Guardsmark, Inc. v. Borg-Warner Protective Services, D/B/A Burns International Security Services ( 1998 )

IN THE COURT OF APPEALS OF TENNESSEE
WESTERN SECTION AT JACKSON
FILED
GUARDSMARK, INC., )
) November 4, 1998
Plaintiff/Appellee ) Shelby Chancery No. 104166-1
) Cecil Crowson, Jr.
v. ) Appellate C ourt Clerk
)
BORG-WARNER PROTECTIVE SERVICES, ) Appeal No. 02A01-9409-CH-00207
d/b/a BURNS INTERNATIONAL SECURITY )
SERVICES, )
)
Defendants/Appellants. )
APPEAL FROM THE CHANCERY COURT OF SHELBY COUNTY
AT MEMPHIS, TENNESSEE
THE HONORABLE C. NEAL SMALL, CHANCELLOR
For the Plaintiff/Appellee: For the Defendant/Appellant:
David Wade Thomas L. Henderson
Memphis, Tennessee Thomas H. Lawrence
Memphis, Tennessee
Gerald Stern
Washington, D.C.
David O. Bickart
Jonathan D. Schiller
Washington, D.C.
AFFIRMED IN PART, REVERSED IN PART
AND REMANDED
HOLLY KIRBY LILLARD, JUDGE
CONCUR:
W. FRANK CRAWFORD, P.J., W.S.
DAVID R. FARMER, J.
OPINION
This case involves restrictive employment covenants. The plaintiff and the defendant are
both private security companies. The trial court granted the plaintiff a restraining order enjoining
the defendant from inducing former employees to breach the restrictive covenants in other states,
from misrepresenting facts concerning the enforceability of the covenants, or from litigating or
assisting others in litigating in other states regarding the enforceability of the restrictive covenants.
We affirm in part, reverse in part, and remand.
Plaintiff/Appellee Guardsmark (“Guardsmark”) and Defendant/Appellant Borg-Warner
(“Borg-Warner”) are competitors in the private security industry. Guardsmark requires its security
guards to sign a restrictive covenant which prevents them from working for another security firm
at the same work site for a period of one year after leaving Guardsmark. The covenant reads:
Employee hereby agrees that following the termination of employment with
GUARDSMARK, whether voluntary or involuntary, for a period of one year
thereafter he (she) will not perform or hire others to perform any security services at
the site, place or location where he (she) performed security services within the
immediate preceding twelve (12) months of his (her) employment with
GUARDSMARK.
The guards may request a transfer to another Guardsmark site, or may work for another company
at another site without violating the covenant. The guard’s employment contract also provides that:
“Each party hereby consents to the jurisdiction and venue of the U.S. District Court for the Western
District of Tennessee and any court of the State of Tennessee in any action, suit, or proceeding
arising out of or relating to this Agreement or the employment of Employee hereunder . . . .” Of
course, Borg-Warner is not a party to this agreement; the contract is between Guardsmark and the
individual security guard.
On May 5, 1994, Guardsmark filed a lawsuit against Borg-Warner in Chancery Court in
Shelby County, alleging that Borg-Warner tortiously interfered with Guardsmark’s contractual
relations in Seattle, Washington. Guardsmark asserted that, after Borg-Warner took over the security
services contract at UPS facilities in Seattle, Borg-Warner actively solicited the Guardsmark security
officers on the site to continue working at the site as Borg-Warner employees, in breach of the
restrictive covenant between Guardsmark and its employees. Guardsmark argued that Borg-Warner
misrepresented to Guardsmark employees that the restrictive covenants were unenforceable.
The day the complaint was filed, the Shelby County trial judge, Chancellor Neal Small,
issued a restraining order prohibiting Borg-Warner from “interfering with or attempting to cause the
breach of the restrictive covenants contained in the employment agreements between Guardsmark
and its security officers servicing the Seattle, Washington area facilities of UPS and the agreement
between Guardsmark and United Parcel Service.” On May 20, 1994, the parties entered an identical
Consent Order of Temporary Injunction.
On July 28, 1994, Guardsmark filed a Supplemental Verified Complaint in Shelby County
Chancery Court, seeking declaratory and injunctive relief based on Borg-Warner’s activities in
Birmingham, Alabama. Guardsmark alleged that Borg-Warner’s conduct in Birmingham was
similar to that in Seattle, and also alleged that Borg-Warner represented to Guardsmark clients that
Guardsmark could not enforce its restrictive covenants. A supporting affidavit filed by Guardsmark
stated that a representative of Borg-Warner showed a Guardsmark supervisor a “legal paper” and
told him that Borg-Warner “had beaten Guardsmark in Tucson, Arizona and that the opinion of
Judge Tinney which was attached discussed that.”1 The affidavit stated that the Borg-Warner
representative “never said anything to me about whether Guardsmark had been successful in other
cases in enforcing its restrictive covenants with its employees.” Guardsmark asserted that Borg-
Warner had “established a pattern” of “causing Guardsmark security officers to breach their
restrictive covenants” and that Borg-Warner had “forced Guardsmark to engage in litigation
throughout the United States to enforce and defend its restrictive covenants.”
