Court Opinion

ID: 9726839
Source: CourtListenerOpinion
Date Created: 2023-08-26 13:10:19.898488+00
Date Added: 2024-06-11T18:25:31.304864
License: Public Domain

HUNTER, Justice,
dissenting.
I must respectfully dissent from the majority opinion. The opinion and decision of the Court of Appeals found at Woodward Insurance, Inc. v. White, (1981) Ind.App., 425 N.E.2d 258, should not be disturbed; likewise, as the Court of Appeals held, the summary judgment entered by the trial court should be affirmed.
The trial court granted White’s motion for summary judgment for three reasons:
1. The covenant not to compete lacked the consideration necessary to render it enforceable;
2. The covenant was not ancillary to and necessary for the main purposes of the agreement; and
3. The terms of the agreement expired when White relinquished his shareholder status.
For any and all of these reasons the trial court’s judgment should be upheld. That is so because Woodward Insurance Company failed in its duty as non-movant to set forth “specific facts” to establish the existence of a “genuine issue,” as required by Ind.R. Tr.P. 56(E). Shideler v. Dwyer, (1981) Ind., 417 N.E.2d 281; Whipple v. Dickey, (1980) Ind.App., 401 N.E.2d 787.
For twenty-nine years prior to the existence of the stock purchase agreement and covenant not to compete which is at issue here, defendant C. M. White had been employed by the predecessor corporations of the plaintiff, Woodward Insurance, Inc. During that time, he never signed a written contract of employment.
Accordingly, for those twenty-nine years —1930 to 1959—White’s employment status with the predecessor corporations was that of an employee at will. As an employee at will, White was subject to dismissal at any time for any reason—without legal recourse—as per this jurisdiction’s common law adherence to the employment at will doctrine. Campbell v. Eli Lilly & Co., (1980) Ind.App., 413 N.E.2d 1054 (Ratliff, J., dissenting); Martin v. Platt, (1979) Ind. App., 386 N.E.2d 1026; Shaw v. S. S. Kresge Company, (1975) 167 Ind.App. 1, 328 N.E.2d 775; Montgomery Ward & Co. v. Guignet, (1942) 112 Ind.App. 661, 45 N.E.2d 337.
During the late 1930s, White had purchased fifty shares of stock in the Insurance Premium Acceptance Corporation, which was formed to finance insurance premiums associated with the Woodward Agency. As the owner of fifty shares, White was a minority shareholder.
In 1959, as the majority has explained, a reorganization of the corporation occurred. In December of that year, the parties executed the stock purchase agreement and covenant not to compete. The document was drafted by the corporation’s attorney.
Pursuant to the agreement, White purchased fifty shares of stock and paid the fair market value—$75 per share. He remained a minority shareholder, notwithstanding his acquisition.
At the same time, White became subject to the covenant not to compete, which, according to the language of the document, *70precluded him from competing with Woodward Insurance for a period of five years subsequent to the termination of his employment “for any cause or reason whatsoever.” (Emphasis added.) Significantly, no written contract of employment was executed; White remained an employee at will, with no legal recourse in the event Woodward Insurance fired him.
This evidence is uncontradicted. It belies the majority’s conclusion that there was adequate consideration flowing from Woodward Insurance to White to render the covenant enforceable.
The majority bases its conclusion on the fact that “White continued to be an employee of Woodward.” Majority Opinion, supra. While White did in fact remain an employee, the extent of his continued employment remained unstated and wholly indefinite—a classic example of employment at will, as defined in this jurisdiction. Campbell v. Eli Lilly & Co., supra; Martin v. Platt, supra; Shaw v. S. S. Kresge Company, supra.
Inasmuch as White could have been fired at any time for any reason by Woodward, who would have been immune from liability, any consideration received by White in the form of continued employment, at the time the contract was executed, amounted, at best, to a purely illusory promise. Woodward Insurance was not legally bound to retain White, nor does the record reveal any facts to establish a promise—oral, written, express or implied—to do so.
Even if some ambiguity existed in the stock purchase agreement to support an inference that White would receive continued employment for some defined period, rather than simply at the will of Woodward, the majority’s conclusion would still not be warranted. Woodward Insurance’s attorney drafted the contractual agreement; as this Court emphasized in both Buanno v. Weinraub, (1948) 226 Ind. 557, 81 N.E.2d 600, and Donahue v. Permacel Tape Corporation, (1955) 234 Ind. 398, 127 N.E.2d 235, the terms of an agreement which would invoke a covenant not to compete must be strictly construed against its author.
