Genex v . Bujnevicie CV-00-120-M 07/17/00 P UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW HAMPSHIRE

Genex Cooperative, Inc.

v. Civil N o . 00-120-M Opinion N o .

Jacqueline Bujnevicie

REPORT AND RECOMMENDATION

The plaintiff, Genex Cooperative, Inc., ("Genex") brings the

underlying action against its former employee, Jacqueline

Bujnevicie. The action is premised on Bujnevicie's alleged

breach of a restrictive covenant not to compete with Genex.

Plaintiff's motion for preliminary injunction (document n o . 2 )

has been referred to me for a report and recommendation, in

accordance with

(b)(1)(B). For the reasons stated

below, I recommend that the preliminary injunction be denied.

Background

Genex is a Wisconsin corporation in the business of

providing semen and artificial insemination services to dairy and

beef producers. Genex serves more than twenty-two thousand farms nationwide. To market and deliver its products and services to

herd owners, Genex employs technicians who directly serve these

farmers. Because of the nature of this business, farmers become

particularly loyal to those technicians that serve them

successfully.

On November 2 7 , 1989, in consideration of training,

compensation, and benefits offered to Bujnevicie as part of her

employment, she entered into a written, technician agreement (the

"Agreement") with Eastern Artificial Insemination Cooperative,

Inc., a company that has since assigned its rights and

obligations to Genex through a merger. According to the

Agreement, Eastern agreed to employ Bujnevicie "subject to the

current employment policies and practices of Eastern," subsequent

revisions, and specific terms as set forth in the Agreement.

Plaintiff's Exhibit 2 . In turn, Bujnevicie agreed to be bound to

a number of conditions including a covenant not to compete.

Specifically, this covenant provided that while Bujnevicie was

employed as an insemination technician and "for a period of one

2 year after termination of [her] employment for any reason

whatsoever, [s]he will not, directly or indirectly, either as an

employee of any organization, corporate or otherwise, or of any

individual or as an independent contractor, engage in either the

artificial insemination of cattle or the sale of semen in the

area in which [s]he has been employed and rendered service."

Plaintiff's Exhibit 2 . The Agreement also provided that if the

the non-compete covenant was violated, (1) Eastern would enforce

it by seeking injunctive relief and (2) as liquidated damages

Bujnevicie would have to pay Eastern $10.00 per day for each day

that she violated the covenant. See Plaintiff's Exhibit 2 .

Finally, the Agreement provided that upon termination of the

agreement by either party, the provisions of the restrictive

covenant would remain in full force and effect. See

After forming the Agreement, Eastern trained Bujnevicie.1

1 Clifford Allen, one of Genex's associate vice presidents for marketing, testified that the initial training for insemination technicians consists of a two week training period in which trainees learn the biological basis of their services and the actual mechanical procedure on how to inseminate cattle. According to Allen, after this initial training, Genex periodically updates the training of its technicians every three

3 As a result, from 1990 through the end of 1999, Bujnevicie worked

as an insemination technician for Eastern and, after the merger,

for Genex, in southwestern New Hampshire and southern Vermont.

During that time Bujnevicie served forty-five herds of

approximately eighty herds within her territory. As a Genex

technician Bujnevicie was very successful at breeding cows with a

seventy percent conception rate. As a result, Bujnevicie was

highly regarded by Genex and its customers and developed a

substantial market for Genex's products and services in her

territory.

Bujnevicie's salary with Genex was determined by the

quantity of semen units sold and the number of insemination

procedures performed in a given period. Because approximately

forty percent of the farms that Bujnevicie serviced for Genex

preferred semen from sources other than Genex, most of

Bujnevicie's salary came from her breeding services.2

to six months. 2 Although paragraph two of the written contract states that technicians may only service Eastern/Genex customers with Eastern/Genex semen, see Plaintiff's Exhibit 2 , according to

4 To emphasize semen sales--the most profitable sales for

Genex--at the end of 1998 Genex changed how it would compensate

technicians for their breeding services. The new payment system

resulted in almost a fifty percent decrease in the amount that

technicians received for their breeding fees.3 In addition, the

new payment scheme imposed an allocation fee of $3100 per month

for each territory.4 These changes imposed a heavy burden on

technicians in low growth territories like Bujnevicie's where the

total number of herds was limited because these technicians

needed to make a lot of semen sales to make it feasible to remain

in this line of work.

