ATTORNEYS FOR APPELLANT: ATTORNEYS FOR APPELLEE:
THOMAS M. KIMBROUGH RICHARD P. SAMEK
MICHAEL H. MICHMERHUIZEN DIANA C. BAUER
CATHLEEN M. SHRADER M. RANDALL SPENCER
Barrett & McNagny LLP Miller Carson Boxberger & Murphy LLP
Fort Wayne, Indiana Fort Wayne, Indiana
IN THE COURT OF APPEALS OF INDIANA
PATHFINDER COMMUNICATIONS ) CORPORATION, ) ) Appellant-Plaintiff, ) ) vs. ) No. 02A04-0303-CV-146 ) DAVE MACY, ) ) Appellee-Defendant. )
INTERLOCUTORY APPEAL FROM THE ALLEN SUPERIOR COURT
The Honorable Nancy Eshcoff Boyer, Judge
Cause No. 02D01-0302-CT-71
September 17, 2003
OPINION - FOR PUBLICATION
Pathfinder Communications Corporation (WOWO) filed a motion for preliminary injunction and a complaint requesting a temporary restraining order, preliminary and permanent injunctions, and damages against its former employee, Dave Macy (Macy), See footnote in Allen Superior Court alleging that Macy violated a covenant not to compete by obtaining employment at a competing radio station. After a hearing was held on WOWOs motion for preliminary injunction, the trial court found that WOWO did not have a legitimate protectible interest in Macy or his radio program Macy in the Morning, and that the covenant not to compete was unenforceable because it was overbroad. The trial court therefore denied WOWOs motion for preliminary injunction. WOWO appeals raising three issues, which we restate as:
Whether WOWO has a legitimate protectible interest in Macy, its former on-air personality;
Whether the covenant not to compete is overbroad; and,
Whether the trial court abused its discretion when it denied WOWOs motion for
a preliminary injunction.
Concluding that WOWO does have a legitimate protectible interest in Macy, that the
covenant not to compete is rendered reasonable by blue penciling or striking its
overbroad language, but that the trial court properly denied WOWOs request for injunctive
relief, we affirm in part and reverse in part.
Ex. Vol., Plaintiffs Ex. 1. The agreement also provided: the parties expressly
agree that the restrictions set forth in the covenant are fair and reasonable
in all respects.
In 2002, WOWO commissioned a consulting study of all of the stations programming, including Macys show. As a result of that study, WOWO determined that it should modify the format of Macys show to focus more on hard news, weather, and local events. WOWO told Macy to tone down the controversial and combative nature of the show, and that Macy needed to approach issues in a less controversial fashion. Tr. pp. 89-90. Macy was also told to avoid discussions of issues such as religion, abortion, and gay and lesbian rights unless they were newsworthy. Tr. p. 91. Essentially, WOWO decided to take the program in a different direction with more emphasis on news and information and less emphasis on controversial programming. Tr. p. 99. The name of Macys show was also changed to Fort Wayne Morning News with Dave Macy. After the change in format, the Arbitron ratings for Macys show rose by three full shares. See footnote
Macys employment with WOWO was terminated in December 2002 after Macy falsified program logs, which is a violation of the rules and regulations established by the Federal Communications Commission.See footnote Two months later, WGL, a competing radio station in Fort Wayne, hired Macy to host their morning show utilizing the Macy in the Morning format. On February 24, 2003, WOWO filed a complaint requesting a temporary restraining order, preliminary and permanent injunctions, and damages against Macy alleging that Macy had breached the covenant not to compete described in his employment agreement. On that same date, WOWO filed a motion requesting a preliminary injunction and/or temporary restraining order.
A hearing was held on the motion on March 3-4, 2003. On March 21, 2003, the trial court issued its findings of fact and conclusions of law. The trial court found:
When WOWO discontinued the Macy in the Morning talk show and instituted the news/talk program entitled Fort Waynes Morning News with Dave Macy, it fundamentally changed the format of the show and the product known as Macy in the Morning for which Macy had been hired and for which he became known.