Here, of course, there is no ambiguity in the clause that provided White could not compete for five years subsequent to his termination “for any cause or reason whatsoever.” White paid full fair market value for his stock; for the covenant, he received nothing, for he could have been fired immediately without any recourse.
This cannot be characterized as adequate consideration under the existing case precedent of this jurisdiction. Campbell v. Eli Lilly Co., supra (even if employee at will was promised he would not be discharged, that covenant was unenforceable for lack of consideration in that the employee had not promised he would continue employment); Advanced Copy Products, Inc. v. Cool, (1977) 173 Ind.App. 363, 363 N.E.2d 1070 (continued employment held not sufficient to constitute adequate consideration to support a covenant not to compete); Warrick Beverage Corp. v. Miller Brewing Co., (1976) 170 Ind.App. 114, 352 N.E.2d 496 (since either party could terminate duties of performance at will, contract was unenforceable); Shanks v. Fisher, (1955) 126 Ind.App. 402, 130 N.E.2d 231 (unilateral promise of owners to pay builder extra amount for work already subject to contract was unenforceable due to lack of consideration); Semon, Bache & Co. v. Coppes, Zook & Mutschler Co., (1905) 35 Ind.App. 351, 74 N.E. 41 (contract which failed to impose any obligation on one of the parties was unenforceable for lack of mutuality in consideration).
Other jurisdictions which have confronted the question before us have concluded that covenants not to compete executed after the inception of employment are not enforceable unless supported by additional consideration—a requirement not satisfied simply by the promise or fact of continued employment. See, e.g., Super Maid CookWare Corporation v. Hamil, (5th Cir. 1931) 50 F.2d 830; James C. Greene Co. v. Kelley, (1964) 261 N.C. 166,134 S.E.2d 166; Morgan Lumber Sales Co. v. Toth, (1974) 41 Ohio Misc. 17, 321 N.E.2d 907; McCombs v. McClelland, (1960) 223 Or. 475, 354 P.2d *71311; Maintenance Specialities, Inc. v. Gottus, (1974) 455 Pa. 327, 314 A.2d 279; Schneller v. Hayes, (1934) 176 Wash. 115, 28 P.2d 273. On the other hand, where the execution of a covenant not to compete has been accompanied by an express contract for a continuation of employment, usually for a fixed period of time, adequate consideration has been found to support the covenant. See, e.g., Daughtry v. Capital Gas Co., (1969) 285 Ala. 89, 229 So.2d 480; Louisville Cycle & Supply Co. v. Baach, (Ky.1976) 535 S.W.2d 230; Wrentham Co. v. Cann, (1963) 345 Mass. 737, 189 N.E.2d 559; see generally 51 A.L.R.3d 825 (1973).
The majority’s conclusion that adequate consideration did run to White is expressly based on the well settled rules that when confronted with a motion for summary judgment, the contents of all pleadings are to be liberally construed in favor of the party opposing the motion, and that summary judgment should be denied if the facts give rise to conflicting inferences which are outcome-determinative. See Majority Opinion, supra. The majority has failed to acknowledge or apply, however, an equally well established rule pertaining to the disposition of summary judgments. Ind.R.Tr.P. 56(E) reads in pertinent part:
“When a motion for summary judgment is made and supported as provided in this rule, an adverse party may not rest upon the mere allegations or denials of his pleading, but his response, by affidavits or as otherwise provided in this rule, must set forth specific facts showing that there is a genuine issue for trial. If he does not so respond, summary judgment, if appropriate, shall be entered against him.”
Here, when confronted with White’s motion for summary judgment, supporting affidavits, and evidence obtained via discovery, Woodward failed to produce “specific facts” to establish that White received any consideration for the covenant.
Consequently, as per the mandate of Ind. R.Tr.P. 56(E), the trial court’s entry of summary judgment was proper. Shideler v. Dwyer, supra; Whipple v. Dickey, supra. Instead, the majority of this Court has reversed the summary judgment on an inference based on conjecture.
This same improper approach to Ind.R. Tr.P. 56(E) forms the basis for the majority’s conclusion that a factual dispute existed with respect to whether the covenant not to compete was ancillary to and necessary for the main purpose of the stock purchase agreement. The majority delineates the various documents to be considered in ruling upon the summary judgment motion, speaks of “apparent or potential facts,” and, without addressing the main purpose of the agreement or explaining the manner in which the covenant not to compete was “ancillary to and necessary for” that main purpose, summarily concludes that “it certainly appears” a factual dispute existed. Majority Opinion, supra (emphasis added).