Genex paid Bujnevicie a transition rate between 1999 to

2000. In addition, to help prevent her income from declining,

Bujnevicie, this provision of the contract never applied to Bujnevicie during her period of employment. 3 According to Bujnevicie, based upon the new payment system, she made roughly $3.00-3.50 per cow for her breeding services; under the old payment system she made $6.00 per cow. 4 Previously, the allocation charge had been applied in more of a sliding scale manner so that territories with large herd numbers were primarily responsible for this charge.

5 Bujnevicie worked at least fifty more days in 1999 than she did

in 1998, working all but seven days in 1999. With Genex's new

rate of pay, despite the transition rate5 and the increased

number of days worked, Bujnevicie's salary decreased from

approximately $49,000 in 1998 to $44,000 in 1999.6 On or

about January 2 0 , 2000, Bujnevicie proposed to Genex that she

would like to continue to represent Genex as an independent

contractor rather than an employee. After several discussions

regarding this proposal, on February 1 4 , 2000, Genex informed

Bujnevicie that it would not agree to this proposal. As a

result, Bujnevicie informed Genex at that time that she would no

longer work for them. Since that time, under the name of "Twin

State Breeder Service" Bujnevicie continues to provide

insemination services to customers that she had serviced while

she worked for Genex.

5 The transition rate accounted for $4000 of Bujnevicie's $44,000 salary in 1999. 6 Some of the decrease was also attributed to an overall decrease in Bujnevicie's services and the quantity of semen that she sold in 1999 compared to 1998.

6 Seeking to enforce the restrictive covenant, Genex filed

suit in this court on March 1 7 , 2000. The parties appeared

before me for an evidentiary hearing on April 7 , 2000.

At the hearing Bujnevicie testified that when Robert

Schulerud, the regional sales manager in Bujnevicie's territory,

explained the new payment scheme to her, she told him that she

did not agree with this new method of payment. He responded by

telling Bujnevicie that he understood her position. In addition,

he intended to put Bujnevicie in contact with a Rhode Island

Genex technician who, placed in similar circumstances, stopped

working for Genex, but continued to provide her services

independent of Genex.

Bujnevicie also testified that she is a single parent with

two, young children, ages seven and nine, who accompany her on

the job. Although she has worked as a herdsperson in the past,

performing this job as a single parent would be very difficult.7

For the past three years Bujnevicie has worked between 4-10 hours

7 Bujnevicie testified that a herdsperson frequently performs his or her duties, like milking, early in the morning and late at night.

7 per week, earning approximately $2000 per year, with a local

large animal veterinarian, Dr. Steven Major.8 Based on her

limited responsibilities in this position Bujnevicie does not

believe that she could increase her hours in this job.

Major testified that he is familiar with Bujnevicie's

services and many of the large herds that Bujnevicie has serviced

for Genex. Major also testified that the national average

conception rate in herds is forty percent--far below Bujnevicie's

conception rate of seventy percent--and the success of dairy

farms depends on an adequate conception rate.9 If conception

rate drops off with the use of breeding services, farms in

Bujnevicie's territory will have to spend more money on breeding

8 When necessary Bujnevicie also takes her children to work with her at this job. 9 According to Major, because a cow makes most of her milk within three to four months after she has a calf, she is most profitable early in her lactation. This means that the more frequently a cow is bred the more high producing intervals exist within a cow's life span. Thus, productivity depends on a successful conception rate. In addition, if a cow is not bred successfully within four months after giving birth, she will make too little milk, will be shipped for beef and the farmer will have to pay approximately $1200 for a replacement cow.

