Opinion of the Court by Justice KELLER.
Standlee Hay Company, Inc. (Standlee), Donald E. Brown (Brown), and Charles T. Creech, Inc. (Creech) filed separate appeals from an opinion by the Court of Appeals reversing the trial court's summary judgment in favor of Brown and Standlee. Because the issues raised on appeal arise from the same facts, we address both appeals herein. Having reviewed the record and the arguments of the parties as well as the arguments by amici curiae — Greater Louisville Building and Construction Trades Council; International Brotherhood of Electrical Workers,
The parties have conducted little, if any, discovery in this matter; therefore, we take our facts, most of which are not in dispute, from the parties' pleadings and the attachments to those pleadings.
Creech is engaged in the business of providing hay and straw to farms throughout Kentucky.
Brown signed the Agreement but no one from or on behalf of Creech signed the Agreement. No one from Creech told Brown that his continued employment was contingent on his signing the Agreement, and he did not receive any monetary consideration for signing the Agreement.
Shortly after Brown signed the Agreement, Creech transferred him from his job as salesperson to the job of dispatcher.
In mid-November 2008,
On November 13, 2008, counsel for Creech sent correspondence to Brown reminding him of the Agreement that he "signed when [he] became an employee of Charles T. Creech, Inc." Counsel indicated that, based on representations Brown made to Charles Creech, Creech was willing to waive the Agreement "only insofar as it prevents you from being employed by Standlee." Creech was not willing to waive any other provisions of the Agreement. Specifically, Creech demanded that Brown not use "any proprietary information gained during [his] employment with... Creech to benefit the business pursuits of Standlee." This prohibition included any disclosure of Creech's "client information, supplier information, business models, finances, business plans, or any other company records or company information" obtained by Brown during his employment with Creech.
On November 17, 2008, counsel for Standlee sent correspondence to counsel for Creech indicating that Standlee wanted to "make sure there are no misunderstandings about what [Standlee] expect[ed] from Mr. Brown." By way of explanation, counsel for Standlee stated that Standlee intended "to set up a new LLC in Kentucky to deal with that end of their operations and that Mr. Brown [would] be an employee of this new LLC." Brown would "act as a salesman ... contacting any and all of the horse farms in Kentucky and the surrounding states, in an effort to sell Standlee Hay products to those potential customers." While Brown "may well contact people who [had] previously been customers of Creech, he would not "focus on any customer due to the fact that they may have been customers of Creech. It was Standlee's intent "to give Mr. Brown the list of horse farms in Kentucky, and the surrounding states, and to then send him out to contact these farms." As to proprietary information, counsel assured Creech that Standlee had its own practices and policies and had no interest in any such information Brown might have. Finally, counsel asked for "your thoughts on these matters after you have reviewed this letter." When no response to that letter was forthcoming, Standlee hired Brown, and Brown began selling Standlee hay and straw in Kentucky.
According to Charles Creech and a Creech employee, in January 2009 they heard from several of Creech's customers that Brown had contacted them on behalf of or sold them hay from Standlee. Charles Creech also stated that Standlee had "stolen" two of Creech's warehouse employees and that Brown had contacted one of Creech's suppliers. Brown offered Affidavits disputing some of the contentions
On February 16, 2009, Creech filed suit against Brown and Standlee, seeking compensatory and punitive damages and injunctive relief. In its complaint, Creech alleged that: the Agreement constituted a contract between Brown and Creech; Brown had breached that contract; Standlee had intentionally interfered with the contract between Creech and Brown; Standlee induced or aided and abetted Brown in breaching his contract with Creech; and Standlee intentionally interfered with Creech's existing and prospective business contracts. Creech sought compensatory and punitive damages and injunctive relief. Creech later amended its complaint to add allegations of common law fraud and breach of confidentiality.
