Commonwealth of Massachusetts

Barnstable, SS. Appeals Court Single
Justice No.

Intercity Alarms, LLC
Plaintiff/Appellee

v.

Wayne F. Nichols and
Wayne Electric and Alarm, Inc.
Defendants/Appellants

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Memorandum In Support Of Motion Seeking Temporary Relief Pursuant To G.L. c. 231, § 118
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On January 9, 2004, a justice of the Superior Court (Connon, J.) signed an order allowing the plaintiff's motion for injunctive relief. The injunction itself issued on January 12, 2004. It enjoining the defendants from “requesting, encouraging, causing, or attempting to cause, directly or indirectly, any of Intercity Alarms, LLC's customers to limit or terminate any business relationship with Intercity Alarms, LLC; and from . . . soliciting, accepting, or assisting any person in soliciting or accepting any business from any customer of Intercity Alarms, LLC.” A memorandum of decision and order issued on January 27, 2004. Pursuant to G.L. c. 231, § 118 first paragraph, the defendants request that this court vacate the preliminary injunction. See Town of Bourne v. Plante, 429 Mass. 329, 331 (1999). See generally Addison v. Belay, 440 Mass. 1010, 1011 (2003).

Statement of Facts

A. The Purchase And Sale Agreement

In August 2000, Wayne E. Nichols, (“Mr. Nichols”) was the sole stockholder and principal of Wayne Corp., a Massachusetts corporation. Wayne Corp. engaged in the business of installing, servicing and monitoring security systems. On August 24, 2000, Wayne Corp. and Mr. Nichols entered into several agreement with Intercity Alarms Trust (“Intercity”) pursuant to which Intercity purchased assets of Wayne Corp. and agreed to employ Mr. Nichols for two years. The agreements executed on August 24, 2000, are as follows: 1) Purchase and Sale Agreement [Appendix 23]; 2) Indemnification Agreement [Appendix 37]; and 3) Employment Agreement [Appendix 40] (collectively referred to as “the Sales-Related Agreements”).

Mr. Nichols and Wayne Corp. were represented by their attorney, Matthew J. Downey (“Attorney Downey”), in all negotiations leading up to the execution of the Sales-Related Agreements. The parties negotiated close to a year prior to the execution of the Sales-Related Agreements. [Appendix 76-85].

The sale of assets contemplated in the Sales-Related Agreements took place on November 6, 2000 (the “Closing Date”). As a result, Mr. Nichols became an employee of Intercity on that date. [Appendix 77].

B. The Non-Solicitation Covenant Versus The Nondisclosure And Noncompete Agreement

Paragraph 11 of the Purchase and Sale Agreement specifically included a non-solicitation clause (the “Non-Solicitation Covenant”), which states in pertinent part:

Seller agrees that it will not directly or indirectly, participate (either as principal, agent, partner, consultant or through any corporation, firm or organization in which he may be an officer, director, employee, shareholder, partner, member or otherwise affiliated in any manner whatsoever) in the solicitation of such existing alarm Customers to terminate the contractual relationship with Buyer for alarm monitoring services.

[Appendix 29]. Approximately two days after the Closing Date, and over two months after the execution of the Sales-Related Agreements, Mr. Nichols reported to Intercity to begin his employment. At that time, Mr. Nichols was given a number of forms to sign. Mr. Nichols does not recall reading, signing or even seeing the Nondisclosure and Noncompete Agreement. Mr. Nichols was not present with counsel, nor did Attorney Downey ever see or learn about the Nondisclosure and Noncompete Agreement until after this lawsuit was filed. The Nondisclosure and Noncompete Agreement was never part of the negotiated Sales-Related Agreements. No consideration was given to Mr. Nichols for the Nondisclosure and Noncompete Agreement. Mr. Nichols was never given a copy of the signed Nondisclosure and Noncompete Agreement. [Appendix 77].

The Non-Solicitation Covenant was extremely limited in scope and only limits the Seller (defined by the Purchase and Sale Agreement as Wayne Corp.) from soliciting existing alarm Customers. “Customers” was defined in the Purchase and Sale Agreement (Paragraph 3A) as those former Wayne Corp. customers whose accounts were purchased by Intercity. [Appendix 23-24].