8 by using hormones or purchasing a bull.10 According to Major, if

Bujnevicie is forced to stop providing her services, this would

pose an unreasonable hardship on the dairy farmers in her

territory. He also believes that less than half of the farmers

in Bujnevicie's territory would use a replacement, Genex

technician, because the majority of these farmers would opt for

an alternative method to breed their cows.

Schulerud testified that many of Genex's previous customers

in Bujnevicie's territory have refused to use Genex's breeding

services since Bujnevicie quit in February of this year. As a

result, the Genex technician who has replaced Bujnevicie, Tom

Ainsworth, has had difficulty servicing these customers with

almost a total loss of business in that territory.

Sheldon Sawyer, a New Hampshire dairy farmer who has used

Bujnevicie's breeding services for the past ten years, testified

that Bujnevicie is the best technician that he has ever had.

Unlike other technicians, she is willing to catch cows that need

10 Using a bull to breed cows is less desirable because breeding is reduced and bulls are dangerous, unpredictable animals that threaten the safety of others on the farm.

9 to be bred and this is very important to his farm. In addition,

Bujnevicie's success at breeding his cows has played a valuable

role in maintaining the supply of calves to be sold and milk

produced on his farm. If Bujnevicie can no longer provide her

services to his farm, Sawyer will use a bull to breed his cows

rather than another Genex technician for two main reasons.

First, based on his past experience with other technicians and

Genex's replacement, Ainsworth, Sawyer has not found their

breeding services satisfactory. In addition, he fears that based

on the small number of herds in Bujnevicie's territory, at some

point it will not be economically feasible for Genex to provide

breeding services to this area and Genex will discontinue its

breeding services like Eastern did in a neighboring area in the

past.

Jay Hamilton, a Vermont dairy farmer who has also used

Bujnevicie's breeding services for years, testified that despite

a high herd number, the conception rate on his farm has been

10 excellent because of Bujnevicie's efforts.11 He testified that

part of the reason why Bujnevicie is so successful is because she

knows the cows as well as he does and is willing to make sure

that cows get serviced when it is time for them to be bred. If

Bujnevicie is unable to service his cows, he is likely to service

his own cows rather than use another technician from Genex. This

is because like Sawyer, Hamilton doubts the competency of other

Genex technicians and he is afraid that Genex will drop its

breeding services in his area. According to Hamilton, breeding

of his cows is the most important aspect of his farm and like

other farmers in the area he is concerned that the profitability

of his operation will decline if Bujnevicie is not allowed to

continue to service his farm.

Discussion

1. Preliminary Injunction Standard

"The purpose of a preliminary injunction is to preserve the

status quo, freezing an existing situation so as to permit the

11 High herd numbers usually cause conception to decrease because of additional stress put on cows in large herds.

11 trial court, upon full adjudication of the case's merits, more

effectively to remedy discerned wrongs." CMM Cable Rep., Inc. v .

Ocean Coast Properties, Inc.,

(1st Cir.

1995)(citing Chalk v . United States Dist. Court Cent. Dist. of

California,

, 704 (9th Cir. 1988); American Hosp.

Ass'n v . Harris,

(7th Cir. 1980)). Thus, if

the court ultimately finds for the movant, a preliminary

injunction provides the court with a method for preventing or

minimizing any current or future wrongs caused by defendants. See

13 James Moore et a l . , Moore's Federal Practice §65.02 (3d ed.

1998).

In determining whether to grant a preliminary injunction,

this court considers four factors. See Legault v . aRusso,

(D.N.H. 1994). The four factors are: "(1) the

likelihood of the movant's success on the merits; (2) the

potential for irreparable harm to the movant; (3) a balancing of

the relevant equities, i.e., the `hardship to the nonmovant if

the restrainer issues as contrasted with the hardship to the

movant if interim relief is withheld,' Narragansett Indian Tribe

12 v . Guilbert,

, 5 (1st Cir. 1991); and (4) the effect on

the public interest of a grant or denial of the injunction."

