Hannum Wagle & Cline Engineering, Inc. d/b/a HWC Engineering, Inc., Marlin A. Knowles, Jr., Jonathan A. Day, Tom Mobley, and David Lancet v. American Consulting, Inc.

FILED
Nov 30 2016, 7:15 am
CLERK
Indiana Supreme Court
Court of Appeals
and Tax Court
ATTORNEYS FOR ATTORNEYS FOR
APPELLANTS/APPELLEES 1 APPELLEE/APPELLANT
HANNUM WAGLE & CLINE AMERICAN CONSULTING, INC.,
ENGINEERING, INC., D/B/A HWC D/B/A AMERICAN
ENGINEERING, INC., MARLIN A. STRUCTUREPOINT, INC.
KNOWLES, JR., JONATHAN A. DAY, Michael A. Wukmer
AND DAVID LANCET David M. Mattingly
David L. Swider Mark R. Alson
Andrew M. McNeil Audrey K. Hagedorn
Philip R. Zimmerly Robert A. Jorczak
Bose McKinney & Evans, LLP Ice Miller LLP
Indianapolis, Indiana Indianapolis, Indiana
IN THE
COURT OF APPEALS OF INDIANA
1
Each party is designated as both appellant and appellee because, after Appellant Hannum Wagle & Cline
Engineering, Inc., d/b/a HWC Engineering, Inc., Marlin A. Knowles, Jr., Jonathan A. Day, and David
Lancet filed their appeal, Case No. 49A05-1601-PL-33 (“Case No. 33”), Appellee American Consulting, Inc.,
d/b/a American Structurepoint, Inc. (“ASI”) filed a separate appeal against Hannum Wagle & Cline
Engineering, Inc., d/b/a HWC Engineering, Inc., Marlin A. Knowles, Jr., Jonathan A. Day, and David
Lancet. ASI’s appeal was assigned appellate case number 49A04-1606-PL-1198 (“Case No. 1198”).
However, because we found that the parties and subject matter of the two appeals were related, we
consolidated Case No. 1198 with earlier-filed Case No. 33.
Court of Appeals of Indiana | Opinion 49A05-1601-PL-33 | November 30, 2016 Page 1 of 41
Hannum Wagle & Cline November 30, 2016
Engineering, Inc., d/b/a HWC Court of Appeals Case No.
Engineering, Inc., Marlin A. 49A05-1601-PL-33
Knowles, Jr., Jonathan A. Day, Appeal from the
Tom Mobley,2 and David Marion Superior Court
Lancet, The Honorable
Appellants/Appellees-Defendants, Heather A. Welch, Special Judge
Trial Court Cause No.
v. 49D01-1503-PL-7463
American Consulting, Inc.,
d/b/a American Structurepoint,
Inc.,
Appellee/Appellant-Plaintiff.
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
2
Tom Mobley is not a party to this appeal, but we include him in the caption because all parties of record in
the trial court are parties on appeal. Ind. Appellate Rule 17(A).
Court of Appeals of Indiana | Opinion 49A05-1601-PL-33 | November 30, 2016 Page 2 of 41
and conclusions thereon that granted a preliminary injunction in favor of ASI
against HWC, Knowles, Day, and Lancet3 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
3
The trial court denied injunctive relief as to Mobley, and ASI does not appeal that decision.
4
We held oral argument on October 21, 2016 at Purdue University’s Krannert School of Executive
Management. We thank counsel for their preparation and argument, and we commend them on their
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Facts and Procedural History5
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
outstanding advocacy. We also thank the students for their insightful questions and comments posed after,
but not specifically related to, the oral argument.
5
With few exceptions not relevant to the determination of this appeal, Defendants do not appear to challenge
the trial court’s findings of fact as being improper or unsupported by the evidence.
6
As public entities do not exclusively contract with any company for engineering services, ASI and HWC
have as clients some of the same entities.
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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
7
We will refer to the appendix filed by Defendants in their appeal as HWC Appellants’ App.
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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
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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
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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.
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[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
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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,
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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
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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
8
ASI indicates that “[s]eventeen witnesses testified . . . and over 160 exhibits were admitted.” ASI Appellee’s
Br. at 3. Admitted evidence included deposition designations, documents, affidavits, and live testimony.
9
The trial court’s extensive and thorough Findings and Conclusions, 89 pages in length, aided our appellate
review.
10
Mobley did not have an employment agreement with ASI.
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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
11
HWC notes that the injunction prohibits Knowles, Day, and Lancet from “acting in concert or conspiracy
with” any other person or entity, including but not limited to HWC “to commit the acts prohibited” by the
injunction, and, therefore, HWC’s position “is really derivative of the limitations imposed on Knowles, Day,
and Lancet.” HWC Appellants’ Br. at 3 n.1.
12
The Amended Order included a non-exhaustive list of operations functions to illustrate the types of tasks
that Knowles could perform that would not violate the non-compete. HWC Appellants’ App. at 105-06.
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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
13
The terms “Competing Products/Services,” “Company’s Customer” and “Active Prospects” are not in
dispute and are defined in the Knowles Agreement and the trial court’s Amended Order. HWC App. at 103-
04, 135-36.
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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
14
Defendants note that, although the injunction enjoining Knowles has been dissolved, as of May 2016,
Knowles’s appeal is not moot because the merits of his claims -- that the trial court improperly interpreted the
Knowles Agreement and relied on speculative harm to support an injunction -- are matters of public interest
and capable of repetition, and further, to the extent that a trial is held in this matter, a correct interpretation
of the Knowles Agreement is critical for the preparation of jury instructions. HWC Reply Br. at 6 n.1.
