Servi-Tech, Inc. v. Olson
MEMORANDUM AND ORDER granting 6 Motion for Preliminary Injunction, as set out in the Order. Plaintiff is directed to give security in the amount of $75,000 to the court. See Order for details. Signed by District Judge Eric F. Melgren on 9/1/2017. (cm)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF KANSAS
Case No. 17-01148-EFM-JPO
MEMORANDUM AND ORDER
Plaintiff Servi-Tech, Inc. requested that the Court enter a preliminary injunction to
prevent alleged violations of the restrictive covenants contained in Defendant Dillan Olson’s
employment agreement with Servi-Tech pending resolution of this suit. The Court held a
hearing on the motion on August 17, 2017. After reviewing the parties’ arguments and the
evidence, the Court grants Servi-Tech’s Motion for Preliminary Injunction (Doc. 6) to the extent
set forth below.
Facts and Procedural Background
Servi-Tech hired Olson on August 21, 2014. As a condition of employment, Servi-Tech
and Olson entered into an employment agreement that contained a number of restrictive
covenants and related provisions. The relevant provisions read as follows:
5. No competition. During his employment, EMPLOYEE shall not directly or
indirectly compete, or assist any person who competes, or participates in the
ownership, management or operation of any partnership, corporation or other
entity operating a business that directly or incidentally provides any crop
consulting, laboratory testing or related services similar to those provided by
SERVI-TECH. EMPLOYEE agrees that for a period of twenty-four (24) months
after the termination of employment with SERVI-TECH, EMPLOYEE will not,
directly or indirectly, engage in, or in any manner be connected with or employed
by any person, firm, corporation, or other entity that directly or incidentally
provides any crop consulting, laboratory testing or related services similar to
those provided by SERVI-TECH within a 50 mile radius from the location of any
customer with whom EMPLOYEE had “personal contact” within two (2) years
prior to EMPLOYEE’s termination of employment with SERVI-TECH. For
purposes of this Agreement, “personal contact” is defined to include any and all
forms of personal interaction or communication, including face-to-face,
telephone, correspondence, electronic communication (i.e. email, social media,
etc.) or other means by which information is conveyed or exchanged between
EMPLOYEE and an actual or prospective customer.
No solicitation. EMPLOYEE agrees that for a period of twenty-four (24)
months after the termination of his employment with SERVI-TECH,
EMPLOYEE will not . . . call on any of the customers of SERVI-TECH with
whom EMPLOYEE had personal contact within two (2) years prior to
EMPLOYEE’s termination of employment with SERVI-TECH, for the purpose of
soliciting or providing any agricultural crop consulting, laboratory testing or
related services, nor will he in any way, directly or indirectly, for himself or on
behalf of any other person, firm, corporation or other entity, solicit, divert or take
away any such customers of SERVI-TECH.
Extension of Restrictive Period. EMPLOYEE acknowledges that the
purposes of this agreement would be frustrated by measuring the period of
restriction from the date of termination of employment in the event EMPLOYEE
fails to honor the agreement until directed to do so by court order, or for any other
reason. Therefore, should SERVI-TECH be required to bring legal proceedings
against EMPLOYEE to enforce this agreement, the period of restriction under
Sections 5 and 6 shall be deemed to begin running on the date of the entry of the
court order granting SERVI-TECH injunctive relief. This period shall be tolled
during any time EMPLOYEE violates this provision or violates any court order
granting injunctive relief.
8. Confidential information. EMPLOYEE agrees that he will not communicate
to any person, firm, corporation or other entity any information relating to trade
secrets, customer lists, prices, advertising, business practices or any other
knowledge or information that EMPLOYEE may from time to time acquire with
respect to the business of SERVI-TECH. All such information or knowledge
shall be kept confidential by EMPLOYEE. Upon termination of employment,
EMPLOYEE shall immediately turn over to SERVI-TECH all documents, papers,
customers lists, memoranda, computer programs, computer files, any electronic or
digital media, and any other material containing information relating to SERVITECH’S business.
When Olson started working, he had approximately 10 clients assigned to him by Servi-Tech.
His role in servicing these clients included facilitating soil sampling, visiting the clients’ crop
fields, making herbicide and chemical application recommendations, making recommendations
on what to plant and when, and scouting the clients’ fields during the growing season on a
weekly basis to check for crop disease and insect issues (collectively referred to as “crop
consulting services”). During his employment, Olson’s client list grew to a total of 18. Of these
eight new clients, five came to Servi-Tech because they were family, friends, acquaintances or
business contacts of Olson. These clients are: (1) Myles Berthlesen; (2) Matthew Grosshans; (3)
Barry and Gabe Dietrich of Dietrich Farms; (4) Curren Vetter; and (5) Sam Anderson
(collectively referred to as “Olson’s five prior contacts”).
