Specialty Coating Systems, Inc. v. Boomer et al

Filing 65

MEMORANDUM DECISION AND ORDER granting in part and denying in part #38 Motion for Summary Judgment. The motion is granted only to the extent that the Court finds that Indiana law applies to Plaintiff's claims. Signed by Judge Ronald E Bush. (caused to be mailed to non Registered Participants at the addresses listed on the Notice of Electronic Filing (NEF) by kp)

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF IDAHO

SPECIALTY COATING SYSTEMS,
INC., a Delaware corporation,
Plaintiff,

Case No. 1:10-CV-348-REB
MEMORANDUM DECISION AND
ORDER

v.
WARREN PHILLIP BOOMER, an
individual; and KISCO CONFORMAL
COATING, LLC.
Defendants.

Currently pending before the Court is Defendants’ Motion for Summary Judgment
(Dkt. 38).1 This matter has come before the undersigned United States Magistrate Judge
pursuant to the consent of the parties. See Dkt. 25; 28 U.S.C. § 636(c), Fed. R. Civ. P. 73.
The Court has carefully reviewed the record; considered the oral argument of counsel at
the June 15, 2011 hearing; and now enters the following Order granting in part and
denying in part Defendants’ Motion.
BACKGROUND
1

Also pending are: (1) Plaintiff’s Motion to Amend/Correct Case Management Order
(Dkt. 39); (2) Plaintiff’s Amended Motion to Amend (Dkt. 55); (3) Plaintiff’s Motion to Compel
(Dkt. 49), and (4) Defendants’ Motion to Compel (Dkt. 50). The Court directed the parties to
meet in person and discuss a strategy for resolving their disputes and moving discovery forward.
See Dkt. 61. The Court also directs the parties to discuss an appropriate amended schedule and
file an amended, stipulated litigation plan along with the status report due within seven days of
the conference. Id.
MEMORANDUM DECISION AND ORDER - 1

Plaintiff, Specialty Coating Systems (“SCS”) is a Delaware corporation with its
principal place of business in Indianapolis, Indiana. Defendants’ Statement of Undisputed
Facts, p. 1 (Dkt. 38-1). SCS provides parylene coating services. Id. at p. 2.
As SCS describes, the parylene coating business is highly technical in nature.
Plaintiff’s Opposition to Defendants’ Motion for Summary Judgment, p. 4 (Dkt. 42).
SCS takes great efforts to understand its clients and provide specific products to meet
their needs, and this knowledge is critical to its success. Id. To protect its interest in that
client knowledge, SCS depends on its employees’ confidentiality and good faith. Id.
Defendant, Warren Boomer, is a former employee of SCS who resides in Boise,
Idaho. Defendants’ Statement of Undisputed Facts, p. 1 (Dkt. 38-1). Boomer was the
Northwest Regional Sales Manager, responsible for selling SCS products in the
Northwest Territory- an area including California, Oregon, Washington, Nevada, Idaho,
Wyoming, and Montana. Id. at p. 2. Boomer is now employed by Defendant, Kisco
Conformal Coating, LLC (“Kisco”), a Delaware corporation with its principal place of
business in California. Amended Complaint, ¶ 3 (Dkt. 1-5)
There are three contracts governing the employment relationship between Boomer
and SCS. First, at the outset of his employment with SCS, Defendant Boomer signed an
Employee Non-Competition Agreement (“Non-Competition Agreement”). See Ex. 1,
Becker Statement in Support of Defendants’ Motion for Summary Judgment (Dkt. 38-3).
In this Non-Competition Agreement, Boomer agreed that, for the period of his

MEMORANDUM DECISION AND ORDER - 2

employment and for twelve months thereafter, he would not work for any business
interest in competition with SCS within the states comprising the Northwest Territory.
Id.
Second, also at the outset of his employment with SCS, Boomer signed an
Employee Confidentiality and Non-Solicitation Agreement (the “Confidentiality and
Non-Solicitation Agreement.”) Id. at Ex. 2. In the Confidentiality and Non-Solicitation
Agreement, Boomer agreed that he would not solicit SCS employees or encourage any
customer to terminate or alter its business relationship with SCS “for a period of time not
to exceed 18 months from the date [his] employment with the company terminates.” Id.
Boomer also promised to never disclose SCS’s confidential information. Id.
Third, upon termination of his employment with SCS in March 2008, Boomer
signed a Separation Agreement with SCS. Id. at Ex. 3. In the Separation Agreement,
Boomer released his right to bring certain legal claims against SCS in exchange for
severance benefits. Id. The Separation Agreement also refers to the previous agreements
stating, “[b]oth before and after the Termination Date, you will continue to be bound by,
and will comply fully with your obligations under your Employee Non-Competition
Agreement and your Employee Confidentiality and Non-Solicitation Agreement.” Id.
On or about March 5, 2009, less than a year after Boomer’s Termination Date,
SCS learned that Boomer had taken a position with Kisco, a direct competitor in the
parylene coating market. Plaintiff’s Opposition to Defendants’ Motion for Summary