Appellants App. pp. 10-12. The trial court therefore denied WOWOs request for
a preliminary injunction. WOWO now appeals. Additional facts will be provided
Id. at 836.
Conversely, in Richmond Brothers, Inc. v. Westinghouse Broadcasting Company, Inc., 256 N.E.2d 304 (Mass. 1970), the Massachusetts Supreme Court held that enforcing the covenant not to compete was not reasonably necessary to protect the radio stations interests. In that case, the on-air personality, Jacoby, was the moderator of a popular talk show on WMEX, a Boston radio station. Id. at 305. After Jacoby terminated his employment with WMEX, he obtained employment at a Chicago radio station. Id. at 306. Three years later he returned to Boston and obtained employment with a radio station before his noncompetition period had expired. Id. WMEX sought an injunction against Jacoby, which the trial court denied. On appeal, despite WMEXs assertion that Jacobys success upon his return to Boston was the direct product of its expenditures and promotion of Jacoby during his employment with WMEX, the court affirmed the trial courts denial of injunctive relief and stated:
Even though a broadcasting company may have expended large sums to promote a performers popularity with the listening public, it would indeed be difficult to determine that such expenditures and promotion have resulted in the performers popularity. The performers popularity may well be attributed to his own personality and ability. Even if we assume that the plaintiffs promotion of Jacoby resulted in his popularity, we believe that Jacobys absence for almost three years from the Boston broadcasting area sufficiently protected any business interests of the plaintiff. During this period the plaintiff continued to conduct a talk show during the time slot previously occupied by Jacoby.
Id. at 307.
In West Group Broadcasting, Ltd. v. Bell, 942 S.W.2d 934 (Mo. Ct. App. 1997), the Missouri Court of Appeals determined that the radio station, KXDG, failed to present any evidence that it had a legitimate protectible interest in Bell, its former on-air personality, and therefore, the court concluded that it would be unreasonable to enforce the covenant not to compete. Id. at 937, 939. In that case, while on the air at KXDG, Bell used the name Hurricane Hannah, and she hosted the 7:00 p.m. to midnight time slot with a country music format. Bell eventually left KXDG and obtained employment at KSYN; however, she assumed a new on-air name, worked a different time slot, and was simply a co-host with a male announcer. Id. at 938. Despite KXDGs argument that Bells voice was very recognizable, the court determined that Bell did nothing at KSYN to capitalize on the image of the radio personality developed for her at KXDG. Id. at 939. However, the court did indicate that its result might have been different had Bell attempted to utilize the Hurricane Hannah radio personality. Id. See footnote
In this case, we initially observe that WOWO did not develop the format Macy in the Morning and it abandoned and ceased to promote that format; therefore, WOWO abandoned any protectible interest it had in that specific format. However, the more significant issue in this case is whether WOWO had a legitimate protectible interest in Dave Macy, its on-air personality.
The evidence presented at the hearing revealed that, in general, the morning drive time slot is the most important day period for a radio station in terms of generating the largest audience and revenue; therefore, it is not unusual for a radio station to invest most of its resources in that morning drive program. Tr. p. 58. WOWOs employment agreement with Macy provided that WOWO would incur expenditures in training, promoting, and developing the publics recognition and awareness of Macy. Ex. Vol., Plaintiffs Ex. 1.
After WOWO hired Macy, who was unknown in the Ft. Wayne market, WOWO engaged in a campaign to promote Macy, which included outdoor advertising on billboards, newspaper advertising, and advertising for Macy and his show on WOWO during all station programming. Tr. p. 56. The General Manager of WOWO testified that the station spent hundreds of thousands of dollars to promote Macy in the Ft. Wayne market. Tr. p. 57. Further, the General Manager stated that the particular on-air personality affects the stations ability to sell advertising in that personalitys time slot. Tr. p. 60. Macy agreed that he now has very good name recognition in the Fort Wayne market. Tr. p. 27.
