Guardsmark, Inc. v. Borg-Warner Protective Services, D/B/A Burns International Security Services

Citation: Not availableDocket: 02A01-9409-CH-00207

Court: Court of Appeals of Tennessee; November 3, 1998; Tennessee; State Appellate Court

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Guardsmark, Inc. filed a lawsuit against Borg-Warner Protective Services in the Chancery Court of Shelby County, Tennessee, alleging tortious interference with contractual relations concerning restrictive employment covenants. Guardsmark, a private security company, requires its security guards to sign a covenant that prohibits them from working for another security firm at the same location for one year post-employment. The lawsuit arose after Borg-Warner allegedly solicited Guardsmark’s security officers at UPS facilities in Seattle, Washington, encouraging them to breach their restrictive covenants. Guardsmark claimed that Borg-Warner misrepresented the enforceability of these covenants to the employees. The trial court, presided by Chancellor Neal Small, granted a restraining order against Borg-Warner, prohibiting any actions that would lead to breaches of the restrictive covenants. A Consent Order of Temporary Injunction was later agreed upon by both parties. The appellate court affirmed in part, reversed in part, and remanded the case.

On July 28, 1994, Guardsmark filed a Supplemental Verified Complaint in Shelby County Chancery Court for declaratory and injunctive relief regarding Borg-Warner's actions in Birmingham, Alabama, claiming they mirrored those in Seattle. Guardsmark accused Borg-Warner of misleading its clients by suggesting Guardsmark could not enforce its restrictive covenants. An affidavit from Guardsmark described a Borg-Warner representative showing a legal document and asserting that Borg-Warner had prevailed in a Tucson case, without mentioning Guardsmark's successes in similar cases. Guardsmark contended that Borg-Warner had a pattern of inducing breaches of its restrictive covenants, compelling Guardsmark to litigate nationwide to defend its agreements.

The Shelby County Chancellor issued a temporary restraining order the same day to prevent Borg-Warner from inducing breaches of these covenants. This order also prohibited Borg-Warner from misrepresenting Guardsmark's ability to enforce its covenants and required them to present copies of court orders affirming the covenants' enforceability when discussing them. The case record included rulings from Arizona and Oklahoma where Guardsmark's covenants were not enforced.

Subsequently, on August 10, 1994, Borg-Warner and a former Guardsmark employee filed a lawsuit in Birmingham, challenging the restrictive covenant's validity and citing issues with the Tennessee restraining order. In response, Guardsmark sought further injunctive relief from Chancellor Small in Tennessee, which led to an extension of the temporary restraining order on August 12, prohibiting Borg-Warner from pursuing the Alabama litigation.

On August 29, Guardsmark applied for additional injunctive relief against Borg-Warner's interference with its restrictive covenants and for misrepresentations regarding their enforceability. Chancellor Small granted this request the same day. On September 9, 1994, the Shelby County trial court upheld the enforceability of Guardsmark's restrictive covenants under Tennessee and Alabama law, granting a Temporary Injunction to prevent Borg-Warner from interfering with these covenants in Alabama.

Borg-Warner is permanently enjoined from misrepresenting the enforceability of Guardsmark’s restrictive covenants to current, former, and prospective clients and employees. The injunction specifically forbids Borg-Warner from distributing any judicial orders or opinions regarding these covenants unless all relevant orders, including those affirming their enforceability, are provided. Additionally, Borg-Warner is prohibited from participating in ongoing litigation in Alabama, which led to a separate lawsuit filed by Borg-Warner against Guardsmark and others in the U.S. District Court for the Eastern District of Kentucky. Borg-Warner claimed the Tennessee injunction infringed upon its First Amendment rights and other constitutional provisions. Chancellor Small later modified the injunction to allow Borg-Warner to pursue its Kentucky lawsuit. However, the Kentucky court found it lacked jurisdiction over Chancellor Small and granted summary judgment to Guardsmark on the remaining claims. On January 26, 1996, Chancellor Small granted Guardsmark's motion for summary judgment, declaring the covenants valid and enforceable under the laws of Tennessee, Alabama, Washington, and Kentucky. The order permanently prohibits Borg-Warner from interfering with or undermining the restrictive covenants and suggests that Borg-Warner is also permanently enjoined from misrepresenting the enforceability of these covenants. The final order is interpreted to maintain the injunction against misrepresentation, though it lacks explicit clarity on this matter.