MEMORANDUM DECISION AND ORDER - 3

Judgment, p. 5 (Dkt. 42). Boomer was working as the National Sales Manager for Kisco,
and SCS alleges that Boomer worked with customers throughout the country, including
those same states for which he was responsible as the Northwest Territory Sales Manager
for SCS. Id. at p. 5, n. 2. SCS further alleges that, around this same time, it also learned
that Boomer had contacted certain SCS customers, who are not generally known in the
industry as parylene conformal coating customers. Id. at p. 5.
PROCEDURAL HISTORY
On July 28, 2009, SCS sued Boomer in Idaho state district court alleging claims of
breach of contract and unjust enrichment. SCS contends that, as a result of discovery in
the state court action, SCS came to believe that Boomer’s new employer and SCS’s
competitor, Kisco, knew of Boomer’s post-SCS employment obligations, but nonetheless
“sanctioned and encouraged his wrongful conduct.” Plaintiff’s Opposition to Defendants’
Motion for Summary Judgment, p. 6 (Dkt. 42). SCS also came to believe that Kisco used
SCS’s confidential and proprietary information to its benefit and engaged in a course of
business conduct specifically intended to harm SCS. Id. SCS then moved to file an
amended complaint with claims against Boomer and Kisco, including the previous claims
against Boomer and adding claims for misappropriation of trade secrets in violation of
Idaho Code §§ 48-801, et seq. against both Defendants, a tortious interference with
contract claim against Kisco for interfering with the contract between SCS and Boomer,
and tortious interference with prospective economic advantage claims against both

MEMORANDUM DECISION AND ORDER - 4

Defendants for interfering with SCS’s relationships with existing and prospective
customers.
After the Amended Complaint was filed, in July 2010, Kisco removed the case to
federal district court. On October 7, 2010, the Court provided Defendants with leave to
file a dispositive motion regarding the scope and applicability of the agreements between
SCS and Boomer. Dkt. 33. Defendants now seek summary judgment to establish the
following as a matter of law: (1) Indiana law applies to all of Plaintiff’s claims; (2)
Boomer did not breach Section Two of the Employee Confidentiality and NonSolicitation Agreement; (3) the geographic restriction contained in the Employee NonCompetition Agreement is overly broad and unenforceable; and (4) recovery on
Plaintiff’s claims against Boomer (if any) is limited to the liquidated damages described
in the Separation Agreement.
DEFENDANTS’ MOTION FOR SUMMARY JUDGMENT
As set forth below, the Court will grant Defendants’ motion for summary judgment
to the extent it finds on the current record, as a matter of law, that the undisputed facts
reflect that Indiana law applies to the breach of contract, unjust enrichment, and tort
claims. The Court will deny the motion in all other regards.
A.

Standard of Law
Summary judgment is appropriate where “the pleadings, depositions, answers to

interrogatories, and admissions on file, together with the affidavits, if any, show that there

MEMORANDUM DECISION AND ORDER - 5

is no genuine issue as to any material fact and that the moving party is entitled to a
judgment as a matter of law.” Fed.R.Civ.P. 56(c). One of the principal purposes of the
summary judgment “is to isolate and dispose of factually unsupported claims ....” Celotex
Corp. v. Catrett, 477 U.S. 317, 323–24 (1986). It is “not a disfavored procedural
shortcut,” but is instead the “principal tool[ ] by which factually insufficient claims or
defenses [can] be isolated and prevented from going to trial with the attendant
unwarranted consumption of public and private resources.” Id. at 327. “[T]he mere
existence of some alleged factual dispute between the parties will not defeat an otherwise
properly supported motion for summary judgment; the requirement is that there be no
genuine issue of material fact.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247–48,
(1986). Material facts are those which may affect the outcome of the case. See id. at 248.
The evidence must be viewed in the light most favorable to the non-moving party, id. at
255, and the Court must not make credibility findings. Id.
B.

