Kyrkos v. Superior Beverage Group, Ltd. , 2013 Ohio 4597 ( 2013 )

[Cite as Kyrkos v. Superior Beverage Group, Ltd., 2013-Ohio-4597.]
Court of Appeals of Ohio
EIGHTH APPELLATE DISTRICT
COUNTY OF CUYAHOGA
JOURNAL ENTRY AND OPINION
No. 99444
VASOULA KYRKOS, ET AL.
PLAINTIFFS-APPELLANTS
vs.
SUPERIOR BEVERAGE GROUP, LTD., ET AL.
DEFENDANTS-APPELLEES
JUDGMENT:
AFFIRMED IN PART, REVERSED IN PART,
AND REMANDED
Civil Appeal from the
Cuyahoga County Court of Common Pleas
Case Nos. CV-778801 and CV-779946
BEFORE: E.T. Gallagher, J., Stewart, A.J., and Keough, J.
RELEASED AND JOURNALIZED: October 17, 2013
ATTORNEY FOR APPELLANT
Russell A. Randazzo
1340 Sumner Avenue
Cleveland, OH 44115
ATTORNEYS FOR APPELLEE
Susan C. Hastings
Squire, Sanders & Dempsey
4900 Key Tower
127 Public Square
Cleveland, OH 44114-1304
Jerry R. Krzys
James L. Messenger
Richard J. Thomas
Henderson, Covington, Messenger,
Newman & Thomas, Co., L.P.A.
6 Federal Plaza Central
Youngstown, OH 44503
EILEEN T. GALLAGHER, J.:
{¶1} Appellant Vasoula Kyrkos (“Kyrkos”) appeals a preliminary injunction
partially enforcing a non-compete agreement that temporarily restricts her employment
with RC Distributors, Inc. (“RC Distributors”). We find some merit to the appeal, affirm
in part, and reverse in part.
{¶2} Appellee Superior Beverage Group, Ltd. (“Superior”) hired Kyrkos as a sales
representative to sell alcoholic beverages to upscale restaurants and bars. On January 15,
2009, six days after Kyrkos started the job, she signed a non-compete agreement that
prohibited her from communicating with, and soliciting business from, Superior
customers for a period of one year after her employment with Superior ended. The
agreement also stated that the restriction applied throughout Superior’s regional territory,
which spanned 31 counties.
{¶3} After an initial orientation, Kyrkos underwent a two-week training period in
which she made sales calls to clients with her direct supervisor, Torri Palko (“Palko”).
Kyrkos received additional training on how to make presentations, made winery trips at
Superior’s expense, and had access to supplier websites. She was also trained on how to
use a handheld device to transmit orders. Although not required, Kyrkos took a wine
course sponsored by E&J Gallo to gain greater familiarity with the industry. Superior
did not pay for the course.
{¶4} On August 18, 2011, Kyrkos sent Palko a resignation letter. The letter did
not say anything negative about Superior and did not mention any new employment.
Kyrkos claims she was involuntarily forced to resign. Superior maintains her poor
performance was grounds for termination. Nevertheless, in September 2011,
approximately one month after leaving superior, Kyrkos accepted a sales position with
RC Distributors, one of Superior’s competitors.
{¶5} RC Distributors assigned Kyrkos to a customer route that included eight of
the same customers she serviced while at Superior. Superior claims its business from
those accounts decreased $32,114 in the 12-month period after Kyrkos began working at
RC Distributors. Superior alleged it first learned of Kyrkos’s employment with RC
Distributors in February 2012 when Palko saw her name next to RC Distributors in a
sign-in book at a Union Club event.
{¶6} On February 12, 2012, Joseph McHenry (“McHenry”), Superior’s Executive
Vice President, sent a letter to RC Distributors regarding Kyrkos’s non-compete
agreement. As a result, RC Distributors allegedly sent a letter to each of the eight
common customers informing them that Kyrkos would no longer be handling those
accounts.
{¶7} In March 2012, Kyrkos filed a complaint against Superior claiming sex
discrimination, hostile work environment, and conspiracy. She alleged Superior
purposely made her work environment uncomfortable so she would resign and that
because Superior breached the terms of the non-compete agreement, it was
unenforceable.