Servi-Tech terminated Olson’s employment on September 30, 2016. Shortly thereafter,
Olson commenced employment with Diamond Ag, one of Servi-Tech’s customers. Because
Diamond Ag provides different services than Servi-Tech does, Servi-Tech has stated that
Olson’s employment with Diamond Ag is not currently in violation of his employee agreement.
However, in mid-November, Olson began performing crop consulting services on his own
through an entity he established known as Platinum Agronomy Solutions, LLC (“Platinum”).
Olson’s five prior contacts then left Servi-Tech and became clients of Platinum.
Servi-Tech sent Olson a demand letter on November 23, 2016, and again on December 2,
demanding his compliance with his non-compete and non-solicitation obligations. Apparently
unsatisfied with Olson’s response to the demand letters, Servi-Tech filed this current action
against Olson on June 22, 2017. On July 24, Servi-Tech filed this present motion seeking a
preliminary injunction to prevent Olson from continuing the activities that allegedly violate the
“As a preliminary injunction is an extraordinary remedy, the right to relief must be clear
and unequivocal.”1 The purpose of a preliminary injunction is “to preserve the status quo
pending the outcome of the case.”2 Whether to grant or deny a preliminary injunction rests
within the discretion of the district court.3
To be entitled to a preliminary injunction, the moving party must demonstrate: (1) that
the movant will suffer irreparable injury unless the injunction issues; (2) that the threatened
injury to the movant outweighs whatever damages the proposed injunction may cause the
opposing parties; (3) that the injunction, if issued, would not be adverse to the public interest;
and (4) that there is a substantial likelihood that the movant will eventually prevail on the
As an initial matter, Olson argues that Servi-Tech does not have a substantial likelihood
of success on the merits because the non-compete and non-solicitation provisions are
unenforceable under Nebraska law. In making this argument, Olson points out that in diversity
Schrier v. Univ. of Colo., 427 F.3d 1253, 1258 (10th Cir. 2005) (quoting SCFC ILC, Inc. v. Visa USA Inc.,
936 F.2d 1096, 1098 (10th Cir. 1991)).
Tri-State Generation & Transmission Ass’n, Inc. v. Shoshone River Power, Inc., 805 F.2d 351, 355 (10th
Beltronics USA, Inc. v. Midwest Inventory Distrib., LLC, 562 F.3d 1067, 1070 (10th Cir. 2009).
Schrier, 427 F.3d at 1258; see also Resolution Trust Corp. v. Cruce, 783 F. Supp. 1309, 1310–11 (D. Kan.
cases, district courts generally apply the substantive law, including the choice-of-law rules, of the
forum state. “Under Kansas choice-of-law rules, the lex loci contractus doctrine requires the
Court to apply the law of the state where the contract is made.”5 In this case, the contract was
made in Nebraska, so Olson asserts that Nebraska law should apply.
However, lex loci contractus is not the sole Kansas choice-of-law rule. When a contract
incorporates a choice of law provision, Kansas courts effectuate the law chosen by the parties to
control the agreement.6 Here, the employment agreement contained a choice of law provision
indicating that the parties agreed to apply Kansas law. Accordingly, Kansas law will govern this
Irreparable Harm to Servi-Tech
Servi-Tech has demonstrated that, unless an injunction is issued, Servi-Tech will suffer
irreparable harm. Although Olson claims that his five prior contacts only came to Servi-Tech
because of their relationship with Olson, they still became Servi-Tech’s clients—not Olson’s.
Once they became Servi-Tech’s clients, Servi-Tech was entitled to the benefits from doing
business with them. Not only does this include the direct and obvious benefits of having
customers, but also includes future opportunities derived from the customers, such as referrals
that lead to other new customers. Therefore, these losses are not merely economic, and cannot
be simply remedied with monetary damages.
As Olson points out, Servi-Tech did not actually seek an injunction until nearly ten
months after Olson was fired, suggesting that Servi-Tech was not being significantly harmed by
Sylvia v. Wisler, 2015 WL 6454794, at *2 (D. Kan. 2015).
Brenner v. Oppenheimer & Co., 273 Kan. 525, 44 P.3d 364, 375 (2002); see also Equifax Servs., Inc. v.
Hitz, 1992 WL 163282, at *4 (10th Cir. 1992) (explaining that the Kansas Supreme Court will adhere to the lex loci
contractus doctrine unless there is a contractual choice-of-law provision).
Olson. However, Servi-Tech did seek to protect its rights informally much sooner. Servi-Tech
sent Olson a demand letter on November 23, 2016, and again on December 2, demanding his
compliance with his non-compete and non-solicitation obligations.
occurred very shortly after Olson began performing crop consulting services with Platinum.