Gately v . Massachusetts,

(1st Cir. 1993); see

Campbell Soup C o . v . Giles,

(1st Cir. 1995);

Sunshine Development, Inc. v . F.D.I.C.,

(1st

Cir. 1994); Aoude v . Mobil Oil Corp.,

(1st Cir.

1988). The sine qua non of a preliminary injunction is the

likelihood of success on the merits; the court may deny the

motion if the movant does not show that it will probably succeed

on its claims. See Weaver v . Henderson,

1 , 12 & n.3

(1st Cir. 1993).

2. Likelihood of Success on the Merits

Genex alleges that Bujnevicie, by continuing to provide

breeding services to Genex's previous customers, is engaging in

activities in violation of the non-compete covenant in her

employment agreement with Genex. See Plaintiff's Motion for

Preliminary Injunction (document 2 ) .

In response, Bujnevicie asserts that the restrictive

covenant should not be imposed upon her because it would result

13 in undue hardship to both her and the farms that she services.

See Defendant's Objection to Plaintiff's Motion for Preliminary

Injunction (document 6 ) at 1-2. In addition, Bujnevicie alleges

that by unilaterally altering her method of compensation in a

manner that significantly decreased her income and forced her to

resign, Genex breached its employment contract with her. See

at 2 . As a result of this prior breach by Genex, Bujnevicie

alleges that she should not be bound by the non-compete covenant.

See

Because I agree that Genex breached its employment agreement

with Bujnevicie by significantly decreasing her salary, Genex

cannot enforce other terms of the Agreement, such as the non-

compete covenant, against Bujnevicie. I find this for several

reasons. First, "an employment contract implies an obligation on

the part of an employer to afford a certain degree of financial

security to the contracting employee ... " Laconia Clinic, Inc.

v . Cullen,

,

(1979). In

addition, "a restrictive clause in an employment contract

preventing future competition by the employee may not be enforced

14 where there has been a [material] breach by the employer of his

own obligations under the contract."

(citations

omitted); see also Associated Spring Corporation v . Roy F. Wilson

& Avnet, Inc.,

(D.S.C. 1976)("employer who

breaches his contract cannot later enforce against an ex-employee

a restrictive covenant"); Smith-Scharff Paper Company v . Blum,

((Mo. App. 1991)(materially altering employee's

salary after employee agreed to a non-compete covenant resulted

in a unilateral breach by the employer of the employment

agreement); Forms Manufacturing, Inc. v . Edwards,

7 ,

69 (Mo. App. 1985)("A party to a contract cannot claim its

benefits where he is the first to violate i t . " ) .

Although the terms of Bujnevicie's salary were not expressed

in the Agreement, it is obvious that, like the plaintiffs in

Laconia Clinic, Smith-Scharff, and Forms Manufacturing,

Bujnevicie agreed to terms within that document, such as the

restrictive covenant, in exchange for a method of compensation

that provided her with financial security. It is also clear that

in 1999 Genex unilaterally altered its payment scheme in a way

15 that substantially reduced Bujnevicie's salary. For instance,

under Genex's new payment plan, Genex reduced the forty per cent

portion of Bujnevicie's income that was derived soley from

breeding services by fifty per cent--compensating Bujnevicie just

$3.00 per cow instead of $6.00 per cow. In addition, it is clear

that Bujnevicie did not agree to this alteration. As soon as

Genex explained the new payment scheme to Bujnevicie, (1) she did

not find it acceptable, (2) she informed Genex that this payment

scheme would not work for her, (3) Genex understood her position,

(4) Genex implemented a transition rate for her in 1999 to

alleviate some of the strain the new payment plan had on her

income, and (4) Schulerud communicated to her that he intended to

put her in contact with a previous Genex technician who, placed

under similar circumstances left Genex to work as an independent

technician.