Once again, the Shelby County Chancellor entered a temporary restraining order the day the
supplemental complaint was filed regarding Borg-Warner’s activities in Birmingham, Alabama. As
with the earlier restraining order, Borg-Warner was enjoined from attempting to cause the breach
of Guardsmark’s restrictive covenants. However, this restraining order also enjoined Borg-Warner
from:
misrepresenting to anyone, including former, present or prospective Guardsmark
clients and employees that Guardsmark cannot or will not enforce its restrictive
covenants and to require [Borg-Warner], if it chooses to discuss Guardsmark’s
employment restrictive covenants, to present to those with whom it discusses such
matters copies of all orders signed by Courts throughout the United States which
have upheld the enforceability of Guardsmark’s restrictive covenants.
1
The record in this case includes court decisions in Arizona and Oklahoma in
which Guardsmark’s restrictive covenant was not enforced under the facts presented in those
cases.
2
Shortly thereafter, on August 10, 1994, Borg-Warner and one of Guardsmark’s former
employees filed a lawsuit in Birmingham, Alabama, citing difficulties caused by the Tennessee
restraining order and challenging the validity of the restrictive covenant. Immediately upon
receiving the Alabama complaint, Guardsmark sought injunctive relief from Chancellor Small in
Tennessee. On August 12, 1994, the Shelby County trial court issued an order extending the
effective date of the Temporary Restraining Order and prohibiting Borg-Warner from “taking any
action to prosecute the case filed in Birmingham, Alabama on August 10, 1994.” On August 29,
1994, Guardsmark filed an application for injunctive relief from interference with Guardsmark’s
restrictive covenants “with its past, present or future employees,” from any misrepresentations
regarding the restrictive covenants, from litigating to challenge the enforceability of the restrictive
covenants, and specifically from proceeding with the Alabama litigation. Guardsmark alleged that
Borg-Warner was engaged in wide-ranging efforts to defeat Guardsmark’s restrictive covenants.
Chancellor Small entered a temporary restraining order as requested by Guardsmark the same day.
On September 9, 1994, the Shelby County trial court issued an order finding Guardsmark’s
restrictive covenants enforceable under the laws of Tennessee and Alabama. The September 9 order
granted Guardsmark’s motion for a Temporary Injunction prohibiting Borg-Warner from “interfering
with or attempting to cause the breach of the restrictive covenants contained in the employment
agreement between Guardsmark and its employees” in Alabama. The injunction also prohibited
Borg-Warner from misrepresenting facts concerning the enforceability of Guardsmark’s restrictive
covenants to former, present or prospective Guardsmark clients and employees. Borg-Warner was
specifically prohibited from providing to any persons “copies of any judicial orders or opinions
concerning the Guardsmark restrictive covenants unless it provides all such orders, including those
which have upheld the enforceability of Guardsmark’s restrictive covenants.” The order again
prohibited Borg-Warner from taking part in the Alabama litigation.
This provoked yet another lawsuit in another forum. On September 22, 1994, Borg-Warner
filed suit against Guardsmark, the trial judge in this case, Shelby County Chancellor Neal Small, and
the Shelby County Chancery Court in the United States District Court for the Eastern District of
Kentucky, alleging that the Tennessee injunction violated Borg-Warner’s First Amendment right of
free speech, right to petition the government, the full faith and credit clause and 28 U.S.C. § 1738,
and the Supremacy clause of the United States Constitution. Chancellor Small modified the
3
Tennessee injunction to permit Borg-Warner to prosecute the Kentucky lawsuit. The Kentucky
district court determined that it lacked personal jurisdiction over Chancellor Small and the Chancery
Court, but granted summary judgment to Guardsmark on the remaining claims. See Borg-Warner
Protective Servs. Corp. v. Guardsmark, Inc., 946 F. Supp. 495 (E.D. Ky. 1996).2
On December 20, 1995, Guardsmark filed a motion for summary judgment in this case.
Chancellor Small granted Guardsmark’s motion in an order filed January 26, 1996. The Order states
in part:
THIS COURT THEREFORE DECLARES THAT, after reviewing the law of
Tennessee, Alabama, Washington and Kentucky, Guardsmark’s covenants are valid
and enforceable under the laws of Tennessee, Alabama, Washington and Kentucky.
The Guardsmark covenants state they are to be construed under Tennessee law, and,
as has been said, are valid under Tennessee law.
IT IS THEREFORE ORDERED, ADJUDGED AND DECREED that:
1. Defendant Borg-Warner is hereby permanently enjoined from interfering with or
attempting to cause the breach of the restrictive covenants contained in the
employment agreements between Guardsmark and its employees; and
2. Defendant Borg-Warner is hereby permanently enjoined from initiating and
encouraging or assisting others to initiate litigation to challenge the enforceability of
Guardsmark’s restrictive covenants with its employees.
The trial court’s final and permanent order does not state explicitly whether Borg-Warner is
permanently enjoined from misrepresenting facts concerning the enforceability of Guardsmark’s
restrictive covenants. In the final order, the trial court states, “This court hereby makes permanent
its orders of temporary injunction with respect to the foregoing points which were previously entered
in this case.” Since the final order is unclear on this point, for purposes of this appeal, we will
assume that the trial court’s final order permanently enjoined Borg-Warner from misrepresenting
facts, either expressly or by implication, concerning Guardsmark’s restrictive covenants, and
prohibited Borg-Warner from providing any person copies of judicial orders from other states
finding the restrictive covenants unenforceable unless it also provided copies of orders upholding
the enforceability of the covenants. Borg-Warner now appeals the trial court’s final order.