Simultaneously with its initial complaint, Creech filed a motion for a temporary injunction, seeking to enjoin Brown and Standlee from directly or indirectly competing with Creech; from interfering with or contacting any of Creech's existing or potential customers; and from using any of Creech's trade secrets and confidential or proprietary information.
Standlee and Brown filed motions to dismiss Creech's complaint and responses to Creech's motion for injunctive relief. In its response/motion, Standlee argued that Creech waived any objection to Brown's employment in the November 13, 2008 letter. Furthermore, Standlee argued that, to the extent the November 13, 2008 letter did not waive any objection to Brown's employment, Creech's failure to respond to the November 17, 2008 letter waived any and all objections to Brown's employment.
In his response/motion, Brown argued that: he had not obtained any proprietary information while working for Creech; customer names and contact information were public information; he had received no consideration for signing the Agreement; Creech violated the Agreement when it transferred him from his job as a salesman to a job as a dispatcher; and the Agreement was void because it contained no geographical limitation.
In its reply, Creech argued that the failure to set out a geographical limitation was not fatal because Brown knew the extent of Creech's business and the court could supply a reasonable geographical limitation. Furthermore, Creech argued that any waiver in the November 13 letter was not a knowing waiver because Brown told Charles Creech that he would only be selling to "big box stores." Finally, Creech argued that it had no duty to respond to the November 17, 2008 letter; therefore, its failure to do so could not equitably estop Creech from enforcing the Agreement.
The court conducted several hearings on the parties' motions and ultimately issued a temporary injunction on May 5, 2009. In doing so, the court found that: Brown's continued employment by Creech constituted consideration for the Agreement; Brown had obtained confidential and proprietary information while employed by Creech; Brown provided confidential and proprietary information to Standlee and both of them used that information in direct competition with Creech; Creech did not directly or indirectly waive the terms of the Agreement; Creech would suffer immediate and irreparable harm absent injunctive relief; the court had the equitable power to provide a geographical limitation; a reasonable geographical limitation
Creech then filed a motion "to Confirm Compliance with Court's Temporary Injunction." In that motion, Creech argued that Brown continued to work for Standlee, which Creech believed violated the injunction. Both Brown and Creech filed responses to that motion admitting that Brown was employed by Standlee but stating that Brown was not working in a sales position. They both also filed in chronological order: notices of appeal, appealing the court's issuance of the injunction to the Court of Appeals;
The trial court held a hearing on June 24, 2009 and, on July 7, 2009, entered an order clarifying the injunction by stating that Brown: could continue to work for Standlee but he could not sell hay to any party in Kentucky; could not purchase hay from any party in Kentucky; could not purchase hay from any party outside of Kentucky for delivery to a party in Kentucky; and could not disclose any information he had obtained during his employment with Creech.
The Court of Appeals entered an Order Granting CR 65.07 Relief the same day the trial court entered its order of clarification.
Following this Court's denial of Creech's CR 65.09 motion, both Standlee and Brown filed motions for summary judgment. In their motions, they essentially argued that, based on the Court of Appeals's order granting CR 65.07 relief, summary judgment was appropriate. Creech responded, arguing that the Court of Appeals's order was not binding and that case law supported its position. The trial court held a hearing on the summary judgment motions in February 2011 and entered an order granting both motions on March 28, 2011.
The Court of Appeals reversed the trial court's summary judgment. In doing so, the Court proposed a six factor test that should be applied by the trial court in determining whether the non-compete portion of the Agreement is enforceable.
The standard of review on appeal of a summary judgment is whether the circuit judge correctly found that there were no issues as to any material fact and that the moving party was entitled to a judgment as a matter of law." Pearson ex rel. Trent v. Nat'l Feeding Sys., Inc., 90 S.W.3d 46, 49 (Ky.2002). Summary judgment is only proper when "it would be impossible for the respondent to produce any evidence at the trial warranting a judgment in his favor." Steelvest, Inc. v. Scansteel Serv. Ctr., Inc., 807 S.W.2d 476, 480 (Ky.1991). In ruling on a motion for summary judgment, the Court is required to construe the record "in a light most favorable to the party opposing the motion... and all doubts are to be resolved in his favor." Id. at 480. A party opposing a summary judgment motion cannot rely on the hope that the trier of fact will disbelieve the movant's denial of a disputed fact, but must present affirmative evidence in order to defeat a properly supported motion for summary judgment. Id. at 481.