Under the new payment plan, but while the transition rate

was in place, Bujnevicie worked for Genex for another year,

attempting to increase her semen sales and taking very little

time off. However, after a year of her efforts Bujnevicie still

16 could not accept the new payment plan because her salary was too

low under this plan. Despite the $4000 attributed to the

transition rate in 1999 and the significant increase in the

number of days that she worked in 1999, Bujnevicie's salary still

decreased from $49,000 in 1998 to $44,000 in 1999. As a result,

in January of 2000, Bujnevicie attempted to convince Genex to

hire her as an independent contractor. After she realized that

Genex would not agree to such an arrangement in mid-February of

2000, she terminated her position with Genex.

In light of these events, I find that Genex materially

breached its employment obligations when it unilaterally and

materially reduced Bujnevicie's salary. As a result, Bujnevicie

should not be bound by the restrictive covenant in the

Agreement.12

3. Irreparable Harm

The second factor relevant to the issuance of a preliminary

12 This result is also consistent with New Hampshire law that enforces restrictive covenants only "if reasonable as applied to the particular circumstances of the parties." Concord Orthopaedics Professional Association v . Forbes,

,

(1997).

17 injunction is irreparable harm. Genex claims that it has a

legitimate interest in preventing its employees from

appropriating the "goodwill" established by the employer, see

Plaintiff's Supplemental Memorandum in Support of a Preliminary

Injunction at 6 (document 1 1 ) , and Bujnevicie's "repeated and

widespread violation of the non-compete provision in her

Agreement with Genex" has caused and continues to cause Genex

irreparable harm. See Plaintiff's Motion for Preliminary

Injunction at 9.

It is true that an employer has a legitimate interest in

preventing an employee from appropriating goodwill that has been

established through the employee's contact with its customers,

see Technical Aid Corporation v . Allen,

, 9,

(1991), and this misappropriation can irreparably harm

the employer. However, the hardship that is being suffered by

Genex at this time--the near total loss of business in

Bujnevicie's area–-is a product of Genex's own doing. Genex

drastically reduced Bujnevicie's salary to a point that made it

unfeasible for her to continue to work for Genex as an employee.

18 When Bujnevicie attempted to compromise with Genex by working as

an independent contractor promoting the sale of Genex semen, it

declined to do s o . In addition, even if the covenant were

imposed upon Bujnevicie for the one year period, it is quite

likely that less than half of Genex's customers would obtain

services from Genex again. According to the testimony at the

hearing, many of Genex's previous customers would either

inseminate the cows themselves or buy a bull to breed their cows

if Bujnevicie is not allowed to service them. This is not only

because farmers in Bujnevicie's territory are unsatisfied with

other Genex technicians who lack Bujnevicie's skills and efforts,

but based on the limited number of farms in the area and the past

history of Genex's predecessor, Eastern, these farmers have

little faith that Genex can economically sustain a breeding

service over the long term. In other words, the farmers fear

that they will be "dumped" by Genex at some point in the near

future. Thus, although Genex has suffered a loss of business in

Bujnevicie's territory that has caused it harm, Genex's own

actions have played a major role in this harm.

