Genex v . Bujnevicie CV-00-120-M 07/17/00 P UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW HAMPSHIRE
Genex Cooperative, Inc.
v. Civil N o . 00-120-M Opinion N o . 2000 DNH 153 Jacqueline Bujnevicie
REPORT AND RECOMMENDATION
The plaintiff, Genex Cooperative, Inc., ("Genex") brings the
underlying action against its former employee, Jacqueline
Bujnevicie. The action is premised on Bujnevicie's alleged
breach of a restrictive covenant not to compete with Genex.
Plaintiff's motion for preliminary injunction (document n o . 2 )
has been referred to me for a report and recommendation, in
accordance with 28 U.S.C. § 636(b)(1)(B). For the reasons stated
below, I recommend that the preliminary injunction be denied.
Background
Genex is a Wisconsin corporation in the business of
providing semen and artificial insemination services to dairy and
beef producers. Genex serves more than twenty-two thousand farms nationwide. To market and deliver its products and services to
herd owners, Genex employs technicians who directly serve these
farmers. Because of the nature of this business, farmers become
particularly loyal to those technicians that serve them
successfully.
On November 2 7 , 1989, in consideration of training,
compensation, and benefits offered to Bujnevicie as part of her
employment, she entered into a written, technician agreement (the
"Agreement") with Eastern Artificial Insemination Cooperative,
Inc., a company that has since assigned its rights and
obligations to Genex through a merger. According to the
Agreement, Eastern agreed to employ Bujnevicie "subject to the
current employment policies and practices of Eastern," subsequent
revisions, and specific terms as set forth in the Agreement.
Plaintiff's Exhibit 2 . In turn, Bujnevicie agreed to be bound to
a number of conditions including a covenant not to compete.
Specifically, this covenant provided that while Bujnevicie was
employed as an insemination technician and "for a period of one
2 year after termination of [her] employment for any reason
whatsoever, [s]he will not, directly or indirectly, either as an
employee of any organization, corporate or otherwise, or of any
individual or as an independent contractor, engage in either the
artificial insemination of cattle or the sale of semen in the
area in which [s]he has been employed and rendered service."
Plaintiff's Exhibit 2 . The Agreement also provided that if the
the non-compete covenant was violated, (1) Eastern would enforce
it by seeking injunctive relief and (2) as liquidated damages
Bujnevicie would have to pay Eastern $10.00 per day for each day
that she violated the covenant. See Plaintiff's Exhibit 2 .
Finally, the Agreement provided that upon termination of the
agreement by either party, the provisions of the restrictive
covenant would remain in full force and effect. See id.
After forming the Agreement, Eastern trained Bujnevicie.1
1 Clifford Allen, one of Genex's associate vice presidents for marketing, testified that the initial training for insemination technicians consists of a two week training period in which trainees learn the biological basis of their services and the actual mechanical procedure on how to inseminate cattle. According to Allen, after this initial training, Genex periodically updates the training of its technicians every three
3 As a result, from 1990 through the end of 1999, Bujnevicie worked
as an insemination technician for Eastern and, after the merger,
for Genex, in southwestern New Hampshire and southern Vermont.
During that time Bujnevicie served forty-five herds of
approximately eighty herds within her territory. As a Genex
technician Bujnevicie was very successful at breeding cows with a
seventy percent conception rate. As a result, Bujnevicie was
highly regarded by Genex and its customers and developed a
substantial market for Genex's products and services in her
territory.
Bujnevicie's salary with Genex was determined by the
quantity of semen units sold and the number of insemination
procedures performed in a given period. Because approximately
forty percent of the farms that Bujnevicie serviced for Genex
preferred semen from sources other than Genex, most of
Bujnevicie's salary came from her breeding services.2
to six months. 2 Although paragraph two of the written contract states that technicians may only service Eastern/Genex customers with Eastern/Genex semen, see Plaintiff's Exhibit 2 , according to
4 To emphasize semen sales--the most profitable sales for
Genex--at the end of 1998 Genex changed how it would compensate
technicians for their breeding services. The new payment system
resulted in almost a fifty percent decrease in the amount that
technicians received for their breeding fees.3 In addition, the
new payment scheme imposed an allocation fee of $3100 per month
for each territory.4 These changes imposed a heavy burden on
technicians in low growth territories like Bujnevicie's where the
total number of herds was limited because these technicians
needed to make a lot of semen sales to make it feasible to remain
in this line of work.