Moreover, Defendants observe, ASI is appealing the order dissolving the injunction. Id. We agree and
proceed to address the issues raised by both parties on their merits.
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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. Ind. Podiatry, RC. v. Krueger,
882 N.E.2d 723, 727 (Ind. 2008); Gleeson v. Preferred Sourcing, LLC, 883 N.E.2d
164, 172 (Ind. Ct. App. 2008).
[26] To establish a party has a reasonable likelihood of success on the merits, the
party must establish a prima facie case. Apple Glen Crossing, LLC v. Trademark
Retail, Inc., 784 N.E.2d 484, 487 (Ind. 2003); Pinnacle Healthcare, LLC v. Sheets,
17 N.E.3d 947, 953 (Ind. Ct. App. 2014). “The party is not required to show
that he is entitled to relief as a matter of law, nor is he required to prove and
plead a case, which would entitle him to relief upon the merits.” Avemco Ins.
Co. v. State ex rel. McCarty, 812 N.E.2d 108, 118 (Ind. Ct. App. 2004).
[27] “The grant or denial of a preliminary injunction is within the sound discretion
of the trial court, and the scope of appellate review is limited to deciding
whether there has been a clear abuse of discretion.” Gleeson, 883 N.E.2d at 171-
72. When considering whether a trial court’s grant of a party’s motion for a
preliminary injunction constitutes an abuse of discretion, this court determines
whether the evidence supports the trial court’s special findings of fact and
whether the findings support the judgment. Clark’s Sales & Serv., Inc. v. Smith, 4
N.E.3d 772, 780 (Ind. Ct. App. 2014), trans. denied. This court should not
disturb the findings or judgment unless they are clearly erroneous, nor should
the court reweigh the evidence or reassess witness credibility. Id. Rather, the
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court should consider only the evidence favorable to the judgment and all
reasonable inferences to be drawn therefrom. Id. We will reverse the trial
court’s judgment only when it is clearly erroneous, and a judgment is clearly
erroneous when a review of the record leaves us with a firm conviction that a
mistake has been made. Gleeson, 883 N.E.2d at 172.
I. Knowles’s Non-Compete Agreement
[28] There is no dispute that Knowles validly executed the Knowles Agreement,
Section 9(a) of which contained the following non-competition covenants:
During the Restricted Time Period, Employee will not 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 Customers15 with
respect to whom at any time during the twenty-four (24) months
immediately preceding the termination of Employee’s
employment with the Company, Employee had any sales or
15
The Agreement defined “Company’s Customers” as “any person or entity to whom Company sold or
provided any products and/or services at any time during the twenty-four (24) months immediately
preceding the termination of Employee’s employment with the Company.” HWC Appellants’ App. at 136.
Section 9(d) of the Knowles Agreement extended the prohibitions of Section 9(a) to encompass the
“Company’s Active Prospects,” defined as:
(i) any person or entity that Employee, on behalf of the Company, solicited, assisted in
the solicitation of, or engaged in marketing or sales towards, at any time during the
twelve (12) months immediately preceding the termination of Employee’s employment
with the Company; and/or (ii) any person or entity to whom the Company submitted a
proposal or quote for the sale or provision of the Company’s products/services at any
time during the twelve (12) months immediately preceding the termination of Employee’s
employment with the Company.
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service contact on behalf of the Company, Employee had any
business contact on behalf of the Company, Employee had any
sales or service responsibility (including without limitation any
supervisory or managerial responsibility) on behalf of the
Company, Employee had any project responsibility on behalf of
the Company, or Employee had access to, or gained knowledge
of, any Confidential Information concerning the Company’s
business with such customer, or otherwise 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. . . .
“Restricted Time Period” means the period of Employee’s
employment with the Company and for twenty-four (24) months
immediately after the termination of Employee’s employment
with the Company regardless the reason for such termination.
Joint Ex. 235 (emphasis and paragraph separation added); HWC Appellants’ App.
at 135-36. Section 9(h) prohibited Knowles from violating the covenants
directly or indirectly:
Employee acknowledges and agrees that the covenants contained
in this Section 9 prohibit Employee from engaging in certain
activities directly or indirectly whether on Employee’s own
behalf or on the behalf of any other person or entity, and
regardless [of] the capacity in which Employee is acting,
including without limitation as an employee, independent
contractor or owner.
Id. (emphasis added). In the Knowles Agreement, Knowles agreed that the
restrictions imposed were reasonable and necessary for the protection of ASI’s
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legitimate interests, including business relationships and goodwill, and would
not post any substantial hardship on him.16 Id. at § 12.
[29] In its Findings and Conclusions issuing the injunction on Knowles’s non-
compete, the trial court addressed the four-part test for a preliminary injunction
and determined: (1) ASI established a reasonable likelihood of success on the
merits of its breach of contract count against Knowles, Day, and Lancet; (2)
ASI’s remedies at law are inadequate and that ASI established irreparable
harm, noting that “the irreparable harm requirement ‘does not mandate that the
party demonstrate specific losses in its business’” and that the evidence showed
that, as a result of Knowles’s violation, there could be harm in the future to
ASI, including loss of goodwill and a need to rebuild relationships and trust; (3)
the threatened injury to ASI outweighed the potential harm to HWC, stating,
“The threatened injury to ASI is great,” such as an erosion of ASI’s “pipeline of
business,” while the potential harm to Defendants is “not large,” noting
Defendants did not present evidence to show any harm “if the court enforces
the agreements prior to trial[;]” and (4) it would not disserve the public interest
to enforce the non-competition (and non-solicitation) provisions, observing that
ASI’s requested injunctive relief would not prevent HWC from competing with
16
Knowles also agreed that a breach or threatened breach of Section 9 would give rise to irreparable injury to
ASI, that money damages would not be adequate relief for such injury, and that ASI shall be entitled to
obtain equitable relief and injunctive relief, including a preliminary injunction. HWC Appellants’ App. at 138
(§ 11(a)). Although the Knowles Agreement contained a liquidated damages provision, id. at 138-39, the
parties advised at oral argument that the trial court had determined that the liquidated damages provision
constituted a penalty and was unenforceable.
