The Court of Appeals recently addressed three issues important to Indiana businesses embroiled in legal disputes: 1) Validity of the Commercial Court, 2) ex parte (no notice) temporary restraining orders, and 3) enforceability of restrictive covenants (noncompete and nonsolicitation clauses) in employment agreements. We will address each in turn.
Vickery’s and Ardagh Glass’s Dispute
Ardagh Glass is a manufacturer of glass containers and bottles. Vickery worked for Ardagh Glass as a Senior Mold Engineer. As a condition of Vickery coming to work for Ardagh Glass, he signed a Noncompete Employee Agreement in 2004 that explicitly provided that Vickery could not work for a competitor for a one year period following his departure. Vickery was passed over for a promotion in 2016, and soon after applied for a similar position at Owens-Illinois, one of Ardagh Glass’s primary competitors. Vickery was offered and accepted the position at Owens-Illinois. Once Ardagh Glass determined that Vickery intended to go to work for a competitor, it informed him that it intended to enforce the Noncompete Agreement. On Vickery’s last day of work with Ardagh Glass, he was informed that Ardagh Glass was filing suit and seeking an injunction that day.
Indiana’s Commercial Courts
In 2016, Indiana became the 23rd state to establish commercial courts. The pilot program established commercial courts in six Indiana counties and provides litigants the opportunity to place their legal disputes in front of a judge regularly hearing business disputes. Concentrating business disputes with selected judges is intended to more efficiently resolve those disputes and free up the dockets of other courts to address non-business disputes.[1] A good background article from The Indiana Lawyer can be found here.
In Vickery v. Ardagh Glass Inc., 2017 WL 4558666 (Ind. Ct. App. Oct. 13, 2017), the defendant (Craig Vickery) argued (1) the Indiana Supreme Court exceeded its authority when it established the Commercial Court, (2) the Indiana Supreme Court lacked the authority to appoint Commercial Court judges, (3) that the Commercial Court bestows unconstitutional privileges on business entities, and (4) the Commercial Court permits corporate plaintiffs to compel individual defendants to litigate in distant venues, creating an extreme hardship.
The Court of Appeals did not address all of the claims, holding that Vickery had waived his argument as the rule establishing the Commercial Court provides any litigant the opportunity to have a case filed in the Commercial Court transferred to a non-Commercial Court docket by filing a Refusal Notice within thirty days. Id. at *3. Vickery’s failure to file the Refusal Notice constituted a waiver of his objection to personal jurisdiction. Id.
The Court’s holding essentially disposed of Vickery’s third and fourth arguments above.
Even if Vickery had not waived his issues related to the Commercial Court, we believe his first and second arguments would also have failed. The establishment of the Commercial Courts did not create new courts or appoint new judges, as Vickery appeared to argue. Instead, it took existing courts (and judges) and tasked them with focusing on commercial disputes.[2] The Indiana Supreme Court “has authority to adopt, amend, and rescind rules of court that govern and control practice and procedure in all the courts of Indiana.” Ind. Code § 34-8-1-3. The establishment of the pilot project and the assignment of judges to the pilot project merely governed the practice and procedure of the courts, consistent with the Indiana Supreme Court’s authority.
The takeaway from this case is that if a party does not want to have its case heard in the Commercial Court, then timely Notice of Refusal is required.
The Temporary Restraining Order
Vickery next argued that the trial court granted Ardagh Glass a temporary restraining order without proper notice to Vickery. A temporary restraining order (or TRO) may be granted ex parte (i.e. without notice, in this context) only (1) if there are specific facts shown that immediate and irreparable damage will result before notice could be made and (2) the applicant certifies what efforts were made to give notice and why notice should not be required. Indiana Trial Rule 65(B).
Furthermore, providing “notice” means “meaningful notice” – an actual opportunity to respond. In the Matter of Larry O. Wilder, 764 N.E.2d 617 (Ind. 2002). In Wilder, pleadings were sent to the defendant at the same time counsel was meeting with the judge. Id. at 621. The Indiana Supreme Court held that act cannot be said to have been calculated to provide opposing counsel with meaningful notice.” Id. Further, “[b]ecause such last-minute delivery of the papers to opposing counsel is not adequate notice, the respondent was required to satisfy the conditions for relief with no notice; i.e., claim risk of immediate and irreparable loss and include a certificate regarding notice or lack thereof. He failed to do either.” Id.
In Vickery, plaintiff’s counsel emailed at 11:00 a.m. that suit would be filed the same day, but did not identify the date, time, or specific location of a hearing. The TRO was issued at 4:12 that day.