Applicable Tort Law
The parties agree that Indiana law applies to Plaintiff’s contract and unjust

enrichment claims. In the Amended Complaint, Plaintiff also pled violations of Idaho
trade secret and tort law. See Dkt. 1-5. On summary judgment, Defendants argue that
Indiana law should also apply to these claims. In response, Plaintiff argues either Idaho
law applies or, in the alternative, the Court should defer a ruling on the choice of law for
the trade secret and tort claims, because the parties are still conducting discovery relevant

MEMORANDUM DECISION AND ORDER - 6

to the issue. Plaintiff’s Opposition to Defendants’ Motion for Summary Judgment, p. 9
(Dkt. 42).
1.

Standard of Law: “Most Significant Relation Test”

A federal district court sitting in diversity must apply the forum state's choice of
law rules to determine the controlling substantive law. Fields v. Legacy Health Sys., 413
F.3d 943, 950 (9th Cir. 2005). Idaho applies the “most significant relation test” as set
forth in the Restatement (Second) Conflict of Laws § 145 to determine the applicable law.
Grover v. Isom, 137 Idaho 770, 53 P.3d 821, 823-24 (2002). This test requires courts
consider the following facts in making their determination: “(a) the place where the injury
occurred, (b) the place where the conduct causing the injury occurred, (c) the domicile,
residence, nationality, place of incorporation and place of business of the parties, and (d)
the place where the relationship, if any, between the parties is centered.” Id. at 824.
The most important factor is where the injury occurred. Id. However, “[t]he goal
of this test is to identify the state most significantly related to a particular issue and to
apply its law to resolve that issue.” Seubert Excavators, Inc. v. Anderson Logging Co.,
126 Idaho 648, 889 P.2d 82 (1995).
2.

Analysis

Defendants argue that Indiana law should apply, because (1) that is where
Plaintiff’s corporate headquarters is located; (2) the alleged injury to business interests
occurs in the jurisdiction in which SCS feels economic pain; i.e., the corporate

MEMORANDUM DECISION AND ORDER - 7

headquarters; (3) the allegations of improper use of SCS’s “customer information”
occurred in multiple, unspecified jurisdictions; and (4) SCS chose its home forum to
govern the contracts. Memorandum in Support of Defendants’ Motion for Summary
Judgment, pp. 9-10 (Dkt. 38-2). At oral argument, SCS argued that Idaho law should
apply, because: (1) Boomer is an Idaho resident; (2) Boomer was SCS’s corporate
representative in the Northwest Territory; and (3) the damages he allegedly caused were
to SCS’s business interests in the Northwest Territory.
The Court is persuaded that Indiana has the most significant relation to the injuries,
because that is where the pecuniary injury occurred, where SCS is located, and the place
where the parties’ relationship was centered, as reflected by the contracts’ choice of law
provisions.
Generally, when the injury suffered is “loss of customers or trade,” the place of
injury does not play as important of a role as it does in other tort cases. See Restatement
(Second) Conflict of Laws § 145, comment f. This is because:
The effect of the loss, which is pecuniary in its nature, will
normally be felt most severely at the plaintiff's headquarters
or principal place of business. But this place may have only a
slight relationship to the defendant's activities and to the
plaintiff's loss of customers or trade.
Id.
Unfortunately, the record is silent regarding the place in which the conduct
occurred. The Court presumes that the conduct alleged, the solicitation of clients and

MEMORANDUM DECISION AND ORDER - 8

employees and the sharing of confidential information, may have occurred over the
telephone or through other electronic means of communications between the customers’
locations and Boomer’s home office in Boise, Idaho, with other related communications
going to and from Kisco’s offices in California. Another possibility is that conduct
occurred in various states, and that the relationship of such other states to this lawsuit is
almost no consequence. Accordingly, the Court has no basis to conclude that this prong
of the analysis favors any one state over another.
Moreover, the particular residence of the parties does not help resolve the conflict
of laws issue. Boomer resides in Idaho, but SCS is headquartered in Indiana and Kisco is
based in California.
The most important factor in the Court’s analysis is the place of the parties’
relationship, and the undisputed facts reflect that this relationship is tied most closely with
Indiana. The agreements at issue make clear that Indiana law governs the parties’
relationship. Moreover, the claims against Boomer are inextricably linked to this
relationship. Without it, Boomer would not have had access to the alleged confidential
information and company goodwill, nor would there be any issues raised as to whether he
has breached duties owed to SCS from the circumstances of his leaving that company.
For these reasons, Indiana law applies to the tort claims raised in the Complaint.
Indiana is the state most significantly related to the issues raised by the tort claims.

