Central Adjustment Bureau, Inc. v. Ingram

678 S.W.2d 28 (Tenn. 1984)

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Nature of the Case

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Facts

D was hired on March 1, 1970, by P as a salesman in North Carolina with a base salary of $600.00 monthly plus commissions. A week after he began working, D informed him that he must sign a covenant not to compete. Ingram initially refused to sign, but under threat of termination, he signed two weeks later. In June 1972, D was promoted to the manager of the Nashville district. D was promoted again in June 1977. D resigned from P on February 22, 1979. At that time, he was the fifth highest paid employee at CAB. In 1978, he received more than $59,000.00 in compensation. Richard B. Goostree (D1) was hired as a collector in the Nashville office on March 6, 1972, at a base salary of $500.00 monthly plus commissions. Prior to beginning employment, he was not informed that he would be required to sign a covenant not to compete. It was presented to him and signed on March 7, 1972. D1 received a promotion to collections manager in April 1973. In June 1977, D1 was promoted to district manager of the Nashville office. James Bjorkholm (D2) was hired as a salesman for the Nashville office on May 5, 1977, at a base salary of $750.00 a month plus commissions and an automobile allowance. D2 signed a non-competition covenant three weeks later. This agreement was lost, however, and another was signed on August 8, 1977. D2 received one $50.00 raise in his base salary while at CAB, but no promotions. The covenant was identical in each case, providing as follows: I, /s/ , the undersigned, during the term of my employment with Central Adjustment Bureau, Inc., and/or its wholly-owned subsidiaries, and at any time within two years of termination thereof, shall not compete within the United States, either directly or indirectly, with the corporation (1) by owning, operating, managing, being employed by, having a proprietary interest of any kind in, or extending financial credit to any person, enterprise, firm or corporation which is engaged in any business in which the corporation is engaged or directly or indirectly competes with the corporation in any manner; (2) by divulging any information pertaining to the business, trade secrets, and/or confidential data of the corporation, or make any use whatsoever of the same; or (3) by contacting any client or customer of the corporation who has been a client or customer of the corporation during the term of employment. 'I fully understand that the corporation will rely on this covenant in employing me, and I agree that in the event of any breach of this covenant that the corporation's damages are irreparable and that the corporation shall be entitled to injunctive relief, in addition to such other and further relief as may be proper. It is further agreed that if at any time it shall be determined that this covenant is unreasonable as to time or area, or both, by any court of competent jurisdiction, the corporation shall be entitled to enforce this covenant for such period of time and within such area as may be determined to be reasonable by such court. In the event of breach of this covenant, I agree to pay all costs of enforcement of the said covenant, including, but not limited to, reasonable attorney's fees.' On January 26, 1979, D filed a charter of incorporation with the State of Tennessee for a corporation by the name of Ingram Associates, Inc., to engage in the debt collection business. D applied for a license in both Kentucky and Tennessee to operate a collection agency. D began to collect master client lists and other information from other P offices around the country to use in his own business. D resigned from CAB on February 22, 1979; D1 and D2 resigned in March 1979. On March 10, 1979, all the Ds met with Kathleen Garrison, David Powers, and Anthony Schweitzer to finalize the formation of Ingram & Associates. D was to hold sixty percent of the outstanding stock with Powers, Garrison and D1 and D2 each holding ten percent. On or about March 22, 1979, Ingram & Associates began actively functioning in the collection agency business. P sued for compensation and injunctive relief. The trial court gave P damages and enjoined D from further competition. The Chancellor found that the Ds utilized valuable knowledge and personal contacts gained and developed while they were P employees. The appellate court held that the covenants in the non-competition contracts were unenforceable because they lacked consideration. P appealed.