The Nondisclosure and Noncompete Agreement was much broader than the Non-Solicitation Covenant. Although its terms do not prevent Mr. Nichols from engaging in the alarm business, Paragraph 3 expands the restriction beyond “soliciting” to also include “accepting” business from any customer. Also, this agreement more broadly defines “customer” to include not only those customers Intercity purchased from Wayne Corp., but also any customer of Intercity. [Appendix 44-45].

Intercity received significant consideration for the Employment Agreement as set forth therein. This consideration included the fact that Mr. Nichols would continue to provide his expertise as a “salesperson, technical support and customer relations representative to assist Employer in notifying, educating and urging all customers to continue their monitoring agreements with the Employer including site visits, notification letter and phone calls with Wayne Corp.'s customers.” [Appendix 40]. In fact, it was Intercity, not Mr. Nichols, that insisted upon the two year Employment Agreement. During negotiations leading up to the sale, Intercity made it clear that it would only complete the sale if Mr. Nichols were to continue working for Intercity for two years. Intercity wanted to ensure a smooth continuation of the business and of relations with Wayne Corp.'s customers and employees. Intercity's President, Ridgeway J. Crouch (“Mr. Crouch”), expressed concern that customers would be lost if something happened to Mr. Nichols. As a result, the Employment Agreement was amended to allow Intercity to purchase a key man life insurance policy in the amount of $150,000.00 on Mr. Nichols' life for the term of his employment; that is, two years. [Appendix 76-77].

The Nondisclosure and Noncompete Agreement was not part of the consideration received by Intercity for the Employment Agreement, as it was executed over two months after the Employment Agreement was executed.

Approximately three months prior to the completion of his two years of employment with Intercity, Mr. Crouch asked Mr. Nichols what he intend to do after completion of his two year employment. Mr. Nichols told Mr. Crouch that he was going to return to the business of being an electrician and installing and monitoring alarms. Mr. Nichols purchased a vehicle for his new business. Mr. Crouch saw the vehicle, and Mr. Nichols specifically told him that he intended to use the vehicle for his new business. Mr. Crouch visited the office of Intercity in Fairhaven, Massachusetts several times weekly. Within the last two months of his employment, it was common knowledge at the Fairhaven office that Mr. Nichols was intending to open a an electric and alarm company. At all times prior to being served with the complaint in this action, Mr. Nichols believed that he was not restricted from engaging in the alarm business and that Intercity knew of his plans. [Appendix 77-78].

C. The Dispute And Subsequent Release

The Purchase and Sale Agreement called for a portion of the sales price to be held in escrow as a “Purchase Price Holdback.” After the termination of Mr. Nichols' two-year employment, a dispute arose between Mr. Nichols and Intercity. Intercity claimed that it was entitled to a large portion of the Purchase Price Holdback. On or about April 11, 2003, the parties reached a settlement pursuant to which $13,739.44 was paid to Intercity. [Appendix 84-85].

As part of this settlement, Intercity executed a “Release of All Demands” in which Intercity released Mr. Nichols, Wayne Corp., and Attorney Downey:

. . . of and from all debts, demands, damages, actions, causes of actions, suits, accounts, covenants, contracts, agreements, damages, and any and all claims, demands and liabilities whatsoever of every name and nature, both in LAW and EQUITY, which against the said Matthew J. Downey, Wayne Corp., Wayne E. Nichols, or their heirs and assigns Intercity may now have or ever had from the beginning of the world to this date and more especially on account of said Employment Agreement, the [Purchase and Sales] Agreement, specifically including but not limited to the provisions of paragraph 5C of the [Purchase and Sales] Agreement pertaining to the calculation and distribution of the “Purchase Price Holdback” as such term is defined in the [Purchase and Sales] Agreement . . .
[Appendix 86].

The Release provided a minor exception for only Wayne Corp. from the covenants contained in Paragraph 11 of the Purchase and Sales Agreement (the Non-Solicitation Covenant). The Release did not include an exception for the Nondisclosure and Noncompete Agreement. It also did not include an exception for Mr. Nichols regarding the Non-Solicitation Covenant, but only an exception for Wayne Corp. [Appendix 86].

