Court Opinion

ID: 4459788
Source: CourtListenerOpinion
Date Created: 2019-11-27 17:04:18.928123+00
Date Added: 2024-06-11T14:51:57.047781
License: Public Domain

MEMORANDUM DECISION
Pursuant to Ind. Appellate Rule 65(D),
this Memorandum Decision shall not be                                       FILED
regarded as precedent or cited before any                              Nov 27 2019, 9:54 am
court except for the purpose of establishing                                CLERK
the defense of res judicata, collateral                                 Indiana Supreme Court
                                                                           Court of Appeals
estoppel, or the law of the case.                                            and Tax Court

ATTORNEYS FOR APPELLANTS                                ATTORNEYS FOR APPELLEES
Michael H. Michmerhuizen                                Shane C. Mulholland
Patrick G. Murphy                                       Katherine R. Gould
Barrett McNagny LLP                                     Burt, Blee, Dixon, Sutton &
Fort Wayne, Indiana                                     Bloom, LLP
                                                        Fort Wayne, Indiana

                                          IN THE
    COURT OF APPEALS OF INDIANA

SourceOne Group, LLC, and                               November 27, 2019
Joy Denhouter,                                          Court of Appeals Case No.
Appellants/Cross-Appellees-                             18A-PL-2153
Defendants,                                             Appeal from the Allen Superior
       v.                                               Court
                                                        The Honorable Craig J. Bobay,
Ray Gage and Myers & Gage,                              Judge
Inc. d/b/a Grabill Insurance                            Trial Court Cause No.
Center,                                                 02D02-1704-PL-159
Appellees/Cross-Appellants-
Plaintiffs

Baker, Judge.

Court of Appeals of Indiana | Memorandum Decision 18A-PL-2153 | November 27, 2019               Page 1 of 16
[1]   Ray Gage worked as an independent contractor for SourceOne Group, LLC

      (SourceOne), for many years, helping SourceOne retain its book of insurance

      business as well as providing services related to marketing, managing, and

      administering the insurance brokerage business. Included in Gage’s

      employment contract was a non-solicitation provision, prohibiting him from

      soliciting business from SourceOne’s customers for thirty months after the

      termination of his employment.

[2]   Gage and Myers & Gage, Inc. d/b/a Grabill Insurance Center (Grabill) filed a

      complaint against SourceOne seeking, among other things, a declaratory

      judgment that the non-solicitation provision is unreasonable and unenforceable.

      Gage and Grabill then filed a motion for partial summary judgment on that

      issue. The trial court found that (1) SourceOne has a legitimate, protectable

      business interest, but also that (2) the thirty-month duration of the non-

      solicitation provision is unreasonable and unenforceable, ultimately granting

      partial summary judgment in favor of Gage and Grabill.

[3]   SourceOne brings this interlocutory appeal of the order, arguing that the non-

      solicitation provision is reasonable and enforceable, and Gage and Grabill

      cross-appeal, arguing that SourceOne does not have a legitimate, protectable

      interest. Finding that the trial court properly found that SourceOne has a

      legitimate, protectable interest, but that it erred by finding that the non-

      solicitation provision is unreasonable and unenforceable, we reverse and

      remand with instructions to enter partial summary judgment in SourceOne’s

      favor and for further proceedings.

      Court of Appeals of Indiana | Memorandum Decision 18A-PL-2153 | November 27, 2019   Page 2 of 16
                                                    Facts
[4]   In December 2011, SourceOne and Gage entered into an Independent

      Contractor Agreement (the Contract). Pursuant to the Contract, Gage would

      work as an independent contractor and perform services for SourceOne,

      including the marketing, managing, and administering of SourceOne’s property

      and casualty insurance brokerage business. Gage would also assist SourceOne

      in “retaining [its] book of business.” Appellants’ App. Vol. II p. 49. If Gage

      obtained leads on new business independently of SourceOne, he would be paid

      100% of the resulting commissions, while any new business generated by a lead

      from SourceOne would remain SourceOne’s property.

[5]   The initial term of the Contract was from December 2, 2011, to December 31,

      2012. The Contract automatically renewed annually unless either party

      terminated it. Either Gage or SourceOne could have terminated the Contract

      with fifteen days of written notice to the other party.

