter, Joliffe contacted and interviewed Lancet, telling Lancet that, in the spring of 2015, HWC would have positions to fill for resident project representatives and construction inspectors. On August 11, 2014, Lancet submitted a resume to HWC.

         [¶13] In August 2014, Day resigned from ASI and joined HWC. ASI did not remind Day at his exit interview that he had signed the Day Agreement, and Day testified that when he left ASI and joined HWC, he did not remember that he had signed the Day Agreement and was unaware that he was subject to a non-solicitation agreement. HWC Appellants' App. at 49; Tr. at 770, 781. Shortly after joining HWC, Day prepared a list of various employees at ASI that he thought may be interested in joining HWC, which he called "HWC Potential Employees." Joint Ex. 9; HWC Appellants' App. at 56, 58. Day sent the list to Knowles in September 2014. The Potential Employees list identified ten potential employees, nine of whom were then-current ASI employees. Day called various employees at ASI to gauge their interest in joining HWC and forwarded their applications to HWC's management. Day had some discussions with Knowles about ASI employees who might be interested in joining HWC.

         [¶14] In or around this same time, Sparks, who was then employed at HWC, contacted Lancet, who was still at ASI, about HWC's design engineering needs and requested names of anybody at ASI who was unhappy or that would be a potential candidate for HWC. In August or September 2014, and in response to Sparks's inquiry, Lancet provided Sparks with the names of several ASI employees, including Amber Tolle ("Tolle"). Sparks stated to Lancet in a September 10, 2014 text message, "Keep hitting delete because if the sharks smell blood - who knows!" Joint Ex. 112; HWC Appellants' App. at 53.

         [¶15] In September, Tolle submitted a resume to HWC. On September 28, Sparks wrote an email to Knowles and Hancock about the fact that Tolle had submitted a resume to HWC, but Sparks inadvertently sent the email to Knowles's old ASI email address, which ASI was monitoring in order to respond to clients. ASI thus learned of Sparks's and Knowles's involvement in Tolle's application to HWC.

         [¶16] In late October 2014, Knowles created a document that he saved as "Recruiting List, " which listed eleven potential recruits for HWC's transportation division, eight of whom were ASI employees. Joint Ex. 98; HWC Appellants' App. at 59-60. Later, on November 13, 2014, Knowles, Day, and Hancock met and discussed HWC's potential candidates and upcoming needs, using a handwritten list that Knowles had made. Joint Ex. 17. The handwritten list contained a list of fifteen "Candidates, " eleven of whom were then-ASI employees. Id. In November, Knowles emailed the handwritten list to Hancock and Day.

         [¶17] In late November and December, several other ASI employees, some of whom met with Day at Day's home, submitted their respective resumes to HWC, including Mobley. After receiving a job offer from HWC, Mobley discussed HWC employment with ASI employee Tim Conarroe ("Conarroe"), telling him that he should submit a resume, but not to do so on an ASI computer. Conarroe was not interested, and he reported Mobley's conversation to ASI management.

         [¶18] Having received reports and other evidence concerning recruitment of its employees by HWC, ASI began an internal investigation in early 2015 consisting, at least in part, of conducting interviews with ASI employees and meetings with ASI attorneys. ASI discovered that HWC had made offers of employment to six of its construction inspectors, including Lancet, Mobley, and Tolle. In February 2015, Lancet and Mobley each received and accepted a verbal offer of employment from HWC, and on March 6, 2015, ASI terminated Lancet and Mobley. In March 2015, several other employees, including Tolle, accepted HWC's offer of employment and resigned from ASI.

         Procedural History

         [¶19] On March 6, 2015, ASI filed a verified complaint for injunctive relief and damages, alleging claims against HWC, Knowles, Day, Lancet, and Mobley for breach of contract, breach of the fiduciary duty of loyalty, unfair competition, civil conspiracy, tortious interference with contract and business relationships, and unjust enrichment. HWC Appellants' App. at 109-59. Following some extensions of time for the parties to conduct discovery, ASI moved on July 2, 2015 for a preliminary injunction to enjoin Defendants from directly or indirectly communicating with or serving ASI's former, current, or prospective customers in violation of the Knowles Agreement, and to prohibit Defendants from directly or indirectly communicating with, soliciting, or recruiting ASI employees in violation of the Knowles, Day, and Lancet Agreements. Id. at 176-78. A three-day evidentiary hearing was held on September 29, 30, and October 1, 2015, at which evidence was submitted and witnesses testified.[8] The parties thereafter submitted proposed Findings of Fact and Conclusions of Law.

