may not be cited except as provided by
Minn. Stat. § 480A.08, subd. 3 (1996).
STATE OF MINNESOTA
IN COURT OF APPEALS
Midwest Systems, Inc.,
Filed May 19, 1998
Dakota County District Court
File No. C2979235
Marc G. Pera, Hall & Byers, P.A., 1010 West St. Germain, Suite 600, St. Cloud, MN 56301 (for respondent)
Considered and decided by Crippen, Presiding Judge, Lansing, Judge, and Peterson, Judge.
U N P U B L I S H E D O P I N I O N
Appellant Midwest Systems, Inc., argues that the district court abused its discretion in denying Midwest's motion for a temporary restraining order and injunction. We affirm.
In July 1997, after working five months, Faulkner quit his job at Midwest. In August 1997, Faulkner began working in the Twin Cities area as a sales representative for Gemini Digital Products, which also sells new and used computer equipment. Faulkner's work at Gemini includes servicing existing customers and developing new customers in Maryland, Georgia, Florida, Texas, and Oklahoma.
Midwest advised Faulkner that his noncompete agreement prohibited him from selling computer equipment for Gemini because Gemini competes directly with Midwest. Midwest also advised Faulkner that his confidentiality agreement prohibited him from using confidential information acquired during his employment with Midwest. Faulkner continued working for Gemini, and in September 1997, Midwest sued Faulkner for: (1) breach of contract; (2) misappropriation of trade secrets; (3) unfair competition; and (4) interference with prospective business advantage.
Midwest moved for a temporary restraining order and injunction to restrain Faulkner from working for Gemini and to prevent him from soliciting or contacting Midwest's current or prospective customers or suppliers for one year. Faulkner moved to deny Midwest's motion and to dismiss Midwest's case for failing to state a claim for which relief could be granted. The district court denied all motions.
D E C I S I O N
Pacific Equip. & Irrigation, Inc. v. Toro Co., 519 N.W.2d 911, 914 (Minn. App. 1994) (quoting Cherne Indus., Inc. v. Grounds & Assocs., Inc., 278 N.W.2d 81, 91 (Minn. 1979)), review denied (Minn. Sept. 16, 1994). This court views "the facts alleged in the pleadings and affidavits as favorably as possible to the party who prevailed below." Id.
"A temporary injunction is an extraordinary equitable remedy. Its purpose is to preserve the status quo until adjudication of the case on its merits." Miller v. Foley, 317 N.W.2d 710, 712 (Minn. 1982).
Because a temporary injunction is granted prior to a complete trial on the merits, it should be granted only when it is clear that the rights of a party will be irreparably injured before a trial on the merits is held.
The party seeking an injunction must establish that the legal remedy is not adequate and that the injunction is necessary to prevent great and irreparable injury.
Pacific Equip., 519 N.W.2d at 914.
The district court must evaluate five factors to determine whether a party is entitled to temporary injunctive relief:
(1) The nature and background of the relationship between the parties preexisting the dispute giving rise to the request for relief.
(2) The harm to be suffered by plaintiff if the temporary restraint is denied as compared to that inflicted on defendant if the injunction issues pending trial.
(3) The likelihood one party or the other will prevail on the merits * * *.
(4) The * * * consideration of public policy expressed in the statutes, State and Federal.
(5) The administrative burdens involved in judicial supervision and enforcement of the temporary decree.
Id. (quoting Dahlberg Bros. v. Ford Moter Co., 272 Minn. 264, 274-75, 137 N.W.2d 314, 321-22 (1965)) (omissions in original).
This court must examine the district court's findings with regard to each factor to determine whether the district court should be sustained on appeal. Id. at 915. The district court's memorandum addressed four of the five Dahlberg factors. It did not address the administrative burdens involved in the judicial supervision of the temporary decree.
Nature of the Relationship
The district court found that Faulkner was not a "key" employee, and that the short duration of his employment, along with his lack of success, suggested that Faulkner was not able to develop intimate relationships with Midwest's clients. It also found that Midwest did not present evidence that Faulkner gained any specific information in the course of his employment with Midwest.
