Case Title: WSP, INC., a Wyoming Corporation, d/b/a WYOMING STEEL PRODUCTS, DAVID W. TREFREN and DAVID W. TREFREN, TRUSTEE OF THE DAVID W. TREFREN REVOCABLE TRUST DATED THE 29TH DAY OF JUNE 1999 V. WYOMING STEEL FABRICATORS AND ERECTORS, INC., a Wyoming Corporation

Citation: 

Docket Number: 06-192

State: wyoming

Court: Wyoming Supreme Court

Date: 2007-05-11T00:00:00Z

Document:
WSP, INC., a Wyoming Corporation, d/b/a WYOMING STEEL PRODUCTS, DAVID W. TREFREN and DAVID W. TREFREN, TRUSTEE OF THE DAVID W. TREFREN REVOCABLE TRUST DATED THE 29TH DAY OF JUNE 1999 V. WYOMING STEEL FABRICATORS AND ERECTORS, INC., a Wyoming Corporation2007 WY 80158 P.3d 651Case Number: 06-192Decided: 05/11/2007
APRIL TERM, A.D. 2007

 
 
WSP, INC., a Wyoming Corporation, 
d/b/a WYOMING STEEL PRODUCTS, DAVID W. TREFREN and DAVID W. TREFREN, TRUSTEE OF 
THE DAVID W. TREFREN REVOCABLE TRUST DATED THE 29TH DAY OF JUNE 1999,

 
 
Appellants

(Plaintiffs),

 
 
v.

 
 

WYOMING STEEL FABRICATORS AND ERECTORS, INC., a Wyoming 
Corporation,

 
 
Appellee

(Defendant).

 
 
Appeal from the 
DistrictCourtofLaramieCounty

The Honorable Nicholas G. 
Kalokathis, Judge

 
 
Representing 
Appellants:

James R. Salisbury and Sean C. Chambers, of Riske, 
Salisbury & Kelly, P.C., Cheyenne, Wyoming.  
Argument by Mr. Salisbury.

 
 
Representing Appellee:

Ryan J. Schwartz, of Williams, Porter, Day & 
Neville, P.C., Casper, Wyoming; John E. Masters, of Hathaway & Kunz, P.C., 
Cheyenne, Wyoming.  Argument by Mr. 
Schwartz.

 
 
Before 
VOIGT, C.J., and GOLDEN, HILL, KITE, and BURKE, 
JJ.

 
 
BURKE, 
Justice.

 
 
[¶1]      Appellants, WSP, 
Inc., David W. Trefren, and the David W. Trefren Revocable Trust, (collectively, 
"WSP"), appeal from a judgment entered in favor of Wyoming Steel Fabricators and 
Erectors, Inc. ("WSFE").  WSP 
contends the evidence presented did not support a finding that it breached a 
covenant not to compete with WSFE.  
Alternatively, if a breach was demonstrated, WSP challenges the district 
court's calculation of damages.  We 
affirm.

 
 
ISSUES

 
 
[¶2]      This appeal 
presents two issues:

 
 
1.         
Did the district court err in finding a breach of the covenant not to 
compete?

 
 
2.         
Did the district court err in awarding damages?

 
 
FACTS

 
 
[¶3]      In 1989, Michael 
Olson became an employee of WSP, assisting with the sale, fabrication and 
erection of steel products.  He 
continued that employment for approximately ten years.  After a short time spent working 
elsewhere, Mr. Olson returned to WSP in December 2000.  At that time, WSP's sole shareholder, 
Mr. Trefren, had tired of the steel fabrication business.  He intended to move or liquidate WSP's 
equipment and inventory and to lease the commercial space to a different 
business.  Mr. Trefren hired Mr. 
Olson to assist in moving the equipment and prepare the building for the new 
tenant.  During this endeavor, Mr. 
Olson expressed an interest in purchasing WSP, and the two men began discussing 
that possibility.

