Case Title: Chambers-Dobson, Inc. v. Squier

Citation: 238 Neb. 748, 472 N.W.2d 391

Docket Number: 

State: nebraska

Court: Nebraska Supreme Court

Date: 1991-07-26T00:00:00Z

Document:
472 N.W.2d 391 (1991) 238 Neb. 748 CHAMBERS-DOBSON, INC., a Nebraska Corporation, Appellee and Cross-Appellant, v. Charles D. SQUIER, Appellant and Cross-Appellee. 89-124. Supreme Court of Nebraska. July 26, 1991. *394 Gene T. Oglesby, Oglesby, Brown, Thomas, Peterson & Orton, Lincoln, for appellant and cross-appellee. David R. Buntain and Sonya S. Ekart, Cline, Williams, Wright, Johnson & Oldfather, Lincoln, for appellee and cross-appellant. BOSLAUGH, WHITE, CAPORALE, SHANAHAN, GRANT, and FAHRNBRUCH, JJ. SHANAHAN, Justice. Chambers-Dobson, Inc., brought an action against Charles D. Squier to enjoin him from engaging in certain insurance business, in violation of covenants not to compete with Chambers-Dobson. From permanent injunctions granted by the district *395 court for Lancaster County and a judgment for damages, Squier appeals. Chambers-Dobson cross-appeals. We affirm. An injunction is a remedy available through an equity action. Burton v. Annett, 215 Neb. 788, 341 N.W.2d 318 (1983). In an appeal of an equity action, an appellate court tries factual questions de novo on the record and reaches a conclusion independent of the findings of the trial court; provided, where credible evidence is in conflict on a material issue of fact, an appellate court considers and may give weight to the fact that the trial judge heard and observed the witnesses and accepted one version of the facts rather than another. Hughes v. Enterprise Irrigation Dist., 226 Neb. 230, 410 N.W.2d 494 (1987); Gottsch v. Bank of Stapleton, 235 Neb. 816, 458 N.W.2d 443 (1990); American Sec. Servs. v. Vodra, 222 Neb. 480, 385 N.W.2d 73 (1986). See, also, Neb.Rev.Stat. § 25-1925 (Reissue 1989). Squier-McCashland Agency, a general partnership composed of Squier and Richard H. McCashland, was located in Lincoln, Nebraska, and operated as a general insurance agency and insurance brokerage business. On January 14, 1983, Squier, McCashland, and Chambers-Dobson signed an "Agreement to Purchase Assets" for sale of partnership assets to Chambers-Dobson for $189,825, which was allocated as follows: $5,825 for tangible property, $10,000 for goodwill, and $174,000 for an expiration list of the partnership's customers. In reference to the customer list of the Squier-McCashland Agency as an item of property, Chambers-Dobson, Squier, and McCashland considered an estimate submitted by an independent source and accepted 7 years as the "useful life" of the customer accounts reflected on the expiration list of customers. In addition to entitling Chambers-Dobson to use the name "Squier-McCashland Agency," the agreement also obligated Chambers-Dobson to pay Squier and McCashland $20,000, for which both Squier and McCashland promised that Contemporaneous with the "Agreement to Purchase Assets," Squier, on January 14, 1983, signed an "Employment Agreement" with Chambers-Dobson, an agreement which, in relevant part, provided: Squier and Chambers-Dobson later modified the term of the restrictive covenant to 24 months. In January 1983, pursuant to the employment agreement, Squier entered employment with Chambers-Dobson, where he served as an account executive, a personal "lines" or accounts manager, and a unit representative on the agency operations committee. One of Squier's responsibilities was "marketing personal lines," which involved soliciting new customers and assisting present customers of Chambers-Dobson and which afforded Squier access to some 2,600 Chambers-Dobson customers. In 1987, Squier informed Chambers-Dobson that he wanted to purchase his former business and terminate his employment at Chambers-Dobson. When the parties were unable to agree, Squier terminated his employment on December 7, 1987, and started a new insurance agency without any preexisting accounts. Shortly after Squier started his new agency, at least 19 Chambers-Dobson customers transferred their insurance business, represented by 63 policies, to Squier in his new agency. Also, Squier was the agent for the issuance of new policies to at least 20 customers, formerly with the Squier-McCashland Agency and involved in the Chambers-Dobson purchase of that agency. On December 21, 1987, Chambers-Dobson filed an equity action, seeking injunctive relief and damages. At trial on September 14, 1988, Chambers-Dobson presented evidence relative to the requested injunction and damages. Evidence developed that the personal relationship between a policyholder and the insurance agent is important in the operation of an insurance agency. Chambers-Dobson conducted a "marketing operation" for assembly of personal data concerning a prospective customer. This information was available to Chambers-Dobson "account executives" or agents before any contact with a prospective insurance customer. The expiration date for an existing insurance policy is important because this information enables an agent to attend to insurance needs of a policyholder who is anticipating expiration of existing insurance