D. Intercity Customers Sought Out Mr. Nichols; He Did Not Solicit Them

Several former Wayne Corp. customers became disenchanted and dissatisfied with Intercity's service and customer relations. As set forth in detail in Mr. Nichols' affidavit, he was approached by several such customers and asked to take over monitoring and service of their accounts. Each expressed extreme dissatisfaction with Intercity. Many stated that they intended to go to another company if Mr. Nichols did not take over their accounts. At no time did Mr. Nichols solicit former Wayne Corp. customers or any present customers of Intercity. In fact, each of these customers signed a form stating that Mr. Nichols did not solicit their business. [Appendix 78-82].

Argument

“Where a judge of the Superior Court has granted or denied a request for preliminary injunctive relief, a party may petition a single justice of the Appeals Court for discretionary 'relief' from such an interlocutory order.” Globe Newspaper Co. v. Massachusetts Bay Transp. Authority Retirement Bd., 412 Mass. 770, 772-773 (1992). See Packaging Indus. Group, Inc. v. Cheney, 380 Mass. 609, 614 (1980). “Appellate review of a trial court order disposing of a preliminary injunction application, either by a panel of this court or by a single justice acting on a petition under the first paragraph of G.L. c. 231, § 118, focuses on whether the trial court abused its discretion--that is, whether the court applied proper legal standards and whether the record discloses reasonable support for its evaluation of factual questions.” Edwin R. Sage Co. v. Foley, 12 Mass. App. Ct. 20, 25 (1981). See Packaging Indus. Group, Inc. v. Cheney, 380 Mass. at 615-616. "This analysis calls for an examination of the same factors properly considered by the judge in the trial court in the first instance." Id. at 25-26. Where, as here, the order granting injunctive relief “is predicated solely on documentary evidence”, this “court is free to draw its own factual conclusions from the record[.]” Commonwealth v. Mass. CRINC, 392 Mass. 79, 87 (1984). In this case, the record fails to establish the plaintiff's entitlement to injunctive relief. The judge abused his discretion in granting a preliminary injunction, and his order must be vacated.

A. The Standards For Issuing A Preliminary Injunction

In order to prevail on a request for a preliminary injunction, “the moving party must show that, without the requested relief, it may suffer a loss of rights that cannot be vindicated should it prevail after a full hearing on the merits.” Packaging Indus. Group v. Cheney, 380 Mass. at 616. See Planned Parenthood League of Massachusetts, Inc. v. Operation Rescue, 406 Mass. 701, 710 (1990). “At the same time, the party opposing the injunction may make a similar showing of irremediable harm which would occur were the injunction to issue.” Planned Parenthood League of Massachusetts, Inc. v. Operation Rescue, 406 Mass. at 710; Id. The motion judge must then balance the risk of irreparable harm to each of the parties in light of their chances of prevailing on the merits. Id.; Packaging Indus. Group v. Cheney, 380 Mass. at 617. “'Only where the balance between these risks cuts in favor of the moving party may a preliminary injunction properly issue.'” Id., quoting Packaging Indus. Group v. Cheney, 380 Mass. at 617.

B. The Plaintiff Is Not Entitled To Injunctive Relief Where It Failed To Show, And Indeed, Cannot Demonstrate Any Likelihood Of Prevailing On The Merits Of Its Claim

Addressing the second part of the above test first, assuming the plaintiff could show serious or even irreparable harm from the defendants' conduct, it failed to show, and indeed, cannot demonstrate any likelihood of prevailing on the merits of its claim. Indeed, the record fails to demonstrate that Mr. Nichols engaged in any conduct resulting in a loss of the plaintiff's rights. Accordingly, it is not entitled to injunctive relief.