Genex paid Bujnevicie a transition rate between 1999 to
2000. In addition, to help prevent her income from declining,
Bujnevicie, this provision of the contract never applied to Bujnevicie during her period of employment. 3 According to Bujnevicie, based upon the new payment system, she made roughly $3.00-3.50 per cow for her breeding services; under the old payment system she made $6.00 per cow. 4 Previously, the allocation charge had been applied in more of a sliding scale manner so that territories with large herd numbers were primarily responsible for this charge.
5 Bujnevicie worked at least fifty more days in 1999 than she did
in 1998, working all but seven days in 1999. With Genex's new
rate of pay, despite the transition rate5 and the increased
number of days worked, Bujnevicie's salary decreased from
approximately $49,000 in 1998 to $44,000 in 1999.6 On or
about January 2 0 , 2000, Bujnevicie proposed to Genex that she
would like to continue to represent Genex as an independent
contractor rather than an employee. After several discussions
regarding this proposal, on February 1 4 , 2000, Genex informed
Bujnevicie that it would not agree to this proposal. As a
result, Bujnevicie informed Genex at that time that she would no
longer work for them. Since that time, under the name of "Twin
State Breeder Service" Bujnevicie continues to provide
insemination services to customers that she had serviced while
she worked for Genex.
5 The transition rate accounted for $4000 of Bujnevicie's $44,000 salary in 1999. 6 Some of the decrease was also attributed to an overall decrease in Bujnevicie's services and the quantity of semen that she sold in 1999 compared to 1998.
6 Seeking to enforce the restrictive covenant, Genex filed
suit in this court on March 1 7 , 2000. The parties appeared
before me for an evidentiary hearing on April 7 , 2000.
At the hearing Bujnevicie testified that when Robert
Schulerud, the regional sales manager in Bujnevicie's territory,
explained the new payment scheme to her, she told him that she
did not agree with this new method of payment. He responded by
telling Bujnevicie that he understood her position. In addition,
he intended to put Bujnevicie in contact with a Rhode Island
Genex technician who, placed in similar circumstances, stopped
working for Genex, but continued to provide her services
independent of Genex.
Bujnevicie also testified that she is a single parent with
two, young children, ages seven and nine, who accompany her on
the job. Although she has worked as a herdsperson in the past,
performing this job as a single parent would be very difficult.7
For the past three years Bujnevicie has worked between 4-10 hours
7 Bujnevicie testified that a herdsperson frequently performs his or her duties, like milking, early in the morning and late at night.
7 per week, earning approximately $2000 per year, with a local
large animal veterinarian, Dr. Steven Major.8 Based on her
limited responsibilities in this position Bujnevicie does not
believe that she could increase her hours in this job.
Major testified that he is familiar with Bujnevicie's
services and many of the large herds that Bujnevicie has serviced
for Genex. Major also testified that the national average
conception rate in herds is forty percent--far below Bujnevicie's
conception rate of seventy percent--and the success of dairy
farms depends on an adequate conception rate.9 If conception
rate drops off with the use of breeding services, farms in
Bujnevicie's territory will have to spend more money on breeding
8 When necessary Bujnevicie also takes her children to work with her at this job. 9 According to Major, because a cow makes most of her milk within three to four months after she has a calf, she is most profitable early in her lactation. This means that the more frequently a cow is bred the more high producing intervals exist within a cow's life span. Thus, productivity depends on a successful conception rate. In addition, if a cow is not bred successfully within four months after giving birth, she will make too little milk, will be shipped for beef and the farmer will have to pay approximately $1200 for a replacement cow.
