Dicen v. New Sesco, Inc.

Citations: 839 N.E.2d 684; 2005 Ind. LEXIS 1134; 2005 WL 3484609Docket: 55S01-0409-CV-407

Court: Indiana Supreme Court; December 21, 2005; Indiana; State Supreme Court

Original Court Document: View Document

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Michael Dicen, along with David Hughes and David Valinetz, left their positions at the Indiana Department of Environmental Management in 1996 to establish Supreme Environmental Service Co., known as "Sesco," which provided environmental consulting services. In 1999, a group of investors formed New Sesco, Inc. to acquire Sesco and two other companies, paying $750,000, with Dicen receiving between $280,000 and $300,000. As part of the sale, Dicen signed a purchase agreement that included a five-year non-solicitation covenant, prohibiting him from competing or soliciting clients of New Sesco in any capacity related to the acquired business.

On the same day, Dicen also signed a three-year employment agreement with New Sesco, which included restrictions against working in the land remediation sector and using confidential information for two years post-termination. Dicen managed sales and marketing for New Sesco's air quality testing division until he left on July 12, 2002, to start his own company, Air Analysis, Inc. On his last day, he provided a list of business contacts to New Sesco’s COO, James Bryan, who reminded him not to solicit New Sesco’s clients as per their agreements. The case was brought before the Indiana Supreme Court after an appeal from the Morgan Superior Court regarding the enforcement of non-compete provisions in the context of agreements between business owners and not just employer-employee relationships.

On January 16, 2003, New Sesco initiated a complaint against Dicen for injunctive relief, alleging breaches of Purchase and Employment Agreements. During the preliminary injunction hearing, the court accepted Dicen's customer list and additional evidence from New Sesco regarding past, present, and solicited customers. The trial court issued a preliminary injunction, preventing Dicen from soliciting or contracting with any customers identified by New Sesco up to the hearing date. The Court of Appeals partially affirmed and partially reversed the trial court’s decision, ruling the employment agreement’s non-competition provision as unenforceable and the purchase agreement’s non-solicitation provision as overbroad but modifiable. Dicen contends that both covenants are unreasonably overbroad and thus unenforceable, criticizing the Court of Appeals’ modification as violating the blue pencil doctrine. New Sesco argues that the agreements are reasonable, and the modification was appropriate. Indiana courts traditionally enforce reasonable covenants but reject unreasonable ones unless they are divisible, a principle known as the blue pencil doctrine. Covenants related to the sale of a business generally receive more favorable treatment due to factors like bargaining power and the nature of the transaction, while employment-related covenants are scrutinized more rigorously.

The trial court's assessment of the sale of a business covenant was deemed reasonable, adhering to the criteria of time, space, and activity restrictions. The covenant, which prohibits Dicen from contracting or soliciting certain entities while competing with New Sesco for five years, was found to reasonably define prohibited activities, despite some ambiguity regarding the entities involved. Dicen's argument that the "from time to time" language could lead to arbitrary enforcement was rejected; the covenant's limitations were specific to competition against New Sesco. The trial court's admission of Dicen's customer list and related testimony was upheld, as these were relevant and did not violate the parol evidence rule, clarifying the entities Dicen was restricted from soliciting.

The employment covenant, however, was deemed unreasonably broad, prohibiting Dicen from working in the land remediation industry anywhere in the U.S. for two years. This scope was excessive given Dicen's limited contacts. The court declined to modify the geographical restriction through a blue pencil approach, rendering the employment covenant unenforceable. Dicen's claim of not being adequately informed of the restrictions was dismissed, as prior explanations and lists clearly identified the relevant customers.

The Court of Appeals' handling of trade secrets, unclean hands, and injunction bond issues was affirmed, and the case was remanded for damages claims consistent with the sale agreement.