1. The Plaintiff Has Released Mr. Nichols From The Nondisclosure And Noncompete Agreement And From The Non-Solicitation Provision

As described above and in the attached affidavit of Attorney Downey, after Mr. Nichols' employment ended, the parties negotiated a resolution of various disputes between them. They ultimately reached a settlement and entered into an agreement. Pursuant to that agreement, $13,739.44 in funds from the original purchase price was paid from the escrow account to the plaintiff in exchange for a general release. That general release forever discharged Mr. Nichols “from all debts, demands, damages, actions, causes of actions, suits, accounts, covenants, contracts, agreements, damages, and any and all claims, demands and liabilities whatsoever of every name and nature” in both law and equity. [Appendix 86]. The release provided only one exception-it stated that Wayne Corp. (but not Mr. Nichols) was still subject to the covenants contained in Paragraph 11, i.e., the non-solicitation covenant. [Appendix 29]. Significantly, the terms of the Nondisclosure and Noncompete Agreement were not excepted from this release. Where the language of the release was clear and unambiguous, and where the plaintiff accepted consideration for that release, the plaintiff has waived any right it may have had to enforce any of the agreements the parties had previously executed. Sharon v. City of Newton, 437 Mass. 99, 102 n.4 (2002); Horner v. Boston Edison Co., 45 Mass. App. Ct. 139, 142-143 (1998). The plaintiff cannot as a matter of law prevail on the merits of its claim, and it certainly was not entitled to injunctive relief.

2. There Was No Consideration Given For The Nondisclosure And Noncompete Agreement

As with all contracts, a noncompetition agreement is unenforceable if not entered into knowingly, willingly and voluntarily and if not supported by consideration. DeMatteo v. DeMatteo, 436 Mass. 18, 26 n.16 (2002). Typically, when the parties execute a noncompetition agreement prior to the commencement of employment, the employment is deemed to constitute sufficient consideration, and the agreement is enforceable. Where, however, the parties sign such an agreement after the commencement of employment, a question arises as to whether that agreement is supported by consideration. Slade Gordon & Co., Inc. v. O'Neil, 355 Mass. 4, 6, 8-9 (1968). While a party's continued employment may constitute consideration for such an agreement for an at will employee, it is not clear that continued employment can constitute consideration in a contract for a specific length of time, the terms of which have been previously negotiated. See Fortune v. National Cash Register Co., 373 Mass. 96, 102 (1977). In this case, Mr. Nichols received nothing in exchange for signing the agreement. Neither the length nor the conditions of his employment that had been negotiated previously were changed, and he certainly did not benefit from the agreement. In the absence of consideration, the plaintiff will have a difficult time prevailing on the merits of an action to enforce that agreement. Anthony's Pier Four, Inc. v. HBC Assocs., 411 Mass. 451, 471-472 (1991); Drucker v. Roland Wm. Jutras Assocs., 370 Mass. 383, 385 (1976).

Separate and apart from the lack of consideration, the plaintiff will have one additional difficulty in enforcing the contract. Mr. Nichols expects to show that he was not aware that he was signing such an agreement, that he did not recall seeing or signing such an agreement, that he was simply presented with a number of forms to sign at the commencement of his employment, that neither he nor his attorney were given a copy of the agreement, and that neither he nor his attorney were aware of the existence of this agreement until the commencement of the litigation. [Appendix 77, 83-84]. Where the plaintiff never disputed the circumstances under which this agreement was executed, it failed to establish that Mr. Nichols knowingly, voluntarily and willingly signed it. The plaintiff had no reasonable expectation of proving an essential element of its case, Kourouvacilis v. General Motors Corp., 410 Mass. 706, 716 (1991), and the order granting injunctive relief was entered in error.

3. The Plaintiff's Claim Is Barred By The Doctrines Of Laches, Equitable Estoppel And Waiver

One factor further weakening the plaintiff's chance of prevailing on the merits is its inordinate delay in bringing this action. As described above, prior to the termination of Mr. Nichols' employment, the plaintiff knew that he intended to open a business servicing, installing and monitoring alarm systems. Mr. Nichols purchased a vehicle and prepared to commence the operation of his business in November of 2002. The plaintiff waited until November 25, 2003, almost thirteen months after the termination of Mr. Nichols' employment, to file this action. Mr. Nichols acted in a good-faith belief that the plaintiff knew of and did not object to his engaging in the business of monitoring and servicing alarms. See McCarthy v. Tobin, 429 Mass. 84, 88-89 (1999) (record supported finding of waiver); Owen v. Kessler, 56 Mass. App. Ct. 466, 470 (2002) (same). Contrast Alexander & Alexander, Inc. v. Danahy, 21 Mass. App. Ct. 488, 495 (1986) (delay not unreasonable where plaintiff attempted to resolve dispute before filing suit).