8 by using hormones or purchasing a bull.10 According to Major, if
Bujnevicie is forced to stop providing her services, this would
pose an unreasonable hardship on the dairy farmers in her
territory. He also believes that less than half of the farmers
in Bujnevicie's territory would use a replacement, Genex
technician, because the majority of these farmers would opt for
an alternative method to breed their cows.
Schulerud testified that many of Genex's previous customers
in Bujnevicie's territory have refused to use Genex's breeding
services since Bujnevicie quit in February of this year. As a
result, the Genex technician who has replaced Bujnevicie, Tom
Ainsworth, has had difficulty servicing these customers with
almost a total loss of business in that territory.
Sheldon Sawyer, a New Hampshire dairy farmer who has used
Bujnevicie's breeding services for the past ten years, testified
that Bujnevicie is the best technician that he has ever had.
Unlike other technicians, she is willing to catch cows that need
10 Using a bull to breed cows is less desirable because breeding is reduced and bulls are dangerous, unpredictable animals that threaten the safety of others on the farm.
9 to be bred and this is very important to his farm. In addition,
Bujnevicie's success at breeding his cows has played a valuable
role in maintaining the supply of calves to be sold and milk
produced on his farm. If Bujnevicie can no longer provide her
services to his farm, Sawyer will use a bull to breed his cows
rather than another Genex technician for two main reasons.
First, based on his past experience with other technicians and
Genex's replacement, Ainsworth, Sawyer has not found their
breeding services satisfactory. In addition, he fears that based
on the small number of herds in Bujnevicie's territory, at some
point it will not be economically feasible for Genex to provide
breeding services to this area and Genex will discontinue its
breeding services like Eastern did in a neighboring area in the
past.
Jay Hamilton, a Vermont dairy farmer who has also used
Bujnevicie's breeding services for years, testified that despite
a high herd number, the conception rate on his farm has been
10 excellent because of Bujnevicie's efforts.11 He testified that
part of the reason why Bujnevicie is so successful is because she
knows the cows as well as he does and is willing to make sure
that cows get serviced when it is time for them to be bred. If
Bujnevicie is unable to service his cows, he is likely to service
his own cows rather than use another technician from Genex. This
is because like Sawyer, Hamilton doubts the competency of other
Genex technicians and he is afraid that Genex will drop its
breeding services in his area. According to Hamilton, breeding
of his cows is the most important aspect of his farm and like
other farmers in the area he is concerned that the profitability
of his operation will decline if Bujnevicie is not allowed to
continue to service his farm.
Discussion
1. Preliminary Injunction Standard
"The purpose of a preliminary injunction is to preserve the
status quo, freezing an existing situation so as to permit the
11 High herd numbers usually cause conception to decrease because of additional stress put on cows in large herds.
11 trial court, upon full adjudication of the case's merits, more
effectively to remedy discerned wrongs." CMM Cable Rep., Inc. v .
Ocean Coast Properties, Inc., 48 F.3d 618, 620 (1st Cir.
1995)(citing Chalk v . United States Dist. Court Cent. Dist. of
California, 840 F.2d 701, 704 (9th Cir. 1988); American Hosp.
Ass'n v . Harris, 625 F.2d 1328, 1330 (7th Cir. 1980)). Thus, if
the court ultimately finds for the movant, a preliminary
injunction provides the court with a method for preventing or
minimizing any current or future wrongs caused by defendants. See
13 James Moore et a l . , Moore's Federal Practice §65.02 (3d ed.
1998).
In determining whether to grant a preliminary injunction,
this court considers four factors. See Legault v . aRusso, 842 F.
Supp. 1479, 1485 (D.N.H. 1994). The four factors are: "(1) the
likelihood of the movant's success on the merits; (2) the
potential for irreparable harm to the movant; (3) a balancing of
the relevant equities, i.e., the `hardship to the nonmovant if
the restrainer issues as contrasted with the hardship to the
movant if interim relief is withheld,' Narragansett Indian Tribe
12 v . Guilbert, 934 F.2d 4 , 5 (1st Cir. 1991); and (4) the effect on
the public interest of a grant or denial of the injunction."