coverage. Continuity of coverage is an essential element in the "confidential personal relationship" between an insurance customer and an insurance agent. Squier had access to information required for the "continuing business" of many Chambers-Dobson customers. Also, as a personal lines manager, Squier had direct contact with Chambers-Dobson's "individual files" on customers who had special problems, such as "underwriting questions." Chambers-Dobson also offered evidence concerning damages sustained as the result of Squier's engaging in the insurance business notwithstanding the covenants not to compete. Squier acknowledged that, among customers of his insurance agency after departure from Chambers-Dobson, 20 policyholders were former customers of the Squier-McCashland Agency and 19 had been customers of Chambers-Dobson. On December 5, 1988, on the basis of the restrictive covenant in the sale agreement, the district court permanently enjoined Squier from "soliciting or receiving applications for or writing policies of insurance to or on account of any person, firm or entity with whom he or the Squier-McCashland Agency had policies of insurance in force" at the effective date of the "Agreement to Purchase Assets." This injunction remained effective "until January 31, 1990." Further, concerning the noncompetition covenant in Squier's employment contract, the district court permanently enjoined Squier from "(a) soliciting, attempting to obtain, accepting insurance business from any of [Chambers-Dobson's] customers; (b) acting in the capacity of an advisor, consultant or risk manager to said customers or (c) aiding or assisting anyone else in the solicitation of insurance business from such customers." This injunction remained in effect until December 1, 1989. Finally, the district court awarded damages to Chambers-Dobson. Squier claims that the district court erred in failing to find that the covenants not to compete are invalid and in issuing injunctions to enforce the restrictive covenants. Although Squier has assigned error to the judgment for damages, he has not discussed the nature of error claimed in reference to the damages award. "To be considered by the Supreme Court, an error must be assigned and discussed in the brief of one claiming that prejudicial error has occurred." Federal Land Bank of Omaha v. Victor, 232 Neb. 351, 355, 440 N.W.2d 667, 670 (1989). Accord Wells Fargo Ag Credit Corp. v. Batterman, 229 Neb. 15, 424 N.W.2d 870 (1988). See, also, Neb. Ct.R. of Prac. 9 D(1)g (rev. 1989). Consequently, we consider only Squier's contention regarding the injunctions issued on the basis of the restrictive covenants. 6A A. Corbin, Corbin on Contracts § 1385 at 47-48 (1962). See, also, Restatement (Second) of Contracts § 188, comment b. at 42 (1981): In Swingle & Co. v. Reynolds, 140 Neb. 693, 1 N.W.2d 307 (1941), this court recognized that a noncompetition covenant, included as a provision in a contract for sale of a business, may be valid and observed: 140 Neb. at 695-96, 1 N.W.2d at 309. See, also, D.W. Trowbridge Ford, Inc. v. Galyen, 200 Neb. 103, 262 N.W.2d 442 (1978) (in a contract for sale of a business, a reasonable restrictive covenant against the seller's competition in the type of business sold may be enforced). Thus, a covenant not to compete which is contained in a contract for sale of a business is a seller's self-imposed restraint from trade and is frequently necessary to make goodwill in the seller's business a transferable asset and ensure that the buyer receives the full value of acquired goodwill. Concerning enforcement of a postemployment restraint on competition by a former employee, the preliminary question is whether the restraint is necessary to protect the employer in some legitimate interest. Boisen v. Petersen Flying Serv., 222 Neb. 239, 383 N.W.2d 29 (1986); Brewer v. Tracy, 198 Neb. 503, 253 N.W.2d 319 (1977); Diamond Match Div. of Diamond International Corp. v. Bernstein, 196 Neb. 452, 243 N.W.2d 764 (1976); Securities Acceptance Corp. v. Brown, 171 Neb. 406, 106 N.W.2d 456 (1960). Regarding a noncompetition covenant in an employment contract, this court has stated: Securities Acceptance Corp. v. Brown, supra at 418-19, 106 N.W.2d at 464 (quoting from Annot., Restrictive Covenant in Employment Contract, 9 A.L.R. 1468 (1920)). Also, regarding a contract of employment and a covenant against postemployment competition, we have noted: Boisen v. Petersen Flying Serv., 222 Neb. 239, 245-47, 383 N.W.2d 29, 33-34 (1986). Thus, in Boisen, we concluded: "A covenant not to compete, as a partial restraint of trade, is available to prevent unfair competition by a former employee but is not available to shield an employer against ordinary competition." 