2
The Sixth Circuit Court of Appeals affirmed the Kentucky federal district court in
an opinion dated June 16, 1998.
4
On appeal, Borg-Warner raises twelve issues:
1. Should this Court reverse the decision of the Chancery Court based on res
judicata because the issues litigated in this case have already been litigated to final
judgment in another action between Borg-Warner and Guardsmark?
2. Did the Chancery Court err in failing to dismiss this action for lack of personal
jurisdiction over Borg-Warner since the events on which this suit is based occurred
outside of Tennessee, and Borg-Warner’s contacts to Tennessee are irrelevant to this
action?
3. Did the Chancery Court err in failing to dismiss this action based on forum non
conveniens since this suit arose out-of-state, since the contracts on which the suit is
based were signed out-of-state, since all the witnesses are out-of-state, and since this
action could have been conveniently joined to a prior federal action in Kentucky?
4. Does the Chancery Court injunction violate the Full Faith and Credit Clause by
prohibiting Borg-Warner’s actions in other states, even though other states have
found Guardsmark’s covenants unenforceable?
5. Does the Chancery Court injunction violate the First Amendment and Tennessee
law as a prior restraint on speech where it prohibits Borg-Warner from, among other
things, interfering with the restrictive covenants of Guardsmark’s future employees?
6. Does the Chancery Court injunction violate the First Amendment and
corresponding Tennessee constitutional free speech rights since the Chancery Court
neither determined that there was a significant government interest, nor did it tailor
the injunction to burden no more speech than was necessary?
7. Is the Chancery Court injunction unconstitutionally vague and over broad since
it prohibits Borg-Warner “from taking any action to interfere with Guardsmark’s
covenants . . . and from making any misrepresentations regarding Guardsmark?”
8. Did the Chancery Court err by entering a nationwide injunction declaring all of
Guardsmark’s restrictive covenants valid regardless of other states’ laws and
decisions on this issue?
9. Does the Chancery Court injunction violate the Commerce Clause since it has the
effect of regulating conduct wholly outside of Tennessee?
10. Did the Chancery Court err by allowing Guardsmark to litigate the validity of
its restrictive covenants without joining the security guards who signed the
covenants?
11. Did the Chancery Court abuse its discretion by failing to grant Borg-Warner a
continuance to obtain controverting affidavits when Guardsmark filed a late affidavit
in support of summary judgment, or by failing to grant Borg-Warner’s motion to
strike the late affidavit?
12. Did the Chancery Court err in granting Guardsmark’s motion for summary
judgment when there were genuine issues of material fact precluding summary
judgment?
A motion for summary judgment should be granted when the movant demonstrates that there
are no genuine issues of material fact and that the moving party is entitled to a judgment as a matter
of law. See Tenn. R. Civ. P. 56.03. The party moving for summary judgment bears the burden of
5
demonstrating that no genuine issue of material fact exists. See Byrd v. Hall, 847 S.W.2d 208, 211
(Tenn. 1993). On a motion for summary judgment, the court must take the strongest legitimate view
of the evidence in favor of the nonmoving party, allow all reasonable inferences in favor of that
party, and discard all countervailing evidence. See id. at 210-11. Summary judgment is only
appropriate when the facts and the legal conclusions drawn from the facts reasonably permit only
one conclusion. See Carvell v. Bottoms, 900 S.W.2d 23, 26 (Tenn. 1995). Since only questions of
law are involved, there is no presumption of correctness regarding a trial court's grant of summary
judgment. See id. Therefore, our review of the trial court’s grant of summary judgment is de novo
on the record before this Court. See id.
On appeal, Borg-Warner contends that the trial court erred in not dismissing the complaint
for lack of personal jurisdiction. Borg-Warner asserts that, although it is licensed to do business in
Tennessee, its contacts with this state are unrelated to this action and are therefore insufficient to
support personal jurisdiction. Guardsmark argues that the exercise of personal jurisdiction over
Borg-Warner is appropriate because Borg-Warner’s contacts are sufficient and because Borg-Warner
waived any objection to personal jurisdiction by failing to timely object.
Rule 12.08 of the Tennessee Rules of Civil Procedure provides:
A party waives all defenses and objections which the party does not present either by
motion as hereinabove provided, or, if the party has made no motion, in the party’s
answer or reply, or any amendments thereto, (provided, however, the defenses
enumerated in 12.02(2) . . . shall not be raised by amendment) . . . .
Rule 12.02(2) of the Tennessee Rules of Civil Procedure is the defense of “lack of jurisdiction over
the person.” Under this rule, “objections to personal jurisdiction and venue are deemed waived
unless they are raised in a timely manner.” Dixie Sav. Stores, Inc. v. Turner, 767 S.W.2d 408, 410
(Tenn. App. 1988). If a party makes a “general appearance” without challenging personal
jurisdiction, venue, or other matters, these objections are deemed waived. See id. In Landers v.