Midwest argues that it is entitled to protect its confidential information regardless of whether an employee is "key" to its success or "intimate" with its customers. Midwest asserts that Faulkner was given a comprehensive training program, which included technical and product training about Digital Equipment Corporation computers, and that Faulkner had access to confidential information about Midwest's active customers and prospects.
The record does not demonstrate that Faulkner received confidential information during sales training or that he had access to any confidential sales records at Midwest. The affidavit of Midwest's president contains only conclusory allegations that Midwest has a "unique customer list." The evidence does not demonstrate that the list is unique.
Balance of Harms
Midwest must demonstrate irreparable harm to obtain an injunction, while Faulkner need only show substantial damages to bar it. Yager v. Thompson, 352 N.W.2d 71, 75 (Minn. App. 1984). The failure to show irreparable harm is, by itself, sufficient ground to deny a preliminary injunction. Morse v. City of Waterville, 458 N.W.2d 728, 729 (Minn. App. 1990), review denied (Minn. Sep. 28, 1990); Gelco Corp. v. Coniston Partners, 811 F.2d 414, 418 (8th Cir. 1984).
"The key word in this consideration is irreparable. Mere injuries, however substantial, in terms of money, time and energy necessarily expended in the absence of a stay, are not enough. The possibility that adequate compensatory or other corrective relief will be available at a later date, in the ordinary course of litigation, weighs heavily against a claim of irreparable harm."
Miller, 317 N.W.2d at 713 (quoting Sampson v. Murray, 415 U.S. 61, 90, 94 S. Ct. 937, 952 (1974)).
The district court found that Midwest failed to show specifically what harm, if any, it would suffer from Faulkner's continued employment at Gemini. Conversely, it found that Faulkner would be greatly harmed if the court issued a temporary restraining order and injunction because he would be precluded from working anywhere in the world in the computer industry and would have to give up his livelihood pending trial.
Midwest argues that the district court erred by refusing to acknowledge the threat of irreparable harm. Citing Creative Communications Consultants, Inc. v. Gaylord, 403 N.W.2d 654 (Minn. App. 1987), Midwest argues that irreparable harm is established where there is a risk that a former employee would disclose confidential information to a competitor. It claims that Faulkner had access to confidential customer lists, product pricing information, marketing strategies, and customer databases and asserts that its customer lists are the primary factor that enabled it to become a market leader in computer sales.
Irreparable harm may be inferred from the breach of a restrictive covenant in an employment contract. "[T]he inference may be rebutted by evidence that the former employee has no hold on the good will of the business or its clientele."
Overholt Crop Ins. Serv. Co. v. Bredeson, 437 N.W.2d 698, 701 (Minn. App. 1989) (citations omitted) (quoting Webb Publ'g Co. v. Fosshage, 426 N.W.2d 445, 448 (Minn. App. 1988)) (alteration in original).
The record does not demonstrate that Midwest will suffer irreparable harm if Faulkner continues working for Gemini. Even if irreparable harm is inferred from Faulkner's breach of the noncompete agreement, this inference is rebutted by evidence that Faulkner had no hold on the good will of Midwest or its clientele. Faulkner worked for Midwest for only five months and was not very successful at selling computers in his sales region. Faulkner now sells computers for Gemini in a different region of the country. Furthermore, even if Faulkner possesses Midwest's confidential client lists, this information is useless to him because Gemini requires him to work from its own client database.
Midwest argues that Faulkner will suffer no injury because injunctive relief merely ensures that Faulkner will abide by his contractual obligations. It also argues that the district court incorrectly found that the noncompete agreement prevents Faulkner from working in the computer industry anywhere in the world and that this case does not require such an expansive construction of the agreement. Midwest contends that if the agreement is to mean anything at all, it must restrict Faulkner from
accepting employment with a direct market competitor selling exactly the same product Midwest had trained Faulkner to sell - the DEC computer equipment - to the same customer base - national and multinational commercial enterprises.
