Phoenix Capital, Inc. v. Dowell

176 P.3d 835, 26 I.E.R. Cas. (BNA) 727, 2007 Colo. App. LEXIS 1401, 2007 WL 2128330
CourtColorado Court of Appeals
DecidedJuly 26, 2007
Docket05CA2712
StatusPublished
Cited by25 cases

This text of 176 P.3d 835 (Phoenix Capital, Inc. v. Dowell) is published on Counsel Stack Legal Research, covering Colorado Court of Appeals primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Phoenix Capital, Inc. v. Dowell, 176 P.3d 835, 26 I.E.R. Cas. (BNA) 727, 2007 Colo. App. LEXIS 1401, 2007 WL 2128330 (Colo. Ct. App. 2007).

Opinions

Opinion by

Judge DAILEY.

Plaintiffs, Phoenix Capital, Inc. (PCI) and Phoenix Analytic Services, Inc. (PAS), appeal the trial court’s order (1) denying their motion to preliminarily enjoin defendant, Robert M. Dowell, from violating a noncompetition agreement and (2) denying injunctive relief against Dowell beyond a one-year time limit specified in a nonsolicitation agreement. Do-well cross-appeals the trial court’s order preliminarily enjoining him from violating the nonsolicitation agreement for the remainder of the specified period. We affirm in part, vacate in part, and remand with directions.

I. Background

PCI is an investment bank that provides analytic and brokerage assistance to financial institutions and investors who buy, sell, and manage certain servicing rights associated with large pools of mortgages. Those servicing rights — to collect mortgage payments, taxes, and interest on residential mortgages and then to remit these proceeds to the mortgage holder — exist independently of the underlying mortgage obligations themselves.

PCI initially employed Dowell as a senior portfolio analyst. In 2000, Dowell signed an agreement with PCI, under which he was prohibited, in the event he left PCI’s employ, from competing with PCI or soliciting its customers or employees for one year. The agreement provided that it was binding and would “inure to the benefit of the parties, and [PCI’s] successors and assigns.”

By 2002, Dowell was the head of PCI’s analytics division. Subsequently, PCI formed PAS as an independent company to undertake its analytical functions and transferred Dowell to manage the analytics division at PAS.

[839]*839In forming PAS, PCI executed a transfer agreement which provided, in pertinent part, that, at closing, PCI would “sell, transfer, assign, and deliver to PAS, all the properties, assets, goodwill, and business of every kind and description, both real and personal, tangible and intangible, of the analytic services division, as set forth on Schedule 1 (‘the Assets’).” (Emphasis in original.) PCI’s employment agreements were not listed on Schedule 1; nor, for that matter, was anything else.

In March 2005, Dowell resigned from PAS to join one of PCI’s competitors in forming a new company. According to PCI and PAS (collectively, Phoenix), he began to actively solicit PCI’s clientele, assist his new company in competing with PCI for brokerage work, and try to convince two of PAS’s key employees to join his new company.

Phoenix instituted the present action, seeking injunctive relief to enforce, and damages for past violations of, the noncompetition and nonsolicitation provisions in Dowell’s employment agreement.

After a hearing, the trial court determined that Phoenix was entitled to preliminary in-junctive relief only with respect to the non-solicitation provisions in the employment agreement.

The trial court determined that Phoenix had not established a reasonable probability of success on the merits and thus was not entitled to relief with respect to the noncom-petition provision because (1) Dowell, at the time he signed the agreement, was not “professional staff to executive [or] management personnel” within the meaning of § 8-2-113(2)(d), C.R.S.2006, and thus, the noncom-petition provision was void ab initio; and (2) the void ab initio provision could not be given effect when, subsequently, Dowell attained a prominent managerial position with PCI and PAS.

The trial court ruled that Phoenix was, however, entitled to enforce the provisions addressing nonsolieitation of customers and employees because, consistent with Atmel Corp. v. Vitesse Semiconductor Corp., 30 P.3d 789, 796 (Colo.App.2001), abrogated in part on other grounds by Ingold v. AIMCO/Bluffs, L.L.C. Apartments, 159 P.3d 116, 124 (Colo.2007), Phoenix had voluntarily agreed to limit the scope of those provisions to only “active” efforts to solicit clients or employees.

Pursuant to C.A.R. 1(a)(3), Phoenix and Dowell each appeal those aspects of the trial court’s preliminary injunction ruling that were adverse to their respective interests.

II. Preliminary Injunction Standards

“The granting or denial of a preliminary injunction does not amount to an adjudication of the ultimate rights in controversy. In granting a preliminary injunction, the court should not attempt to do what can be done only after a full hearing and final decree.” Litinsky v. Querard, 683 P.2d 816, 819 (Colo.App.1984) (citation omitted). Thus, findings made by a trial court after a preliminary injunction hearing are not determinative of the ultimate merits of the case. Carroll v. Stancato, 144 Colo. 18, 354 P.2d 1018 (1960).

Preliminary injunctions protect plaintiffs from sustaining irreparable injury while preserving the trial court’s ability to render a meaningful decision following a trial on the merits. A preliminary injunction is not warranted, however, unless the trial court finds that the moving party has demonstrated each of the following six factors: (1) the moving party has a reasonable probability of success on the merits; (2) a danger of real, immediate, and irreparable injury exists that may be prevented by injunctive relief; (3) the moving party has no plain, speedy, and adequate remedy at law; (4) the granting of a preliminary injunction will not dis-serve the public interest; (5) the balance of equities favors granting the injunction; and (6) the injunction will preserve the status quo pending a trial on the merits. Rathke v. MacFarlane, 648 P.2d 648, 653-54 (Colo.1982); see Bloom v. Nat’l Collegiate Athletic Ass’n, 93 P.3d 621, 623 (Colo.App.2004).

In the present case, neither side presents an argument about the last five of the Rathke factors. Instead, both Phoenix’s appeal and Dowell’s cross-appeal turn on the trial court’s assessment of the first factor, that is, wheth[840]*840er Phoenix has shown a reasonable probability of success on the merits.

We review a trial court’s grant or denial of a preliminary injunction for abuse of discretion. Under that standard, we examine the court’s ruling to determine whether it is based on an erroneous application of the law, or is otherwise manifestly arbitrary, unreasonable, or unfair. Bloom v. Nat’l Collegiate Athletic Ass’n, supra, 93 P.3d at 623.

III. The ■Noncompetition Provision

Phoenix contends that the trial court erred in ruling that it had not established a reasonable probability of success' on its request to enforce the noncompetition provision. We disagree.

“Covenants not to compete, with some narrow exceptions, are contrary to the public policy of Colorado and are void.” DBA Enters., Inc. v. Findlay, 923 P.2d 298, 302 (Colo.App.1996). In the preliminary injunction context, the employer has the burden to establish that the covenant not to compete falls within one of those narrow exceptions. See Porter Indus., Inc. v. Higgins,

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Bluebook (online)
176 P.3d 835, 26 I.E.R. Cas. (BNA) 727, 2007 Colo. App. LEXIS 1401, 2007 WL 2128330, Counsel Stack Legal Research, https://law.counselstack.com/opinion/phoenix-capital-inc-v-dowell-coloctapp-2007.