Jones, 872 S.W.2d 674 (Tenn. 1994), the Court stated:
Initially, we note that there is a modern legal trend away from the technical
requirement that a defendant must enter a special appearance to contest personal
jurisdiction. . . . Under both the state and federal civil procedure rules, therefore, a
defendant is permitted to raise the defense of lack of personal jurisdiction at the same
time other defenses are raised. Waiver occurs only if there is no objection to
personal jurisdiction in the first filing, either a Rule 12 motion or a answer.
872 S.W.2d at 676. Tennessee courts have defined the term “general appearance,” as “acts from
which it can reasonably be inferred that the party recognizes and submits itself to the jurisdiction of
6
the court. Thus a party’s consent to the entry of a judgment against it constitutes a general
appearance.” Dixie Sav. Stores, 767 S.W.2d at 410. In Patterson v. Rockwell International, 665
S.W.2d 96 (Tenn. 1984), the Tennessee Supreme Court discussed the finding of an appearance:
[B]efore an appearance will be found by implication, it must be shown from the
defendant’s seeking, taking, or agreeing to some step or proceeding in the cause
beneficial to himself or detrimental to the plaintiff other than one contesting only the
jurisdiction of the court or by reason of some act or proceeding recognizing the case
as being in court.
Patterson, 665 S.W.2d at 99-100. The Landers court cautioned:
In accordance with the modern trend, and Rule 12.02 of the Tennessee Rules of Civil
Procedure juvenile courts should only find a general appearance that waives a
defendant’s right to contest personal jurisdiction when the defendant has recognized
the proper pendency of the cause by making a motion that goes to the merits or by
filing an answer, without challenging personal jurisdiction. To the extent that prior
judicial decisions can be read as requiring otherwise, they are overruled.
Landers, 872 S.W.2d at 677. Given these parameters, the circumstances in this case must be
examined.
Guardsmark filed its original complaint on May 5, 1994. Before raising the issues of lack
of personal jurisdiction and improper venue, Borg-Warner took the following actions:
1. Consent Order of Temporary Injunction, entered May 20, 1994, and
signed by counsel for Borg-Warner.
2. Notice of Appearance of counsel for Borg-Warner, filed May 23,
1994.
3. Defendant’s Notice of Tennessee Rules of Civil Procedure 30.02(6)
Deposition of the Person(s) Most Knowledgeable at Guardsmark, Inc., filed August
4, 1994, and signed by Borg-Warner’s counsel.
4. Defendant’s Objections and Response to Plaintiff’s Request for
Production of Documents, filed August 10, 1994, and signed by Borg-Warner’s
counsel.
5. Order Resetting Date of Preliminary Injunction and Extending
Temporary Restraining Order, entered August 12, 1994, and signed by Borg-
Warner’s counsel.
6. Affidavit of Ray Sides, submitted on behalf of Borg-Warner and filed
on August 26, 1994.
7. Affidavit of David B. Hicks, submitted on behalf of Borg-Warner and
filed on August 26, 1994.
8. Affidavit of Charles Rodney Weldon, submitted on behalf of Borg-
Warner and filed on August 26, 1994.
9. Supplemental Notice of Appearance of counsel for Borg-Warner, filed
on September 7, 1994, and signed by new Borg-Warner counsel.
10. Defendant’s Application for Permission to Appeal and Motion to Stay
Restraining Order and Temporary Injunction Pending Appeal, filed on September 8,
1994, and signed by Borg-Warner counsel.
11. Application on Behalf of Defendant-Appellant for Extraordinary
Appeal by Permission on Original Application in the Appellate Court and Motion to
Stay, filed on September 9, 1994, and signed by Borg-Warner counsel.
12. Defendant’s Motion for Reconsideration of Order Granting
Restraining Order and Temporary Injunction or, in the Alternative, Motion to
Dissolve and/or Modify Restraining Order and Temporary Injunction, filed
7
September 8, 1994, and signed by Borg-Warner’s counsel.
13. Order Granting Temporary Injunction, entered by the Chancellor on
September 9, 1994, and signed by Borg-Warner’s counsel.
The first time Borg-Warner raised the defense of lack of personal jurisdiction was in its Answer, and
in a motion, both filed on September 14, 1994, over four months after Guardsmark filed its
Complaint. Under these circumstances, we find that Borg-Warner waived any objection to the trial
court’s lack of jurisdiction over the person. The decision of the trial court is affirmed on this issue.
Borg-Warner also asserts on appeal that the trial court erred in denying its motion to dismiss
on the grounds of forum non conveniens. Borg-Warner notes that the events that led to this lawsuit
occurred outside Tennessee and that all the witnesses with knowledge of the covenants at issue
reside in Alabama and Washington. Although the contracts between Guardsmark and the individual
security guards are governed by the Tennessee forum selection clauses of their contracts, of course
the contractual provision between Guardsmark and the security guards would not govern an action
between Guardsmark and Borg-Warner. Under these circumstances, Borg-Warner argues that these
other states have a more significant relationship to the controversy and a legitimate interest in this
suit, and consequently that the trial court erred in denying Borg-Warner’s motion to dismiss.