Borg-Warner appeals the trial court's final order, presenting twelve issues for consideration. The key points include:

1. **Res Judicata**: Borg-Warner questions whether the court should reverse the Chancery Court's decision based on res judicata, as the issues had previously been conclusively litigated with Guardsmark.
2. **Personal Jurisdiction**: Borg-Warner argues the Chancery Court erred by not dismissing the action due to lack of personal jurisdiction, contending the relevant events occurred outside Tennessee and its contacts were irrelevant.
3. **Forum Non Conveniens**: The appeal asserts the Chancery Court should have dismissed the case based on forum non conveniens because the suit originated out-of-state, all contracts and witnesses were also out-of-state, and it could have been joined with a related federal action in Kentucky.
4. **Full Faith and Credit Clause**: Borg-Warner claims the injunction violates this clause by restricting its actions in other states where Guardsmark's covenants have been deemed unenforceable.
5. **First Amendment Violations**: The appeal contends the injunction violates the First Amendment and Tennessee law as a prior restraint on speech, particularly in relation to interactions with Guardsmark’s future employees.
6. **Free Speech Rights**: Borg-Warner argues the injunction infringes upon constitutional free speech rights due to a lack of significant government interest and insufficient tailoring to limit speech.
7. **Vagueness and Overbreadth**: The injunction is criticized for being unconstitutionally vague and overbroad, as it broadly prohibits interference with Guardsmark's covenants and misrepresentations.
8. **Nationwide Injunction**: The appeal questions the validity of a nationwide injunction that asserts all of Guardsmark's restrictive covenants are valid irrespective of laws in other states.
9. **Commerce Clause Violation**: Borg-Warner argues the injunction infringes the Commerce Clause by regulating conduct outside Tennessee.
10. **Joining Parties**: The Chancery Court is criticized for allowing Guardsmark to challenge the validity of its covenants without including the security guards who signed them.
11. **Continuance and Affidavit Issues**: Borg-Warner claims the court abused its discretion by denying a continuance to obtain affidavits in response to a late affidavit from Guardsmark or to strike that affidavit.
12. **Summary Judgment Errors**: The appeal asserts that the Chancery Court erred in granting summary judgment to Guardsmark despite existing genuine issues of material fact.

The motion for summary judgment should only be granted when no genuine issues of material fact exist, with the moving party bearing the burden of proof. The court must view evidence favorably for the nonmoving party and can only grant summary judgment when the facts allow only one reasonable conclusion. The review of the trial court's summary judgment is conducted de novo without a presumption of correctness.

Borg-Warner argues on appeal that the trial court improperly failed to dismiss the complaint due to a lack of personal jurisdiction, contending its contacts with Tennessee are unrelated to the case and insufficient to establish jurisdiction. Guardsmark counters that personal jurisdiction is warranted based on Borg-Warner's connections and that Borg-Warner waived its objection by not raising it in a timely manner. According to Tennessee Rule 12.08, defenses not presented in a timely motion or answer are waived, with specific reference to Rule 12.02(2) regarding personal jurisdiction. A "general appearance" without objection to jurisdiction results in waiver, as established in Dixie Sav. Stores, Inc. v. Turner. The Landers v. Jones case highlights a trend allowing defendants to raise jurisdictional defenses alongside other defenses, provided they do not challenge jurisdiction in their initial filings. The definition of a "general appearance" includes actions that indicate acknowledgment of court jurisdiction. The Tennessee Supreme Court's ruling in Patterson v. Rockwell International stipulates that an implied appearance must involve actions beneficial to the defendant, excluding those that solely contest jurisdiction. In this case, Borg-Warner engaged in several actions after the filing of Guardsmark's complaint, including agreeing to a temporary injunction, filing a notice of appearance, and responding to discovery requests, before raising objections to personal jurisdiction and venue, suggesting they may have waived their right to contest jurisdiction.

Order Resetting the Date of Preliminary Injunction and Extending Temporary Restraining Order was entered on August 12, 1994. Multiple affidavits submitted on behalf of Borg-Warner were filed on August 26, 1994, including those from Ray Sides, David B. Hicks, and Charles Rodney Weldon. A supplemental notice of appearance by new counsel for Borg-Warner was filed on September 7, 1994. Borg-Warner's application for permission to appeal and motion to stay the restraining order and temporary injunction was filed on September 8, 1994, alongside a motion for reconsideration of the restraining order. An order granting a temporary injunction was entered by the Chancellor on September 9, 1994.