MEMORANDUM DECISION AND ORDER - 9

3.

Summary Judgment on the Governing Law is Not Premature

In opposing summary judgment on this issue, Plaintiff asks the Court to make
inferences from the allegations in the Amended Complaint that Idaho law applies and also
states, “[b]ecause the parties have not yet had a full opportunity to explore the details of
the conduct in question, including but not limited to any economic impact on SCS, a
ruling on the choice of law issue would be premature.” Plaintiff’s Opposition to
Defendants’ Motion for Summary judgment, p. 10 (Dkt. 42).
These arguments are insufficient. First, in order to make any inferences in the
non-moving party’s favor, the Court must have facts to draw upon, and the burden is on
Plaintiff to demonstrate to the Court what facts exist to support the inference that Idaho
law applies to its tort claims.
On summary judgment, the moving party bears the initial burden of demonstrating
the absence of a genuine issue of material fact. Devereaux v. Abbey, 263 F.3d 1070, 1076
(9th Cir. 2001) (en banc). To carry this burden, the moving party need not introduce any
affirmative evidence (such as affidavits or deposition excerpts) but may simply point out
the absence of evidence to support the nonmoving party's case. Fairbank v. Wunderman
Cato Johnson, 212 F.3d 528, 532 (9th Cir. 2000).
This shifts the burden to the non-moving party to produce evidence sufficient to
support a specific finding of fact. Id. at 256–57. The non-moving party must go beyond

MEMORANDUM DECISION AND ORDER - 10

the pleadings and show by “affidavits, or by the depositions, answers to interrogatories, or
admissions on file” that a genuine issue of material fact exists. Celotex, 477 U.S. at 324.
Second, in opposing a motion for summary judgment on the basis that it is
premature in light of on-going discovery, the non-moving party must comply with Federal
Rule of Civil Procedure 56(d). Under Rule 56(d)(2), the Court may allow time to obtain
affidavits or declarations or take discovery "if the nonmoving party shows by affidavit or
declaration that, for specified reasons, it cannot present facts essential to justify its
opposition."
Rule 56(d) requires “(a) a timely application which (b) specifically identifies (c)
relevant information, (d) where there is some basis for believing that the information
sought actually exists.” Sultana Resources, LLC v. Trio Gold Co., No. CV-06-625-BLW,
2007 WL 2993849, at *1 (D. Idaho Oct. 11, 2007) (quoting Employers Teamsters Local
Nos. 175 & 505 Pension Trust Fund v. Clorox Co., 353 F.3d 1125, 1129 (9th Cir. 2004)).
The party submitting a Rule 56(f) motion bears the burden of showing sufficient facts
establishing that the evidence sought exists and that the evidence would prevent summary
judgment. Sultana, 2007 WL 2993849 at *1. “Mere hope that further evidence will
develop prior to trial is insufficient.” Id. Plaintiff has not met this legal standard.
In short, it is not sufficient for Plaintiff to rely on the pleadings alone or make bald
statements concerning disputed facts or the need for more time to find facts to support its
position. Further, without any facts in the record to support Plaintiff’s allegation that

MEMORANDUM DECISION AND ORDER - 11

Idaho law applies, the Court is left only with undisputed facts supporting a finding that
Indiana law applies to the tort claims, fundamentally because this is the state law
governing other aspects of the parties’ relationship. Accordingly, the Court finds, as a
matter of law, based on the undisputed facts, that Indiana law applies to Plaintiff’s tort
claims.
C.

Contract Claims
There are three contracts at issue: the Non-Competition Agreement , the

Confidentiality and Non-Solicitation Agreement, and the Separation Agreement. With
regard to these contracts, Boomer argues: (1) he did not breach section Two of the
Confidentiality and Non-Solicitation Agreement because the temporal scope of the
provision is indeterminate; (2) the geographic scope of the Non-Compete Agreement is
unreasonably broad and unenforceable; and (3) the relief against Boomer is limited to the
liquidated damages provisions set forth in the Settlement Agreement.
Under Indiana law, the Court generally interprets a contract consistent with the
parties’ intent when they wrote it. Ferrell v. Dunescape Beach Club Condominiums
Phase I, Inc., 751 N.E.2d 702, 709 (Ind App. 2001). “Absent ambiguity, the terms of a
contract will be given their plain and ordinary meaning.” Id. “[A]mbiguity exists only
where reasonable people could come to different conclusions about a contract’s
meaning.” Id.