Servi-Tech did wait another six months after the second demand letter to file this action, but
Servi-Tech indicated that they received some assurances from Olson after the demand letters that
he was not performing crop consulting services. Servi-Tech filed suit shortly after Olson was
allegedly spotted “scouting” in a field in violation of the “no competition” covenant. Therefore,
the Court concludes that Servi-Tech was not entirely “sleeping” on its rights, and Servi-Tech has
sufficiently demonstrated irreparable harm.
Balance of Harms
In balancing the harms, it is apparent that granting the injunction as originally sought by
Servi-Tech would cause considerable harm to Olson. The “no competition” clause in Olson’s
employment agreement places a twenty-four month restriction on Olson’s ability to perform crop
consulting services within fifty miles of any customer or prospective customer with whom Olson
had personal contact within two years before he left Servi-Tech. The “no solicitation” clause
places a twenty-four month restriction on Olson’s ability to contact any customers with whom he
had personal contact during his last two years at Servi-Tech.
And Paragraph 7 of the
employment agreement extends the duration of these restrictions, deeming twenty-four month
period to not begin running until the date of the entry of this Court’s order granting Servi-Tech
Covenants not to compete are narrowly construed under Kansas law.7 “Courts construe
such covenants against the employer because the employee is in a weaker bargaining position
when the two parties form the employment agreement.”8 A covenant not to compete is valid and
enforceable only if its restraint is reasonable.9 “A restraint is reasonable only insofar as it is
justified by the need to protect a legitimate business interest.”10 “If the sole purpose is to avoid
ordinary competition, it is unreasonable and unenforceable.”11
Olson received some special crop consulting and agronomy training from Servi-Tech, so
Servi-Tech has a legitimate business interest to enforce the non-competition clause to protect its
investment in him. This, coupled with Servi-Tech’s interest of not losing customers, justifies the
non-solicitation provision in Paragraph 6 that prevents Olson from contacting customers he had
worked with as a Servi-Tech employee.
However, Servi-Tech was on notice from Judge Marten’s 2013 decision in Servi-Tech v.
Schmidt that the “no competition” clause’s geographic scope is unreasonably broad and not
justified by a legitimate business interest.12 In fact, the geographic scope at issue here is even
broader than the geographic scope at issue in Schmidt. The clause restrains Olson for two years
from competing with Servi-Tech anywhere within a fifty-mile radius around every customer and
prospective customer with whom Olson had personal contact. This covenant is unrelated to the
Weber v. Tillman, 259 Kan. 457, 913 P.2d 84, 89 (1996).
Servi-Tech, Inc. v. Schmidt, 2013 WL 12106876, at *2 (D. Kan. 2013) (citing Safelite Glass Corp. v.
Fuller, 15 Kan. App. 2d 351, 807 P.2d 677, 682 (1991)).
Weber, 913 P.2d at 89.
Schmidt, 2013 WL 12106876, at *2 (citing Weber, 913 P.2d at 89).
Weber, 913 P.2d at 89.
See Schmidt, 2013 WL 12106876, at *3 (“The ‘no competition’ clause’s geographic scope, however, is
unreasonably broad and is not justified by a legitimate business interest.”).
protection of Servi-Tech’s legitimate business interests and serves only to delineate broad areas
where Servi-Tech is isolated from competition. Therefore, it exceeds a reasonable scope and the
Court will not enforce Paragraph 5—the “no competition” clause—due to its unreasonable
Next, the restrictive period of 24 months from the date of termination, as contained in the
“no solicitation” clause is reasonable.13
However, Paragraph 7—which would extend the
restrictive period for a period of 24 months from the date of this Order—exceeds a reasonable
scope. Unlike the 24 month restrictive period itself, which as noted is common, this method of
calculating the time period is most uncommon. The Court finds it particularly excessive on the
facts of this case, where this action was not filed for nearly nine months following Olson’s
separation from Servi-Tech’s service. Accordingly, the Court will not enforce Paragraph 7
In sum, the harm to Olson will be minimal if the Court enforces the “no solicitation”
clause and only enforces this provision for a period of 24 months from Olson’s termination. He
would be restricted from contacting former customers he had worked with at Servi-Tech—
including his five prior contacts—but he would be free to contact any other potential customers
for his new company. As the Court mentioned above, the harm to Servi-Tech (lost customer
relationships) will be great if the Court does not issue an injunction.14 These harms balance in
favor of issuing the injunction.