Gately v . Massachusetts, 2 F.3d 1221, 1224 (1st Cir. 1993); see
Campbell Soup C o . v . Giles, 47 F.3d 467, 470 (1st Cir. 1995);
Sunshine Development, Inc. v . F.D.I.C., 33 F.3d 106, 110 (1st
Cir. 1994); Aoude v . Mobil Oil Corp., 862 F.2d 890, 892 (1st Cir.
1988). The sine qua non of a preliminary injunction is the
likelihood of success on the merits; the court may deny the
motion if the movant does not show that it will probably succeed
on its claims. See Weaver v . Henderson, 984 F.2d 1 1 , 12 & n.3
(1st Cir. 1993).
2. Likelihood of Success on the Merits
Genex alleges that Bujnevicie, by continuing to provide
breeding services to Genex's previous customers, is engaging in
activities in violation of the non-compete covenant in her
employment agreement with Genex. See Plaintiff's Motion for
Preliminary Injunction (document 2 ) .
In response, Bujnevicie asserts that the restrictive
covenant should not be imposed upon her because it would result
13 in undue hardship to both her and the farms that she services.
See Defendant's Objection to Plaintiff's Motion for Preliminary
Injunction (document 6 ) at 1-2. In addition, Bujnevicie alleges
that by unilaterally altering her method of compensation in a
manner that significantly decreased her income and forced her to
resign, Genex breached its employment contract with her. See id.
at 2 . As a result of this prior breach by Genex, Bujnevicie
alleges that she should not be bound by the non-compete covenant.
See id.
Because I agree that Genex breached its employment agreement
with Bujnevicie by significantly decreasing her salary, Genex
cannot enforce other terms of the Agreement, such as the non-
compete covenant, against Bujnevicie. I find this for several
reasons. First, "an employment contract implies an obligation on
the part of an employer to afford a certain degree of financial
security to the contracting employee ... " Laconia Clinic, Inc.
v . Cullen, 119 N.H. 804, 806, 408 A.2d 412, 413 (1979). In
addition, "a restrictive clause in an employment contract
preventing future competition by the employee may not be enforced
14 where there has been a [material] breach by the employer of his
own obligations under the contract." Id. at 807 (citations
omitted); see also Associated Spring Corporation v . Roy F. Wilson
& Avnet, Inc., 410 F. Supp. 967 (D.S.C. 1976)("employer who
breaches his contract cannot later enforce against an ex-employee
a restrictive covenant"); Smith-Scharff Paper Company v . Blum,
813 S.W.2d 27 ((Mo. App. 1991)(materially altering employee's
salary after employee agreed to a non-compete covenant resulted
in a unilateral breach by the employer of the employment
agreement); Forms Manufacturing, Inc. v . Edwards, 705 S.W.2d 6 7 ,
69 (Mo. App. 1985)("A party to a contract cannot claim its
benefits where he is the first to violate i t . " ) .
Although the terms of Bujnevicie's salary were not expressed
in the Agreement, it is obvious that, like the plaintiffs in
Laconia Clinic, Smith-Scharff, and Forms Manufacturing,
Bujnevicie agreed to terms within that document, such as the
restrictive covenant, in exchange for a method of compensation
that provided her with financial security. It is also clear that
in 1999 Genex unilaterally altered its payment scheme in a way
15 that substantially reduced Bujnevicie's salary. For instance,
under Genex's new payment plan, Genex reduced the forty per cent
portion of Bujnevicie's income that was derived soley from
breeding services by fifty per cent--compensating Bujnevicie just
$3.00 per cow instead of $6.00 per cow. In addition, it is clear
that Bujnevicie did not agree to this alteration. As soon as
Genex explained the new payment scheme to Bujnevicie, (1) she did
not find it acceptable, (2) she informed Genex that this payment
scheme would not work for her, (3) Genex understood her position,
(4) Genex implemented a transition rate for her in 1999 to
alleviate some of the strain the new payment plan had on her
income, and (4) Schulerud communicated to her that he intended to
put her in contact with a previous Genex technician who, placed
under similar circumstances left Genex to work as an independent
technician.