 
 
[¶4]      Eventually Mr. 
Olson and Mr. Trefren reached an agreement that WSP would lease its building and 
equipment to WSFE, the corporation Mr. Olson formed to purchase WSP.  On September 28, 2001, the parties 
formalized their agreement and executed an "Equipment Lease; Building Lease; 
Option to Purchase."  The agreement 
gave WSFE the option to purchase the equipment being leased, as well as WSP's 
goodwill, telephone numbers, and customer lists.  The agreement also gave WSFE the option 
to purchase a covenant not to compete from Mr. Trefren for $10,000.1

 
 
[¶5]      WSFE exercised 
its purchase option, and the parties entered into a purchase agreement on June 
13, 2002.  The purchase included the 
equipment previously identified in the lease, WSP's telephone numbers, customer 
lists, and goodwill, and a covenant not to compete ("non-compete covenant") 
signed by Mr. Trefren.  The 
non-compete covenant provided, in pertinent part:

 
 
1. Covenant Not to 
Compete; Term; Geographic Area.  For 
the purpose of further protecting the Covenantee and its business, Covenantor 
agrees that, during the term of this Covenant, he will not own or manage a 
business in direct competition with Covenantee's business as is presently being 
conducted by Covenantee for a term of three (3) years from the date hereof and 
within 150 miles of Cheyenne, Wyoming, without Covenantee's written 
consent.  

 
 
Covenantor further agrees 
that, during the term of this Covenant, he will not use the name, "Wyoming Steel 
Products" in any manner that directly competes with Covenantee's business as is 
presently being conducted by Covenantee without Covenantee's written 
consent.  Covenantor or that 
corporation owned by him, WSP Steel, Inc., the owner of all rights to such name, 
may use such name as the name of an operating entity for Covenantor's business 
activity of the sale of its existing inventory and equipment.  

 
 
[¶6]      WSFE continued to 
lease the building from WSP until April of 2004.  The building was one of several leased 
buildings located on the WSP premises -- a large commercial lot enclosed by a 
chain link fence.  At all times 
pertinent to this appeal, a large sign reading "Wyoming Steel Products" in red 
capital letters spanned the sole entry to the WSP premises.  After WSFE vacated the building, WSP 
leased the building to another steel fabrication business.

 
 
[¶7]      Several months 
later, WSP initiated this case by filing a complaint in the district court, 
alleging that WSFE owed back rent, wrongfully removed items of personal property 
and fixtures, and caused damage to the leased building.  WSFE counterclaimed, asserting that WSP 
had breached the non-compete covenant.

 
 
[¶8]      A bench trial was 
held.  The district court found that 
WSP was not entitled to recover on any of its claims.  WSFE prevailed on its counterclaim, and 
the district court awarded damages of $4,200.  WSP appealed, challenging only the 
district court's decision in favor of WSFE on the 
counterclaim.

 
 
STANDARD OF 
REVIEW

 
 
[¶9]      We review the 
district court's finding that WSP breached the non-compete covenant as a bench 
trial finding of fact, upheld unless it is clearly erroneous.  Hopper v. All Pet Animal Clinic, Inc., 
861 P.2d 531, 538 (Wyo. 1993). "A finding is clearly erroneous' 
when although there is evidence to support it, the reviewing court  is left 
with the definite and firm conviction that a mistake has been committed." 
Id.  The same standard applies to the 
calculation of damages.  Alexander v. Meduna, 2002 WY 83, ¶ 35, 
47 P.3d 206, 217 (Wyo. 2002).

 
 
DISCUSSION

 
 
[¶10]   WSP does not challenge the validity 
or enforceability of the non-compete covenant.  It contends, however, that the 
undisputed facts do not demonstrate that the covenant was breached or that WSFE 
suffered damage as a result.  
According to WSP, the district court's findings to the contrary are 
clearly erroneous.  

 
 
Breach

            

[¶11]   The district court issued the 
following findings in support of its conclusion that WSP breached the 
non-compete covenant:

 
 
73.  Immediately after [WSFE] vacated the 
building a new steel fabrication and erection business was started in that same 
location.

 
 
74.       The parties 
both agreed that a large sign containing the name "Wyoming Steel Products" 
continues to hang over the entrance to the  building.

 
 
75.       The sign 
was hanging in that location when [WSFE] occupied the 
building.

 
 
76.       [WSFE] 
asked [WSP] to remove the sign while it was occupying the building but was 
refused.

77.       [WSFE] 
renewed its request to have the sign removed when the building was occupied by 
the new steel business but was again refused.

 
 


 

81.       The 
Covenant unambiguously provides that although [Mr. Trefren] remains the "owner" 
of such name for selling its then existing inventory and equipment, he agreed 
not to "use the name in any manner" that directly 
competes with [WSFE's] business.

 
 
            
82.       
The sign displaying the name "Wyoming Steel Products" hanging over the 
entrance to the building constitutes use of the name.