See Bruce D. Graham, M.D., P.A. v. Cirocco, 31 Kan. App. 2d 563, 69 P.3d 194, 199 (2003) (“We are
not bothered by this covenant’s 2-year restriction. Such a time period is common in Kansas noncompetition clause
While not addressed by the parties, Servi-Tech has a legitimate business interest in protecting its
confidential information. See Weber, 913 P.2d at 91 (explaining that an employer has a legitimate business interest
in protecting trade secrets and confidential information). The Court will therefore enforce Paragraph 8 as well.
While the parties largely neglected to address this factor in their written or oral
arguments, there is a substantial public interest in upholding contracts.15 “The somewhat anticompetitive nature of the restrictions on [Olson’s] contact with Servi-Tech’s customers does not
outweigh this interest, especially considering that [Olson] signed the contract agreeing to these
restrictions.”16 Therefore, the public interest weighs in favor of issuing the injunction.
Likelihood of Success on the Merits
Under Kansas law, to establish likelihood of success on a claim for breach of a non-
compete or non-solicitation contract, Servi-Tech must show: (1) the existence of a contract; (2)
sufficient consideration to support the contract; (3) Servi-Tech’s performance of willingness to
perform in compliance with the contract; (4) Olson’s breach of the contract; and (5) damages to
Servi-Tech caused by the breach. The only element at issue here is whether Olson breached the
contract. Olson contends that there was no breach because the employment agreement contains
unreasonable geographical and time restrictions.
However, Servi-Tech is, at a minimum, able to demonstrate breach of the non-solicitation
covenant which contains a reasonable two-year time restriction. “Kansas courts have routinely
recognized the validity of covenants not to compete ancillary to an employment contract if the
covenant is reasonable and not adverse to the public interest.”17
The Court has already
determined that the “no solicitation” clause is not adverse to the public interest. And under
See, e.g., Am. Fid. Assurance Corp. v. Leonard, 81 F. Supp. 2d 1115, 1121 (D. Kan. 2000) (concluding
that the public has an interest in upholding valid and enforceable contracts, and preventing unfair competition).
Schmidt¸ 2013 WL 12106876, at *3.
Universal Engraving, Inc. v. Duarte, 519 F. Supp. 2d 1140, 1151 (D. Kan. 2007) (citing Idbeis v. Wichita
Surgical Specialists, P.A., 279 Kan. 755, 112 P.3d 81, 86–87 (2005); Varney Bus. Servs., Inc. v. Pottroff, 275 Kan.
20, 59 P.3d 1003, 1014–15 (2002)).
Kansas law, the provision is also reasonable.18
Therefore, Servi-Tech has demonstrated a
substantial likelihood of success on the merits of its claim to the extent that it seeks to enforce
the “no solicitation” clause.
Bond Pursuant to Rule 65
“The court may issue a preliminary injunction . . . only if the movant gives security in an
amount that the court considers proper to pay the costs and damages sustained by any party
found to have been wrongfully enjoined or restrained.”19 At the hearing, Servi-Tech offered no
evidence pertaining to the revenue Olson brought in while working for Servi-Tech. But ServiTech has represented to this Court that at least $75,000 is at stake, otherwise this Court would
lack subject matter jurisdiction. Accordingly, the Court considers $75,000 a proper estimate of
the costs and damages Olson would sustain should the injunction be found wrongful. Therefore,
the Court orders Servi-Tech to give security in this amount.
Servi-Tech meets the requirements for a preliminary injunction. However, the Court
holds that the “no competition” clause is too broad in scope and does not enforce it. The “no
solicitation” clause is reasonable and justified by a legitimate business interest, and therefore it is
enforceable. As a result of this preliminary injunction, Olson is prohibited from contacting
customers in violation of the “no solicitation” clause of his employment agreement with ServiTech. This includes Olson’s five prior contacts. Additionally, the Court is not enforcing
Paragraph 7, so the duration of the restrictions will be deemed to run for two years from the date
See, e.g., Cirocco, 69 P.3d at 200 (concluding that two-year, 150-mile restriction on solicitation of
employer’s clients was reasonable, because it did not operate as a complete ban on performing services).
Fed. R. Civ. P. 65(c).
Olson’s employment was terminated. And finally, Paragraph 8 is a valid restriction and will be
enforced as well.
IT IS THEREFORE ORDERED that Servi-Tech’s Motion for Preliminary Injunction
(Doc. 6) is GRANTED to the extent set forth above.
IT IS FURTHER ORDERED that Servi-Tech give security in the amount of $75,000.
Payment may be made to any of the three (3) Federal Court Clerk’s Offices in Kansas. Plaintiff
should either include a copy of this order with payment or designate the case number with the
IT IS SO ORDERED.
Dated this 1st day of September, 2017.
ERIC F. MELGREN
UNITED STATES DISTRICT JUDGE
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