In its appeal, Creech argues that: the trial court prematurely granted summary judgment; the trial court's reliance on the Court of Appeals's CR 65.07 opinion was erroneous; it adequately preserved issues related to the nondisclosure portion of the Agreement and the Court of Appeals erred by not addressing those issues; and the six factor test in the Court of Appeals's opinion is not supported by Kentucky law and will create significant and unintended consequences. In their appeal, Brown and Standlee argue that: the Agreement is an unenforceable restraint on trade; the Agreement is fatally flawed because it contains no geographical limitation; the trial court impermissibly reformed the Agreement by providing a geographical limitation; and Brown did not receive adequate consideration in exchange for signing the Agreement. The Unions argue that non-compete agreements in an employment setting should be treated differently from those involving the sale of a business; continued
Phillips v. Phillips, 294 Ky. 323, 171 S.W.2d 458 (Ky.1943).
Creech argues that Brown's continued employment was sufficient consideration to support the Agreement. In support of its argument, Creech relies primarily on two cases — Higdon Food Service, Inc. v. Walker, 641 S.W.2d 750 (Ky. 1982) and Central Adjustment Bureau, Inc. v. Ingram Associates, Inc., 622 S.W.2d 681 (Ky.App.1981). Both cases are distinguishable and neither is dispositive.
In Higdon, Walker began working for Higdon Food Service (Higdon) in 1974 and worked there for four years without an employment contract. 541 S.W.2d at 751. In 1978, Higdon presented Walker with an employment contract stating that "Higdon `hereby employs' Walker `as a sales representative' and agrees to pay him according to a schedule of commissions." Id. at 752. The contract also provided that Walker could only be discharged if Higdon determined in good faith that it no longer needed his services, or if Higdon determined in good faith that his services were not satisfactory. Id. Finally, the contract contained a non-compete clause. Id. Walker testified that he was not threatened with loss of his job if he did not sign the contract. However, Walker believed he would have been fired if he had not done so. Id. at 751.
In 1981, Walker quit his job with Higdon and went to work for one of Higdon's competitors. Higdon sued to enforce the non-compete provision of the contract, and the trial court found in Higdon's favor. Id. at 751. The Court of Appeals reversed, finding that Higdon had not provided any consideration to Walker in exchange for his signature on the contract. Id.
This Court reversed. In doing so, the Court noted that the contract, which spelled out Walker's position and compensation, altered the terms of the employment relationship and "was the same as a new employment." Id. at 751. Because Higdon was not compelled to keep Walker as an employee or to "rehire" Walker, the fact that it did so was sufficient consideration to support the contract. Id. at 752.
Furthermore, the Court held the provision that Walker could only be discharged if Higdon found in good faith that his work was unsatisfactory or that he was no longer needed, created "rights and obligations... for breach of which there was a remedy at law." Id. The creation of these rights and obligations was sufficient consideration to support the contract. Id. at 752.
Furthermore, Creech did not promise Brown that he could only be discharged following a good faith finding by Creech that his work was unsatisfactory or that his services were no longer needed. As noted during oral arguments, immediately before Brown signed the Agreement, Creech was entitled to fire him for any reason or no reason and immediately after Brown signed the Agreement, Creech was entitled to fire him for any reason or no reason. Unlike the employment contract in Higdon, which created rights and imposed obligations on both parties, the Agreement herein imposed obligations on Brown — to maintain confidentiality and to refrain from working for a competitor for three years after resigning — but did not provide Brown with any rights. Furthermore, the Agreement gave Creech the right to protect certain assets and to keep Brown from seeking alternative employment but imposed no obligations on Creech. Because the Agreement did not require Creech to forbear the exercise of some legal right or otherwise result in some detriment to Creech, there was no consideration.