After WOWO commissioned a consulting study for all programming, including Macys show Macy in the Morning, WOWO determined that it should modify the format of Macys show to focus more on hard news, weather, and local events. WOWOs objective in changing the format of Macys show was to expand the overall listening audience. Tr. p. 99. Despite that objective and the three point increase in the Arbitron ratings after the format of the show was changed, Macy contends that WOWO dissipate[d] any goodwill it created and undermine[d] Macys image by changing the essence of his show; therefore, WOWO abandoned any protectible interest it had in Macy as its on-air personality. Br. of Appellee at 12. We disagree.
Similar to the facts in Knighton, T.K. Communications, and Cullman, WOWO invested substantial resources in Macy to promote him in the Ft. Wayne market. While on the air at WOWO, Macy acted as WOWOs representative to its listening audience. Also, Macy obtained employment at WGL, a direct competitor of WOWO with a similar format, and he is hosting the morning drive time slot, the same time slot he hosted at WOWO. Although WOWO changed the format of Macys show, it did so solely in an attempt to expand Macys listening audience, which did not, as Macy argues, have the effect of dissipating the goodwill it had fostered in him. We therefore hold that WOWO does have a legitimate protectible interest in Macy, its former on-air personality.
B. Scope of the Covenant
We now turn to WOWOs argument that the trial court erred when it determined that the covenant not to compete is overly broad with respect to the activities proscribed. See Appellants App. p. 12. In determining whether a covenant not to compete is reasonable, we must consider whether the scope of the agreement is reasonable in terms of time, geography, and types of activity prohibited. Burk, 737 N.E.2d at 811. The employer must demonstrate that the covenant is reasonable and necessary in light of the circumstances. Id.
In Burk, the covenant at issue provided that
(a) Employee will not ... do any of the following:
(i) Own, manage, control or participate in the ownership, management or control of, or be employed or engaged by or otherwise affiliated or associated as consultant, independent contractor or otherwise with any corporation, partnership, proprietorship, firm, association or other business entity which competes with, or otherwise engages in any business of the Corporation, as presently conducted in the States [sic] of Indiana (Territory [sic]).
Id. at 812 (record citation omitted). On appeal, the employee argued that
the covenant was overbroad because it effectively prohibited him from working for a
competitor in any capacity. Id. at 812. Our court agreed and
therefore concluded that the covenant was unenforceable. Id.
In Unger, the employee relied on Burk to argue that the covenant in his contract was unreasonably overbroad. Unger, 771 N.E.2d at 1245. The covenant in Unger restricted the employee from participating in a business that is competitive with [his former employer], which provides a variety of financial services. Id. We noted that the employee was therefore free to seek employment with any business that did not provide financial services, and concluded that the noncompetition clause was reasonably limited in the type of activity that it prohibited. Id.
In this case, the covenant provides in pertinent part: [e]mployee will not engage in activities or be employed as an on-air personality, either directly or indirectly at certain radio stations in the Fort Wayne market. Ex. Vol., Plaintiffs Ex. 1 (emphasis added). WOWO argues that the covenant is similar to the covenant in Unger and distinguishable from the covenant in Burk because it does not extend to the entire State of Indiana; nor does it prohibit Macy from working for any competitor of WOWO. Br. of Appellant at 19. Conversely, Macy contends that like the covenant in Burk, in this case, the covenant prevents Macy from seeking employment with a competing radio station in any capacity including producing, owning, directing, cleaning or acting as a security guard for any one of those stations. Br. of Appellee at 24.
Because noncompetition agreements are to be strictly construed against the employer, see Burk, 737 N.E.2d at 811, we agree with Macy that the language will not engage in activities would prevent Macy from being employed in any capacity by any radio station listed in the covenant. This prohibition extends far beyond WOWOs legitimate interests in Macy, as an on-air personality, which we have discussed above. That portion of the covenant is overbroad and therefore unreasonable.
WOWO also contends that even if the covenant is overbroad, the contract is clearly divisible into parts and enforceable to protect WOWOs legitimate interests. Br. of Appellant at 21.
When a court determines that portions of a covenant are unreasonable, it
may not create a reasonable restriction under the guise of interpretation, since this would subject the parties to an agreement they have not made. However, if a covenant is clearly divisible into parts, and some parts are reasonable while others are unreasonable, a court may enforce the reasonable portions only.