222 Neb. at 248, 383 N.W.2d at 34-35. In American Sec. Servs. v. Vodra, 222 Neb. 480, 487-88, 385 N.W.2d 73, 78-79 (1986), we observed that See, also, 6A A. Corbin, Corbin on Contracts § 1394 at 99-100 (1962): There are three general questions relative to validity of partial restraints of trade: First, is the restriction reasonable in the sense that it is not injurious to the public? Second, is the restriction reasonable *400 in the sense that it is no greater than is reasonably necessary to protect the employer in some legitimate interest? Third, is the restriction reasonable in the sense that it is not unduly harsh and oppressive on the employee? See, Boisen v. Petersen Flying Serv., supra; Securities Acceptance Corp. v. Brown, 171 Neb. 406, 106 N.W.2d 456 (1960). "Reasonableness of a specific restrictive covenant must be assessed upon the facts of a particular case and must be determined on all the circumstances." American Sec. Servs. v. Vodra, supra, 222 Neb. at 489, 385 N.W.2d at 79. Thus, we come to the question whether the restriction is "reasonable in the sense that it is not unduly harsh and oppressive on the employee." Securities Acceptance Corp. v. Brown, supra, 171 Neb. at 417, 106 N.W.2d at 463. In determining whether a postemployment covenant not to compete is unduly harsh or oppressive, a court must balance harshness and oppressiveness on the covenantor employee against protection of the covenantee employer's valid business interest. American Sec. Servs. v. Vodra, supra. As we expressed in American Sec. Servs. v. Vodra: 222 Neb. at 490-91, 385 N.W.2d at 80. Squier contends that the covenants not to compete are injurious to the public because enforcement of the covenants would prevent the public from access to Squier as an insurance agent. In Dow v. Gotch, 113 Neb. 60, 64, 201 N.W. 655, 657 (1924), this court stated that a covenant not to compete is against public policy if it has a "`mischievous tendency, and in some way militate[s] against the public welfare and the rights of the public.'" In Dow, the court concluded that a beautician's promise not to compete with her former employer was not injurious to the public, since the area of noncompetition was the city of Grand Island, which "had beauty parlors a plenty, a number of them." Id. In Squier's case, each of the noncompetition covenants involves a very specific category of customers. First, the covenant in the sale agreement relates only to previous customers of the Squier-McCashland Agency, individuals wherever they may be located, but who have been identified on the customer list included in the *401 sale to Chambers-Dobson. This category of customer exists unrelated to Squier's employment with Chambers-Dobson. Second, the covenant in Squier's employment contract relates only to persons who have been Chambers-Dobson's customers during Squier's employment with Chambers-Dobson, wherever those customers may live. Consequently, in reference to potential insurance customers, the covenants relate not to the public in general, but to very specific and limited groups of potential customers denied to Squier by the covenants. As far as an actual number is concerned, the prohibited customer pool consisted of 20 former customers of the Squier-McCashland Agency and 19 Chambers-Dobson customers. We take note that if the populace of the city of Lincoln and Lancaster County has been correctly counted by the U.S. Bureau of the Census for the 1980 census, Lincoln included 171,932 people, while Lancaster County included 192,884 persons. Although the noncompetition covenants are not restricted to Lincoln and Lancaster County, nonetheless, it is inconceivable that the aggregate number of persons comprising the potential customer pools denied to Squier by the covenants is large enough to justify the conclusion that an appreciable number of the public would be denied access to Squier as their insurance agent. Under the circumstances, the noncompetition covenants do not violate Nebraska public policy. We now address the two remaining questions, whether the noncompetition covenants were reasonable protection for a legitimate interest of Chambers-Dobson and whether the covenants are unduly harsh and oppressive on Squier. First, we consider the covenant in the sale agreement for the assets of the Squier-McCashland Agency purchased by Chambers-Dobson. The customer list was specific property, specially considered by the parties and included in the sale with a substantial part of the purchase price allocated for acquisition of the list. It would be more than mild inequity if one sold an item of property, received payment, and, shortly thereafter, were allowed to repossess the property without the purchaser's consent and retain the purchase price paid for the property. Yet, that is exactly what Squier will achieve if he is allowed to pursue an insurance agency which involves the former Squier-McCashland Agency customers. A noncompetition covenant is a reasonable method to protect the property acquired by Chambers-Dobson. Also, given the acknowledged and accepted "useful life" of the customer list, the temporal restriction is reasonable. Second, we address the covenant in Squier's employment contract. The information gained by Squier as a result of his employment with Chambers-Dobson is not a trade secret; for example, a secret device, formula, pattern, plan, process, or technique, which have commercial value and are known only to the owner of such items used in the owner's business to obtain an advantage over competitors. See Cherne Indus., Inc. v. Grounds & Associates, 278 N.W.2d 81 (Minn.1979). Since the evidence establishes a basis for the view that an insurance agent has a confidential personal relationship with a customer, the noncompetition covenant was an important aspect of the employment contract. In the course of his employment at Chambers-Dobson, Squier came into possession of special information about insurance customers, both current and prospective, which Squier would not have received if he were not a Chambers-Dobson employee. Much of that information received by Squier involved data pertinent to continuation of a customer's insurance business and, hence, was a part of Chambers-Dobson's goodwill. Squier's postemployment use of that information can be characterized as Squier's siphoning Chambers-Dobson's goodwill, a legitimate property interest of Chambers-Dobson. See American Sec. Servs. v. Vodra, 222 Neb. 480, 385 N.W.2d 73 (1986). A noncompetition covenant is a valid means to protect an employer against postemployment unfair competition by an employee. See Boisen v. Petersen Flying Serv., 222 Neb. 239, 383 N.W.2d 29 (1986). Squier's use of the information acquired during his employment at Chambers-Dobson would constitute unfair competition after *402 his termination of employment with Chambers-Dobson. For that reason, injunctive relief is available to protect the goodwill of Chambers-Dobson. Under the circumstances, the 2-year time limit for vitality of the noncompetition covenant is reasonable. The absence of specified geographic applicability of the noncompetition covenants presents no problem under the circumstances inasmuch as Squier can conduct an insurance agency in Lincoln or any other location, provided that he does not draw customers from the pools prohibited by the covenants. The covenants' limited applicability to customers and area leaves open to Squier a rather vast market in the insurance business. That and the several other factors bearing on harshness and oppressiveness to an employee, see, Philip G. Johnson & Co. v. Salmen, 211 Neb. 123, 317 N.W.2d 900 (1982), and Boisen v. Petersen Flying Serv., supra, lead us to the conclusion that the noncompetition covenants are reasonable and are neither harsh nor oppressive to Squier. We realize that the terms of the injunctions expired during pendency of this appeal. However, a noncompetition covenant expressed in a contract for sale of property or in an employment contract is a matter of public interest and, in Squier's appeal, involved questions which, as the result of this court's docket, would not likely be considered before expiration of the covenants' restrictive temporal duration; hence, we review the questions in Squier's appeal. See Meyer v. Colin, 204 Neb. 96, 281 N.W.2d 737 (1979) (mootness does not preclude appellate review of a matter of public interest). See, also, State ex rel. Bouc v. School Dist. of City of Lincoln, 211 Neb. 731, 320 N.W.2d 472 (1982); Braesch v. DePasquale, 200 Neb. 726, 265 N.W.2d 842 (1978); State ex rel. Coulter v. McFarland, 166 Neb. 242, 88 N.W.2d 892 (1958). Moreover, if the covenants were invalid and, therefore, an improper basis for injunctive relief, there might have been a question of damages from an improper injunction. See Neb.Rev.Stat. § 25-1067 (Reissue 1989). Consequently, after our de novo review of the record, we independently reach the same conclusion reached by the district court, namely, injunctive relief is appropriate under the circumstances. For that reason, we affirm the district court's judgments for injunctive relief. Chambers-Dobson claims that the district court erred in not awarding an attorney fee in accord with the express authorization for such fee as a provision in each of the contracts in Squier's case. In Nebraska, the general rule is that an attorney fee may be recovered only when authorized by statute, or when a recognized and accepted uniform course of procedure allows recovery of an attorney fee. See, First Nat. Bank v. Schroeder, 218 Neb. 397, 355 N.W.2d 780 (1984); Quinn v. Godfather's Investments, 217 Neb. 441, 348 N.W.2d 893 (1984). We have repeatedly held that a provision in a contract which provides that in the event of litigation involving the contract, the prevailing party shall be entitled to costs, including an attorney fee, is contrary to public policy and void. First Nat. Bank v. Schroeder, supra; Quinn v. Godfather's Investments, supra; City of Gering v. Smith Co., 215 Neb. 174, 337 N.W.2d 747 (1983). Apart from the contractual provision regarding an attorney fee, Neb.Rev.Stat. § 25-824(2) (Reissue 1989) permits an attorney fee when a defense is frivolous or made in bad faith. However, under the circumstances, we are unable to conclude that Squier's defense is either frivolous or made in bad faith; hence, no attorney fee is allowable under § 25-824(2). Therefore, the district court correctly denied Chambers-Dobson's request for an attorney fee. Correspondingly, we are unable to award an attorney fee for the services of Chambers-Dobson's lawyers in the proceedings before this court. Accordingly, the district court's judgments are affirmed in all respects. AFFIRMED.