            

83.       As that 
sign is hanging over the entrance to a business that provides steel fabrication 
and erection services to the public, this use is in direct competition with 
[WSFE's] business and is in contravention of the Covenant signed by [Mr. 
Trefren].

            

84. The use of the name 
Wyoming Steel Products by [WSP] in this manner exceeds the use allowed in the 
Covenant for the sale of existing inventory and equipment.

 
 
85.       The breach 
occurred in April of 2004 when the Covenant was in full force and effect and 
continued until the Covenant expired according to its terms on June 13, 
2005.

 
 
86.       [WSFE] has 
proved by a preponderance of the evidence that [WSP] breached the 
Covenant.

 
 
(Emphasis in 
original.)

            
            

[¶12]   WSP argues that neither the 
existence of the sign nor the leasing to a competing steel products business 
violated the non-compete covenant.  
We agree that vestiges of signage from the previous business, alone, may 
not be enough to show direct competition.  
There is also authority supporting WSP's argument that merely leasing to 
a competitor does not violate a non-compete agreement.  See, e.g., Dawson v. Temps Plus, Inc., 987 S.W.2d 722, 729 (Ark. 
1999) (finding no breach where tenant is stranger to the contract).  However, we are not concerned whether 
either of these things, in isolation, might amount to direct competition.  

[¶13]   The district court attributed 
significance to both the sign and the lease arrangement with WSFE's competitor 
and considered the combined effect in light of the specific restraint imposed 
upon use of the name.  In this case, 
the name "Wyoming Steel Products" takes on a special significance with respect 
to the non-compete covenant.  In 
addition to refraining from direct competition in a general sense, WSP expressly 
promised not to use the "Wyoming Steel Products" name "in any manner that directly competes" 
with WSFE's business.      

 
 
[¶14]   The goodwill of the business is 
often a more important aspect of the purchase of a business than the physical 
assets.  Weaver v. Ritchie, 478 S.E.2d 363, 368 
(W. Va. 
1996).  An agreement by the 
seller to refrain from competition with the buyer can be critical to the 
transfer of goodwill.  Id.  "A transfer of goodwill cannot be 
effectively accomplished without an enforceable agreement by the transferor not 
to act so unreasonably to diminish the value of that which he is selling."  Id.

 
 
[¶15]   In purchasing the business, WSFE 
desired the goodwill of "Wyoming Steel Products," but WSP did not want to part 
with the name.  This was the 
apparent basis for the non-compete covenant, and the reason separate 
consideration of $10,000 was given.  
Despite WSFE's specific request to have the sign removed, WSP refused to 
remove the sign while leasing the space to a competitor.  As a result, WSFE's competitor was in a 
position to benefit from WSP's goodwill.  
This was the very situation WSFE sought to prevent.  Accordingly, when the "Wyoming Steel 
Products" name was displayed in association with a competitor, WSFE was denied 
the benefit of its bargain.

 
 
[¶16]   WSP also asserts that there was no 
breach because the duty to remove "Wyoming Steel Products" signage belonged to 
WSFE.  The Purchase Agreement 
included the following provision:

 
 
8. USE OF NAMES; NOTICE 
TO PUBLIC AND CUSTOMERS.  Seller 
shall continue to cooperate with Purchaser's efforts to inform the public and 
its customers and vendors of the name under which Purchaser has and shall 
conduct its business.  Purchaser 
shall conduct such business under the name of Wyoming Steel Fabricators and 
Erectors, Inc. and both Sellers and Purchasers shall take every reasonable 
effort to correct any misuse or misperception as to such business name by 
others.  Purchaser shall remove the 
name "Wyoming Steel Products" from all vehicles and equipment used by Purchaser 
in the conduct of its business.  

            

WSFE removed signage from 
all the vehicles and equipment it purchased.  It also replaced a Wyoming Steel 
Products sign located down the street with a WSFE sign.  WSP argues that this conduct 
demonstrates knowledge and acceptance of the obligation WSFE had to replace all 
signage pursuant to the above-quoted provision of the Purchase Agreement.  We disagree. 