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Additional contract interpretation rules apply when construing a covenant not to
compete in employment contracts. Indiana law strongly disfavors such covenants,
because they constitute restraints on trade. Central Ind. Podiatry, P.C. v. Krueger, 882
N.E.2d 723, 728–29 (Ind.2008) (citations omitted). Such covenants are construed strictly
against employers. Id.
“In order to be enforceable, the provisions of a covenant not to compete must be
reasonable, which is a question of law.” Coates v. Heat Wagons, Inc., 942 N.E.2d 905,
913 (Ind.App. 2011). To be reasonable, the agreement must “protect legitimate interests
of the employer, and the restrictions established by the agreement must be reasonable in
scope as to time, activity, and geographic area.” Id. at 729. The burden is on the
employer to demonstrate that the restriction is reasonable. Id.
1.

Section Two of the Employee Confidentiality and Non-Solicitation
Agreement

Plaintiff contends that he did not, indeed he could not, violation Section Two of
the Employee Confidentiality and Non-Solicitation Agreement, because the promise
contained therein is for an indefinite term. The Court cannot grant summary judgment on
this issue on the current record.
Section Two of the Employee Confidentiality and Non-Solicitation Agreement
states:
In order to further protect the company’s legitimate business
interests, I agree that I will not, directly or indirectly: (a)
attempt to hire any of the Company’s employees; (b)

MEMORANDUM DECISION AND ORDER - 13

encourage any employee to terminate his/her employment
with the Company; or (c) encourage any customer or supplier
to terminate or alter its business relationship with the
Company for a period of time not to exceed 18 months from
the date employment with the company terminates.
See Ex. 2, Becker Statement in Support of Defendants’ Motion for Summary Judgment
(Dkt 38-3).
Defendants’ propose one reasonable interpretation of this provision, albeit an
interpretation that almost certainly implies the existence of a scriviner’s error or the
existence of a patent ambiguity (i.e., that the term could have been one day or 18 months,
or anything in between) at odds with what otherwise is clear evidence that the parties
intended for there to be some period of time in which Boomer could not compete with his
former employer. Plaintiff offers an equally plausible interpretation of the contract- that
the parties agreed for it to apply for a period of 18 months following employment.2
Accordingly, Defendants’ motion for summary judgment must be denied in this
regard. The provision is ambiguous and will require proof of the parties’ intent to allow
for a finding as to its actual meaning.

2

Indeed, from the after-the-fact view from the courtroom, it is not surprising that an
eighteen month covenant not to compete has been held reasonable under Indiana law. See
Gleeson v. Preferred Sourcing, LLC, 883 N.E.2d 164 (Ind. Ct. App. 2008) (finding eighteenmonth non-compete and confidentiality agreement reasonable); Search v. Richards Dieterle &
Co., 439 N.E.2d 208 (Ind. Ct. App. 1982) (finding three-year restrictive covenant enforceable).
MEMORANDUM DECISION AND ORDER - 14

2.

The Geographic Scope of the Non-Competition Agreement

Defendants argue that the geographic limitation in the covenant not to compete is
overly broad and unenforceable as a matter of law.
When evaluating whether a covenant is reasonable, courts consider whether the
covenant is reasonably designed to protect the employer’s legitimate interests; whether
the restrictions are reasonable in terms of time, geography, and the types of activities
prohibited; and the Court must also consider the public interest. Pathfinder
Communications Corp. v. Macy, 795 N.E.2d 1103, 1109 (Ind. App. 2003); Burke v.
Heritage Food Serv. Equip., Inc., 737 N.E.2d 803, 811 (2004). When evaluating the
reasonableness of a geographic limitation specifically, the courts’ focus on whether it is
any broader than the area in which the employee worked. See Commercial Bankers Life
Ins. Co. of Am. v. Smith, 516 N.E.2d 110, 114 (Ind.App. 3 Dist. 1987) (citing Frederick v.
Prof. Bldg. Maintenance Ind., Inc., 344 N.E.2d 299 (Ind. App. 1976); 4408, Inc. v.
Losure. 373 N.E.2d 899 (Ind. App. 1978)). In addition, “the geogrraphic limit must
ordinarily be no broader than the scope of the employee’s former responsibilities.”
Product Action Inter., Inc. v. Mero, 277 F.Supp.2d 919, 925 (S.D. Ind. 2003).
Section One of the Non-Competition Agreement states:
I will not work for or render services to any business that is in
competition with any of the businesses carried on by the
Company, unless I first obtain the Company’s written consent.
I agree that a ‘business which is in competition with any of the
businesses carried on by the Company’ means a business that
designs, manufactures, markets or sells a product or provides a

