Document Type

Case Summary

Publication Date

1-1-2004

Case Synopsis

Philip A. Burkhardt and his employer, Traffic Control Services (Traffic Control) appealed the issuance of a preliminary injunction enforcing a noncompetiton covenant in favor of United Rentals (United), the purchaser of the corporate assets of NES Trench Shoring (NES), Burkhardt’s former employer. The main issue on appeal was Burkhardt’s contention that the covenant not to compete he made with NES could not be assigned during a corporate sale absent some consideration. Burkhardt, Traffic Control, United, and NES all specialize in renting and selling trench shoring equipment to underground construction contractors in the greater Las Vegas area. During 1999 and 2000 Burkhardt worked for United as a sales representative. Late in 2000, Burkhardt became dissatisfied with United’s customer service policies and left United for a position at NES. As a condition of his employment with NES, Burkhardt signed noncompetiton and nondisclosure covenants, for doing so Burkhardt received $10,000. Burkhardt alleged that before he took the job with NES the management assured him that they had no plans to sell or be bought out by United. During his tenure at NES, Burkhardt was promoted from sales representative to branch/sales manager where he gained access to NES’s confidential business records including customer and price lists and pricing strategies. Burkhardt’s duties led him to become intimately familiar with NES’s customer base. In June of 2002, United and NES reached an agreement where United would purchase NES’s corporate assets for three times fair market value. The purchase agreement was limited to certain assets with language stating “[a]ll contracts and agreements that are not listed as ‘Assumed Contracts’ are ‘Excluded Assets.’” While the agreement listed other noncompetiton covenants, Burkhardt’s was not among them. A week before the conclusion of the sale, United requested that a significant number of key employees sign new one-year contracts which included new nondisclosure covenants. Of the eighty-one key employees, nine refused to sign. This group included Burkhardt. However, Burkhardt remained with United/NES as a sales manager through the transition; but again, he quickly became disenfranchised with United’s customer service policies. In August of 2002, Burkhardt began negotiating with Traffic Control, United’s direct competitor. Burkhardt did inform Traffic Control about his nondisclosure/noncompetiton covenant that he believed was null and void since he was terminating his employment with United, not NES with whom he made the initial agreement. Burkhardt began work at Traffic Control on August 10, 2002 at which time he began contacting companies to solicit business on behalf of Traffic Control. United, through counsel, sent Burkhardt written notification that his employment with NES constituted a breach of his noncompetiton covenant. When Burkhardt did not cease working for NES, United filed a complaint stating that Burkhardt was using NES/United’s confidential information to solicit customers for Traffic Control. Ultimately, the district court entered a preliminary injunction enforcing the NES noncompetiton agreement for a period of one year. The district court concluded that Burkhardt’s covenant was reasonable in time and scope, assignable as an asset of value, and that NES validly assigned the covenant to United in the asset sale. On appeal, Burkhardt argued that absent some independent consideration on his behalf, his covenant should not have been assignable during the sale. Burkhardt contended that the agreement was between him and NES and allowing United to assume the covenant would breach his contractual rights. The Nevada Supreme Court agreed with Burkhardt, holding that the agreement was personal to Burkhardt and he only intended to be bound to NES when he signed the covenant. However, the court did hold that one of the main problems with the assignability of the covenant was the lack of a clause in the purchase agreement permitting the assignment to a third party.

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