Court Opinion

ID: 2771662
Source: CourtListenerOpinion
Date Created: 2015-01-21 12:02:50.274015+00
Date Added: 2024-06-11T11:27:44.269792
License: Public Domain

Pursuant to Ind.Appellate Rule 65(D),
this Memorandum Decision shall not be
regarded as precedent or cited before
any court except for the purpose of                   Jan 21 2015, 6:36 am
establishing the defense of res judicata,
collateral estoppel, or the law of the case.

ATTORNEY FOR APPELLANT:                           ATTORNEY FOR APPELLEE:

RICHARD L. RENNICK, JR.                           JON P. McCARTY
Wallace Law Firm                                  Covington, Indiana
Covington, Indiana

                              IN THE
                    COURT OF APPEALS OF INDIANA

SANDRA ELAINE LAPPIN,                             )
                                                  )
       Appellant-Plaintiff,                       )
                                                  )
              vs.                                 )       No. 86A03-1407-PL-229
                                                  )
ANTHONY ALEX TIMMERMAN,                           )
                                                  )
       Appellee-Defendant.                        )

                     APPEAL FROM THE WARREN CIRCUIT COURT
                          The Honorable John A. Rader, Judge
                             Cause No. 86C01-1306-PL-82

                                       January 21, 2015

                MEMORANDUM DECISION - NOT FOR PUBLICATION

NAJAM, Judge
                            STATEMENT OF THE CASE

      Sandra Lappin filed a complaint against Anthony Timmerman, Lappin’s ex-

husband, seeking an injunction to prohibit his participation in an HVAC business in

violation of the parties’ covenant not to compete. Timmerman filed a motion to dismiss

Lappin’s complaint, which was converted to a summary judgment motion following a

hearing where both parties submitted evidence outside of the pleadings. The trial court

issued an order granting Timmerman’s motion to dismiss, which, on appeal, both parties

treat as a grant of summary judgment in favor of Timmerman. Lappin presents a single

issue for our review, namely, whether the trial court erred when it entered summary

judgment in favor of Timmerman.

      We reverse and remand for further proceedings.

                      FACTS AND PROCEDURAL HISTORY

      While they were married, the parties co-owned an HVAC business known as Tiny

Tim’s Tin Shop, LLC (“Tiny Tim’s”). When the parties divorced in 2010, Timmerman

sold his interest in Tiny Tim’s to Lappin for $100,000. In addition, the parties’ property

settlement agreement, dated October 29, 2010, included the following provision:

      The husband agrees that he will not directly or indirectly sell or solicit
      HVAC sales and service business or be, in any manner, engaged in the
      HVAC sales and service business, or related business, within a radius of
      forty-five (45) miles from Covington, Indiana, for a period of three (3)
      years after the execution of this agreement. He further agrees that the
      customer files and types and amounts of service and sales by Tiny Tim’s
      Tin Shop LLC, are trade secrets and will be kept secret by him for a period
      of three (3) years from the date of this agreement. Notwithstanding the
      provisions contained in this paragraph, the husband may perform HVAC
      work as part of his employment with a company as long as the company’s
      primary line of business is not installing, servicing, selling[,] or maintaining
      HVAC systems.
                                             2
Appellant’s App. at 4 (emphasis added).

       On June 24, 2013, Lappin filed a complaint against Timmerman seeking a

temporary restraining order and preliminary and permanent injunctive relief. Lappin

alleged that Timmerman had “directly or indirectly acquired an interest in and/or [was]

employed by a heating and cooling entity in direct violation” of the covenant not to

compete. Id. at 13. Timmerman filed a motion to dismiss for failure to state a claim

upon which relief may be granted. Timmerman alleged that the parties’ covenant not to

compete was “unreasonable on its face and should not be enforced.” Id. at 17. During a

hearing on that motion in April 2014, Lappin submitted evidence outside the pleadings,

which was not excluded by the court. And, at the conclusion of the hearing, the trial

court took the matter under advisement and gave Timmerman two weeks to submit

additional argument.