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ASI, “just as it had prior to Knowles joining it.” HWC Appellants’ App. at 67-97
(Conclusion Nos. 4, 100, 102, 105, 109, 111, 113, 115, 117).
A. Irreparable Harm
[30] In challenging the trial court’s entry of the injunction, Defendants initially assert
that ASI did not make a showing of irreparable harm and did not show that its
remedies at law were inadequate. They argue, “There is no evidence of actual
harm from Knowles[’s] actions while employed at HWC with respect to ASI
clients. . . . No witness could identify any lost business or any specific projects
that ASI was at risk of losing.” HWC Appellants’ Br. at 6. Defendants maintain
that, at best, ASI was able to point only to possible lost work in the future due to
Knowles’s interactions with friends and business contacts, which is too
speculative and not sufficient to meet the standard for showing a threat of
imminent harm required for a preliminary injunction, and, accordingly, entry of
a preliminary injunction was an abuse of discretion.
[31] However, to obtain a preliminary injunction, our courts have recognized that
“irreparable harm is that harm which cannot be compensated for through
damages upon resolution of the underlying action.” Coates v. Heat Wagons, Inc.,
942 N.E.2d 905, 912 (Ind. 2011). The irreparable harm requirement “does not
mandate that the party demonstrate specific losses in its business.” AGS Capital
Corp., Inc. v. Prod. Action Int’l, LLC, 884 N.E.2d 294, 312 (Ind. Ct. App. 2008),
trans. denied. In this case, ASI presented evidence that Knowles, while at HWC,
was engaged in substantive work with individuals and entities that were ASI
clients – work that HWC characterized as operations and contract-type work, not
Court of Appeals of Indiana | Opinion 49A05-1601-PL-33 | November 30, 2016 Page 20 of 41
sales – and he participated in client development activities with individuals and
entities that were ASI clients. HWC Appellants’ App. at 33-35, 39-42. ASI
President Conner described Knowles’s activities at HWC as “diverting” the
“pipeline” of business opportunities. Id. at 35-36; Tr. at 31. The trial court
determined that harm, whether current or future, to ASI’s business, goodwill,
and the trust and personal relationships developed with accounts and entities was
“necessarily intangible[,]” but “the fact that it cannot be quantified in a dollar
amount is an argument in favor of equitable relief[.]” HWC Appellants’ App. at
92. We cannot say that the trial court’s decision, finding that Knowles’s actions
damaged ASI’s goodwill and posed a present and imminent threat to future
business, was an abuse of discretion.
B. Prohibited Conduct
[32] Defendants next argue that the trial court failed to strictly interpret the Knowles
Agreement, in particular the restricted activity.17 Defendants assert that “the
restriction on selling competing services must be tied to specific projects or sales
pursuits,” but instead the trial court “expansively” determined the non-compete
language to preclude him from “communicat[ing] with ASI clients . . . for the
17
With regard to the restriction on “activity,” Defendants note that Knowles’s job, while at ASI, “was to
administer the sales process,” and he did not perform engineering services for ASI, and because he did not do
so, any restriction on his ability to provide such services to HWC’s clients cannot be enforceable under
Indiana law. HWC Reply Br. at 7 n.2 (citing Cent. Ind. Podiatry, RC. v. Krueger, 882 N.E.2d 723, 730-31 (Ind.
2008) and Clark’s Sales & Serv., Inc. v. Smith, 4 N.E.3d 772, 782 (Ind. Ct. App. 2014) (“a covenant that restricts
the employee from competing with portions of the business with which he was never associated is invalid”),
trans. denied.) ASI does not appear to be attempting to enforce any limitation on Knowles’s provision to
HWC of engineering services or any other type of services that he did not do at ASI.
Court of Appeals of Indiana | Opinion 49A05-1601-PL-33 | November 30, 2016 Page 21 of 41
purpose of building a relationship and trust to obtain business for . . . HWC.”
HWC Appellants’ Br. at 20-22. This reading, Defendants maintain, has the effect
of “rendering Knowles a leper to any clients he dealt with at ASI and interfering
with his constitutional rights of association” and constitutes an abuse of
discretion. Id. at 22.
[33] Indeed, Indiana courts have recognized that non-competition agreements or
covenants not to compete are “in restraint of trade and not favored by the law”;
however, they are enforceable if they are reasonable. Cent. Ind. Podiatry, 882
N.E.2d at 729. To be reasonable, an agreement containing such a covenant (1)
must protect legitimate interests of the employer; and (2) the restrictions
established by the agreement must be reasonable in scope as to time, activity,
and geographic area.18 Coates, 942 N.E.2d at 913. An appellate court reviews a
trial court’s interpretation of restrictive covenants de novo. Cent. Ind. Podiatry,
882 N.E.2d at 729.
[34] Here, it is undisputed that, after joining HWC, Knowles continued to have
interactions with ASI’s clients. Those fell into two basic categories: (1) those
that ASI views as business development, including such things as fishing trips,
poker games, golf outings, and not-for-profit fundraisers, and various social,
industry, and political events with ASI clients; (2) those that were part of his job
18
Defendants focus the limitations on activity and do not challenge the geographic or time limitations
imposed by the Knowles Agreement, other than the challenge to the extension provision, as addressed later
in this decision.