{¶8} In April 2012, Superior filed a complaint seeking a preliminary injunction,
permanent injunction, and other relief to prevent RC Distributors from employing Kyrkos
in any capacity. 1 It alleged that during Kyrkos’s employment, Superior provided her
with proprietary and confidential business information, including Superior’s sales
techniques, marketing methods, marketing plans and strategies, pricing, and customer
lists. It further alleged that Kyrkos breached the terms of the non-compete agreement by
working for RC Distributors within twelve months of leaving Superior. Superior’s
preliminary injunction sought to enjoin Kyrkos from working for RC Distributors for a
period of one year.
{¶9} Following a hearing, the court granted Superior’s claim for injunctive relief
in part and denied it part. The court found the non-compete agreement was more
restrictive than necessary to protect Superior’s business interests and modified its terms to
allow Kyrkos to continue working for RC Distributors while prohibiting her from
soliciting any of the customer accounts she handled when she worked at Superior,
including the eight customers common to Superior and RC Distributors, for a period of
one year. The court further ordered that the one-year restriction period began on the
effective date of the court’s order.
This case was consolidated with Kyrkos’s action against Superior.
1
{¶10} After the court rendered its decision, Kyrkos filed a motion for new trial and
a motion for security in the amount of $500,000 pursuant to Civ.R. 65(C). She also
sought an order making the restrictive time period retroactive to March 2012 instead of
the date of judgment. The court denied all these motions. Kyrkos now appeals and
raises six assignments of error.
Preliminary Injunction
{¶11} In the first assignment of error, Kyrkos argues the trial court erred in
granting Superior the preliminary injunction.
{¶12} A party requesting a preliminary injunction must show that: (1) there is a
substantial likelihood that the plaintiff will prevail on the merits, (2) the plaintiff will
suffer irreparable injury if the injunction is not granted, (3) no third parties will be
unjustifiably harmed if the injunction is granted, and (4) the public interest will be served
by the injunction. Cleveland v. Cleveland Elec. Illum. Co., 115 Ohio App.3d 1, 12, 684
N.E.2d 343 (8th Dist. 1996). The party seeking injunctive relief must establish its right
to such relief by clear and convincing evidence. Zavakos v. Zavakos Ents., Inc., 63 Ohio
App.3d 100, 103, 577 N.E.2d 1170 (2d Dist. 1989).
{¶13} Further, in determining whether to grant injunctive relief, courts have
recognized that no single factor is dispositive. Cleveland Elec. Illum. Co. at 14, citing
Royal Appliance Mfg. Co. v. Hoover Co., 845 F. Supp. 469 (N.D.Ohio 1994). The four
factors must be balanced with the “flexibility which traditionally has characterized the
law of equity.” Id., quoting Friendship Materials, Inc. v. Michigan Brick, Inc., 679 F.2d
100, 105 (6th Cir.1982). We will not disturb the trial court’s judgment granting a
preliminary injunction absent of an abuse of discretion. Garono v. State, 37 Ohio St.3d
171, 173, 524 N.E.2d 496 (1988).
Irreparable Harm
{¶14} Kyrkos argues Superior failed to prove that without the injunction it would
suffer irreparable harm. Irreparable harm is harm for which there is no plain, adequate,
and complete remedy at law, and for which money damages would be impossible,
difficult, or incomplete. Cleveland Elec. Illum. Co., 115 Ohio App.3d at 14.
“[A]dequate remedy at law ‘means that the legal remedy must be as efficient as the
indicated equitable remedy would be; that such legal remedy must be presently available
in a single action; and that such remedy must be certain and complete.’” Mid-America
Tire, Inc. v. PTZ Trading Ltd., 95 Ohio St.3d 367, 2002-Ohio-2427, 768 N.E.2d 619, ¶
81, quoting Fuchs v. United Motor Stage Co., Inc., 135 Ohio St. 509, 21 N.E.2d 669(1939), paragraph four of the syllabus.