       On June 4, 2014, the trial court issued an order granting Timmerman’s motion to

dismiss.1 In particular, the trial court found that the parties’ covenant not to compete is

“reasonable as to geographical area and time but that it is not reasonable as to scope.” Id.

at 72. The trial court concluded that the covenant not to compete was unenforceable.

Thus, the trial court entered summary judgment in favor of Timmerman. This appeal

ensued.

       1
          On appeal, the parties agree that Timmerman’s motion to dismiss was converted to a summary
judgment motion by operation of Trial Rule 12(B). And the record shows that the parties were given a
reasonable opportunity to present all material made pertinent to such a motion. See T.R. 12(B).
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                                DISCUSSION AND DECISION

        Lappin contends that the trial court erred when it entered summary judgment in

favor of Timmerman. Our supreme court recently reaffirmed our standard of review in

summary judgment appeals:

        We review summary judgment de novo, applying the same standard as the
        trial court: “Drawing all reasonable inferences in favor of . . . the non-
        moving parties, summary judgment is appropriate ‘if the designated
        evidentiary matter shows that there is no genuine issue as to any material
        fact and that the moving party is entitled to judgment as a matter of law.’”
        Williams v. Tharp, 914 N.E.2d 756, 761 (Ind. 2009) (quoting T.R. 56(C)).

                                                 ***

                Summary judgment is a desirable tool to allow the trial court to
        dispose of cases where only legal issues exist. But it is also a
        “blunt . . . instrument” by which the non-prevailing party is prevented from
        having his day in court. We have therefore cautioned that summary
        judgment is not a summary trial and the Court of Appeals has often rightly
        observed that it is not appropriate merely because the non-movant appears
        unlikely to prevail at trial. In essence, Indiana consciously errs on the side
        of letting marginal cases proceed to trial on the merits, rather than risk
        short-circuiting meritorious claims.

Hughley v. State, 15 N.E.3d 1000, 1003-04 (Ind. 2014).

        Here, the material facts are undisputed. Lappin paid Timmerman $100,000 for his

interest in Tiny Tim’s.2 The parties’ settlement agreement contains a covenant not to

compete whereby Timmerman agreed that he would not “directly or indirectly sell or

solicit HVAC sales and service business or be, in any manner, engaged in the HVAC

sales and service business, or related business, within a radius of forty-five (45) miles

        2
            For the first time on appeal, Timmerman contends that “nothing in the [property settlement]
Agreement ascribes a value to Mr. Timmerman’s interest in Tiny Tim’s or states that the payment is a
quid pro quo for the transfer, as opposed to being a settlement payment to equalize the division of [the]
marital estate in general.” Appellee’s Br. at 2. But during the hearing before the trial court, Lappin
testified that she paid Timmerman $100,000 for his interest in the business, and Timmerman did not
present any evidence to contradict that testimony.
                                                   4
from Covington, Indiana, for a period of three (3) years after” October 29, 2010.

Appellant’s App. at 4. In approximately May 2013, Timmerman placed an advertisement

for an HVAC company called Affordable Comfort on his truck. Affordable Comfort is

an HVAC business owned by a friend of Timmerman’s. And, also before the expiration

of the covenant not to compete, Timmerman wrote two proposals for “heating and

cooling work” on behalf of Affordable Comfort. Tr. at 8. The business address of

Affordable Comfort is located in Covington, and the company does business in

Covington.

      Lappin contends that the trial court erred when it concluded that the covenant not

to compete is unreasonable in scope and, therefore, unenforceable as a matter of law.

Our supreme court set out the applicable law in Dicen v. New Sesco, Inc., 839 N.E.2d
684, 687-88 (Ind. 2005):

      Covenants not to compete are not favored in the law. Licocci v. Cardinal
      Assocs., Inc., 445 N.E.2d 556 (Ind. 1983). When reviewing covenants not
      to compete, Indiana courts have historically enforced reasonable
      restrictions, but struck unreasonable restrictions, granted they are divisible.
      Wiley v. Baumgardner, 97 Ind. 66, 69 (1884); Beard v. Dennis, 6 Ind. 200,
      203-05 (1855); Bennett v. Carmichael Produce Co., 64 Ind. App. 341, 346-
      49, 115 N.E. 793, 795-96 (1917). . . .