Borg-Warner raised the defense of lack of personal jurisdiction in its answer and motion filed on September 14, 1994, more than four months after Guardsmark's complaint, leading to a finding that Borg-Warner waived this objection. The trial court's decision was affirmed on this issue. Borg-Warner also contended that the trial court erred in denying its motion to dismiss based on forum non conveniens, arguing that the events leading to the lawsuit occurred outside Tennessee, with witnesses located in Alabama and Washington. Although the contracts between Guardsmark and the security guards included Tennessee forum selection clauses, these did not apply to the action against Borg-Warner.

The court must assess whether the trial court abused its discretion in denying the motion to dismiss based on forum non conveniens, which considers various factors related to the parties, witnesses, and subject matter. The cause of action must arise outside the state to invoke this doctrine, but this alone is insufficient. The presence of out-of-state witnesses must demonstrate a strong likelihood of injustice for the defendant if forced to trial in the plaintiff's chosen forum, supported by specific facts about the witnesses and the relevance of their testimony. The trial court evaluates these factors to decide on the applicability of the doctrine.

Factors relevant to the trial court's discretion in dismissing a case based on forum non conveniens include ease of access to evidence, witness attendance costs, potential site inspection, and overall practicality of trial proceedings. The case at hand involves Borg-Warner, which operates in Tennessee but is located out-of-state. Although Borg-Warner provided employee affidavits claiming no contact with Tennessee, their roles necessitate interstate travel. Consequently, the evidence did not support a finding of abuse of discretion by the trial court in denying Borg-Warner's motion to dismiss. 

Borg-Warner also contended that the doctrine of res judicata warranted dismissal due to prior litigation against Guardsmark in federal court. The Tennessee court had issued a temporary injunction against Borg-Warner, restricting interference with Guardsmark's covenants and litigation in other jurisdictions. Borg-Warner sought modifications to this injunction, which were granted to allow federal lawsuits in Tennessee and Kentucky. However, after the Kentucky court found it lacked jurisdiction over the Tennessee court, Borg-Warner dismissed those claims but lost on the merits against Guardsmark, which upheld the restrictive covenants. The applicability of res judicata to Borg-Warner's situation is questionable, given the Kentucky court's refusal to enforce the Tennessee injunction and the dismissal of Borg-Warner's claims. Additionally, Borg-Warner's assertion that the federal ruling, despite being under appeal, was final and thus applicable to the trial court's earlier decision lacks clarity, especially since the federal decision came after the trial court's summary judgment for Guardsmark and was not raised at that time.

Borg-Warner's appeal challenges the trial court's grant of summary judgment to Guardsmark and the issuance of injunctive relief, arguing that the injunction is overly broad and infringes on the Commerce Clause. Borg-Warner asserts that the order impacts interstate commerce in security guard services beyond Tennessee, effectively regulating commerce outside the state. The case originated from Borg-Warner's actions in Seattle and a supplemental complaint regarding its conduct in Birmingham, Alabama. Guardsmark's injunction sought to prevent Borg-Warner from interfering with its restrictive covenants, making misrepresentations, initiating litigation against the covenants, and participating in ongoing litigation in Alabama. The trial court granted Guardsmark's request for injunctive relief in full.

Borg-Warner cites Hyatt Corp. v. Hyatt Legal Services as precedent, where a nationwide injunction was initially denied due to potential conflict with the Commerce Clause. The Seventh Circuit reversed the decision, affirming the trial court's authority to issue such an injunction but emphasizing that it could not directly regulate interstate commerce. The Hyatt court determined that a state injunction affecting out-of-state advertising would interfere with interstate commerce and thus violate the Commerce Clause. It further explored whether the injunction could be considered an incidental regulation of interstate commerce, stating that if a state statute serves a legitimate local interest and its effects on interstate commerce are incidental, it can be upheld unless the burden on commerce is excessively disproportionate to local benefits.