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in HWC’s operations division and were connected to the contract-type work that
he did, which occurred after HWC had been selected as the engineering firm on
a project, but before the contract was negotiated and signed.
[35] With regard to the first category of interactions, involving attendance at such
activities as industry, social, fundraising, and political functions, Knowles did not
view his activities with these individuals to be in violation of the Knowles
Agreement, testifying that because they were not connected to particular sales,
and he did not seek to secure work from these contacts, they were not restricted
activities. He explained that his attendance and involvement was not intended
to secure work and was only to “build friendships.” HWC Appellants’ Br. at 4;
HWC Appellants’ App. at 76; Tr. at 632. Defendants also submitted testimony
from ASI clients, who stated that Knowles informed them of his contractual
objections and that he was not soliciting business from them.
[36] The trial court rejected Defendants’ suggestion that Knowles’s contacts with
individuals at outside activities such as fishing, poker, social gatherings and not-
for-profit activities were only in furtherance of friendships, relying in part on the
testimony of Kenton Moore (“Moore”), ASI’s Vice President of Field Sales, who
worked closely with Knowles at ASI. Moore described that it is necessary to
develop trust and relationships with clients and potential clients, and to that end,
ASI’s (and HWC’s) sales teams get to know and spend time with clients,
prospective clients, and their families. HWC Appellants’ App. at 16; Tr. at 354,
358-62. Some examples include meeting for breakfasts, lunches, dinners,
charitable functions, golf outings, trips, sporting events, conferences, networking
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events, receptions, and political functions. All of these activities are paid for by
the employer (here, ASI or HWC) because the activities build trust and goodwill.
By building trust with clients and prospective clients, it is ASI’s and HWC’s goal
to obtain future projects. The trial court’s determination on the issue was based
to a large extent on its assessment of the credibility of the witnesses. The trial
court addressed this credibility aspect:
With respect to ASI, Knowles testified that [] client development
activities were designed to build relationships, trust, and goodwill
for ASI.
The purpose of Knowles’ activities on behalf of HWC is exactly
the same: to build and maintain relationships and goodwill, with
the goal of eventually obtaining work for HWC. The Knowles
Agreement prohibits him from doing these activities with his
former ASI clients.
....
The court does not find it believable or reasonable that
Knowles was not selling, trying to seek future projects, or was
not trying to build a relationship of trust and confidence in him
and his company, HWC.
HWC Appellants’ App. at 74, 77 (emphasis added). The trial court determined
that Knowles’s attendance at and participation in those types of activities,
which were generally paid for by HWC, were to preserve his relationships with
these clients and to maintain and develop goodwill and that, given the QBS
selection process of the engineering industry, the personal relationships and
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trust developed through years of contact and goodwill “are often determinative
factors as to which engineering firm is selected for a project.” Id. at 71, 74. The
trial court was within its discretion in finding that engaging in such activities
was for the purpose of selling, directly or indirectly, in violation of the Knowles
Agreement.
[37] With regard to the other category of contacts with ASI clients, which involve
Knowles’s job responsibilities, Defendants note that Knowles’s job at HWC was
in the operations department, and not in sales, where he was at ASI. HWC Reply
Br. at 14. Defendants further seek to distinguish what Knowles did at ASI versus
what he did at HWC:
While he was at ASI, Knowles was actively involved in making
the pitch for clients to select ASI pursuant to the QBS process. . .
. In contrast, at HWC, Knowles[’s] role in new contracts is
limited to reviewing fees, reviewing verbiage in contracts, and
tracking down signatures for contracts—all of which comes after
HWC has been selected by a client and which is internal within
HWC.
HWC Appellants’ Br. at 5; HWC Reply Br. at 7. Succinctly put, Defendants’
position is that once the engineering firm has been selected, the “sale” has
occurred (is complete), and, therefore, Knowles’s subsequent contacts with the
client, during which the fees and project’s scope are discussed and determined,
are not part of the sales process and do not violate his non-compete.
[38] The trial court rejected this argument, again relying in part on the testimony of
Moore, who explained that the sales cycle in the public engineering industry is
Court of Appeals of Indiana | Opinion 49A05-1601-PL-33 | November 30, 2016 Page 25 of 41
lengthy and continuous; each of the many points of contact and connections with
a client or prospective client before, during, and after the selection process are
part of a company’s efforts to gain and retain business. Moore stated that the
project is not “a win” until after negotiations and the contract is signed. ASI Ex.
244; Tr. at 376.
[39] Contrary to Defendants’ suggestion that the trial court’s reading of the restrictive
covenants was overbroad and unenforceable because it effectively precludes him
from working at HWC in any capacity, Knowles can work with HWC clients in
the same or similar manner in which he was employed at ASI, provided the
clients are not clients he recently worked with at ASI. Nor does the non-compete
restrict him from working in internal operations, including, as ASI suggests
“performance management, human resources, recruitment of non-ASI
employees, and company growth initiatives.” HWC Appellants’ App. at 105-06.
It was the negotiation of contracts with ASI clients, after HWC had been awarded
the bid but before contract was signed, that the trial court interpreted as violative
of the Knowles Agreement. Id. at 106.