On appeal, this Court must determine whether the trial court’s denial of Borg-Warner’s
motion to dismiss based on the doctrine of forum non conveniens was an abuse of discretion. See
Package Exp. Ctr., Inc. v. Snider Foods, Inc., 788 S.W.2d 561, 564 (Tenn. App. 1989) (citing
Zurick v. Inman, 221 Tenn. 393, 404, 426 S.W.2d 767, 772 (1968)). There are numerous factors
considered in determining the applicability of the doctrine of forum non conveniens. These factors
“generally relate to the parties, witnesses, subject-matter, or the court.” Zurick, 426 S.W.2d at 772.
It is necessary that the cause of action arise outside the state in order to trigger the question of the
applicability of the doctrine, but this fact in and of itself is not sufficient. See id. at 773. In addition,
while the necessity of out-of-state witnesses may be considered,
the fact [that] there are out-of-state witnesses is not of itself enough to support an
application of the doctrine. This factor has to be supported by facts showing why,
due to out-of-state witnesses, there is a strong likelihood defendant will be done an
injustice if forced to go to trial in the forum selected by plaintiff. This can be done
by giving the names of the witnesses, nature and materiality of their testimony, and
any other applicable facts. It is upon these facts the trial court exercises its discretion
in the application of the doctrine.
Id., 221 Tenn. at 410, 426 S.W.2d at 775. Other factors that may be considered include:
the relative ease of access to sources of proof; availability of compulsory process for
8
attendance of unwilling, and the cost of obtaining attendance of willing, witnesses;
possibility of view of premises, if view would be appropriate to the action; and all
other practical problems that make trial of the case easy, expeditious and
inexpensive.
Package Exp., 788 S.W.2d at 563 (quoting Zurick, 221 Tenn. at 403, 426 S.W.2d at 772).
In this case, the cause of action arose out-of-state, and one of the parties, Borg-Warner, is
located outside Tennessee but does business in Tennessee. In support of its motion to dismiss, Borg-
Warner submitted affidavits from its employees, who assert that they have no contact with the state
of Tennessee. However, the employees indicated that their jobs require them to travel from Ohio
to Kentucky and other states. Under these circumstances, the evidence is insufficient to find that the
trial court abused its discretion by denying Borg-Warner’s motion to dismiss on the basis of forum
non conveniens. The decision of the trial court is affirmed on this issue.
Borg-Warner also argues that the doctrine of res judicata requires dismissal of this lawsuit.
Borg-Warner’s argument is based on its litigation against Guardsmark in federal court in Kentucky.
On September 15, 1994, the Tennessee trial court in this case issued a temporary injunction
against Borg-Warner, prohibiting Borg-Warner from interfering with Guardsmark’s restrictive
covenants and prohibiting Borg-Warner from litigating against Guardsmark in other forums. On
September 21, 1994, Guardsmark filed a petition to hold Borg-Warner in contempt for violating this
order and previous orders. Borg-Warner then filed a motion for modification of the temporary
injunction in order to file suit in federal court against Guardsmark, asserting certain federal claims.
The Tennessee trial court modified the injunction to allow Borg-Warner to file actions in the United
States District Court for the Western District of Tennessee, and later also modified the injunction
to allow Borg-Warner to file a complaint in the United States District Court for the Eastern District
of Kentucky. On September 22, 1994, Borg-Warner filed a complaint in the Eastern District of
Kentucky against Shelby County Chancellor Neal Small, the Shelby County Chancery Court, and
Guardsmark. See Borg-Warner Protective Servs. Corp. v. Guardsmark, Inc., 946 F. Supp. 495(E.D. Ky. 1996). Borg-Warner asserted that Guardsmark’s restrictive covenants were unenforceable
and sought an injunction prohibiting the enforcement of the Shelby County Chancellor’s orders. See
id. at 497. After the Kentucky federal court determined that it lacked personal jurisdiction over the
Tennessee trial judge and the Chancery Court, Borg-Warner voluntarily dismissed those claims.
The Kentucky federal court heard the claims against Guardsmark on the merits, found that
9
Guardsmark’s restrictive covenants were enforceable, and dismissed Borg-Warner’s claims against
Guardsmark. See id. at 502.3
It is unclear how application of the doctrine of res judicata is favorable to Borg-Warner
under these circumstances, since the Kentucky federal court refused to enjoin enforcement of the
Tennessee injunction at issue here, and dismissed Borg-Warner’s claims against Guardsmark.
Although the Kentucky federal court decision was rendered ten months after the trial court in this
case granted summary judgment for Guardsmark, Borg-Warner contends that the doctrine of res
judicata applies because the federal decision, though appealed, was final and the trial court’s
decision in this case was not final. Of course, since the Kentucky federal court’s decision was
rendered months after the decision in this Court, the issue of res judicata was not raised in the trial
court. Under all of these circumstances, we find this argument to be without merit.
Borg-Warner also contends on appeal that the trial court erred in granting summary judgment
to Guardsmark and in issuing the injunctive relief sought. Borg-Warner argues in part that the
injunction is overly broad and violates the Commerce Clause of the United States Constitution.4
Borg-Warner maintains that the trial court’s order affects interstate commerce in security guard
services outside Tennessee, and therefore has the effect of regulating interstate commerce wholly
outside Tennessee.