{¶15} The trial court found Superior failed to demonstrate irreparable harm for a
number of reasons, including the fact there was evidence of Superior’s actual monetary
damages. McHenry testified that during the first 12-month period of time that Kyrkos
was employed by RC Distributors, Superior’s sales to the eight common accounts
decreased by $32,114. In its judgment entry and opinion, the court stated that “any lost
profits suffered by Superior could be measured through appropriate valuation
mechanisms.” Still it granted the preliminary injunction.
{¶16} This court has specifically held that harm or a threat of harm is not
irreparable if monetary damages can serve as an adequate remedy. Jacono v. Invacare
Corp., 8th Dist. Cuyahoga No. 86605, 2006-Ohio-1596, ¶ 38, citing Fraternal Order of
Police v. Cleveland, 141 Ohio App.3d 63, 749 N.E.2d 840 (8th Dist. 2001); Crestmont
Cadillac Corp. v. GMC, 8th Dist. Cuyahoga No. 83000, 2004-Ohio-488. Therefore, we
agree Superior failed to establish by clear and convincing evidence that it would suffer
irreparable harm if the court declined to issue a preliminary injunction.
{¶17} Notably, Superior did not assert its rights under the non-compete agreement
for five months after Kyrkos started working for RC Distributors. Superior asserts it was
unaware of Kyrkos’s new employment during that five months. Kyrkos, however,
testified that she happened to meet Gregg Shellhorn (“Shellhorn”), Superior’s division
manager for the Cleveland area, shortly after starting with RC Distributors and informed
him of her new employment. She further testified that he sent her a text message that
said he could not talk to her because she was working for a “competitor.”
{¶18} Nevertheless, the preliminary injunction was not granted until 15 months
after Kyrkos began working for RC Distributors. Due to a delay in setting a security
amount, it was not until February 2013, more than 18 months after leaving Superior, that
the preliminary injunction became effective. In Premix, Inc. v. Zappitelli, 561 F.Supp.
269, 278 (N.D.Ohio 1983), the court declined to grant injunctive relief where the
defendant-former employee had already been employed by his new employer for “the
better part of a year, and undoubtedly had divulged much of the proprietary information
he possessed” by the time the motion for preliminary injunction was heard. The
“irreparable harm” had already been done and an injunction would no longer confer any
benefit to the employer.
{¶19} Just as in Premix, Kyrkos had already been employed by RC Distributors for
well over a year and allegedly caused harm to Superior before the court granted the
injunction. As previously stated, McHenry testified that Superior’s monetary losses
totaled $32,114 during a 12-month period that Kyrkos was working for RC Distributors.
Thus, because the non-compete agreement prohibited Kyrkos from working for a
competitor for a period of one year after leaving Superior’s employ, the total amount of
monetary damages, which accrued during the course of one year, was complete and
verifiable before the court granted the injunction.
{¶20} Furthermore, the evidence adduced at the hearing indicates Superior was not
likely to prevail on the merits at the time of the preliminary injunction hearing. To
prevail on the merits, Superior had to show that the restraint imposed by the non-compete
agreement was reasonable. Raimonde v. Van Vlerah, 42 Ohio St.2d 21, 25, 325 N.E.2d
544 (1975). In determining whether the restrictions are reasonable, the following factors
should be considered:
“‘[t]he absence or presence of limitations as to time and space, * * *
whether the employee represents the sole contact with the customer;
whether the employee is possessed with confidential information or trade
secrets; whether the covenant seeks to eliminate competition which would
be unfair to the employer or merely seeks to eliminate ordinary competition;
whether the covenant seeks to stifle the inherent skill and experience of the
employee; whether the benefit to the employer is disproportional to the
detriment to the employee; whether the covenant operates as a bar to the
employee’s sole means of support; whether the employee’s talent which the
employer seeks to suppress was actually developed during the period of
employment; and whether the forbidden employment is merely incidental to
the main employment.’”
Id. at 25, quoting with approval while also overruling, in part, Extine v. Williamson
Midwest, 176 Ohio St. 403, 406, 200 N.E.2d 297 (1964).
{¶21} A one-year time period for a covenant not to compete is reasonable.