In Central Adjustment Bureau, Inc. v. Ingram Associates, Inc., Central Adjustment Bureau (Central) provided collection services to customers throughout the United States. 622 S.W.2d. at 683. Central's business depended on "satisfactory personal contact between its sales and collection employees and its clients." Id. Central hired H. Preston Ingram on March 1, 1971, and he signed a covenant not to compete on March 22, 1971. Central hired Kathleen Garrison on September 8, 1975, and she signed a covenant not to compete on November 12, 1975. Central hired David Powers on April 1, 1975, and he signed a covenant not to compete on May 15, 1975. In 1979, all three employees resigned from Central and started a competing collection service company. Id.
Central filed suit seeking to enforce the covenants. The trial court found that the covenants were not enforceable because the employees had been advised that, if they did not sign, they would be fired. The court was not convinced Central's continued employment of the three following that threat was sufficient consideration to support the covenants. Id.
The Court of Appeals reversed. In reversing, the Court of Appeals noted several factors that indicated there had been sufficient consideration. First, the Court noted that all three employees signed the covenants shortly after they started working for Central. Second, the Court noted that all three employees continued to be employed for a number of years. Third, the Court noted that all three employees received raises and promotions while employed at Central. Fourth, the Court noted that, after signing the covenants, all
Furthermore, this case differs considerably from Central Adjustment Bureau in at least five crucial ways. First, in Central Adjustment Bureau, the employees signed the covenants within several weeks to several months after being employed. Here, Brown had worked for Creech for sixteen years before he signed the Agreement. Second, after the employees in Central Adjustment Bureau signed the covenants, which they did early in their employment, they acquired specialized knowledge, training, and expertise they would not have otherwise acquired. Here, it is undisputed that Brown had significant experience in the hay business before he began working for Creech. While there is evidence that Brown obtained information regarding Creech's customers during the sixteen years he worked for Creech before signing the Agreement, there is no evidence that Creech provided any specialized training or expertise to Brown during that time period. Furthermore, unlike in Central Adjustment Bureau, there is no evidence that Brown gained any specialized knowledge, training, expertise, or customer information after he signed the Agreement. Third, Creech did not give Brown any raise during the months he worked after signing the Agreement. Fourth, Creech did not promote Brown but took away responsibility and, while not decreasing his salary, arguably demoted him. Finally, Creech, unlike Central, did not threaten Brown with loss of his job if he did not sign the Agreement.
There is a common thread running through both Higdon and Central Adjustment Bureau — after the non-compete provision was signed, whether as part of a larger employment contract or as a stand-alone document, the employment relationship between the parties changed. In Higdon, Walker became more than simply an at-will employee. In Central Adjustment Bureau, the employees received specialized training as well as promotions and increased wages. After Brown signed the Agreement his employment relationship with Creech did not change. He remained an at-will employee with no promotion, no increase in wages, and no specialized training. In short, Brown received no consideration from Creech in exchange for signing the Agreement or after he signed the Agreement. Therefore, the Agreement is not enforceable.
Based on the preceding, we need not address the other issues raised by the parties.
For the foregoing reasons, we reverse the Court of Appeals and reinstate the trial court's summary judgment in favor of Brown and Standlee.
All sitting. MINTON, C.J.; ABRAMSON, CUNNINGHAM, SCOTT and VENTERS, JJ., concur. NOBLE, J., concurs in result only by separate Opinion.
NOBLE, J., Concurring in Result.
I believe the preliminary question in this case is what Creech would have done if Brown had refused to sign the non-compete agreement. The implication is that with the daughter insisting on the agreement,