Under the new payment plan, but while the transition rate
was in place, Bujnevicie worked for Genex for another year,
attempting to increase her semen sales and taking very little
time off. However, after a year of her efforts Bujnevicie still
16 could not accept the new payment plan because her salary was too
low under this plan. Despite the $4000 attributed to the
transition rate in 1999 and the significant increase in the
number of days that she worked in 1999, Bujnevicie's salary still
decreased from $49,000 in 1998 to $44,000 in 1999. As a result,
in January of 2000, Bujnevicie attempted to convince Genex to
hire her as an independent contractor. After she realized that
Genex would not agree to such an arrangement in mid-February of
2000, she terminated her position with Genex.
In light of these events, I find that Genex materially
breached its employment obligations when it unilaterally and
materially reduced Bujnevicie's salary. As a result, Bujnevicie
should not be bound by the restrictive covenant in the
Agreement.12
3. Irreparable Harm
The second factor relevant to the issuance of a preliminary
12 This result is also consistent with New Hampshire law that enforces restrictive covenants only "if reasonable as applied to the particular circumstances of the parties." Concord Orthopaedics Professional Association v . Forbes, 142 N.H. 440, 442, 702 A.2d 1273, 1275 (1997).
17 injunction is irreparable harm. Genex claims that it has a
legitimate interest in preventing its employees from
appropriating the "goodwill" established by the employer, see
Plaintiff's Supplemental Memorandum in Support of a Preliminary
Injunction at 6 (document 1 1 ) , and Bujnevicie's "repeated and
widespread violation of the non-compete provision in her
Agreement with Genex" has caused and continues to cause Genex
irreparable harm. See Plaintiff's Motion for Preliminary
Injunction at 9.
It is true that an employer has a legitimate interest in
preventing an employee from appropriating goodwill that has been
established through the employee's contact with its customers,
see Technical Aid Corporation v . Allen, 134 N.H. 1 , 9, 591 A.2d
262, 266 (1991), and this misappropriation can irreparably harm
the employer. However, the hardship that is being suffered by
Genex at this time--the near total loss of business in
Bujnevicie's area–-is a product of Genex's own doing. Genex
drastically reduced Bujnevicie's salary to a point that made it
unfeasible for her to continue to work for Genex as an employee.
18 When Bujnevicie attempted to compromise with Genex by working as
an independent contractor promoting the sale of Genex semen, it
declined to do s o . In addition, even if the covenant were
imposed upon Bujnevicie for the one year period, it is quite
likely that less than half of Genex's customers would obtain
services from Genex again. According to the testimony at the
hearing, many of Genex's previous customers would either
inseminate the cows themselves or buy a bull to breed their cows
if Bujnevicie is not allowed to service them. This is not only
because farmers in Bujnevicie's territory are unsatisfied with
other Genex technicians who lack Bujnevicie's skills and efforts,
but based on the limited number of farms in the area and the past
history of Genex's predecessor, Eastern, these farmers have
little faith that Genex can economically sustain a breeding
service over the long term. In other words, the farmers fear
that they will be "dumped" by Genex at some point in the near
future. Thus, although Genex has suffered a loss of business in
Bujnevicie's territory that has caused it harm, Genex's own
actions have played a major role in this harm.
19 4. Balance of Hardships
The next factor relevant to the issuance of a preliminary
injunction is the balance of hardships. With respect to the
balancing of hardships, Genex contends that an injunction should
be issued because Genex has made a substantial investment in
Bujnevicie's development as a technician which she has abused by
demanding to be recognized as an independent contractor and
stealing Genex's customers. See Plaintiff's Motion for
Preliminary Injunction at 9-10. In addition, Genex claims that
Bujnevicie cannot claim hardship if the non-compete covenant is
enforced against her because she agreed that (1) the remedy of
injunction would be available to Genex and (2) the non-compete
covenant would survive any termination of the Agreement. See id.