         [¶20] On December 11, 2015, the trial court issued Findings of Facts, Conclusions of Law, and Order Granting in Part the Plaintiff's Motion for Preliminary Injunction against HWC, Knowles, Day, and Lancet.[9] Id. at 12-100. The trial court denied ASI's request for an injunction against Mobley.[10]

         [¶21] With regard to the non-compete provisions of the Knowles Agreement, the trial court found: (1) ASI has a legitimate and protectable interest in its customers, in the "good will" that Knowles was hired to generate between ASI and its customers, and in its "need to start again on building personal relationships" after Knowles left ASI; (2) these interests may be protected by the non-compete provisions of the Knowles Agreement, which was enforceable because it was narrowly tailored and reasonable with respect to time, activity, and geography; and (3) ASI established a reasonable likelihood of success of proving Knowles breached the non-compete provisions of the Knowles Agreement. HWC Appellants' App. at 67-99. The trial court also held that ASI established a reasonable likelihood of success of proving at trial that Knowles, Day, and Lancet breached the non-solicitation provisions contained in their respective Agreements. Id. With regard to HWC, the trial court determined that ASI had established a reasonable likelihood of success of proving at trial that "HWC worked with Knowles to violate his [noncompetition] agreement" and that "HWC[] and Knowles intentionally worked together to hire multiple ASI employees."[11] Id. at 90-91.

         [¶22] Defendants filed a motion to modify and clarify the injunction order, seeking clarification of the scope of the operations duties that Knowles could or could not perform at HWC, and the trial court, following a hearing, issued, on January 25, 2016, Amended Findings of Fact, Conclusions of Law, and Order ("Amended Order"). The Amended Order incorporated the trial court's December 2015 Findings and Conclusions and clarified that Knowles could continue to serve in an operations role at HWC.[12] However, Knowles was preliminarily enjoined from (1) directly or indirectly selling, providing, attempting to sell or provide, or assisting any person or entity in the sale or provision of, any Competing Products/Services to any of the Company's Customers or Company's Active Prospects;[13] (2) soliciting or communicating with any such customers for the purpose of selling, providing, attempting to sell or provide, or assisting any person or entity in the sale or provision of, any Competing Products/Services; and (3) soliciting, recruiting, hiring, employing, attempting to hire or employ, or assisting any person or entity in the recruitment or hiring of any person who is an employee of ASI, or otherwise urging, inducing or seeking to induce any person to terminate his/her employment with ASI. HWC Appellants' App. at 101-08.

         [¶23] With regard to Day and Lancet, the Amended Order preliminarily enjoined them from soliciting or endeavoring to entice away, knowingly offering employment to, knowingly employing, or offering or concluding any contract for services with any person who was employed by ASI as of the date that Day's and Lancet's employment with ASI ceased. Id. The Amended Order also prohibited Knowles, Day, and Lancet from acting in concert or conspiracy with any other person, including but not limited to HWC, to commit any acts prohibited by the Amended Order. Id.

         [¶24] In April 2016, Knowles filed a motion asking the trial court to partially dissolve the preliminary injunction on May 14, 2016, arguing that the 24-month restriction in the Knowles Agreement began to run on May 14, 2014 and would expire on May 14, 2016. ASI responded that the express terms of the Knowles Agreement provided for an extension and also asserted that the doctrine of equitable estoppel should apply to prevent Knowles's attempt to dissolve the injunction because Knowles should not benefit from his violation of the restrictions. The trial court held a hearing on May 16, 2016, and on May 20, 2016, it granted the motion and dissolved the injunction as to Knowles and his non-compete, finding that (1) Indiana law precluded the enforcement of agreements to extend the duration of non-compete provisions when a preliminary injunction had been entered, and (2) ASI failed to satisfy the elements of equitable estoppel.[14] Thereafter, ASI filed its appeal, which this court consolidated with Defendants' earlier-filed appeal.

         Discussion and Decision

         Standard of Review

         [¶25] In order to obtain a preliminary injunction, ASI had the burden of demonstrating by a preponderance of the evidence: (1) a reasonable likelihood of success on the merits at trial; (2) the remedies at law are inadequate and that irreparable harm will occur during the pendency of the action; (3) the threatened injury to ASI outweighs the potential harm to HWC, Knowles, Day, and Lancet from the granting of an injunction; and (4) the public interest would not be disserved by granting the injunction. Cent. ...


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