19 4. Balance of Hardships

The next factor relevant to the issuance of a preliminary

injunction is the balance of hardships. With respect to the

balancing of hardships, Genex contends that an injunction should

be issued because Genex has made a substantial investment in

Bujnevicie's development as a technician which she has abused by

demanding to be recognized as an independent contractor and

stealing Genex's customers. See Plaintiff's Motion for

Preliminary Injunction at 9-10. In addition, Genex claims that

Bujnevicie cannot claim hardship if the non-compete covenant is

enforced against her because she agreed that (1) the remedy of

injunction would be available to Genex and (2) the non-compete

covenant would survive any termination of the Agreement. See

Based on the testimony at the hearing, although Genex has

done some training with Bujnevicie, Genex is hard-pressed to take

full responsibility for Bujnevicie's exceptional skills at

breeding cows. This is particularly true in light of the

farmers' testimony that (1) Bujnevicie performs extra duties for

them that other Genex technicians do not, (2) Bujnevicie has been

20 the most successful technician that they have ever had, and (3)

when Bujnevicie has not been available they have found the

services provided by other Genex technicians unacceptable,

sometimes calling Bujnevicie to work on her days off. Major, the

veterinarian that works with these farmers, also confirmed that

Bujnevicie's skills are exceptional compared to other

technicians.

In addition, Bujnevicie was and still is willing to sell

Genex products to farms in her territory. Contrary to Genex's

suggestion, Bujnevicie's decision to work as an independent

contractor was not "out of the blue." Instead, it was in

response to the drastic reduction in her salary that resulted

from Genex's unilateral change in its employment contract with

Bujnevicie.

Although the Agreement states that upon termination of the

Agreement by either party that the restrictive covenant "shall

remain in full force and effect," Plaintiff's Exhibit 2 , this

does not mean that the parties are "empowered to alter by their

own agreement principles which have guided courts of equity for

21 generations." Associated Spring Corporation,

. Thus, the mere presence of the language indicated above in

the Agreement cannot prevent this court from exercising its

equitable jurisdiction as it sees fit.

Finally, although Bujnevicie may obtain other work as a

herdsperson, this line of work, unlike her work as a technician

and part-time veterinarian assistant, conflicts with Bujnevicie's

responsibilities as a single parent. If Bujnevicie is forced to

move away from the area to continue to work as a technician, this

would also disrupt her family because she would be moving her

children away from their father. Accordingly, I conclude that

the balance of hardships weighs against issuance of an

injunction.

5. Public Interest

Finally, in issuing a preliminary injunction, the court must

consider the public interest. Genex contends that the public

interest is advanced by holding these parties to the terms of

their agreement and preventing unfair trade practices performed

by Bujnevicie. See Plaintiff's Motion for Preliminary Injunction

22 at 1 0 .

I agree that the parties should be held to the terms of

their agreement. However, Genex cannot enforce a term of the

contract to its benefit when it has failed to uphold its own

obligation to provide Bujnevicie with a compensation method that

provides her with financial security. It is contrary to public

policy to enforce a restrictive covenant when the party who seeks

enforcement has breached its own obligations under the contract.

See, e.g., Associated Spring Corporation,

;

Laconia Clinic,

. In addition, given the

evidence presented it is clear that the farmers in Bujnevicie's

territory who depend heavily upon a successful breeding program

will suffer significant economic consequences if Bujnevicie is

prevented from providing services to them. Accordingly, the

evidence on the public interest weighs against the issuance of a

preliminary injunction.

Conclusion

I have carefully considered the parties' legal arguments,

the testimony by the witnesses, and the various exhibits. I

23 conclude that a preliminary injunction should not be granted

under these circumstances. Plaintiff's Motion for Preliminary

Injunction (document n o . 2 ) requesting the court to order

Bujnevicie to stop promoting and selling cattle semen products

and artificial insemination services in the Genex territory in

which Bujnevicie was once employed by Genex should be denied.

Any objections to this Report and Recommendation must be

filed within ten days of receipt of this notice. Failure to file

objections within the specified time waives the right to appeal

the district court's order. See Unauthorized Practice of Law

Committee v . Gordon,

1 , 13-14 (1st Cir. 1992); United

States v . Valencia-Copete,

, 6 (1st Cir. 1986).

James R. Muirhead United States Magistrate Judge

Date: July 1 7 , 2000

cc: Irvin D. Gordon, Esq. Arend R. Tensen, Esq.

24