[6]   In January 2012, SourceOne and Grabill entered into a Joint Marketing,

      Ownership, and Aggregation Agreement (the Joint Marketing Agreement),

      pursuant to which each party authorized the other to market and promote its

      services. To facilitate the implementation of that agreement, Gage became a

      part owner of SourceOne.

[7]   On April 14, 2017, Joy DenHouter, who was the managing member of

      SourceOne, issued notice to Gage that SourceOne intended to terminate the

      Court of Appeals of Indiana | Memorandum Decision 18A-PL-2153 | November 27, 2019   Page 3 of 16
Contract effective April 30, 2017.1 Upon termination, the Contract’s Non-

Solicitation Provision was triggered. That contractual provision reads, in

relevant part, as follows:

        [Gage] agrees that during [Gage’s] employment with
        [SourceOne] and for a period of thirty (30) months after
        termination of the Agreement (whether voluntary or involuntary
        and regardless of the reason for termination):

        a.       [Gage] shall not in any way . . . , directly or indirectly
                 through others, with respect to any service being offered by
                 [SourceOne] and/or with respect to any line of insurance
                 being provided by [SourceOne], sell to, solicit, contact,
                 serve, cater to or accept any business from any person,
                 firm, corporation, organization or other entity that is a
                 customer (as defined below) of [SourceOne];

        b.       [Gage] shall not directly or indirectly contact, solicit,
                 entice, induce, persuade, attempt to persuade or otherwise
                 cause any customer . . . of [SourceOne] to terminate,
                 reduce or diminish his, her or its relationship with
                 [SourceOne], to refrain from doing business with or
                 rendering services to [SourceOne], or do any act that may
                 interfere with or result in an impairment of or adverse
                 change to the relationship between [SourceOne] and its
                 customer . . . .

        For purposes of this paragraph . . . , a “customer” includes any
        person, firm, corporation, organization or other entity to whom[]
        [SourceOne] . . . has provided services, for which an insurance

1
 Shortly thereafter, DenHouter also issued notice of SourceOne’s intent to terminate the Joint Marketing
Agreement.

Court of Appeals of Indiana | Memorandum Decision 18A-PL-2153 | November 27, 2019               Page 4 of 16
              contract has been in effect through or as a result of the services of
              [SourceOne] . . . at any time during [Gage’s] employment with
              [SourceOne].

      Id. at 52. In the next paragraph of the Contract, Gage explicitly agreed that

      those restrictions are reasonable:

              [Gage] agrees and acknowledges that the type and scope of
              restrictions described in [the Non-Solicitation Provision] are fair
              and reasonable and that the restrictions are intended to protect
              the legitimate interest of [SourceOne] and not to prevent [Gage]
              from earning a living. [Gage] represents and warrants that the
              knowledge, ability and skill [he] currently possesses are sufficient
              to enable [him] to earn a livelihood satisfactory to [Gage], in the
              event [Gage’s] employment with [SourceOne] terminates,
              without violating any restriction in this Agreement.

      Id. at 53.

[8]   On April 28, 2017, Gage and Grabill filed a complaint against SourceOne,

      alleging multiple claims that are not relevant to this appeal. On June 19, 2017,

      Gage and Grabill filed an amended complaint that again alleged multiple

      claims and added a count seeking a declaratory judgment that the thirty-month

      duration of the Non-Solicitation Provision was overly broad and

      unenforceable.2

      2
       In August and October 2017, respectively, Gage and Grabill filed second and third amended complaints,
      adding claims not relevant to this appeal. The third amended complaint asserted claims against DenHouter
      personally; she later moved to dismiss those claims.

