Summary
The Seventh Circuit held that the noncompetition agreement executed in connection with the sale of E.T. Products was enforceable under Indiana law. The court concluded that the defendants did not breach the agreement by assisting Petroleum Solutions while it was distributing E.T. Products products, or by continuing to honor a preexisting lease after the businesses became competitors. The court affirmed the district court's judgment for the defendants.
Topics
Practice areas
Questions Presented
- Whether the broad geographic and activity restrictions in the business-sale noncompetition agreement were enforceable under Indiana law.
- Whether the Millers breached the noncompetition agreement by assisting Petroleum Solutions while it distributed E.T. Products' products.
- Whether Doug breached the agreement by continuing to honor a preexisting lease after Petroleum Solutions became a competitor.
Holdings
- The noncompetition agreement was enforceable because its geographic and activity restrictions were reasonable in light of the goodwill purchased, the nature and anticipated expansion of the business, the parties' circumstances, and the five-year duration.
- The Millers did not breach the noncompetition agreement by assisting Kuhns while Petroleum Solutions' relevant conduct consisted solely of distributing E.T. Products' products, because a distributor of a company's products is not that company’s competitor.
- Complete overlap between two businesses is not required for them to be competitors; after Petroleum Solutions began blending and distributing additives from other suppliers, it competed with E.T. Products within the meaning of the agreement.
- The noncompetition agreement did not require Doug to break or revoke his preexisting lease with Kuhns after Petroleum Solutions became a competitor; honoring the lease was not prohibited indirect assistance.
Key quotations
“Read that way, the noncompetition agreement is not overbroad. Though enforceable, the evidence introduced at summary judgment establishes as a matter of law that the Millers did not breach the agreement.” (at 464-465)
“And a firm whose sole conduct in the relevant market consists of distributing one manufacturer’s product plainly isn’t that manufacturer’s competitor.” (at 470)
“Two companies need not perfectly mirror each other before they are considered competitors, and the inclusion of the phrase “directly or indirectly” in the noncompete was designed to preclude precisely this kind of narrow construction.” (at 471)
“On E.T. Products’s reading of the noncompete, Doug was required to break the existing lease with Kuhns—itself a breach of contract—once Petroleum Solutions became E.T. Products’s competitor.” (at 471-472)
Factual background
Doug Miller sold his fuel-additives business, E.T. Products, to investors in January 2011, and he and his son Tracy signed five-year noncompetition agreements covering assistance to businesses directly or indirectly engaged in the same industry anywhere in North America. Doug later sold Petroleum Solutions to John Kuhns and provided financing, a property lease, training, and consulting assistance; Tracy also provided training. While Petroleum Solutions distributed E.T. Products' products, the companies were business partners rather than competitors, and after the relationship ended Petroleum Solutions began blending its own additives and sourcing additives from other suppliers. The Millers then stopped assisting Kuhns, but Doug continued honoring the preexisting lease.
Procedural history
The Millers sued E.T. Products in Indiana state court concerning an alleged violation of a release. E.T. Products then filed this federal diversity action alleging breach of the noncompetition agreement, and the cases were consolidated in federal court. On cross-motions for summary judgment, the district court held that the noncompetition agreement was enforceable but that the Millers had not breached it. E.T. Products appealed only the ruling on the noncompetition claim.