At the same time, confusion is exhibited over the question before the court. The majority states: “When asked whether the agreement involving the covenant not to compete was entered into because White was an employee or because he was about to purchase some shares of stock, Mahan [company president] answered, ‘Both.’ ” Of course the agreement involving the covenant not to compete related to White’s employment. Inherently, covenants not to compete are matters which employers execute with those in their employment. Likewise, as Woodward acknowledges in its brief, the stock purchase agreement was available to employees only; according to Woodward, the purpose of the stock purchase agreement was to insure that employees working for the corporation “owned stock and had a vested interest in the profits.”
The question before this Court, however, is not whether the covenant not to compete related to White’s “employment situation,” Majority Opinion, supra (emphasis added); rather, the issue is whether the covenant not to compete was ancillary to and necessary for the main purpose of the contractual agreement to which it was attached—the stock purchase agreement. Buanno v. Weintraub, supra; 4408, Inc. v. Losure, (1978) Ind.App., 373 N.E.2d 899.
*72It is self-evident that the majority has misconstrued the issue before it, for it has not even examined the language of the stock purchase agreement to which the covenant not to compete was attached. That contractual language, drafted by Woodward as an offer to purchase, reads:
“I, the undersigned, do hereby offer to purchase 50 shares of the capital stock of Woodward Insurance, Inc., at the price of $75.00 per share.
“This offer to purchase stock shall remain in full force and effect and may be accepted by the Board of Directors of Woodward Insurance, Inc. at any time prior to and including the 15 day of January, 1960. In the event this offer to purchase is accepted by the Board of Directors of the corporation, the undersigned will be prepared to pay for said stock in cash on or before the 15th day of January. 1960.”
The language is unambiguous. It concerned only the purchase of stock and neither expressly nor impliedly was directed to White’s “employment situation.” It cannot be said that the covenant not to compete was in any shape or form somehow necessary for or ancillary to the purpose of transferring stock.
When confronted with similar circumstances in Milgram v. Milgram, (1938) 105 Ind.App. 57, 12 N.E.2d 394, our Appellate Court found that the covenant not to compete was unenforceable. There, three brothers entered into an agreement which acknowledged existing debts, stipulated their mutual interest in obtaining a common patent registration, and designated exclusive areas of business for each, complete with reciprocal covenants not to compete. The Appellate Court rejected the contention that the covenants not to compete were enforceable:
“The covenant attempted to be enforced here was not ancillary to the main purpose of a lawful contract, nor was it necessary to protect the covenantee in the enjoyment of the legitimate fruits of the contract nor to protect him from the dangers of an unjust use of those by the other party.” Id., 105 Ind.App. at 60, 12 N.E.2d at 395.
Likewise, the covenant not to compete at issue here was in no way necessary to protect Woodward Insurance in the fruits of its sale of stock. The Court of Appeals was correct in its unanimous conclusion that Milgram applied to the facts at bar. Woodward Insurance, Inc. v. White, supra. Accord, Wilmar, Inc. v. Liles, (1971) 13 N.C.App. 71, 185 S.E.2d 278, 51 A.L.R.3d 816.
The majority of this Court attempts to distinguish Milgram on the basis that Milgram “did not involve a contract that could be construed to be an employment contract at all.” Majority Opinion, supra. Neither did this case, however; there was no employment contract between the parties. White was an employee at will and could be fired at any time.
The significance of this fact must be recognized, as it has been in the case precedent of this Court. In Jenkins v. King, (1946) 224 Ind. 164, 65 N.E.2d 121, this Court found that a covenant not to compete executed as part of a two-year written employment contract lapsed at the end of the two-year term. Although the employee had continued to work past the two-year contractual period, this Court found the covenant unenforceable. The majority’s decision here cannot be reconciled with the Jenkins holding.
Inasmuch as the covenant not to compete was executed solely in consideration for the opportunity to purchase stock, as per the express terms of the contract drafted by Woodward, consistency with this Court’s decision in Jenkins v. King, supra, would deem that the enforceability of the covenant also expired with White’s resale of the stock to Woodward Insurance. The trial court was correct in holding that this rationale also rendered summary judgment appropriate.
The decision in Jenkins, as well as the numerous principles and precedent discussed herein, have rested on this jurisdiction’s repeated recognition that covenants not to compete are in restraint of trade and, as a consequence, are not favored in the *73law. Jenkins v. King, supra; Captain & Co. v. Towne, (1980) Ind.App., 404 N.E.2d 1159. The majority’s decision here today runs against the grain of this well-settled maxim; at the same time, it flies in the face of both Ind.R.Tr.P. 56(E) and the contractual principle that language contained in an agreement is to be strictly construed against the author.
The Court of Appeals correctly decided the issues presented by the parties. Woodward Insurance, Inc.’s petition to transfer should be denied.
For all the foregoing reasons, I dissent.