      Court of Appeals of Indiana | Memorandum Decision 18A-PL-2153 | November 27, 2019             Page 5 of 16
[9]   On March 21, 2018, Gage and Grabill filed a motion for partial summary

      judgment, arguing that they were entitled to a declaratory judgment on the

      Non-Solicitation Provision as a matter of law. SourceOne responded, arguing

      that Gage and Grabill were not entitled to partial summary judgment and that,

      instead, the trial court should enter partial summary judgment in its favor. On

      July 26, 2018, the trial court entered an order granting Gage and Grabill’s

      motion for partial summary judgment.3 In relevant part, the trial court found as

      follows:

              . . . [During the time Gage worked as an independent contractor
              for SourceOne,] Gage had access to SourceOne’s property,
              including leads for new business and SourceOne’s current book
              of business. If it was not for [] Gage’s independent contractor
              relationship with SourceOne, [] Gage would not have had access
              to such information. The Court therefore concludes that
              SourceOne has a legitimate protectable interest.

                                                         ***

              The Non-Solicitation Provision as written only restricts [] Gage’s
              solicitation of SourceOne’s customers that SourceOne
              maintained a contract with during [] Gage’s employment with
              SourceOne. As the proscribed activities only include customers
              of SourceOne during [] Gage’s employment, the activities only
              include present customers and not future customers. The restriction
              of solicitation of present customers is not overly broad, and the

      3
       The trial court also denied DenHouter’s motion to dismiss the claims against her and struck the jury
      demand filed by SourceOne and DenHouter.

      Court of Appeals of Indiana | Memorandum Decision 18A-PL-2153 | November 27, 2019               Page 6 of 16
        Court concludes that the Non-Solicitation Provision is not
        unreasonable in this respect.

                                                ***

        . . . The Court concludes that, in light of the nature of
        SourceOne’s protectable interest, thirty (30) months is
        unreasonable in terms of the time restriction on solicitation, and
        that the Non-Solicitation Provision is, therefore, unreasonable in
        this respect.

        The Non-Solicitation Provision protects a legitimate interest of
        SourceOne, but the scope of the Non-Solicitation Provision is not
        reasonable in terms of time and activities prohibited. As a result,
        the Court concludes that the Non-Solicitation Provision is
        unreasonable and unenforceable as written.

                                                ***

        . . . The Court cannot reduce the unreasonable time limitation
        within the Non-Solicitation Provision, as the Court cannot add
        terms to a contract that were not a part of the original agreement.
        The Court, therefore, concludes that the blue-pencil doctrine
        cannot be applied to insert a shorter, reasonable time restriction,
        and otherwise enforce the Non-Solicitation Provision. Thus,
        partial summary judgment in favor of [Gage and Grabill] is
        proper.

Appealed Order p 13, 15-19. (emphases original, internal citation omitted).

SourceOne now brings this interlocutory appeal, and Gage and Grabill cross-

appeal the trial court’s conclusion that SourceOne has a legitimate, protectable

interest at stake.

Court of Appeals of Indiana | Memorandum Decision 18A-PL-2153 | November 27, 2019   Page 7 of 16
                                    Discussion and Decision
                     I. Standard of Review and General Rules
[10]   Our standard of review on summary judgment is well established:

               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)). “A
               fact is ‘material’ if its resolution would affect the outcome of the
               case, and an issue is ‘genuine’ if a trier of fact is required to
               resolve the parties’ differing accounts of the truth, or if the
               undisputed material facts support conflicting reasonable
               inferences.” Id. (internal citations omitted).

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

[11]   It is well settled that covenants not to compete are in restraint of trade and are

       not favored by the law in Indiana. E.g., Harvest Ins. Agency v. Inter-Ocean Ins. Co.,

       492 N.E.2d 686, 688 (Ind. 1986). While noncompete provisions will be

       construed strictly, they will be enforced if they are reasonable. Cent. Ind.

       Podiatry, P.C. v. Krueger, 882 N.E.2d 723, 729 (Ind. 2008). Whether a

       noncompete provision is reasonable is a question of law well suited for

       summary judgment. Id.

[12]   Determining whether a particular covenant is reasonable depends on the facts

       and circumstances of the particular case. Hahn v. Drees, Perugini & Co., 581

       Court of Appeals of Indiana | Memorandum Decision 18A-PL-2153 | November 27, 2019   Page 8 of 16
N.E.2d 457, 459 (Ind. Ct. App. 1991). A covenant not to compete will be

       found to be reasonable only when the restraint is necessary to protect the

       employer, is not unreasonably restrictive, and is not against public policy. 4408,

       Inc. v. Losure, 175 Ind. App. 658, 659-60, 373 N.E.2d 899, 900 (1978).