[40] On appeal, we are not to disturb a trial court’s findings or judgment unless they
are clearly erroneous, nor should we reweigh the evidence or reassess witness
credibility. Clark’s Sales & Serv., 4 N.E.3d at 780. Rather, we are to consider only
the evidence favorable to the judgment and all reasonable inferences therefrom.
Id. Given this standard of review, we cannot say that the trial court’s
interpretation of the terms of the non-compete was improper. Its findings and
conclusions were not clearly erroneous.
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C. Laches
[41] Defendants argued to the trial court that ASI waited an unreasonably long period
of time before filing its lawsuit and seeking injunctive relief, and, based on this
delay, Defendants asked the trial court to apply the doctrine of laches to preclude
ASI from enforcing the Knowles Agreement. The equitable doctrine of laches
contains three elements: (1) inexcusable delay in asserting a known right; (2) an
implied waiver arising from knowing acquiescence in existing conditions; and (3)
a change in circumstances causing prejudice to the adverse party. Gleeson, 883
N.E.2d at 179-80. “Laches does not turn on time alone. . . . Unreasonable delay
causing prejudice or injury is necessary.” Id. at 180. Prejudice may be created if
a party, with knowledge of the relevant facts, permits the passing of time to work
a change of circumstances by the other party. Id. The question of laches is one
to be determined by the court in the exercise of its sound discretion. Ind. Real
Estate Comm’n v. Ackman, 766 N.E.2d 1269, 1273 (Ind. Ct. App. 2002). For a
decision to be reversed on appeal, an abuse of discretion must be clearly
demonstrated. Id.[42] Defendants argue that ASI was aware of Knowles’s new position at HWC when
he left ASI in May 2014 and was aware that, during the summer and fall of 2014,
Knowles had some social interaction, such as golfing, fishing, and fundraiser
events, with ASI clients, yet ASI did not take any action against Knowles until
ten months later when it filed suit on March 6, 2015. The trial court rejected the
laches argument, finding that the delay was reasonable, and we agree.
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[43] The record reveals that, almost immediately after Knowles’s departure, ASI
knew that Knowles took the position with HWC. ASI was aware of three or four
instances in the summer and fall of 2014 where Knowles was observed interacting
at social, political, or networking events with individuals who were at that time
ASI clients. ASI did not deem that any action was necessary. However, later in
2014 and into early 2015, after information “slowly trickled in,” ASI began to
learn of the activities and communications occurring between HWC and ASI
employees, and in early 2015, ASI launched an internal investigation, which
further revealed to ASI that HWC, through the actions of Knowles, Day, and
Lancet, among others, was “recruiting ASI’s employees.” ASI Appellee’s Br. at
41, 45. In March 2015, ASI filed its lawsuit. While the better practice may have
been for ASI to contact Knowles, Day, and Lancet, voice objection to those
activities of which ASI was aware, and request that they cease from the activities,
we cannot say that ASI’s decision to internally investigate and consult with
counsel before filing suit constituted an unreasonable delay. Furthermore, even
if the delay was considered unreasonable, Defendants have failed to show that
they were prejudiced by any such delay, arguing only that ASI’s delay “worked
a change in Knowles’[s] circumstances” because “Knowles settled into his new
job and started to build a life at HWC.” HWC Appellants’ Br. at 29. This general
statement does not identify prejudice. The trial court did not abuse its discretion
when it rejected Defendants’ claim that a ten-month delay in filing suit and
fourteen-month delay in seeking injunctive relief constituted laches.
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II. Enforcement of Non-Solicitation Agreements
[44] Section 9(e) of the Knowles Agreement restricted him and his future employer
as follows:
During the Restricted Time Period, Employee will not 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 the Company, or otherwise urge, induce or seek
to induce any person to terminate his/her employment with the
Company.
Joint Ex. 235. Under Section 9(h) Knowles was prohibited from doing so
directly or indirectly. Id. The Lancet Agreement19 provided that while Lancet
was employed by ASI and for a period of two years after his employment with
ASI concluded, Lancet would not
solicit or endeavor to entice away, provide information to others
purposely with the intent of helping them solicit or entice away,
knowingly offer employment to, knowingly employ, or offer or
conclude any contract for services with, any person who is
employed by [ASI] at the date your employment with [ASI]
ceases.
Joint Ex. 234. The Day Agreement contained a non-solicitation provision
identical to the Lancet Agreement. Joint Ex. 8.
19
Previous to signing the Lancet Agreement in January 2007, Lancet had signed in April 2004 an
Employment Agreement, which included non-solicitation and non-competition provisions. Joint Ex. 144.
The 2007 Lancet Agreement set forth the Terms and Conditions of his then-current employment, as well as a
non-solicitation provision. Joint Ex. 234.
Court of Appeals of Indiana | Opinion 49A05-1601-PL-33 | November 30, 2016 Page 29 of 41
[45] Following the hearing, the trial court enjoined HWC, Knowles, Day, and
Lancet as follows:
Knowles, Day and Lancet shall not, directly or indirectly, have
any communication with, solicit, recruit, hire, employ, attempt
to hire or employ, or assist any person or entity (including but
not limited to HWC) 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.
HWC Appellants’ App. at 98-99.