The Court of Appeals agreed that Ardagh Glass did not provide sufficient notice, and therefore Ardagh Glass was required to provide specific facts identifying the immediate and irreparable damage that would be caused before notice could be made. Ardagh failed to provide such facts, and therefore the TRO should not have been granted.[3]
While there is no mention of sanctions in Vickery, parties and attorneys should be aware that failure to provide proper notice has led courts to sanction attorneys, as in Wilder, for improperly obtaining an ex parte TRO.
The Restrictive Covenant
Finally, the Court considered whether Ardagh’s noncompetition agreement was enforceable and that a preliminary injunction was properly entered.[4] We have written on these issues a number of times, you can find those articles here and here. In summary, a restrictive covenant is enforceable if it relates to a legitimate protectable interest, and is reasonable in time, geography, and scope of activities restricted. If the covenant is enforceable, then a preliminary injunction may be entered if the former employer is reasonably likely to succeed on the merits, the remedies at law (monetary compensation) are inadequate and irreparable harm will occur while the case is being litigated, the injury to the employer outweighs the potential harm to the employee, and the public interest would not be disserved by granting the injunction.
Vickery argued each element was in his favor. The trial court disagreed and granted the preliminary injunction, and the Court of Appeals affirmed the decision. Of particular interest is the discussion of the geographic restriction (enforcing a nationwide restriction), irreparable harm (a judgment that can’t be collected is meaningless), and comparison of the injury to employer v. employee (delays undercut a claim of harm).
The Geographic Restriction
Although Vickery argued there was no geographic restriction, the trial and appellate courts concluded the restriction was the United States (Ardagh Glass’s “North American division, which includes the United States but does not include Canada or Mexico”). The court found the restriction reasonable as Ardagh Glass has fifteen plants throughout the United States, services customers throughout the United States, and Vickery’s new employment would compete for customers throughout the United States.
Irreparable Harm
Vickery argued Ardagh Glass would not be irreparably harmed because it could calculate its damages and therefore its remedies at law would be adequate. However, Vickery does not dispute that if a multi-million judgment were entered against him, he would be unable to pay the judgment. A judgment impossible to collect is a meaningless judgment. Consequently, even though the damages were calculable, Ardagh Glass would be irreparable harmed without an injunction because the judgment could not be collected.
Comparison of the Injuries
The parties raised, and the Court considered, many issues comparing the harm to the parties. Of interest for purposes of this article is the Court’s conclusion that Vickery delayed in diligently pursuing an end to this litigation. To quote the Court:
Further undercutting Vickery’s claimed harms is the fact that he has not pursued his case expeditiously. He repeatedly sought continuances in the trial court, asked the trial court to delay ruling on the preliminary injunction, took all thirty days available to him to file his notice of appeal, did not seek to expedite the preparation of the record or the transcript, and obtained multiple extensions of time from this Court to file his appellant’s brief.
Id. at *10.
Here, like with the use of the Commercial Court and the TRO, the Court held that Vickery’s own actions led to the defeat of his arguments. It is critical to ensure a party preserves its rights. Timely consultation with counsel is critical. If you have any questions about the Commercial Court, TROs, restrictive covenants in employment agreements, or any other issue covered or other legal issues arising from employment, please contact Steve Runyan or one of our other attorneys here to discuss your situation. It would be our pleasure to assist you.
[1] The purpose of commercial courts is to
- establish judicial structures that will help all court users by improving court efficiency;
- allow business and commercial disputes to be resolved with expertise, technology, and efficiency;
- enhance the accuracy, consistency, and predictability of decisions in business and commercial cases;
- enhance economic development in Indiana by furthering the efficient, predictable resolution of business and commercial law disputes; and
- employ and encourage electronic information technologies, such as e-filing, e-discovery, telephone/video conferencing, and also employ early alternative dispute resolution interventions, as consistent with Indiana law.
Order Adopting Interim Commercial Court Rules for the Indiana Commercial Courts Pilot Project, Cause No. 94S00-1601-MS-31 (available at https://www.in.gov/judiciary/files/order-other-2016-94s00-1601-ms-31a.pdf).
[2] Order Establishing the Indiana Commercial Court Pilot Project, 94S00-1601-MS-31 (available at http://www.in.gov/judiciary/files/order-other-2016-94S00-1601-MS-31.pdf).
[3] However, the victory was short-lived as the Court of Appeals also found Vickery waived the issue by later moving to extend the TRO and agreed to combine the preliminary injunction and TRO hearings.
[4] The non-competition agreement was governed by Pennsylvania law, which does not appear to differ from Indiana law in any applicable respects.
American Institute of Architects (AIA) 2017 update