[13]   For a noncompete provision to be reasonable, the employer must first show that

       it protects a legitimate interest. Krueger, 882 N.E.2d at 729. Then, if that

       condition is satisfied, the trial court must determine whether the scope of the

       covenant is reasonable in terms of time, geography, and types of activity

       prohibited. Id. The employer must also demonstrate that the former employee

       has gained “a unique competitive advantage or ability to harm the employer

       before such employer is entitled to the protection of a noncompetition

       covenant . . . .” Slisz v. Munzenreider Corp., 411 N.E.2d 700, 704 (Ind. Ct. App.

       1980).4

                             II. Legitimate Protectable Interest
[14]   We turn first to Gage and Grabill’s cross-appeal, as it concerns the first element

       that must be demonstrated to show that a non-competition provision is

       reasonable: whether the Non-Solicitation Provision relates to a legitimate,

       protectable interest of SourceOne.

       4
         The general rules governing noncompete provisions apply to independent contractors in a principal-agent
       relationship just as they apply to employer-employee relationships. Buffkin v. Glacier Grp., 997 N.E.2d 1, 10
       (Ind. Ct. App. 2013).

       Court of Appeals of Indiana | Memorandum Decision 18A-PL-2153 | November 27, 2019                  Page 9 of 16
[15]   A legitimate, protectable interest “is an advantage possessed by an employer,

       the use of which by the employee after the end of the employment relationship

       would make it unfair to allow the employee to compete with the former

       employer.” Coates v. Heat Wagons, Inc., 942 N.E.2d 905, 913 (Ind. Ct. App.

       2011) (internal quotation omitted). We have held that “goodwill, including

       secret or confidential information such as the names and addresses of customers

       and the advantage acquired through representative contact, is a legitimate

       protectable interest.” Buffkin, 997 N.E.2d at 10-11.

[16]   Gage and Grabill contend that the Contract’s definition of “customer” is overly

       broad because it includes past customers with whom Gage may not have had

       any contact and in whom SourceOne has no protectable interest.

[17]   The relevant facts related to this issue are undisputed; indeed, this issue turns

       solely on the language of the Non-Solicitation Provision and our interpretation

       thereof. Again, we note that the Contract defines “customer” as follows:

               any person, firm, corporation, organization or other entity to
               whom[] [SourceOne] . . . has provided services, for which an
               insurance contract has been in effect through or as a result of the
               services of [SourceOne] . . . at any time during [Gage’s]
               employment with [SourceOne].

       Appellants’ App. Vol. II p. 52. In other words, the Non-Solicitation Provision

       applies to any SourceOne client who was a current client during Gage’s tenure

       as an independent contractor.

       Court of Appeals of Indiana | Memorandum Decision 18A-PL-2153 | November 27, 2019   Page 10 of 16
[18]   This Court has found unrestricted and vague terms contained in a noncompete

       provision to be overly broad and unenforceable. See Sharvelle v. Magnante, 836
N.E.2d 432, 440 (Ind. Ct. App. 2005) (term prohibiting former employee from

       soliciting “former, current or future” patients or employees was overly broad

       and unenforceable); Seach v. Richards, Dieterle & Co., 439 N.E.2d 208, 213 (Ind.

       Ct. App. 1982) (“[t]he unrestricted use of the terms ‘past’ and ‘prospective’

       clients is vague and over-broad; ‘present’ clients are a protectable interest”).

[19]   We find that the definition of “customer” in this case is far more limited than

       the terms at issue in Sharvelle or Seach. Initially, we note that the Contract’s

       definition of “customer” is clearly not extended to SourceOne’s future or

       prospective clients.5 Moreover, to the extent the term relates to past clients, its

       application is limited only to those clients who were current SourceOne

       customers while Gage was working there. We find this limitation to be

       reasonable.