MEMORANDUM DECISION AND ORDER - 15

service that involves the practical knowledge of parylene,
coating equipment, service, and dimer in the following regional
geographic area: (California, Oregon, Washington, Nevada,
Idaho, Wyoming, Montana) I also agree that this restriction on
my future employment is reasonable given the level of my
involvement with and responsibility for the Company’s products
and/or services, the international nature of the Company’s
business and the limited duration of the restriction.
Ex. 1, Becker Statement in Support of Defendants’ Motion for Summary Judgment (Dkt.
38-3).
The geographic scope of the Non-Competition Agreement includes the seven
western states comprising the Northwest Territory of SCS’s business: California, Oregon,
Washington, Nevada, Idaho, Wyoming, and Montana. As a Regional Sales Manager, this
was the region Boomer was assigned to serve. Accordingly, the geographic scope of the
restriction, on its face, is reasonable.
Nonetheless, Defendants also argue that the geographic scope of the Non-Compete
Agreement was not reasonable, because: (1) Boomer was not a “key” employee thus
justifying a broad geographic scope of restricted activity; (2) the nature of the parylene
coating industry is national or international in scope and not easily susceptible to regional
restrictions; and (3) while Kisco served clients in Boomer’s former territory, Boomer only
serviced client east of the Mississippi River from Kisco’s Connecticut office. These
arguments are not persuasive in the summary judgment context.

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First, as a matter of law, Indiana case law does not require that an employee be a
“key employee” in order for a non-compete to be valid.3 Indiana law, which disfavors
covenants not to compete as restraints on trade, generally requires that a covenant not to
compete be reasonable. “The ultimate determination whether a covenant not to compete
is reasonable is a question of law for the court to decide. . . . Whether a particular
covenant is reasonable depends upon the facts and circumstances of the particular case.”
Hahn v. Drees, Preugini & Co., 581 N.E.2d 457, 459 (Ind. App.2d 1991) (citations
omitted). The focus of the inquiry requires the employer to “demonstrate that the former
employee has gained a unique competitive advantage or ability to harm the employer
before such employer is entitled to the protection of a noncompetition covenant.” Id.
The suggestion that Boomer was not a key employee is not sufficient to warrant
summary judgment in this regard. There are other aspects of his employment, including
knowledge about customers, and good will developed with such customers in the
3

See Woodward Ins., Inc. v. White, 437 N.E.2d 53, 63 (Ind. 1982) (recognizing
employer is entitled to protect business goodwill including secret or confidential information
such as customers' names, addresses and requirements and the business advantage acquired
through salesman's customer contacts, but not the skill the employee acquires or the general
knowledge or information he obtains not directly related to goodwill or value of business);
Licocci v. Cardinal Assocs., Inc., 445 N.E.2d 556, 563 (Ind.1983) (holding that under the
circumstances of the case, repeat business for certain products was a protectable interest
rendering restrictive covenant to protect that interest reasonable); McGlothen v. Heritage Envtl.
Servs., L.L.C., 705 N.E.2d 1069, 1072-73 (Ind.Ct.App.1999) (holding former employer had
interest in goodwill and confidential information protectable by covenant not to compete against
former project and division manager); Norlund, 675 N.E.2d at 1154 (concluding employer has an
interest in the goodwill created by a salesman on the employer's behalf that may be protected
with a covenant not to compete as may an employer's interest in trade secrets); 4408, Inc. v.
Losure, 373 N.E.2d 899, 901 (Ind.Ct.App.1978) (holding salesman's familiarity with customers
and their accounts is an interest justifying restraint).
MEMORANDUM DECISION AND ORDER - 17

