American Consulting, Inc. d/b/a American Structurepoint, Inc., Appellant-Plaintiff/Cross-Appellee,
Hannum Wagle & Cline Engineering, Inc., d/b/a HWC Engineering, Inc., Marlin A. Knowles, Jr., Jonathan A. Day, David Lancet, and Tom Mobley, Appellees-Defendants/Cross-Appellants.
Argued: October 4, 2018
from the Marion Superior Court No. 49D01-1503-PL-7463 The
Honorable Heather A. Welch, Special Judge.
Petition to Transfer from the Indiana Court of Appeals No.
ATTORNEYS FOR APPELLANT Michael A. Wukmer Mary Nold Larimore
Mark R. Alson Robert A. Jorczak Ice Miller LLP Indianapolis,
ATTORNEYS FOR APPELLEE Bryan H. Babb David L. Swider Andrew
M. McNeil Philip R. Zimmerly Bose McKinney & Evans LLP
Justice Rush and Justice Goff concur. Justice Slaughter
concurs in part, dissents in part with separate opinion in
which Justice Massa joins.
an action by an employer against several of its former
employees and their new employer for alleged violations of
the former employees' noncompetition and non-solicitation
agreements. The employer brought various claims, including
tortious interference with a contractual relationship and
breach of contract claims, against its former employees. At
issue, among other things, is whether the liquidated damages
provisions in the employees' contracts are enforceable.
We hold that they are not. With regard to American
Structurepoint, Inc.'s tortious interference claims, we
find that the trial court correctly held that summary
judgment was not appropriate because there remains an issue
of material fact. Accordingly, we affirm the trial court on
and Procedural History
Marlin Knowles, Jonathan Day and David Lancet were all
previously employed by Plaintiff, American Structurepoint,
Inc. ("ASI").Knowles served as ASI's Vice
President of Sales, and as a condition of his employment, he
executed a contract that contained covenants restricting him
from both customer and employee solicitation should he leave
his employment with ASI. That is, Knowles agreed that for two
years after his employment, he would not sell, provide, try
to sell or provide or assist any person or entity in the sale
or provision of any competing products or services to
ASI's customers with whom Knowles had any business
contact with on behalf of ASI during the two years prior to
separation. He agreed that if he breached this agreement and
such a breach resulted in termination, withdrawal or
reduction of a client's business with ASI, he would pay
liquidated damages in an amount equal to 45% of all fees and
other amounts that ASI billed to the customer during the
twelve months prior to the breach. The contract further
precluded Knowles from causing an employee to end their
employment with ASI, and if he breached this provision, he
agreed to pay liquidated damages equal to 50% of the
employee's pay from ASI during the twelve months prior to
Lancet, who were both resident project representatives at
ASI, also executed agreements that precluded them from hiring
or employing ASI employees. They agreed that if they breached
their agreements, they would pay liquidated damages in an
amount equal to 100% of that employee's pay from ASI
during the twelve months prior to breach.
the contracts at issue provide that the liquidated damages
provisions are a reasonable estimate of the damages ASI will
suffer and do not constitute a penalty.
left ASI to work for a competitor, Hannum Wagle & Cline
Engineering, Inc., d/b/a HWC Engineering, Inc.
("HWC"). Lancet and Day later joined him. Evidence
favorable to ASI shows that Knowles, Day and Lancet engaged
in activities in an effort to recruit ASI employees, and they
successfully recruited seven ASI employees. Additionally,
after joining ASI, Knowles networked with various ASI client
contacts and signed various contracts with them.
sued Knowles, Lancet and Day, as well as their employer HWC
(collectively, "Defendants"), alleging various
claims including breach of contract and tortious interference
with ASI's contractual and business relationships.
Defendants moved for summary judgment, and, in relevant part,
the trial court granted summary judgment for Defendants on
the issue of liquidated damages, finding that the liquidated
damages clauses were unenforceable as a matter of law. As for
the tortious interference with a contractual relationship
claim, the trial court granted summary judgment with regard
to ASI's contracts with Day. However, it found that there
were issues of material fact regarding ASI's contracts
with Knowles and Lancet.
interlocutory appeal, our Court of Appeals affirmed the trial
court on the tortious interference issue but reversed the
trial court on the liquidated damages issue finding these
provisions were enforceable. Am. Consulting, Inc. v.
