Coates v. Heat Wagons, Inc.

942 N.E.2d 905, 2011 Ind. App. LEXIS 276, 2011 WL 646629
CourtIndiana Court of Appeals
DecidedFebruary 23, 2011
Docket64A03-1004-PL-232
StatusPublished
Cited by48 cases

This text of 942 N.E.2d 905 (Coates v. Heat Wagons, Inc.) is published on Counsel Stack Legal Research, covering Indiana Court of Appeals primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Coates v. Heat Wagons, Inc., 942 N.E.2d 905, 2011 Ind. App. LEXIS 276, 2011 WL 646629 (Ind. Ct. App. 2011).

Opinions

OPINION

BAILEY, Judge.

Case Summary

Steven E. Coates (“Coates”) appeals from the trial court’s grant of a preliminary injunction against him and in favor of Heat Wagons, Inc., (“Heat Wagon”) and Manufacturers Products, Inc. (“Manufacturers Products”) (collectively, “MPI”).

We affirm in part and reverse in part.

Issues

Coates presents numerous issues, which we reframe and restate as whether the trial court abused its discretion in granting a preliminary injunction against him because

1. There is no risk of irreparable harm to PHP from Coates’s continued operation of his business that would entitle PHP to a preliminary injunction, and prospective legal remedies will suffice to protect MPI’s interests;
2. MPI did not establish its likelihood of success on the merits of its claim against him because the covenant not to compete is unenforceable and MPI committed the first material breach of the underlying employment agreement; and
[910]*9103. The terms of the injunction are overly broad relative to the covenant it seeks to enforce.

Facts and Procedural History

Coates’s father, Harold Coates (“Harold”), was the majority shareholder in Heat Wagon and Manufacturers Products. Coates was a minority shareholder in Manufacturers Products. Manufacturers Products manufactures, sells, and leases large heaters in steel mills, portable heater units, heater parts, air conditioning systems, and other related goods. The portable heater parts division of Manufacturers Products is marketed separately as Portable Heater Parts or PHP (hereafter “PHP”) and accounts for approximately 70% of Manufacturers Products’ sales. Heat Wagon manufactures heaters and heater parts for large construction heaters, and sells the same types of products for other manufacturers.

Beginning in 1986, while still operating MPI, Harold started another business, Second Source. Second Source was also involved in the sale of portable heater parts. Harold’s father would order parts through Second Source and sell them to PHP.

In April 1996, Harold died. On May 31, 1996, all of the shares in Manufacturers Products and Heat Wagon — including Coates’s shares — were sold to John Walsh (“Walsh”) and John Barney (“Barney”). The new owners of MPI retained Coates as an employee, and on May 29, 1996, Coates signed the Employment Agreement (“Agreement”) at issue in this case.1

[911]*911Coates remained an employee of MPI, and was assigned the title of sales manager. His primary work responsibilities included purchasing products for PHP to sell, aiding in the marketing and sale of those products by PHP, identifying new products to add to PHP’s sales catalog, and assisting in price adjustments and setting customer pricing discounts. He also purchased 90% of the parts used to manufacture “large construction heaters” for a “sister company.” (App.18.)

Beginning in April 1996, when he knew MPI would be sold to Walsh and Barney, Coates began to operate Second Source under the name S&S Supply (“S&S”). In particular, Coates continued to sell parts to MPI through S&S when S&S could buy and sell the products to MPI for a lower price than MPI could purchase the same parts, even after S&S took a mark-up on the goods. Sales to MPI constituted $228,535.23 of S&S’s revenues from 1996 to 2009; sales to other customers in the same period amounted to only $3,030.00. (App.20.)

Coates hid his continued involvement in S&S from MPI. He did not inform MPI’s management that he was operating S&S. Coates used addresses not' directly connected to him to operate the business, including a friend’s address in Valparaiso as a mailing address and a UPS Store in Las Vegas, Nevada, as the address for S&S’s checking account. When products S&S sold to MPI arrived at MPI from S&S’s vendors, Coates would swap out the manufacturer’s packing slips and replace them with S&S packing slips so that his involvement in S&S would not be revealed.

On May 1, 2009, Walsh terminated Coates’s employment without cause. In March 2009, MPI ordered electric motors manufactured by Emerson Electric from S&S. After a computer irregularity with S&S’s record on MPI’s computers, an MPI employee located an Emerson Electric invoice associated with the order that showed S&S sharing its address with Coates’s personal residence. MPI investigated and in July 2009 discovered Coates’s role in S&S.

On July 20, 2009, MPI filed a complaint seeking to enjoin Coates from continued operation of Second Source/S&S, later amending the complaint to pursue damages for breach of contract. Coates answered and entered a counterclaim for declarative relief and compensatory damages.

On November 25, 2009, MPI filed its Verified Petition for Preliminary and Permanent Injunction. On April 12, 2010, after the parties filed stipulated facts and exhibits and a hearing, the trial court entered its Order Granting Preliminary Injunction (“the Order”) against Coates.

This appeal followed.

Discussion and Decision

I. Standard of Review

To obtain a preliminary injunction, the moving party must show by a preponderance of the evidence that: (1) its remedies at law are inadequate and that irreparable harm will occur during the pendency of the action as a result; (2) it has at least a reasonable likelihood of success on the merits by establishing a prima facie case; (3) the threatened harm it faces outweighs the potential harm the injunction would pose to the non-moving party; and (4) the public interest would not be [912]*912disserved by granting the injunction. Zimmer, Inc. v. Davis, 922 N.E.2d 68, 71 (Ind.Ct.App.2010). We review a trial court’s grant of a party’s motion for a preliminary injunction for an abuse of discretion. Id. Failure to prove any of the elements required for a grant of a preliminary injunction constitutes an abuse of discretion. Id.

Trial Rule 65 sets forth the procedure governing injunctive relief. “Every order granting [a] temporary injunction ... shall include or be accompanied by findings as required by Rule 52.” Ind. Trial Rule 65(D). We review the special findings and conclusions required under Trial Rule 52 for clear error. T.R. 52(A).

Findings of fact are clearly erroneous when the record lacks evidence or reasonable inferences from the evidence to support them. A judgment is clearly erroneous when a review of the record leaves us with a firm conviction that a mistake has been made. We consider the evidence only in the light most favorable to the judgment and construe findings together liberally in favor of the judgment.

Robert’s Hair Designers, Inc. v. Pearson, 780 N.E.2d 858, 863 (Ind.Ct.App.2002) (citations omitted).

II. Irreparable Haim

Coates contends that MPI does not face a risk of irreparable harm and does not lack an adequate remedy at law. Thus we first consider whether the trial court abused its discretion in determining that MPI may have suffered irreparable harm.

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