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Central Transportation Services, Inc. v. Cole

United States District Court, Tenth Circuit

November 6, 2013

CENTRAL TRANSPORTATION SERVICES, INC., Plaintiff,
v.
BENNY COLE; LORI COLE; AND BRADY TRUCKING, INC., Defendant.

MEMORANDUM AND ORDER

Monti L. Belot UNITED STATES DISTRICT JUDGE

This matter is before the court on:

Plaintiff’s Motion for Preliminary Injunction[1]and Memorandum in Support (Docs. 6, 7);
Responses of defendants Brady Trucking, Inc. (Doc. 28) and Benny and Lori Cole (Doc. 29); and
Plaintiff’s Reply (Docs. 33, 34).

The court held evidentiary hearings on the motion on September 30, 2013, and October 21, 2013.

Plaintiff Central Transportation Services, Inc. (“CTS”) claims Benny and Lori Cole breached a contractual “non-compete” covenant by leaving CTS’ employment and taking jobs with Brady Trucking, Inc., one of CTS’ competitors. The verified complaint includes a breach of contract claim against the Coles and claims against all three defendants for violation of the Kansas Trade Secrets Act[2] and tortious interference with business relationships. CTS seeks a preliminary injunction against all three defendants to prohibit them from breaching the non-compete covenant, from interfering with or soliciting CTS’ customers or employees, from misappropriating trade secrets or other confidential information, and from using any previously-disclosed trade secrets to compete unfairly against CTS. Defendants oppose the motion. Brady Trucking has also filed a motion to dismiss for lack of personal jurisdiction, which will be the subject of a separate order.

I. Facts

Benny and Lori Cole, a married couple from Bloomington, Illinois, owned and operated a dry-bulk motor freight business known as Benny Cole Trucking, Inc. The business operated out of a terminal in Bloomington leased by the Coles. It employed 10 or 11 drivers and had title to about 10 tractors and 13 trailers, although the company’s assets were heavily financed and subject to security interests. By 2011 the company was “under water” and the Coles were unable to obtain additional financing, meaning the business and the Coles were on a path toward bankruptcy.

CTS is a Kansas corporation that provides trucking services throughout the United States. It has about 65 trucks that haul dry bulk products (such as cement, ash, salt, and lime) in pneumatic trailers. During a routine business call with a representative of CTS, Benny Cole expressed some interest in selling his business and going to work for someone else. Benny also had discussions during this period with Brady Trucking, one of CTS’ competitors, about going to work for them. Steve Cullins, the owner of CTS, and Kurt Warren, CTS’ chief financial officer, subsequently talked to Benny about hiring the Coles and buying out the assets of Benny Cole Trucking.

The Coles and CTS reached an agreement in principle. At the request of CTS’ owner, the Coles traveled to Kansas in September 2011 to close the deal. The Coles had to obtain an advance from CTS to afford the cost of the drive from Bloomington. They did not have a lawyer. At the closing, CTS representatives presented the Coles with written agreements drafted by its lawyers.

One of the documents was an “Asset Purchase Agreement” (APA). The Coles and CTS executed the document at the meeting on September 30, 2011. It provided that Benny Cole Trucking would transfer its assets including inventory, trucks and trailers, and various materials including customer lists to CTS. In return, CTS would pay the sum of $1, 046, 159. Virtually all of this money went to creditors to satisfy Benny Cole Trucking’s outstanding liabilities.[3] Because the Coles had co-signed or guaranteed the company’s debts, however, they received the benefit of the payment even though none of it went to them.

Section 4 of the APA, entitled “Covenant-Not-to-Compete and Employment Agreements, ” provided:

For a period of three (3) years from the Closing Date, Benny and Lori Cole agree that they will not engage (as an individual or as a stockholder, trustee, partner, financier, agent, employee or representative of any person, firm, corporation or association), or have an interest direct or indirect, in any business in competition with the business of the Buyer which is located within the continental United States; provided that this covenant not to compete will not prevent Benny and Lori Cole from acquiring and holding not to exceed two percent (2%) of the outstanding shares of any corporation engaged in such a competitive business if such shares are available to the general public on a national securities exchange. In the event of a breach of any covenant contained in this covenant not to compete, the Buyer will be entitled to an injunction restraining such breach in addition to any other remedies provided by law or equity. As further consideration of such covenant, Buyer agrees to enter into an at-will employment agreement with Benny Cole and Lori Cole. The employment agreement with Benny Cole shall ...

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