Burk, 737 N.E.2d at 811 (citations omitted). Utilizing that process, which is
known as blue-penciling, the court strikes the unreasonable provisions from the covenant.
Id. However, the court is prohibited from adding terms that were not
originally part of the agreement. Id. Rather, unreasonable restraints are rendered
reasonable by scratching out any offensive clauses to give effect to the parties
intentions. Id. (quoting Smart Corp. v. Grider, 650 N.E.2d 80, 84 (Ind.
Ct. App. 1995), trans. denied).
We agree with WOWO that the overbroad language engage in activities or is divisible and can be deleted from the covenant. Without adding any additional terms, the remaining provisions are then rendered reasonable. The result, which reads:
Employee agrees that during the term of Employees employment and for a period of twelve (12) consecutive calendar months thereafter, Employee will not be employed as an on-air personality, either directly or indirectly, with the following radio stations (which radio stations are in direct competition with and are engaged in radio broadcasting business substantially similar to WOWO): WAJL, WBTU, WEXI, WGL, WGLL-FM, WSHI, WJFX, WLDE, WXKE, WGL, WYSR, WEJE, WFCV, WLZQ
is a reasonable restriction sufficient to protect WOWOs legitimate interests.
Roberts Hair Designers, 780 N.E.2d at 863-64. WOWO argues that it has
demonstrated that it will suffer irreparable harm if Macy is allowed to remain
on the air at its competitor, WGL, and that its remedies at law
In Roberts Hair Designers, we observed:
Our supreme court recently noted that if an adequate remedy at law exists, injunctive relief should not be granted. The trial court has a duty to determine whether the legal remedy is as full and adequate as the equitable remedy. A legal remedy is adequate only where it is as plain and complete and adequate--or, in other words, as practical and efficient to the ends of justice and its prompt administration--as the remedy in equity. A party suffering mere economic injury is not entitled to injunctive relief because damages are sufficient to make the party whole.
Id. at 864 (internal citations omitted); see also Fumo v. Med. Group of Michigan City, Inc., 590 N.E.2d 1103, 1108 (Ind. Ct. App. 1992), trans. denied (A preliminary injunction may be issued, upon balancing the consequent hardships, only where an irreparable injury cannot be redressed by a final judgment on the merits.).
In Roberts Hair Designers, two hairstylists employed by Roberts Salon signed an agreement, which contained a covenant not to compete. 780 N.E.2d at 862. The hairstylists later terminated their employment with Roberts and began working at a nearby salon in violation of that covenant. Id. at 863. The hairstylists told the customers they served at Roberts that they would be terminating their employment at Roberts, and that they would be working at the competing salon. Id. at 864-65. Roberts sought a preliminary injunction against the hairstylists, and at the hearing, Roberts owner testified that although he could not name the customers lost as a result of the hairstylists departure, that the hairstylists had served thirty-five to forty customers per week and that the salon no longer received phone calls regarding the hairstylists. Id. at 864. The trial court denied Roberts request for injunctive relief finding that Roberts was unable to demonstrate irreparable harm or any economic loss or loss of goodwill, and noted that Roberts overall business revenues increased in the one-week period after the hairstylists terminated their employment. Id.
On appeal, we observed that the record clearly established that Roberts Salon lost customers as a direct result of the hairstylists actions and that had the hairstylists not left the employment of Roberts Salon and not taken the customers that they served, Roberts Salons increase in revenues would have been even greater. Id. at 865. Therefore, Roberts did demonstrate an economic loss as a result of the hairstylists departure and further, the fact that Roberts could not quantify the loss was irrelevant. Id. [E]ven if Roberts Salon could have quantified its losses up to the date of the preliminary injunction hearing, losses to Roberts Salons good will as a result of [the hairstylists] current and future violations of the agreement would warrant a finding of irreparable harm. Id. Our court then determined that the trial court abused its discretion when denied Roberts request for a preliminary injunction. Id. at 870.