[46] In challenging the injunction, Defendants do not claim that the non-solicitation
provision are unenforceable or that Defendants did not engage in the alleged
solicitation or recruitment of ASI employees. Rather, they argue that there was
no pending threat of recruiting activity, and thus no need for an injunction to
enjoin it. That is, “any alleged recruiting activity was completed” by the time
the lawsuit was filed in March 2015. HWC Appellants’ Br. at 17. Further,
Defendants assert, there was no evidence that ASI “suffered any cognizable
harm” from the loss of seven employees. Id. at 17.
[47] The record reveals, however, that one of HWC’s primary objectives in hiring
Knowles was to rebuild its transportation department, including recruiting and
maintaining a better staff of employees. According to ASI, Knowles and HWC
engaged “in a calculated scheme to raid ASI . . . of its employees and of its
talent” and that Knowles and HWC, aware of the recruiting restrictions in the
Knowles Agreement, “enlisted the help of Day and Lancet” to target at least
eighteen ASI employees. ASI Appellee’s Br. at 21, 44. While Defendants urge
Court of Appeals of Indiana | Opinion 49A05-1601-PL-33 | November 30, 2016 Page 30 of 41
that any recruiting was complete by the time the complaint was filed, and
would not happen anymore, there was no assurance of that. Indeed, when
Knowles left ASI in May 2014, he expressed to ASI that he would abide by the
Knowles Agreement, but near the end of 2014, ASI learned – through its
employees and by receiving an email intended for Knowles at HWC – of the
recruiting efforts. In issuing the injunction, the trial court expressly issued
conclusions with regard to its credibility determinations. As to Lancet, the trial
court stated:
This Court finds that the following witnesses were not credible at
all as they lied in previous testimony and or statements or/and
they admitted they lied or they were deceptive to others
purposefully: Lancet and Sparks. In addition, it was clear to the
court after judging their (Lancet and Sparks) demeanor and
content of their testimony that i[t] was not credible and should
not be relied upon by this Court.
HWC Appellants’ App. at 79. As to Day and Knowles, the trial court determined
that their testimony “was not credible or believable in light of all the evidence.”
Id. at 80. We do not reweigh evidence or assess witness credibility on appeal.
Clark’s Sales & Serv., 4 N.E.3d at 780. Based on the record before us, the trial
court was within its discretion to issue the injunction to prevent further
recruitment, or the threat of it, by Knowles, Day, and Lancet.
[48] Defendants also contend on appeal that the injunction was inappropriate, based
on a lack of notice to Day and Lancet, since ASI did not give Day or Lancet a
copy of their respective Agreements when either of them left ASI’s
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employment, nor did ASI remind either of them that they had signed such an
Agreement, years prior and were bound by the non-solicitation provisions.20
HWC Appellants’ Br. at 29-33. Their argument is grounded in equitable
principles,21 i.e., “he who seeks equity, must do equity” and they argue that,
here, “ASI’s affirmative choice not to provide notice should bar it from securing
injunctive relief[.]” HWC Appellants’ Br. at 32; HWC Reply Br. at 26.
[49] In this case, evidence was presented to support the trial court’s determinations
that HWC through the efforts of Knowles, Day, and Lancet solicited or
recruited, or assisted in the soliciting and recruiting of ASI employees. Lists of
potential candidates were made and shared. Discussions were had, and
interviews occurred, some at restaurants, homes, and through outside email
servers. From this and other evidence, the trial court could make the
reasonable inference that Knowles, Day, and Lancet knew that they were
bound by non-solicitation restrictions. Furthermore, the trial court was
20
Defendants assert a lack-of-notice argument as to Day and Lancet only. See HWC Appellants’ Br. at 29-33.
Thus, any argument that Knowles lacked notice of the non-solicitation aspect of the Knowles Agreement is
waived. Ind. Appellate Rule 46(A)(8).
21
In their Appellants’ Brief, Defendants argued that “ASI had a duty to provide notice . . . of what those
restraints were, and then prove that the restraints were reasonable. ASI did not.” HWC Appellants’ Br. at 31;
see also id. at 29 (“This Court has not yet addressed whether an employer has an affirmative duty to provide a
former employee with a copy of or a reminder notice of a restrictive covenant signed by the employee[,]” and
“This case reveals why such a duty of notice should be required.”). In response, ASI argued that Indiana has
not recognized a duty upon employers to either remind employees that they had signed a restrictive covenant
or to provide them with a copy of it upon their departure. Defendants, in their Reply Brief, explain that they
are not asking the court to recognize a new tort duty; rather, they are proposing that before an employer can
secure injunctive relief through a trial court’s equitable powers, the employer must provide notice to the
employee of the limitations of an existing restrictive covenant. HWC Reply Br. at 25 n.10. Thus, we do not
make any duty analysis in our decision.
Court of Appeals of Indiana | Opinion 49A05-1601-PL-33 | November 30, 2016 Page 32 of 41
precluded from enforcing the provisions of the non-solicitation agreements
through a preliminary injunction because Day and Lancet stated that they did
not remember signing such documents. Indeed, the trial court expressly found
that it did not deem them credible witnesses. The trial court did not abuse its
discretion in issuing the injunction enjoining Defendants from violating the
non-solicitation provisions of their respective Agreements.
III. Dissolution of the Injunction as to Knowles
[50] In April 2016, Knowles filed a motion asking the trial court to dissolve the
enforcement of the restrictive provisions of the Knowles Agreement, arguing
that the 24-month restriction began when Knowles left ASI on May 14, 2014
and it ended on May 14, 2016. The trial court agreed with Knowles and
dissolved the injunction effective May 14, 2016. We review a trial court’s
decision to dissolve or refuse to dissolve a preliminary injunction for an abuse
of discretion. Gilmer v. Bd. of Comm’rs of Marshall Cnty., 428 N.E.2d 1318, 1319
(Ind. Ct. App. 1981). “To the extent that the trial court was required to find
facts with respect to what the proper length of the injunction should be,” we
apply “the traditional deferential standard of review where facts have been
found.” Oxford Fin. Grp. Ltd. v. Evans, 795 N.E.2d 1135, 1141-42 (Ind. Ct. App.