Faulkner's harm need only be substantial to prevent the issuance of an injunction. Yager, 352 N.W.2d at 75. If a temporary restraining order and injunction were issued, Faulkner would lose his job and be precluded from working for "any person, firm, association or other entity that is directly or indirectly in competition" with Midwest. The noncompete agreement states that this
limitation shall include, but is not limited to, any person, firm, association or other entity that is engaged in the business of selling, reconditioning or buying computer equipment and/or value-add products.
Considering the fact that Midwest does business worldwide, Faulkner would be precluded from accepting employment from any "direct or indirect" competitor of Midwest, anywhere in the world. Although there may be computer firms that are not Midwest's competitors, and, therefore, the district court concluded incorrectly that Faulkner could not work anywhere in the world in the computer industry, Faulkner's harm would be substantial if Midwest's motion for injunctive relief were granted.
Success on the Merits
Noncompete agreements that limit one's right to work and earn a livelihood "are looked upon with disfavor, cautiously considered, and carefully scrutinized." Bennett v. Storz Broad. Co., 270 Minn. 525, 533, 134 N.W.2d 892, 898 (1965). However, noncompete agreements are upheld if the restriction is necessary to protect a business or the good will of an employer. Id. If the court finds the covenant to be necessary, it must consider the reasonableness of the scope of the covenant. Id. at 534, 134 N.W.2d at 899. The covenant must not impose any greater restriction on the employee than is necessary to protect the employer's business. Id.
Midwest argues that the district court erred when it concluded that Midwest failed to demonstrate a likelihood of success on the merits of its breach of contract claim. Midwest contends that its noncompete agreement is valid and enforceable because it is reasonable in both scope and duration. The district court concluded that Faulkner's noncompete agreement was broader than necessary to protect Midwest's legitimate interests and therefore invalid.
Citing Dynamic Air, Inc. v. Bloch, 502 N.W.2d 796, 800 (Minn. App. 1993), Midwest argues that in situations where disclosure of confidential information to a competitor would be harmful to an employer regardless of where the competitor is located, a restrictive covenant unlimited as to territory may be necessary to protect an employer's interests.
Midwest's noncompete agreement precluded Faulkner from working for any direct or indirect competitor anywhere in the world. Midwest has not presented evidence that Faulkner gained any confidential information about Midwest's global operations or that a restrictive covenant unlimited as to territory was reasonably necessary to protect its interest. In light of the evidence that Faulkner sells computers for Gemini in a different region than he sold computers for Midwest, and that Faulkner is required to pursue sales to clients on Gemini's database, we cannot say that the district court erred in concluding that Midwest's noncompete agreement was overbroad and not reasonably necessary to protect Midwest's legitimate business interests, and, therefore, that Midwest was unlikely to win its case on the merits.
The district court determined that public policy does not weigh in favor of either party. It noted that there is value in upholding valid covenants not to compete and in the freedom of an individual to earn a livelihood. Both parties make arguments why public policy favors or disfavors the issuance of a temporary injunction. Midwest argues that issuing a temporary injunction will serve the public interest by ensuring that a binding agreement, reasonable in its terms and supported by sufficient consideration, is enforced to protect legitimate business interests from irreparable harm. Faulkner argues that public policy supports denying a temporary injunction because an injunction would restrict his ability to earn a living in the field of his choice. Both of these arguments represent strong public policies. The district court did not abuse its discretion in concluding that public policy does not weigh in favor of either party.
Balancing of the Factors
Midwest had the burden of demonstrating that it had no adequate legal remedy and that injunctive relief was necessary to prevent great and irreparable injury. Viewing the facts alleged in the pleadings and affidavits as favorably as possible to Faulkner, as we must, we conclude that Midwest failed to meet its burden. Midwest's failure to demonstrate irreparable harm was, by itself, sufficient ground for the district court to deny a temporary injunction. Morse, 458 N.W.2d at 729. However, two other Dahlberg factors, the nature of the parties' relationship and the likelihood of success on the merits, also weigh in favor of Faulkner. The district court did not abuse its discretion in denying Midwest's motion for a temporary restraining order and an injunction.