In Indiana Family and Social Services Administration v. Walgreen Co., 769 N.E.2d 158 (Ind. 2002), Walgreens sought and obtained an injunction to prevent the State from implementing certain emergency cost-containment measures designed to decrease the Medicaid reimbursement rates to pharmacies for drugs they dispensed and pay the pharmacies less for dispensing drugs. Id. at 160-61. The testimony presented at the preliminary injunction hearing revealed that in addition to economic losses, some of the pharmacies might have to close and Medicaid recipients could be harmed. Id. at 163. On appeal, our supreme court noted that a party suffering mere economic injury is not entitled to injunctive relief and that imminent business loss or failure is a form of economic injury. Id. at 162 n.4. The court then observed that given the evidence presented that alternative sources of pharmacy services were available and that State would work to ensure the beneficiaries had sufficient access to services, Walgreens failed to identify any injury beyond purely economic injury, which is not enough to justify injunctive relief. Id. at 163. The court concluded that Walgreens had an adequate remedy at law because post-trial damages would adequately compensate for any injuries should Walgreens prevail at trial. Id.
In this case, the evidence presented at the preliminary injunction hearing revealed that Macys employment with WOWO was terminated in December 2002 and WOWO replaced him with Charley Butcher, renaming the show Ft. Wayne Morning News with Charley Butcher. Charley Butcher also has name recognition in the Ft. Wayne market. Tr. p. 105. The General Manager of WOWO testified that two of the stations advertisers began to advertise on WGL after Macy became its on-air personality. Tr. p. 92. However, he also admitted that one of those advertisers, Auto Collision, still advertises on WOWO and is still considered a client. Tr. p. 94. He stated that it is common in the radio industry for an advertiser to carry advertisements on more than one radio station. Tr. p. 94. There was no evidence presented concerning the date on which the other advertiser, Legacy Heating and Air, stopped advertising on WOWO. Further, the General Manager stated that there were probably some advertisers that renewed their contracts with WOWO after Macy was fired. Tr. p. 105. Specifically, he testified, I maintain that weve kept advertisers after [Macy] left. We kept advertisers because they bought into the format and also because Charley Butcher had some recognition . . . as well. Tr. p. 105. Although evidence was also presented that some former WOWO listeners are now listening to Macy on WGL, the record before us does not indicate whether a substantial number of listeners are now listening to Macy on WGL. Tr. pp. 24, 66. Finally, Macy had been on the air at WGL for approximately one week on the date of the hearing. Tr. p. 66.
WOWO has failed to demonstrate that they have lost even one advertiser as a result of Macys employment with WGL. Although evidence was presented that Legacy Heating and Air is no longer advertising on WOWO and is now advertising on WGL, from the record before us, there is no evidence concerning the date on which Legacy Heating and Air ceased advertising on WOWO. Unlike the facts in Roberts Hair Designers, there is no evidence that Macy has contacted advertisers in an attempt to lure them to WGL. Also, in Roberts Hair Designers, the two hairstylists started competing with Roberts immediately before Roberts Salon could hire replacements; however, in this case, WOWO replaced Macy with an on-air personality with name recognition in the Ft. Wayne market before Macy went on the air at WGL. Further, WOWO admitted that it could only speculate that it will lose advertisers to WGL. Finally, if WOWO does lose advertising contracts as a result of Macys violation of the covenant not to compete, post-trial damages would adequately compensate for such economic loss should WOWO prevail at trial. See Walgreens, 769 N.E.2d at 163.
COURT OF APPEALS OF INDIANA
PATHFINDER COMMUNICATIONS )
vs. ) No. 02A04-0303-CV-146
DAVE MACY, )
APPEAL FROM THE ALLEN SUPERIOR COURT
The Honorable Nancy Eshcoff Boyer, Judge
Cause No. 02D01-0302-CT-71
KIRSCH, Judge, concurring in part and dissenting in part
I fully concur in the majority decision holding that WOWO has a legitimate
protectible interest and that the covenant not to compete can be rendered reasonable
by striking the overbroad language. However, I do not think that WOWO
has an adequate remedy at law, and therefore, a preliminary injunction should issue
to protect WOWOs interest. Accordingly, I respectfully dissent from the majority
decision affirming the denial of the preliminary injunction.