[20]   Gage was retained as an independent contractor to, among other things, assist

       SourceOne in retaining its book of business. In other words, his role with the

       company encompassed SourceOne’s entire book of business. Under these

       circumstances, we find that the definition of “customer” in the Non-Solicitation

       Provision was no broader than necessary to protect SourceOne’s legitimate

       5
        In their motion for partial summary judgment, Gage and Grabill argued that the definition of “customer”
       did include future clients, but they have abandoned that argument on appeal.

       Court of Appeals of Indiana | Memorandum Decision 18A-PL-2153 | November 27, 2019            Page 11 of 16
       interest in its book of business. Therefore, the trial court did not err by finding

       that the definition of “customer” is not overly broad.

[21]   Gage and Grabill also argue that Gage did not gain a unique competitive

       advantage to harm SourceOne as a result of his position as an independent

       contractor. An employee “should only be enjoined if he has gained some

       advantage at the employer’s expense which would not be available to the

       general public.” Norlund v. Faust, 675 N.E.2d 1142, 1154 (Ind. Ct. App. 1997),

       clarified on reh’g, 678 N.E.2d 421.

[22]   According to Gage and Grabill, there is no evidence “that SourceOne’s

       customer information was readily accessible by Gage. Even assuming Gage

       could have accessed this information as an owner, SourceOne did not designate

       evidence stating that Gage obtained or had specific knowledge of SourceOne’s

       customer information.” Appellees’ Br. p. 13.

[23]   We disagree. The Contract specified that Gage was being hired as an

       independent contractor to, among other things, work on the marketing,

       managing, and administering of SourceOne’s insurance brokerage business,

       including assisting “in retaining [SourceOne’s] book of business.” Appellants’

       App. Vol. II p. 196. And Gage attested that he did, in fact, “perform[] services

       for SourceOne, including the marketing, managing, and adminstering [sic] of

       SourceOne’s property and casualty insurance business.” Id. at 204. In other

       words, the Contract explicitly states that Gage had access to SourceOne’s entire

       book of business, which would necessarily include confidential customer

       Court of Appeals of Indiana | Memorandum Decision 18A-PL-2153 | November 27, 2019   Page 12 of 16
       information.6 Therefore, we have little difficulty concluding that as a result of

       his position as an independent contractor for SourceOne, Gage gained a unique

       competitive advantage at SourceOne’s expense that would not be available to

       the general public.7

[24]   In sum, the trial court did not err by finding that SourceOne has a legitimate,

       protectable interest at stake. Likewise, Gage had a unique competitive

       advantage because of his access to that legitimate, protectable interest.

       Consequently, we must next consider whether the restriction contained in the

       Non-Solicitation Provision is reasonable.

                             III. Reasonableness of Restriction
[25]   Generally, in determining the reasonableness of a restriction contained in a

       non-competition or non-solicitation provision, factors to be considered include

       the geographic and temporal limits on the restraint. E.g., Norlund, 675 N.E.2d

       at 1154. Here, the only factor at issue is the temporal limit of the Non-

       Solicitation Provision, which is thirty months.

       6
        Gage and Grabill maintain that “mere access” to the book of business is insufficient. Cross-Appellants’
       Reply Br. p. 11. They cite no authority for this proposition, however.
       7
         Gage and Grabill argue that there is no evidence “that Gage used or exploited SourceOne’s customer
       information for personal gain to the detriment of SourceOne or that Gage even availed himself of such
       property or information.” Cross-Appellants’ Reply Br. p. 11. This argument is a straw man, inasmuch as
       SourceOne is not required to make such a showing. Instead, it need only establish that Gage gained a unique
       competitive advantage.

       Court of Appeals of Indiana | Memorandum Decision 18A-PL-2153 | November 27, 2019              Page 13 of 16
[26]   In general, this Court and our Supreme Court have upheld non-competition

       and non-solicitation provisions with restrictions that remain in place for

       multiple years. See Leatherman v. Mgmt. Advisors, Inc., 448 N.E.2d 1048, 1050

       (Ind. 1983) (three years); Buanno v. Weinraub, 226 Ind. 557, 565, 81 N.E.2d 600,

       603 (1948) (three years); Norlund, 675 N.E.2d at 1146 (two years); Med.