4. The Defendants Have Not Violated The Non-Solicitation Covenant In The Purchase And Sale Agreement

As noted above, there are two agreements that are at issue in this case. First, there is a Nondisclosure And Noncompete Agreement, set forth at Pages 44-45 of the Appendix. Based on the general release signed by the parties, that provision has been vacated in its entirety. Second, there is a non-solicitation covenant in the Purchase And Sale Agreement at Paragraph 11. [Appendix 29]. As discussed above, Mr. Nichols contends that this provision does not apply to him in view of the general release. Assuming, however, that this court determines that this covenant still applies to him, nothing in the record supports the plaintiff's contention that the defendants violated this provision. More specifically, Mr. Nichols specifically denied that he had solicited any of the plaintiff's former or present customers, and as he states in his affidavit, he took no steps to advertise or market his business. In fact, he took extreme caution in avoiding any conduct that might violate the non-solicitation covenant, although he believed that that covenant did not apply to him. The plaintiff assumed and asserted that he had engaged in prohibited conduct, but he ultimately failed to offer any evidence that Mr. Nichols solicited clients or engaged in any conduct that violated that provision. See Ng Brothers Const., Inc. v. Cranney, 436 Mass. 638, 634 (2002).

Mr. Nichols did, of course, accept several customers who specifically sought him out and initiated contact with him. In doing so, he did not violate the non-solicitation covenant. See Sentry Insurance v. Firnstein, 14 Mass. App. Ct. 706, 707 (1982) (noncompete agreement barred former salesman from initiating transfers of insurance from employer to other insurers but did not bar him from responding to requests for competitive rates or facilitating transfers initiated by customers). Where the only provision that might have survived the release was the non-solicitation clause, and where the defendant's have not violated that provision, the plaintiff failed to show any impairment of its rights.

C. The Plaintiff Failed To Show That Any Conduct By The Defendants Had Caused Or Would Likely Cause It Irreparable Harm

Assuming some conduct on the part of the defendant's may have implicated the plaintiff's substantial rights, the plaintiff failed to show that such conduct had caused or would likely cause it irreparable harm. Irreparable harm in the context of a preliminary injunction, is harm that cannot be vindicated by a final judgment. Packaging Indus. Group v. Cheney, 380 Mass. at 617 n.11. See Greenfield Country Estates Tenants Assn., Inc. v. Deep, 423 Mass. 81, 88 (1996). C.f. Town of Brookline v. Goldstein, 388 Mass. 443, 448, n. 6 (1982). Monetary losses are not considered to be irreparable harm. Norfolk County Hospital v. Commonwealth, 25 Mass. App. Ct. 586, 593 (1988).

In this case, the customers who approached Mr. Nichols were completely dissatisfied with the service provided by the plaintiff and would not have continued to be customers of Intercity. Consequently, the plaintiff has suffered no damages.

Even if the customer defections resulted in a compensable loss, that loss could easily be calculated and monetary damages awarded at the conclusion of trial.

While the plaintiff would have suffered no compensable damages had the requested injunction been denied, the allowance of injunctive relief imposes a substantial hardship on the defendants. He will be prevented from accepting and servicing customers, even where those customers came to him on their own. Unlike the plaintiff, the loss of customers who wish to employ the defendants' services will substantially impair their income. In determining where the balance of harms lies, the judge's conclusion was in error. See Planned Parenthood League of Massachusetts, Inc. v. Operation Rescue, 406 Mass. at 710; Packaging Indus. Group v. Cheney, 380 Mass. at 617.

Finally, to the extent that the injunction inhibits the freedom of choice of customers who wish to employ the defendants, it constitutes “an obstruction of public interest.” Tobin v. Cody, 343 Mass. 716, 723 (1962).

II. Conclusion

Based on the foregoing, the record simply failed to support the order granting injunctive relief. That order must be vacated.

Respectfully submitted,

Wayne F. Nichols,
Wayne Electric and Alarm, Inc.,

By their attorney,



Dana Alan Curhan
B.B.O. # 544250
101 Arch Street
Suite 305
Boston, MA 02110
(617) 261-3800


Date: February 9, 2004

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