STATE OF MINNESOTA
IN COURT OF APPEALS
Energy Solutions International, et al.,
John M. Tastad, et al.,
Filed October 5, 1999
Hennepin County District Court
Craig A. Brandt, Karl E. Robinson, Winthrop & Weinstine, P.A., 3200 Minnesota World Trade Center, 30 East Seventh Street, St. Paul, MN 55101 (for respondents)
Considered and decided by Toussaint, Presiding Judge, Peterson, Judge, and Amundson, Judge.
Appellant challenges the district court's denial of appellants' motion for a temporary injunction. We affirm.
In September 1997, EMI informed Tastad that he would no longer be in charge of operations, but instead would only manage the sales force. In late November or early December, EMI suggested that Tastad sign a prepared resignation letter. Initially Tastad refused, but he eventually resigned.
Tastad subsequently created a new company, Pulse Products, Inc., to act as a manufacturer's representative on behalf of Cooper Lighting, a manufacturer of thousands of lighting products. Tastad met with the CEO and General Counsel for EMI and explained his plans and ideas for his new company. He also sent a letter assuring EMI that he did not intend to compete and would abide by the noncompete agreement. Tastad maintains that the proposed business plan did not involve selling lighting fixtures through wholesale distribution and there was never any plan for EMI or Tastad to act as a lighting manufacturer's representative. EMI counters that it paid millions for ESI to preserve and protect the value of ESI's goodwill and that Tastad knew "the deal only made sense if EMI grew the business and participated in new markets by combining the two companies and exploiting every market potential." EMI essentially argues that any entry by Tastad into the lighting business is a violation of the noncompete. EMI also claims that Tastad had access to ESI's proprietary and confidential information, trade secrets, and customer lists.
EMI and Pulse began doing business with regard to the sale of Cooper products shortly after Pulse was created. Generally, this involved EMI contacting Pulse explaining the needs of a particular customer and Pulse suggesting an appropriate Cooper product. It appears that EMI and Pulse were doing business until this suit was filed in February 1999. EMI argues that Tastad is competing in the lighting business and is in violation of his noncompete agreement.
There are five factors to be considered when determining whether to issue a temporary injunction: (1) the nature and background of the parties' relationship prior to the dispute; (2) the harm plaintiff may suffer if the injunction is denied compared to the harm inflicted upon defendant if the injunction is granted; (3) the likelihood one party will prevail on the merits; (4) public policy as expressed in the statutes; and (5) the administrative burdens involved in judicial supervision of the injunction.
Unlimited Horizon Mktg., Inc. v. Precision Hub, Inc., 533 N.W.2d 63, 65-66 (Minn. App. 1995) (citing Dahlberg Bros., Inc. v. Ford Motor Co., 272 Minn. 264, 274-75, 137 N.W.2d 314, 321-22 (1965)). The purpose of a temporary injunction is to preserve the status quo until an adjudication of the case on the merits. Miller v. Foley, 317 N.W.2d 710, 712 (Minn. 1982).
Appellants argue that the noncompete agreement is violated simply if Tastad partially engages in the lighting business. Further, appellants point to language in the agreement stating that any competition would result in an "inadequate remedy at law," for support that an injunction is the only proper recourse for EMI. They also cite this language to support an allegation that Tastad violated the noncompete contract. While we agree that a technical violation of the contract has occurred, in order to issue an injunction a district court must apply the Dahlberg factors and determine if the issuance of an injunction is proper under the circumstances. To decide this case we look to the Dahlberg factors primarily considered by the district court in making its decision.
The district court found that EMI failed to establish irreparable harm. The court explained:
The harm to Tastad and Pulse with the proposed injunction is significant. Defendants would have to close down their business. Tastad would be deprived of the opportunity to pursue his livelihood. The other employees of Pulse would lose their jobs. In contrast, the harm to Plaintiffs in the absence of an injunction is minimal. The business of Pulse which may be interpreted as competing with Plaintiffs constitutes less than one percent of total revenue, about $10,000.00. The minimal harm to Plaintiffs without the requested relief, compared to the onerous burden that would be imposed on Tastad and Pulse if an injunction were issued weighs greatly in Tastad and Pulse's favor.
EMI argues that it is entitled to an inference of irreparable harm when a valid covenant not to compete is breached. Overholt Crop Ins. Serv. Co. v. Bredeson, 437 N.W.2d 698, 701 (Minn. App. 1989). However, that "inference may be rebutted by evidence that the former employee has no hold on the good will of the business or its clientele." Id. (quoting Webb Publ'g Co. v. Fosshage, 426 N.W.2d 445, 448 (Minn. App. 1988)). While EMI raised the issue of goodwill by pointing out that it paid for ESI's goodwill, it does not argue that Tastad has a hold on its goodwill or on the goodwill of its clientele. In fact it appears that EMI is part of Pulse's clientele.
EMI also cites Cherne for support of the irreparable harm inference. The supreme court in that case stated:
Because a preliminary injunction is granted prior to a complete trial on the merits, a showing of irreparable harm is required to prevent undue hardship to the party against whom the injunction is issued, whose liability has not yet been determined. If irreparable harm can be inferred from an alleged breach for purposes of a temporary injunction, it can be inferred from a trial court's actual finding of a breach by the defendant. Moreover, where a trial court has determined that the prevailing party is entitled to relief, it may fashion such remedies, legal and equitable, as are necessary to effectuate such relief.
Cherne, 278 N.W.2d at 92. In Cherne, the district court determined that the defendants had breached their employment agreements with Cherne by wrongfully taking and using confidential information. In the present case, the district court did not make a similar determination. Rather, the district court found that there were too many factual disputes to make a determination regarding success on the merits. While the district court can and may infer irreparable harm, such inference is certainly not axiomatic. The party seeking the injunction must establish that a legal remedy is inadequate and that an injunction is necessary to prevent the irreparable injury.
EMI has not met its burden here. EMI has failed to establish that the district court's factual findings regarding success on the merits were clearly erroneous, especially when viewed in a light most favorable to Tastad. While it is possible that the district court could infer irreparable harm because of a potential breach of the noncompete agreement, the district court expressly found that it could not "presume competition merely because Defendant is in the lighting industry." The court further stated that if the intent of the noncompete was to bar any activity in the lighting market for a period of four years, it should have expressly stated that in the agreement.
Further, the evidence cited by the district court supports the finding that EMI failed to establish irreparable harm. EMI has failed to explain the irreparable harm or damage that it would incurr, or why it is not feasible to measure those potential damages by loss of revenue. EMI alludes to the contract language indicating that if competition exists, the remedy at law will be inadequate. However, this contract language alone does not require the district court to find irreparable harm, and we can find no abuse of discretion by the court in failing to do so. Thus, failure to establish irreparable harm is sufficient in itself to support the district court's denial of a temporary injunction. Morse, 458 N.W.2d at 729.
EMI counters that there is strong public policy favoring enforcement of noncompete agreements when millions of dollars were paid for goodwill, but it fails to cites any law which buttresses this position. Reviewing the district court's decision regarding the public interest factor, we find its decision was not an abuse of discretion.
Applying the Dahlberg factors to the facts in this case we find the district court did not abuse its discretion, therefore, the district court's denial of the motion for a temporary injunction is upheld.