       Specialists, Inc. v. Sleweon, 652 N.E.2d 517, 523-24 (Ind. Ct. App. 1995) (two

       years); Smart Corp. v. Grider, 650 N.E.2d 80, 85 (Ind. Ct. App. 1995) (three

       years); 4408, Inc., 175 Ind. App. at 663-64, 373 N.E.2d at 902-03 (three years);

       Miller v. Frankfort Bottle Gas, Inc., 136 Ind. App. 456, 459-60, 202 N.E.2d 395,

       397 (1964) (five years); Welcome Wagon, Inc. v. Haschert, 125 Ind. App. 503, 509,

       127 N.E.2d 103, 107 (1955) (five years).8

[27]   In this case, the trial court relied on Captain & Co., Inc. v. Towne in concluding

       that thirty months is an unreasonable duration. 404 N.E.2d 1159 (Ind. Ct.

       App. 1980). We find Captain readily distinguishable from the matter at hand.

       In that case, Henry Towne was employed by Captain in the capacities of

       cleaner, laborer, part-time estimator, and manager of non-financial affairs of the

       company. After Towne left Captain and began employment with a general

       contracting firm, Captain sued for breach of a non-competition provision. That

       8
         To the extent that Gage and Grabill appear to argue that because the majority of these cases applied to two-
       year provisions, there is a bright line drawn or a cap in place at two years, we disagree. None of the cases
       stand for that proposition. Instead, each case considers its own particular circumstances in determining
       reasonableness.

       Court of Appeals of Indiana | Memorandum Decision 18A-PL-2153 | November 27, 2019                Page 14 of 16
       provision prohibited Towne from working in any business that was a

       competitor of Captain for two years.

[28]   The Captain Court found, essentially, that Towne had not gained a unique

       competitive advantage through his employment:

               the only information which Towne had acquired was of a general
               nature. . . . He was not in possession of any trade secrets or
               customer lists. Any advantages, acquired through prior contact
               with insurance adjustors, were minimal because of the nature of
               the insurance claim business.

       Id. at 1162 (internal footnote omitted). Based on these circumstances, this

       Court found that, “[w]hile the activities proscribed and the 50-mile restriction

       were not overly broad, we conclude that the two year restraint was

       unreasonable in view of the nature of the protectible interest.” Id.

[29]   In the case before us, on the other hand, Gage acquired far more than

       information of a general nature. He had access to SourceOne’s entire book of

       business, and his role as independent contractor included a responsibility to

       retain that business, requiring marketing, managing, and “visiting the clients

       and working with them on issues as they may arise . . . .” Appellants’ App.

       Vol. II p. 196. As a result of this role, Gage acquired a unique competitive

       advantage. Furthermore, unlike the complete prohibition on competition in

       Captain, in this case, Gage is only prohibited from soliciting SourceOne’s

       customers—he is free to engage in his business and compete with his former

       employer as much as he desires, so long as he does not solicit its customers.

       Court of Appeals of Indiana | Memorandum Decision 18A-PL-2153 | November 27, 2019   Page 15 of 16
       Moreover, under the terms of the Contract, while Gage was employed by

       SourceOne, any new business solicited and obtained by Gage (independent of

       SourceOne) was, and remains, his property. Finally, we note that, as a result of

       the Joint Marketing Agreement, Gage actually negotiated an ownership interest

       in SourceOne, meaning that there can be no concerns about unequal bargaining

       power.

[30]   There is no evidence in the record indicating that, under the particular

       circumstances of this case, including Gage’s competitive advantage and the

       nature of SourceOne’s protectable interest, a thirty-month restraint is

       unreasonable. Consequently, we find that the trial court erred by granting

       partial summary judgment in favor of Gage and Grabill on this issue and by

       denying partial summary judgment to SourceOne.

[31]   The judgment of the trial court is affirmed in part, reversed in part, and

       remanded with instructions to enter partial summary judgment in SourceOne’s

       favor and for further proceedings consistent with this opinion.

       Kirsch, J., and Crone, J., concur.

       Court of Appeals of Indiana | Memorandum Decision 18A-PL-2153 | November 27, 2019   Page 16 of 16