The initial complaint in this case was based on Borg-Warner’s actions in a given situation
in Seattle, Washington. The supplemental complaint sought relief based on Borg-Warner’s conduct
at a particular facility in Birmingham, Alabama. Subsequently, Guardsmark sought broader relief,
alleging, and submitting documents indicating, that Borg-Warner was engaged in wide-ranging
efforts to challenge Guardsmark’s restrictive covenants. Guardsmark sought an order enjoining
3
The decision of the Kentucky federal court was later affirmed on appeal. See
footnote 2 herein.
4
The Commerce Clause of the United States Constitution grants Congress the
power “[t]o regulate Commerce . . . among the several States.” U.S. Const. art. I, § 8, cl. 3.
10
Borg-Warner from:
1. Taking any action to interfere with Guardsmark’s restrictive covenants with its
past, present or future employees;
2. Making misrepresentations regarding Guardsmark and its restrictive covenants;
3. Initiating and encouraging or assisting others in litigation to challenge the
enforceability of Guardsmark’s restrictive covenants with its employees; and
4. From proceeding with or taking part in the litigation filed by Borg-Warner in
Birmingham, Alabama, in the Circuit Court of Jefferson County, Alabama, at Civil
Action No. CV-94-05690.
Guardsmark’s request for injunctive relief was granted in toto the same day.
In support of its argument, Borg-Warner cites Hyatt Corp. v. Hyatt Legal Services, 610 F.
Supp. 381 (N.D. Ill., E.D. 1985). In Hyatt, the plaintiff, Hyatt Corporation, sought a nationwide
injunction prohibiting the defendant from using the trademarked name Hyatt for its service, Hyatt
Legal Services. The trial court denied the plaintiff’s motion for a preliminary injunction, and the
Seventh Circuit Court of Appeals reversed, finding that use of the name Hyatt Legal Services was
a probable violation of the Illinois Anti-Dilution Act, in that it diluted the distinctiveness of the
plaintiff’s mark. See id. at 381-82. The appellate court remanded the action to the trial court “for
entry of an injunction prohibiting the appellee from using the name Hyatt Legal Services” and
ordered the defendant to select a new name. Id.
On remand, the trial court examined a nationwide injunction in order to enforce Hyatt
Corporation’s protectable property right against dilution of its mark, under Illinois’ anti-dilution
statute. See id. at 382. The trial court noted first that the trial court had the power to issue a
nationwide injunction, by virtue of its jurisdiction over the parties. See id. at 383. However, the
Hyatt court found that the issuance of a nationwide injunction in that case would conflict with the
Commerce Clause of the United States Constitution. See id. at 383-85. The court noted, under the
Commerce Clause,
(1) that states cannot directly regulate interstate commerce; and (2) that incidental
regulations of interstate commerce cannot be excessive in light of local interests
furthered by the law.
Id. at 383 (citing Edgar v. MITE Corp., 457 U.S. 624, 640, 102 S. Ct. 2629, 2639, 73 L. Ed. 2d 269(1982)). Observing that advertising is a “vital aspect of interest commerce,” the court found that a
state injunction directed at advertising out of the state “would appear to be a direct interference with
interstate commerce.” Id. The court found that such a direct interference with interstate commerce
11
would conflict with the Commerce Clause. See id. at 384.
In the alternative, the Hyatt court examined whether the injunction would be an “incidental”
regulation of interstate commerce that violated the Commerce Clause. Quoting Pike v. Bruce
Church, Inc., 397 U.S. 137, 90 S. Ct. 844, 25 L. Ed. 2d 174 (1970), the Hyatt court stated:
Where the [state] statute regulates evenhandedly to effectuate a legitimate local
public interest and its effects on interstate commerce are only incidental, it will be
upheld unless the burden imposed on such commerce is clearly excessive in relation
to the punitive local benefits. . . . If a legitimate local purpose is found then the
question becomes one of degree. And the extend of the burden that will be tolerated
will of course depend on the nature of the local interest involved, and on whether it
could be promoted as well with a lesser impact on interstate activities.
Id. at 384 (quoting Pike, 397 U.S. at 142, 90 S. Ct. at 847). In Hyatt, the local interest was the
protection of the corporation’s trademark within the state. See id. Noting that trademark protection
differs among states, the Hyatt court found that a nationwide injunction, while effective to protect
the local interest, appeared “excessive.” Id. at 385. The court stated:
The nationwide injunction proposed by plaintiff would eliminate any dilution
problem. The injunction sought by plaintiff, however, would also reach way beyond
the limits of Illinois, affecting advertising and promotion in areas which have little,
if any, effect on the strength of plaintiff’s trademark within Illinois. The thought of
an Illinois statute, in the absence of fraud, affecting the advertising of an Ohio legal
office to Ohio citizens in Ohio, where no anti-dilution statute exists, is particularly
disquieting.
Id. The Hyatt court concluded that a nationwide injunction, even if it only incidentally affected
interstate commerce, “would place an excessive burden on that commerce in light of the interest
sought to be protected.” Id. Nevertheless, because the appellate court had directed the trial court
to issue a nationwide injunction, the trial court did so. See id. at 385-86. However, the trial court
stayed the injunction pending appeal. See id. at 386. The record shows no further published action
on the case.