The extent of acceptable burdens on interstate commerce is contingent upon the nature of the local interest at stake and the possibility of achieving that interest with less impact on interstate activities. In Hyatt, the court addressed the local interest in trademark protection, finding that a nationwide injunction was excessive as it would address issues beyond Illinois, impacting advertising in states with no anti-dilution laws, such as Ohio. The court noted that the proposed nationwide injunction would impose an undue burden on interstate commerce despite its intent to protect local interests. Though the trial court was directed to issue a nationwide injunction, it stayed the injunction pending appeal, with no further published action recorded.

Guardsmark argues that the trial court possesses the authority to issue such an injunction, citing Carson v. Here’s Johnny Portable Toilets, Inc., which upheld a nationwide injunction against the dilution of state-created rights. Guardsmark contends that Tennessee has a legitimate interest in enforcing its contractual provisions across states, despite differing laws, such as California’s statutes that may obstruct enforcement of Guardsmark’s covenants.

The trial court acknowledged its jurisdiction and authority to issue a cross-state injunction, recognizing Guardsmark's interest in prohibiting former employees from offering security services at previously served sites. It deemed Guardsmark’s restrictive covenants reasonable and enforceable in Tennessee and other jurisdictions. However, the enforceability of these covenants hinges on specific circumstances, as evidenced by cases in Arizona and Oklahoma, where courts declined to enforce the covenants when employees were not offered new positions after their contracts ended. In Oklahoma, the court found that while the covenant appeared reasonable in isolation, the context—specifically, Guardsmark’s loss of the Amoco contract and lack of alternative job offers—rendered the covenant much less justifiable. Thus, Guardsmark’s assertion that the covenant was necessary for protecting its employee investments was undermined by the circumstances surrounding the employment termination.

Plaintiff did not possess any trade secrets, confidential information, or unique talents, and his work was deemed a “common calling.” The restrictive covenant's enforcement against the plaintiff appears excessively harsh, especially as Guardsmark's interest in enforcing the covenant was minimal at that time. The trial court should have ruled the covenant unenforceable and contrary to public policy based on the presented evidence. Enforceability of restrictive covenants is assessed in context, considering factors like potential harm to the employer and the employee's bargaining power. The legal standards for these covenants vary by state, as illustrated by California's prohibition of such restrictions under Section 16600 of the Business and Professional Code. A nationwide injunction issued by the trial court against Borg-Warner was deemed an abuse of discretion, as the enforcement of the covenant is highly dependent on the specific facts and applicable state laws. The injunction prohibited Borg-Warner from misrepresenting facts regarding Guardsmark's covenants and from selectively sharing judicial opinions about the enforceability of those covenants, underscoring the importance of factual context and state law in determining the truth of any claims about the covenants' enforceability.

A nationwide injunction against Borg-Warner, preventing it from arguing that Guardsmark's restrictive covenant is unenforceable, is deemed overly broad and inappropriate, demonstrating an abuse of discretion by the trial court. Borg-Warner asserts that the trial court also erred by allowing Guardsmark to pursue a declaratory judgment regarding the validity of its restrictive covenants without including the individual security guards who signed them as defendants, claiming they are indispensable parties under Tennessee law. According to Tennessee Code Annotated § 29-14-107(a), all interested parties must be included in declaratory relief actions, and failing to join necessary parties undermines justiciability.

Guardsmark counters that declaring the covenants enforceable does not harm the guards' rights, as they can contest the covenants separately. However, determining whether the guards' interests would be affected requires examining potential collateral estoppel implications, which could preclude them from relitigating the covenant's validity in future lawsuits. The applicability of collateral estoppel may vary by state and hinges on specific case facts. Consequently, the trial court is directed to assess whether the individual guards in Washington and Alabama are indeed indispensable parties. Given the finding of the trial court's error in issuing the broad injunction, other arguments presented by Borg-Warner, including potential violations of the Commerce Clause, need not be addressed.

The trial court's injunction order is reversed and the case is remanded for further determination on whether Guardsmark is entitled to summary judgment based on the factual situations in Seattle, Washington, and Birmingham, Alabama. The court will also assess if the guards are indispensable parties under the doctrine of collateral estoppel as it pertains to Washington and Alabama law. Although the covenants suggest Tennessee law may apply to future cases involving the guards, the forum selection clause indicates that Tennessee law governs the agreement's substantive interpretation but does not extend to procedural matters like collateral estoppel. The trial court's decision is partially affirmed and partially reversed, and costs are assigned to the Appellee, with execution possible if needed. Judicial concurrence is noted from Judges Crawford and Farmer.