Northwest Territory, that could support a reasonable inference that Boomer had a unique
competitive advantage sufficient for SCS to protect through a non-compete limited to
those states comprising the Northwest Territory.
Second, the Court can infer that the nature of the parylene coating industry lends
itself to regional divisions. SCS divided its market into territories, reflecting a sales
program divided into regions.
Third, Boomer was in charge of the Northwest Territory when he worked for SCS.
Less than a year later, his sales territory for Kisco was national. The Court can infer from
these undisputed facts that his new responsibilities included time and effort directed
within the same area as SCS’s Northwest Territory. If Boomer did not solicit clients in
such a region, then he can challenge whether he breached the agreement, not to whether it
was reasonable in geographic scope.
In sum, the Court denies Defendants’ Motion seeking a holding that, as a matter of
law, that the geographic scope of the Non-Competition Agreement was not reasonable
and therefore unenforceable.
3.

The Separation Agreement’s Liquidated Damages Provision

Defendants argue that, if the agreements at issue are enforceable, any damages
against Boomer are limited to the liquidated damages provision of the contract.
The Termination Agreement contains the following language:
Compliance with restrictive covenants. Both before and
after the Termination Date, you will continue to be bound by,

MEMORANDUM DECISION AND ORDER - 18

and will comply fully with, your obligations under your
Employee Non-Competition Agreement and your Employee
Confidentiality and Non-Solicitation Agreement with SCS,
both signed by you on May 19, 2006. Copies of these
documents are being provided to you.
Severance Benefits. SCS will continue to pay you an amount
equal to your current base salary (at the rate of $1,471.16 per
week) and to provide you with the employee benefits you are
currently receiving from SCS (subject to eligibility
requirements of our benefits-providers, and excluding benefits
consisting of vacation day accruals or additional contributions
by you or us to our 401(k) plan) for a period of eight weeks
following the termination date. Additionally, SCS will pay
your Regional Sales Commissions through March, 2008.
If you revoke this Separation Agreement, or fail to comply with
this Separation Agreement or either of the . . . [Non-Compete
and Confidentiality Agreements] , however, you will not receive
these payments or benefits, and you will be required to return to
SCS the full value of all such payments and benefits previously
provided to you.
Ex. 3, Becker Statement in Support of Defendants’ Motion for Summary Judgment (Dkt.
38-3).
The Court does not agree. As Plaintiff argues, the liquidated damages provision
applies only to Plaintiff’s claim for breach of contract damages - not to the tort claims
against Boomer or to any claims against KCC.
“The term ‘liquidated damages’ applies to a specific sum of money that has been
expressly stipulated by the parties to a contract as the amount of damages to be recovered
by one party for a breach of the agreement by the other, whether it exceeds or falls short
of actual damages.” Time Warner Entertainment Co, L.P. v. Whiteman, 802 N.E.2d 886,

MEMORANDUM DECISION AND ORDER - 19

893 (Ind. 2004). “A typical liquidated damages provision provides for the forfeiture of a
stated sum of money upon breach without proof of damages.” Gershin v. Demming, 685
N.E.2d 1125, 1127 (Ind. App. 1997).
Neither party disputes the enforceability of the liquidated damages provision.
However, typically the issue of whether liquidated damages are enforceable depends on
whether the liquidated damages are proportionate to the loss and whether the damages are
not easily measured by any exact pecuniary standard. Time Warner, 802 N.E. 2d 893
(citing Jaqua v. Headington, 16 N.E. 2d 527, 528 (1988)).
The whole purpose of a liquidated damages provision is to identify an appropriate
measure of damages caused by a breach of contract to compensate the injured party. If
the conduct underlying the breach of contract also constitutes a separate tort with a
separate and distinct injury, then the liquidated damages cannot be assumed to
compensate the injured party for that separate injury.
In short, the Court does not find, as a matter of law, that Plaintiff is limited to the
liquidated damages provision in the Separation Agreement. Accordingly, Defendants’
summary judgment motion must be denied in this regard.
CONCLUSION
In sum, Defendants’ Motion for Summary Judgment is granted solely with regard
to the application of Indiana law to Plaintiff’s contract and tort claims. In all other
respects, Defendants’ motion is denied.

MEMORANDUM DECISION AND ORDER - 20

ORDER
Defendants’ Motion for Summary Judgment (Dkt. 38) is GRANTED in part and
DENIED in part. The motion is granted only to the extent that the Court finds Indiana
law applies to all of Plaintiff’s claims. The motion is denied in all other respects.
DATED: June 17, 2011

Honorable Ronald E. Bush
U. S. Magistrate Judge

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