Guardsmark insists that the trial court in this case had the power to issue a nationwide
injunction, and argues that Tennessee has a legitimate interest in protecting Guardsmark’s
contractual provisions in any state. Guardsmark cites Carson v. Here’s Johnny Portable Toilets,
Inc., 810 F.2d 104 (6th Cir. 1987), in which the court upheld the issuance of a nationwide injunction
to prevent the dilution of the plaintiff’s state-created rights. Guardsmark argues that Borg-Warner
may seek modification of the injunction for states whose laws differ from Tennessee regarding the
enforcement of restrictive covenants, conceding that at least one state, California, has enacted
statutes which would prevent the enforcement of Guardsmark’s covenants.
12
Determining the geographic scope of an injunction is within the discretion of the trial court.
See Deere & Co. v. MTD Prod., Inc., 41 F.3d 39 (2d Cir. 1994). The trial court in this case, having
jurisdiction over the parties, had the power and authority to issue an injunction crossing state lines.
See, e.g., Instrumentalist Co. v. Marine Corps. League, 509 F. Supp. 323, 340 (N.D. Ill. 1981),
aff’d, 694 F.2d 145 (7th Cir. 1982); Champions Golf Club, Inc. v. Sunrise Land Corp., 846 F.
Supp. 742, 759 (W.D. Ark. 1994) (and cases collected therein); Restatement (Second) of Conflict
of Laws § 53.
In this case, Guardsmark’s interest is protection of its nationwide right to prohibit employees
from providing security services at a given site after Guardsmark no longer provides security
services at that site. The trial court found that Guardsmark’s restrictive covenants were limited in
scope and reasonable, and therefore enforceable under the laws of Tennessee and other states.
However, the enforcement of any restrictive covenant depends greatly on the facts presented in a
given situation. As between the parties in this case, the courts of at least two states, Arizona and
Oklahoma, declined to enforce Guardsmark’s restrictive covenant under certain circumstances. In
both of those cases, the employee subject to the restrictive covenant was not offered another position
by Guardsmark after Guardsmark’s services at the site of employment were terminated. In the
Oklahoma decision, the court stated:
Viewed without regard to attendant circumstances, the Guardsmark covenant
falls well within the realm of reasonableness. It is clearly limited in scope, and the
prohibited “activity” is limited to protecting the employer from having its stock of
employees at a facility “raided” by a competitor. However, viewing the restraint in
light of all the circumstances surrounding Guardsmark’s implementation of it here
makes the covenant much less reasonable.
Plaintiff’s evidence showed that the loss of the Amoco contract -- and hence
the loss of his job -- occurred solely because of Guardsmark. Burns had already won
the contract when it approached plaintiff, and Guardsmark had no other jobs
available. These factors alone do away with Guardsmark’s argument that the
covenant was needed to protect its “investment” in its employees, since by the time
plaintiff was contacted, that “investment” was already lost. There is no allegation
that plaintiff possessed any trade secrets or confidential information, that he had a
particular unique or unusual talent, or that the nature of his work was something
other than work in the nature of a “common calling.”
Thus, regardless of how narrowly the covenant was drawn, viewing it in the
totality of the circumstances -- in a light most favorable to plaintiff -- presents
considerable evidence of its unreasonable harshness to plaintiff. Further,
Guardsmark’s attempt to enforce the covenant occurred at a time when the value of
the covenant to Guardsmark was minimal at best. In other words, plaintiff’s
evidence is such that -- disregarding conflicting evidence from Guardsmark which
might show otherwise -- the trial court should have deemed the covenant
unenforceable and against public policy under the specific facts and circumstances.
13
Hankins v. Guardsmark, Inc., No. 80, 121, at 9-10 (Okla. Ct. App. Mar. 15, 1994) (unpublished
mem.op.). Clearly, the enforceability of a restrictive covenant must be viewed in light of all of the
circumstances in a given situation. See Restatement (Second) of Contracts § 186 cmt. a, § 188 cmt.
g (1981). Section 188, comment g, to the Second Restatement of Contracts was quoted with
approval in Selox, Inc. v. Ford, 675 S.W.2d 474, 476 (Tenn. 1984):
Whether the risk that the employee may do injury to the employer is sufficient to
justify a promise to refrain from competition after the termination of the employment
would depend on the facts of the particular case. Post-employment restraints are
scrutinized with particular care because they are often the product of unequal
bargaining power and because the employee is likely to give scant attention to the
hardship he may later suffer through the loss of his livelihood.
Selox, 675 S.W.2d at 476 (quoting Restatement (Second) of Contracts § 188 cmt. g). Moreover, the
level of support for the enforcement of restrictive covenants may differ from state to state. See, e.g.,
American Protective Servs., Inc. v. Guardsmark, Inc., BC 115277 (Cal. Super. Ct. Los Angeles
County) (transcript of proceedings on Feb. 21, 1996) (citing section 16600 of the California Business
and Professional Code as prohibiting the enforcement of restrictive covenants). Where the
enforceability of Guardsmark’s restrictive covenant is so dependent on the facts in a particular
situation and the laws and public policy of the state in which the employee resides, issuance of a
nationwide injunction is clearly inappropriate. Therefore, while the trial court in this case had
jurisdiction over the parties and the power and authority to issue a nationwide injunction under
appropriate circumstances, the trial court abused its discretion by issuing an injunction, nationwide
in scope, prohibiting Borg-Warner from “interfering with or attempting to cause the breach” of the
restrictive covenants, or from litigating to challenge the enforceability of the covenants.
