COA partially reverses injunction in noncompete dispute

The Indiana Court of Appeals reversed part of a trial court order restricting a Fort Wayne businessman from competing for web development business with his former employer’s clients he had serviced first as a contractor and later as an executive.

Rex Carroll began working for Long Tail Corp., which did business as CodeClouds, as an independent contractor paid on a commission sales basis. Company cofounders Kinkar Saha and Brian Hill spent significant time training Carroll in the affiliate marketing sector of their business, which the opinion described as “a segment of e-commerce industry in which a series of interveners generate sales by directing traffic for businesses and people to websites.”

Carroll agreed to evenly split with the company any revenue he produced, and by January 2017, Carroll was named director of business development for CodeClouds. He later signed a document that Hill said he thought was from LegalZoom titled “Non Solicitation, and Confidentiality Agreement.” The document defined Carroll as “the ‘Contractor’” and provided for the nonsolicitation of customers and contractors of CodeClouds and LongTail.

In October 2018, Carroll was made vice president of sales for CodeClouds, but he resigned in September 2019, taking with him various business records and returning a company computer with a factory reset and nothing on it.

“At some point after leaving, Carroll formed Sketch Frames, a business that competes with CodeClouds,” Judge Elaine Brown wrote. CodeClouds moved for an injunction and sued for damages and the Allen Superior Court granted a preliminary injunction enjoining Carroll from soliciting CodeClouds or LongTail customers.

Carroll challenged the injunction on interlocutory appeal in Rex Carroll v. Long Tail Corp., d/b/a CodeClouds, 20A-PL-1285, but the appellate panel affirmed the injunction in large part.

The COA upheld the injunction barring Carroll’s solicitation of various CodeClouds division customers and Long Tail’s former customers. However, the panel ruled the nonsolicitation agreement barring Carroll from soliciting contractors was unenforceable, blue-penciling that portion of the trial court order.

The agreement named Carroll as “the contractor” at one point “but it does not define ‘Contractor’ elsewhere,” Brown wrote. “As written, the NSA extends to any Contractor of the Company and not just to those who have access to or possess any knowledge that would give a competitor an unfair advantage. Based upon [Heraeus Med., LLC v. Zimmer, Inc., 135 N.E.3d 150, 152 (Ind. 2019)], we conclude that the covenant related to Contractors is overbroad and unenforceable. Accordingly, we reverse this portion of the trial court’s preliminary injunction.”