2003). “To the extent the trial court’s decision turned on contract
interpretation,” the standard of review is de novo. Id. at 1142.
[51] Here, the Knowles Agreement contained a 24-month restriction, which began
to run “from the time at which [Knowles] ceases to provide services to [ASI] in
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any manner whatsoever[.]” HWC Appellants’ App. at 135, 137. Section 9(i) of
the Knowles Agreement contained the following extension clause in the case of
a violation:
In the event Employee violates any of the non-competition
covenants contained in this Section 9, the duration of all non-
competition covenants (and the Restricted Time Period) shall
automatically be extended by the length of time during which
Employee was in violation of such covenant, including, but not
limited to, an extension equal to the time period from the date
of Employee’s first violation until an injunction is entered
enjoining such violation.
Id. at 137 (emphasis added).
[52] ASI opposed Knowles’s request for the trial court to dissolve the injunction on
May 14, 2016, arguing that Section 9(j) of the Knowles Agreement, which
Knowles voluntarily signed, contained a provision that tolled the time period by
extending the non-compete by the amount of time from Knowles’s first
violation until the entry of an injunction. Knowles, however, urged that
Indiana case law, specifically Kuntz v. EVI, LLC, 999 N.E.2d 425 (Ind. Ct. App.
2013), precludes a trial court from extending the duration of a non-compete
through a preliminary injunction. Agreeing with Knowles and relying on
Kuntz, the trial court in this case found that “the preliminary injunction cannot
be extended because to do so would violate the purpose of a preliminary
injunction as stated in Kuntz and so it must be dissolved [as to Knowles].” ASI’s
Appellant’s App. Vol. II at 22. We agree.
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[53] In Kuntz, Kuntz owned and operated a business, which he sold to JS Hare, and
as part of the deal, he signed a covenant not to compete on December 12, 2011.
It provided, in relevant part:
For purposes of this Agreement, “Non-compete Period” shall
mean the period that begins on the effective date of this
Agreement and ends on October 7, 2014, except that the “Non-
Compete Period” shall be extended by the duration of any
violation by [Kuntz] of the terms of Paragraph 2 of this
Agreement.
999 N.E.2d at 428 (emphasis added). Eventually, JS Hare sold the business to
EVI, LLC, which at some point suspected that Kuntz was violating the non-
compete. EVI filed suit, and the trial court granted a preliminary injunction on
December 17, 2012. The trial court granted EVI’s request to extend the
preliminary injunction for an additional eight months, from October 7, 2014
(the stated “end” date of the non-compete) until June 7, 2015, explaining that
Kuntz’s violations of the non-compete commenced around the beginning of
April 2012 and continued until December 2012, when the trial court enjoined
Kuntz from violating the non-compete. Id. at 432.
[54] On appeal, the Kuntz court reversed, concluding that a preliminary injunction
was not an appropriate vehicle to extend the terms of a non-compete. It based
its decision on the recognized purpose of a preliminary injunction, which is:
“‘to preserve the status quo as it existed before a controversy, pending a full
determination on the merits of the dispute.’” Id. (quoting Stoffel v. Daniels, 908
N.E.2d 1260, 1272 (Ind. Ct. App. 2009)). And “[t]he status quo is the ‘last,
Court of Appeals of Indiana | Opinion 49A05-1601-PL-33 | November 30, 2016 Page 35 of 41
actual, peaceful and non-contested status which preceded the pending
controversy.’” Id. (quoting N. Ind. Pub. Serv. Co. v. Dozier, 674 N.E.2d 977, 987
(Ind. Ct. App. 1996)). The Kuntz court explained that the last uncontested
position of the parties was the non-compete agreement as it existed prior to
litigation, which was enforceable until October 7, 2014, and the extension of the
non-compete beyond the October 7, 2014 end date was “premature at this stage
of the litigation and goes beyond the purpose of the preliminary injunction.”
Id.Any court-ordered extension of the Non[-]compete Agreement
would be appropriate only after a full examination of the case on
the merits and a final determination that a violation occurred.
Therefore, we conclude that the trial court abused its discretion
by extending the duration of the Non[-]compete Agreement as
part of the preliminary injunction.
Id.[55] ASI seeks to distinguish Kuntz and argues that, unlike the Knowles Agreement,
the agreement in Kuntz did not contain a provision that contemplated the
extension of the non-compete upon the entry of a preliminary injunction: “The
Kuntz [a]greement simply provided that the period ‘shall be extended by the
duration of any violation’” and “was silent on whether the non-compete period
could be extended as part of an injunction entered by the court.” ASI Appellant’s
Br. at 25. However, we are not persuaded that this distinction makes a
difference. The non-compete agreements both in the present case and the Kuntz
case contemplated that they will be extended by the duration of any violation
Court of Appeals of Indiana | Opinion 49A05-1601-PL-33 | November 30, 2016 Page 36 of 41
and by the length of time the employee was in violation. We find, as did the
trial court, that Kuntz is directly applicable and precluded the trial court from
applying the Section 9(i) extension provision of the Knowles Agreement at this
stage of the litigation.22
[56] Lastly, ASI asks us to reverse the trial court’s determination that Knowles was
not equitably estopped from obtaining dissolution of the injunction. ASI had
argued, and the trial court rejected, the position that Knowles, due to his
deceptive conduct, should be equitably estopped from obtaining dissolution of
the injunction. The party claiming equitable estoppel must show (1) its lack of
knowledge and of the means of knowledge as to the facts in question, (2) its
reliance upon the conduct of the party estopped, and (3) action based thereon of
such a character as to change his position prejudicially. Money Store Inv. Corp. v.