 
 
[¶17]   First, the provision of the 
Purchase Agreement applies only to equipment and vehicles.  WSP's attempt to extend the scope of 
this provision is unsupported by the language of the agreement.  It clearly does not impose any 
obligation upon WSFE to remove signage on WSP's premises -- property that was 
not included in the purchase and was not owned or controlled by WSFE.  To the extent that WSFE was required to 
make a reasonable effort concerning the large sign, it did so when it requested 
that Mr. Trefren remove the sign.  
Second, WSP's contention that WSFE should have, or even could have, 
changed the large sign on WSP's premises is not borne out by the record.  The sign change WSFE did make was down 
the road, not on WSP premises.  Even 
so, WSP vehemently objected to the change.  
Given WSP's strong opposition to the sign change off the premises, WSFE 
could not have reasonably felt empowered or authorized to remove the "Wyoming 
Steel Products" sign at the entrance to WSP's premises.  The district court's finding that WSP 
breached the covenant to not compete was not clearly 
erroneous.

 
 
Damages

 
 
[¶18]   The district court determined that 
WSFE was entitled to $4200 as damages for WSP's breach of the non-compete.  This amount was calculated as 15/36 of 
$10,000.  The ratio represents the 
number of months the district court found WSP in breach of the non-compete, 
divided by the three-year term of the non-compete.  The district court then applied that 
ratio to the consideration WSFE paid for the non-compete to arrive at damages 
totaling $4200.  

 
 
[¶19]   In Wyoming, damages must be proven with a 
reasonable degree of certainty, but proof of exact damages is not required. 
 Hopper, 861 P.2d  at 547.  A district court may not speculate or 
conjecture about the proper amount of damages.  Id.  Damages should compensate for an 
individual's loss and no more.  Id.  WSP challenges the district court's 
award of damages, asserting WSFE failed to prove damages to a reasonable degree 
of certainty.

 
 
[¶20]   WSP claims that WSFE did not 
present any evidence of lost profits, thereby making any award of damages 
unsupported.  In support of its 
argument, WSP points to our decision in Hopper, 861 P.2d  at 547-548.  Hopper involved a non-compete agreement 
ancillary to an employment relationship.  
We recognized that lost profits may be a proper element of recovery for 
breach of a covenant not to compete.  Id.  Calculation of lost profits depends upon 
proof that: (1) net profits were lost; (2) the amount of those profits can be 
determined with a reasonable degree of certainty; and (3) the defendant's breach 
was the proximate cause of the lost profits.  Id., 861 P.2d  at 
548.  

 
 
[¶21]   The record is clear that WSFE did 
not prove these four elements of lost profits.  However, nothing in Hopper requires proof of lost profits as 
the sole proof of damages.  As a 
type of consequential damages, lost profits are merely one measure of 
damages.  See Restatement (Second) of Contracts § 
347 (1981).  WSFE did not seek 
consequential damages, so it is not surprising that it did not present evidence 
of lost profits.  

 
 
[¶22]   Instead, the district court relied 
upon a different theory of damages, i.e., WSFE's expectation interest in 
performance of the agreement.  An 
"injured party has a right to damages based on his expectation interest as 
measured by  the loss in the value to him of the other party's performance 
caused by its failure or deficiency." Restatement (Second) of Contracts, supra, § 347.  We find the district court had 
sufficient evidence to value WSFE's expectation interest in performance of the 
non-compete covenant.  

 
 
[¶23]   WSFE paid $10,000 for the 
non-compete agreement, ancillary to the purchase of the "Wyoming Steel Products" 
business.  In lieu of the right to 
use the name to realize the goodwill of the business, WSFE obtained the covenant 
to protect against the name "Wyoming Steel Products" being used by someone else 
to compete with the business WSFE purchased.  The parties negotiated a price of $10,000 
for a three-year term.  These terms 
fairly reflect the value to WSFE of full performance of the non-compete covenant 
and provided the district court with a reasonable, ascertainable measure of the 
damage caused by WSP's failure to meet that expectation.  Accordingly, the award of damages was 
not clearly erroneous.

 
 
[¶24]   Affirmed.

 
 
FOOTNOTES

 
 

1Specifically, the agreement provided:

 
 
At the 
closing of the sale of business assets, David [W.] Trefren shall execute a 
non[-]compete agreement which shall provide his agreement that he will not own 
or operate any business under the name "Wyoming Steel Products" nor will he own 
or manage a business in direct competition with [WSFE's] business for a term of 
three (3) years or within 150 miles without [WSFE's] written consent.  David [W.] Trefren shall retain the 
right to be employed by any company or individual regardless of whether such 
company or individual competes with [WSFE's] business.  WSP retains the right to dispose of any 
of the equipment, real property and/or business assets that are the subject 
hereof that are not purchased by [WSFE] and any of its or their other 
property.