Rogers v. Runfola & Assoc., 57 Ohio St.3d 5, 565 N.E.2d 540 (1991) (one year
non-competition agreement for stenographer throughout Franklin county reasonable);
Shury v. Rocco, 8th Dist. Cuyahoga No. 56214, 1989 Ohio App. LEXIS 1120 (Mar. 30,
1989) (two year non-competition agreement for bonding agent in Cuyahoga and adjacent
counties reasonable).
{¶22} Kyrkos argues the restriction prohibiting her from contacting Superior
customers within its 31-county territory is overly broad because she never serviced any
Superior customers outside of Cuyahoga and Lorain counties. There is no evidence as to
how many square miles encompass these 31 counties. Nevertheless, Kyrkos mostly sells
RC Distributors’ products to retail stores, whereas she sold Superior’s products to
restaurants and bars. Therefore, the 31-county space restriction would still provide
Kyrkos a wide market in which to make her sales and is not, by itself, unreasonable.
{¶23} It is undisputed that Kyrkos did not have the sole contact with Superior’s
customers. McHenry and Shellhorn both testified that sales representatives like Kyrkos
are not the sole customer contact. There was no evidence that Superior lost any clients
as a result of Kyrkos’s employment at RC Distributors and the court found that “Kyrkos
was not made privy to any trade secrets and that the customer information she did receive
was for the most part publicly available.” Therefore, these factors weigh against
enforcement.
{¶24} With respect to unfair competition, the trial court cited Brentlinger Ents. v.
Curran, 141 Ohio App.3d 640, 653, 752 N.E.2d 994 (2001), and Willis Refrigeration, Air
Conditioning & Heating, Inc. v. Maynard, 12th Dist. Clermont No. CA99-05-047, 2000
Ohio App. LEXIS 102 (Jan. 18, 2000), and noted that “Ohio courts, under the
circumstances similar to those in the present case, have refused to enforce non-compete
agreements seeking to limit ordinary competition as opposed to advancing legitimate
business interests.” Raimonde holds that restrictive covenants are enforceable if they
“seek to eliminate competition which would be unfair to the employer” but are not
enforceable if they merely seek to eliminate ordinary competition. Id. at 25.
{¶25} Agreements not to compete that prevent an employee from using her general
skills and experience in the marketplace weigh against enforcement. Raimonde at 25.
See also Am. Bldg. Serv., Inc. v. Cohen, 78 Ohio App.3d 29, 34, 603 N.E.2d 432 (12th
Dist. 1992) (refusing to enforce non-compete agreement’s two-year prohibition on
working for competitors). Although Kyrkos had some previous experience in the
beverage industry selling coffee, she obtained knowledge and skills in the alcohol
beverage industry as a result of her employment at Superior. Therefore, the court
determined, this factor weighs in favor of enforcement. We agree. However, because
Kyrkos was separated from Superior for 18 months before the preliminary injunction
went into effect, any benefit Superior would gain from the injunction at this point is
disproportionate to the detriment to Kyrkos, who receives 10 percent commission on each
sale.
{¶26} The court recognized that the non-compete agreement, as written, imposed
unreasonable restrictions on Kyrkos’s livelihood. It is for this reason, the trial court
allowed Kyrkos to maintain her current employment at RC Distributors while prohibiting
her from working on any accounts she handled at Superior. However, as previously
stated, there is no evidence Superior would suffer irreparable harm without the
preliminary injunction because the harm was already done, and Superior had an adequate
remedy at law. There was also evidence that Kyrkos’s income from RC Distributors is
her sole means of support. The preliminary injunction limits Kyrkos’s ability to earn a
living because it limits the number of sales she can make. Under these circumstances,
we find the trial court’s judgment granting a preliminary injunction that restricted
Kyrkos’s employment at RC Distributors for twelve months from the effective date of its
judgment was an abuse of discretion.
{¶27} The first assignment of error is sustained.
Surety Bond
{¶28} In the sixth assignment of error, Kyrkos argues the trial court erred in failing
to set an adequate security bond pursuant to Civ.R. 65(C) for her protection in the event
this court reverses the trial court’s judgment.
{¶29} Civ.R. 65(C) provides that “[n]o preliminary injunction is operative until the
party obtaining it gives a bond executed by sufficient surety * * * to secure to the party
enjoined the damages he may sustain, if it is finally decided that the order or injunction
should not have been granted.”