Summers, 849 N.E.2d 544, 547 (Ind. 2006). In this case, the trial court
determined that “ASI either had knowledge that Knowles was in violation of
his Non-Compete or that ASI had the means of obtaining such knowledge to
determine whether Knowles was in violation of his Non-Compete Agreement
22
ASI observes that “at least one other Indiana reported case analyzed the extension of the duration of a
non-compete clause without holding that extension clauses are per se unenforceable,” namely, Oxford Financial
Group, Ltd. v. Evans, 795 N.E.2d 1135 (Ind. Ct. App. 2003). ASI Appellant’s Br. at 27. ASI argues that because
the Oxford court did not simply state that extension clauses are per se unenforceable and, rather, engaged in an
“extensive analysis” of the extension clause, we can infer that, in the right circumstances, an extension clause
may be enforceable to extend a non-compete via a preliminary injunction. The trial court in the present case
recognized Oxford in its findings and conclusions, finding that it was relevant, but determined that “Kuntz
overruled it” ASI Appellant’s App. at 21-22. We too agree that Kuntz controls; it was more recently decided
and spoke more directly to the issue at hand. To the extent that Oxford could be viewed as valid despite the
Kuntz decision, we respectfully decline to follow it.
Court of Appeals of Indiana | Opinion 49A05-1601-PL-33 | November 30, 2016 Page 37 of 41
as early as May of 2014[,]” concluding that ASI did not meet the three
requirements for application of equitable estoppel. ASI Appellant’s App. Vol. II
at 24. We agree.
[57] With regard to the “lack of knowledge” element of the inquiry, the record
reveals that, although ASI may not have known of the extent of the violations
of the Knowles Agreement, it was aware in May 2014 that Knowles went to
work for competitor HWC and was aware of at least three or four instances
during the summer of 2014 that Knowles had interaction with ASI clients at
events or outings. In September 2014, when Sparks inadvertently sent an email
to Knowles’s old ASI email address, ASI discovered that Knowles and ASI
were involved in the recruitment of at least Tolle. We agree with the trial court
that ASI failed to establish lack of knowledge sufficient to equitably estop
Knowles from proceeding on his motion. Furthermore, with regard to the
second and third prongs of the equitable estoppel inquiry, i.e., reliance upon the
conduct of the party estopped, and action based thereon of such a character as
to change his position prejudicially, ASI offers one sentence, stating that it
relied on Knowles’s representation that he would honor his restrictive
covenants “and did not take immediate legal action based on those
representations.” ASI Appellant’s Br. at 41. This general statement does not
explain in what way ASI was prejudiced, and we find it does not satisfy the
second and third prongs of the equitable estoppel inquiry. The trial court did
not abuse its discretion when it granted Knowles’s motion and dissolved the
preliminary injunction on May 14, 2016.
Court of Appeals of Indiana | Opinion 49A05-1601-PL-33 | November 30, 2016 Page 38 of 41
[58] Affirmed.
Robb, J., concurs.
Baker, J., concurs with separate opinion.
Court of Appeals of Indiana | Opinion 49A05-1601-PL-33 | November 30, 2016 Page 39 of 41
IN THE
COURT OF APPEALS OF INDIANA
Hannum Wagle & Cline Court of Appeals Case No.
Engineering, Inc., d/b/a HWC 49A05-1601-PL-33
Engineering, Inc., et al.,
Appellants/Appellees-Defendants,
v.
American Consulting, Inc.,
d/b/a American Structurepoint,
Inc.,
Appellee/Appellant-Plaintiff.
Baker, Judge, concurring.
[59] I am compelled to concur fully with the majority opinion, but I write separately
to voice my serious concerns about the extreme breadth of clause two of the
relevant provision in the Knowles Agreement. Specifically, Knowles may not
“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[.]” HWC Appellant’s
Court of Appeals of Indiana | Opinion 49A05-1601-PL-33 | November 30, 2016 Page 40 of 41
App. p. 135-37 (emphasis added). To tell a person who works in sales that he
may not even communicate with past or potential clients is to take away his
proverbial bread and butter. He may no longer schmooze. That is far too
draconian to sit comfortably with me. And in this case, it goes a step farther,
because the past and potential clients are all government employees, which
takes it even farther into an overly restrictive realm.
[60] We have largely moved as a society from an economy of goods to an economy
of services. The disfavor with which this State views restrictive covenants
should be heightened, in my view, where the purported irreparable harm cannot
be quantified—which is almost always the case when it is the provision of
services that is at the heart of a restrictive covenant. Under these
circumstances, I believe only the narrowest of restrictive covenants should be
enforceable, and I do not believe that clause two of the Knowles Agreement
qualifies.23 With the current state of caselaw, however, I am compelled to
concur fully with the majority opinion.
23
I have no reservations whatsoever about the drafting or enforcement of the provisions in these agreements
prohibiting former ASI employees from poaching other ASI employees to work for HWC.
Court of Appeals of Indiana | Opinion 49A05-1601-PL-33 | November 30, 2016 Page 41 of 41