Hannum Wagle & Cline Eng'g, Inc., 104 N.E.3d
573, 576 (Ind.Ct.App. 2018), transfer granted, opinion
vacated, 110 N.E.3d 1146 (Ind. 2018). Judge Riley
dissented in part, believing that the liquidated damages
provisions were unenforceable penalties. Id. at 596
(Riley, J., dissenting). We granted transfer, thereby
vacating the Court of Appeals opinion. Ind. Appellate Rule
58(A). For reasons discussed herein, we affirm the trial
court on both issues and remand for further proceedings.
reviewing a summary judgment order, we stand in the shoes of
the trial court. Matter of Supervised Estate of
Kent, 99 N.E.3d 634, 637 (Ind. 2018) (citation omitted).
Summary judgment is appropriate "if the designated
evidentiary matter shows that there is no genuine issue as to
any material fact and that the moving party is entitled to a
judgment as a matter of law." Ind. Trial Rule 56(C).
The liquidated damages provisions are unenforceable
Defendants have shown that the provisions are facially
issue is whether the liquidated damages provisions in the
Knowles, Day and Lancet agreements constitute unenforceable
penalties. Defendants argued, and the trial court determined,
that they are. Specifically, Defendants argue the liquidated
damages in this case are not fairly correlated to ASI's
actual loss and therefore constitute a penalty. For its part,
ASI agrees with the Court of Appeals majority: because the
agreements at issue were freely negotiated and the amount of
damages resulting from the contract breaches are difficult to
ascertain, these liquidated damages clauses are enforceable.
For reasons discussed herein, we agree with the Defendants
and find that the liquidated damages provisions in this
particular case are unenforceable penalties.
damages" refers to a specific sum of money that has been
stipulated by parties to a contract as "the amount of
damages to be recovered by one party for a breach by the
other, whether it exceeds or falls short of actual
damages." Time Warner Entm't Co., L.P., v.
Whiteman, 802 N.E.2d 886, 893 (Ind. 2004). "A
typical liquidated damages provision provides for the
forfeiture of a stated sum of money upon breach without proof
of damages." Gershin v. Demming, 685 N.E.2d
1125, 1127 (Ind.Ct.App. 1997). Reasonable liquidated damages
provisions are permitted. Skendzel v. Marshall, 261
Ind. 226, 232, 301 N.E.2d 641, 645 (1973), reh'g
denied. "While liquidated damages clauses are
ordinarily enforceable, contractual provisions that
constitute penalties are not." Weinreb v. Fannie
Mae, 993 N.E.2d 223, 232-33 (Ind.Ct.App. 2013). Whether
a contract provision providing for liquidated damages is an
unenforceable penalty is a question of law for the court to
decide. Corvee, Inc. v. French, 943 N.E.2d 844, 847
have refused to enforce contracts when their provisions are
unconscionable or when they offend the laws of this State,
but there must be a clear showing by the party urging it that
the contract provision was nothing more than mere
penalty." Court Rooms of America, Inc. v.
Diefenbach, 425 N.E.2d 122, 124 (Ind. 1981). As the
moving party, Defendants have the initial burden of
demonstrating that the contract provisions at issue are
unenforceable penalties. Here, the facts regarding the
contents and financial consequences of the liquidated damages
clauses are undisputed.
facts show that the employee solicitation restriction in the
Knowles agreement provides that he pay 50% of the annual
salary of each employee that leaves ASI due to his actions.
The trial court found that this would amount to approximately
$272, 165 in damages. The Day and Lancet agreements provide
that they must each pay 100% of the salary for each employee
that leaves ASI due to their actions. This would amount to
approximately $238, 374 for Day and $176, 813 for Lancet. The
client solicitation restriction in the Knowles agreement
provides that he is responsible for 45% of ASI's prior 12
months of revenue generated by the client if Knowles violates
the agreement and that client purchases services from HWC.
The trial court found that these damages could be in the
range of millions of dollars.
ASI is correct that the damages in this case are difficult to
ascertain and this Court has previously noted its
unwillingness to interfere in the freely negotiated contracts
of the parties (see Time Warner, 802 N.E.2d at 886),
this alone is not enough to enforce a liquidated damages
provision. The liquidated damages provisions ...