{¶30} When deciding the amount of the bond, the trial court “should be guided by
the purpose underlying Rule 65(A), which is primarily to compensate the enjoined party
for loss it suffers as a result of an improvidently issued injunction or restraining order.”
Hoechst Diafoil Co. v. Nan Ya Plastics, Inc., 174 F.3d 411, 421 n.3 (4th Cir.1999).2
However, the enjoined party is only entitled to recover the amount of her provable
damages up to the amount of the security. Id. Although Civ.R. 65(C) makes security
mandatory, it also “anticipates the exercise of discretion in determining the amount of the
bond to be posted.” Gateway E. Ry. Co. v. Terminal RR. Assn., 35 F.3d 1134, 1141 (7th
Cir.1994). We therefore review the trial court’s decision on the bond amount for an
abuse of discretion. Id.{¶31} Kyrkos contends the court erroneously refused to take into account any loss
of income she experienced by voluntarily choosing not to contact 72 customer accounts
she serviced while working for RC Distributors. Kyrkos receives a 10 percent
The staff notes to Civ.R. 65(C) indicate it was modeled after Fed.R.Civ.P. 65(C) and
2
incorporates many of its provisions. Ohio courts have looked to the federal courts for guidance
when applying this rule. See, e.g., Vanguard Transp. Sys. v. Edwards Transfer & Storage Co. Gen.
Commodities Div., 109 Ohio App.3d 786, 673 N.E.2d 182 (10th Dist. 1996); Hopkins v. Kraft, 4th
Dist. Pickaway No. 85 CA 13, 1986 Ohio App. LEXIS 9055 (Oct. 10, 1986); N. Elec. Co. v. United
Steelworkers of Am., 28 Ohio App.2d 253, 277 N.E.2d 59 (3d Dist. 1971).
commission on her sales. She estimated she lost between $200,000 and $250,000 in
annual sales as a result of her self-imposed restriction.
{¶32} However, in denying Kyrkos’s bond request, the trial court stated:
As to Kyrkos’s motion for security, the court denies her request for a bond
in the amount of $500,000 as it is unsupported by any documentation.
Moreover, even the motion fails to explain how the number was arrived at.
While the court will require a bond in some amount, the amount must be
related to any alleged damages she and/or RC Distributors may experience
due to the court’s decision to prohibit Kyrkos from calling upon any former
customers at Superior.
The court’s judgment entry indicates the court was determined to set a bond based on
evidence of Kyrkos’s provable losses as required by law. We cannot say the trial court
abused its discretion in deciding not to set bond at $500,000 where there was no evidence
to support such an amount.3
{¶33} Therefore, the sixth assignment of error is overruled.
{¶34} Having determined the trial court improvidently granted Superior a
preliminary injunction and found that the amount of the bond was reasonable, the
remaining assignments of error are moot. See App.R. 12(A)(1)(c).4
{¶35} The trial court’s judgment is affirmed in part, reversed in part, and
remanded to the trial court with instructions to vacate the preliminary injunction.
It is ordered that appellee and appellant share costs herein taxed.
The court finds there were reasonable grounds for this appeal.
According to the court’s docket, the trial court ultimately set bond at $3,200. However,
3
that amount is not properly before this court because Kyrkos has not appealed from that judgment.
The remaining assigned errors are set forth in the appendix.
4
It is ordered that a special mandate be sent to the common pleas court to carry this
judgment into execution.
A certified copy of this entry shall constitute the mandate pursuant to Rule 27 of
the Rules of Appellate Procedure.
EILEEN T. GALLAGHER, JUDGE
MELODY J. STEWART, A.J., and
KATHLEEN ANN KEOUGH, J., CONCUR
APPENDIX
REMAINING ASSIGNMENTS OF ERROR
[II.] The trial court committed reversible error in partially granting appellee
Superior Beverage Group’s motion for preliminary injunction.
[III.] The trial court committed reversible error in denying appellant’s motion for
new trial.
[IV.] The trial court committed reversible error in refusing to retroactively apply
the imposed restriction to March 2012 when appellant self-imposed a restriction
upon her employment.
[V.] The trial court committed reversible error in denying appellant’s affirmative
defenses.