             For a variety of reasons, covenants not to compete ancillary to the
      sale of a business stand in better stead. These reasons were aptly stated by
      a Massachusetts court in Alexander & Alexander, Inc. v. Danahy[, 488
N.E.2d 22, 28 (Mass. App. Ct. 1986)]:

             In the former situation there is more likely to be equal
             bargaining power between the parties; the proceeds of the sale
             generally enable the seller to support himself temporarily
             without the immediate practical need to enter into
             competition with his former business; and a seller is usually
             paid a premium for agreeing not to compete with the buyer.
             Where the sale of the business includes good will . . . a broad
                                            5
              noncompetition agreement may be necessary to assure that
              the buyer receives that which he purchased. . . . On the other
              hand, an ordinary employee typically has only his own labor
              or skills to sell and often is not in a position to bargain with
              his employer.

               Despite these differences, both employment covenants and sale of a
       business covenants are still reviewed under a reasonableness standard.
       Young v. Van Zandt, 449 N.E.2d 300, 304 (Ind. Ct. App. 1983). As a
       result, the policy considerations “dictate that noncompetition covenants
       arising out of the sale of a business be enforced more liberally than such
       covenants arising out of an employer-employee relationship.” Alexander &
       Alexander, Inc., 488 N.E.2d at 28.

              . . . “Reasonableness is . . . measured in terms of time, space, and
       prohibited activity.” Young, 449 N.E.2d at 304. The more liberal
       enforcement of sale of a business covenants means that they will be deemed
       reasonable when they are “limited to the area of business involved. . . .”
       Donahue v. Permacel Tape Corp., 234 Ind. 398, 405-06, 127 N.E.2d 235,
       238 (1955).

(Emphasis added). The determination whether a covenant not to compete is reasonable is

a question of law. MacGill v. Reid, 850 N.E.2d 926, 929 (Ind. Ct. App. 2006).

       Here, because the parties’ covenant arose out of the sale of their business, they had

equal bargaining power, and we analyze the covenant using a more liberal approach. The

trial court found that the parties’ covenant not to compete is reasonable as to geographical

area and time, but is not reasonable as to scope. In particular, the trial court found that

the term “related business” as used in the covenant is undefined and could be construed

to prohibit Timmerman from doing work in plumbing, electrical, or contracting.

Appellant’s App. at 70. But the trial court ignored the limiting language included in the

covenant, which provides: “Notwithstanding the provisions contained in this paragraph,

the husband may perform HVAC work as part of his employment with a company as

long as the company’s primary line of business is not installing, servicing, selling[,] or
                                             6
maintaining HVAC systems.” Id. at 4 (emphasis added). Again, our supreme court has

held that a covenant not to compete ancillary to the sale of a business will be deemed

reasonable when it is limited to the area of business involved. See Dicen, 839 N.E.2d at

688. Because the parties’ covenant not to compete ancillary to the sale of their business

is expressly limited to Timmerman’s performing services for a company that is primarily

an HVAC business, we hold that the covenant is reasonable as a matter of law. See id.

      Further, even assuming for the sake of argument that the “or related business”

element is unreasonably broad, the trial court could have implemented the blue pencil

doctrine. As we explained in Coates v. Heat Wagons, Inc., 942 N.E.2d 905, 914-15 (Ind.

Ct. App. 2011),

      [i]f a covenant is unreasonable as written, courts may not create a
      reasonable restriction under the guise of interpretation. Licocci v. Cardinal
      Assocs., Inc., 445 N.E.2d 556, 561 (Ind. 1983). However, where a
      provision of a restriction is unreasonable, the blue pencil doctrine permits
      courts to strike that provision from those which are reasonable if the
      unreasonable restrictions are divisible from the rest. Dicen v. New Sesco,
      Inc., 839 N.E.2d 684, 687 (Ind. 2005).

Accordingly, striking the words “or related business” from the parties’ covenant not to

compete would also render it reasonable and enforceable. The trial court erred when it

entered summary judgment in favor of Timmerman.

      Reversed and remanded for further proceedings.

MATHIAS, J., and BRADFORD, J., concur.

                                           7