As noted above, the trial court’s temporary injunction, made permanent in its final order,
enjoins Borg-Warner from:
misrepresenting facts, either expressly or by implication, to anyone, including
former, present or prospective Guardsmark clients and employees, concerning
Guardsmark’s restrictive covenants. Specifically, Defendant is prohibited from
providing such persons or entities, copies of any judicial orders or opinions
concerning the Guardsmark restrictive covenants unless it provides all such orders,
including those which have upheld the enforceability of Guardsmark’s restrictive
covenants.
As discussed above, the enforceability of Guardsmark’s restrictive covenants depends on the factual
circumstances and other factors, such as the laws and public policy of the state in which the
14
employee is located.5 Consequently, if Borg-Warner expresses the view that Guardsmark’s
restrictive covenant may not be enforceable in a given situation, the truth of the statement depends
on the factual circumstances and the law in the state involved. Therefore, the issuance of a
nationwide injunction prohibiting Borg-Warner from taking the position that Guardsmark’s
restrictive covenant cannot be enforced in a particular situation is overly broad and inappropriate.
The trial court abused its discretion in ordering such a broad, nationwide prohibition.
Borg-Warner next argues that the trial court erred in allowing Guardsmark to seek a
declaratory judgment as to the validity of its restrictive covenants without joining as defendants the
individual security guards who signed the covenants. Borg-Warner contends that the guards are
indispensable parties under Tennessee Code Annotated § 29-14-107(a), which provides: “When
declaratory relief is sought, all persons shall be made parties who have or claim any interest which
would be affected by the declaration, and no declaration shall prejudice the rights of persons not
parties to the proceedings.” Tenn. Code Ann. § 29-14-107(a) (1980).
“The non-joinder of necessary parties is fatal on the question of justiciability, which, in a suit
for declaratory judgment, is a necessary condition of judicial relief.” Huntsville Utility District v.
General Trust, 839 S.W.2d 397, 400 (Tenn. App. 1992) (quoting Wright v. Nashville Gas &
Heating Co., 183 Tenn. 594, 598, 194 S.W.2d 459, 461 (1946)). Guardsmark argues that a
declaration that the restrictive covenants are enforceable in this case does not prejudice the rights of
the security guards who signed the covenants, because they remain free to challenge the covenants
in individual actions. Therefore, Guardsmark contends that, under Section 29-14-107(a), the
declaratory judgment does not “prejudice the rights of persons not parties to the proceedings.” Tenn.
Code Ann. § 29-14-107(a) (1980).
To determine whether the guards’ interests would be affected by a declaratory judgment in
this case, it must be determined whether Guardsmark could use the declaratory judgment against the
guards in subsequent lawsuits under the doctrine of collateral estoppel. Collateral estoppel
“precludes relitigation of issues between the parties or their privies in different causes of action
provided resolution of the issue was necessary to the decision.” Phillips v. General Motors Corp.,
669 S.W.2d 665, 667 (Tenn. App. 1984) (citing Scales v. Scales, 564 S.W.2d 667 (Tenn. App.
5
There were no concomitant restrictions on Guardsmark to disclose to employees
or others that the restrictive covenant may not be enforceable under some circumstances.
15
1977)). If Guardsmark could utilize the declaratory judgment in this case to prevent relitigation of
the validity of the covenants in subsequent actions against the guards in Washington and Alabama,
this would clearly prejudice the rights of the guards. Resolution of this issue, therefore, entails a
study of the laws of those states and factual circumstances of each subsequent case.6 The law on
collateral estoppel may differ from state to state as to whether mutuality of parties is required, the
definition of privity, and other relevant issues. The issue may turn on the facts of the particular case.
A case by case determination is necessary to ascertain whether a guard’s interests are affected and,
thus, whether he is an indispensable party. Therefore, in this case, we remand for the trial court to
determine whether the individual guards in Washington and Alabama are indispensable parties.
Because we find that the trial court abused its discretion in issuing a sweeping, nationwide
injunction in this case, it is unnecessary to reach the issue of whether the injunction violates the
Commerce Clause of the U.S. Constitution. Likewise, the remaining issues raised by Borg-Warner
are pretermitted by this holding.
The order of injunction issued by the trial court in this case is hereby reversed. The cause
is remanded to the trial court for a determination of whether Guardsmark is entitled to summary
judgment in the specific factual circumstances presented in Seattle, Washington and Birmingham,
Alabama and whether the guards are indispensable parties considering the doctrine of collateral
estoppel under the laws of Washington and Alabama.
6
It is arguable that the choice-of-law clause in the covenants mandate that
Tennessee law would apply in subsequent suits involving the guards. However, the forum
selection clause in the covenants states that “[t]he law of the State of Tennessee will govern the
interpretation, validity, and effect of this Agreement.” This language indicates that the provision
applies to substantive issues on interpretation of the agreement, not to procedural issues, such as
whether collateral estoppel applies.
16
The decision of the trial court is affirmed in part, reversed in part, and the cause is remanded
for further proceedings consistent with this Opinion. Costs are assessed against Appellee, for which
execution may issue if necessary.
HOLLY KIRBY LILLARD, J.
CONCUR:
W. FRANK CRAWFORD, P. J., W.S.
DAVID R. FARMER, J.
17