Based on the testimony at the hearing, although Genex has
done some training with Bujnevicie, Genex is hard-pressed to take
full responsibility for Bujnevicie's exceptional skills at
breeding cows. This is particularly true in light of the
farmers' testimony that (1) Bujnevicie performs extra duties for
them that other Genex technicians do not, (2) Bujnevicie has been
20 the most successful technician that they have ever had, and (3)
when Bujnevicie has not been available they have found the
services provided by other Genex technicians unacceptable,
sometimes calling Bujnevicie to work on her days off. Major, the
veterinarian that works with these farmers, also confirmed that
Bujnevicie's skills are exceptional compared to other
technicians.
In addition, Bujnevicie was and still is willing to sell
Genex products to farms in her territory. Contrary to Genex's
suggestion, Bujnevicie's decision to work as an independent
contractor was not "out of the blue." Instead, it was in
response to the drastic reduction in her salary that resulted
from Genex's unilateral change in its employment contract with
Bujnevicie.
Although the Agreement states that upon termination of the
Agreement by either party that the restrictive covenant "shall
remain in full force and effect," Plaintiff's Exhibit 2 , this
does not mean that the parties are "empowered to alter by their
own agreement principles which have guided courts of equity for
21 generations." Associated Spring Corporation, 410 F. Supp. at
977. Thus, the mere presence of the language indicated above in
the Agreement cannot prevent this court from exercising its
equitable jurisdiction as it sees fit.
Finally, although Bujnevicie may obtain other work as a
herdsperson, this line of work, unlike her work as a technician
and part-time veterinarian assistant, conflicts with Bujnevicie's
responsibilities as a single parent. If Bujnevicie is forced to
move away from the area to continue to work as a technician, this
would also disrupt her family because she would be moving her
children away from their father. Accordingly, I conclude that
the balance of hardships weighs against issuance of an
injunction.
5. Public Interest
Finally, in issuing a preliminary injunction, the court must
consider the public interest. Genex contends that the public
interest is advanced by holding these parties to the terms of
their agreement and preventing unfair trade practices performed
by Bujnevicie. See Plaintiff's Motion for Preliminary Injunction
22 at 1 0 .
I agree that the parties should be held to the terms of
their agreement. However, Genex cannot enforce a term of the
contract to its benefit when it has failed to uphold its own
obligation to provide Bujnevicie with a compensation method that
provides her with financial security. It is contrary to public
policy to enforce a restrictive covenant when the party who seeks
enforcement has breached its own obligations under the contract.
See, e.g., Associated Spring Corporation, 410 F. Supp. at 977;
Laconia Clinic, 119 N.H. at 806. In addition, given the
evidence presented it is clear that the farmers in Bujnevicie's
territory who depend heavily upon a successful breeding program
will suffer significant economic consequences if Bujnevicie is
prevented from providing services to them. Accordingly, the
evidence on the public interest weighs against the issuance of a
preliminary injunction.
Conclusion
I have carefully considered the parties' legal arguments,
the testimony by the witnesses, and the various exhibits. I
23 conclude that a preliminary injunction should not be granted
under these circumstances. Plaintiff's Motion for Preliminary
Injunction (document n o . 2 ) requesting the court to order
Bujnevicie to stop promoting and selling cattle semen products
and artificial insemination services in the Genex territory in
which Bujnevicie was once employed by Genex should be denied.
Any objections to this Report and Recommendation must be
filed within ten days of receipt of this notice. Failure to file
objections within the specified time waives the right to appeal
the district court's order. See Unauthorized Practice of Law
Committee v . Gordon, 979 F.2d 1 1 , 13-14 (1st Cir. 1992); United
States v . Valencia-Copete, 792 F.2d 4 , 6 (1st Cir. 1986).
James R. Muirhead United States Magistrate Judge
Date: July 1 7 , 2000
cc: Irvin D. Gordon, Esq. Arend R. Tensen, Esq.