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LAIDLAW, INC. v. STUDENT TRANSP. OF AMERICA

September 11, 1998

LAIDLAW, INC. and LAIDLAW TRANSIT, INC., Plaintiffs,
v.
STUDENT TRANSPORTATION OF AMERICA, INC., DENIS GALLAGHER, ROBERT H. BYRNE, JOHN REDDAN, JOHN EMBERSON, JOHN CAREY, PETER PEARSON, and THOMAS GALLAGHER, Defendants.



The opinion of the court was delivered by: BASSLER

BASSLER, DISTRICT JUDGE:

 Plaintiffs Laidlaw Transit, Inc. ("Laidlaw") and Laidlaw, Inc. have moved for a preliminary injunction against Defendant Student Transportation of America, Inc. ("STA"), a company that competes directly against Laidlaw, and former Laidlaw executives, Defendants Denis Gallagher ("Gallagher") and Thomas Gallagher, who have left Laidlaw to form STA. Plaintiffs also move for supplemental preliminary injunctive relief against Defendants Robert H. Byrne, former Laidlaw legal counsel, and Defendants John Reddan and Peter Pearson, former Laidlaw executives. The Court has jurisdiction pursuant to 28 U.S.C. § 1332 (diversity). For the reasons set forth below, the Court denies Plaintiffs' request for a preliminary injunction and for supplemental preliminary injunctive relief.

 I. FINDINGS OF FACT

 Pursuant to Fed. R. Civ. P. 52(a), the Court makes the following findings of fact:

 1. The Parties

 a. Laidlaw and Laidlaw, Inc.

 1. Laidlaw, Inc. is a corporation organized and existing under the laws of the Nation of Canada with its principal place of business in the Province of Ontario. (Ex. D-9, at 1).

 2. Laidlaw, Inc.'s 1997 assets were over $ 6 billion, which was a 24% increase over its fiscal-year 1996 assets. (Tr. at 4:141.)

 3. Laidlaw, Inc. had a 1997 revenue of over $ 3 billion, which was a 32% increase over fiscal-year 1996 revenue. (Tr. at 4:140-41.)

 4. Laidlaw is a corporation organized and existing under the laws of the State of Delaware. (Tr. at 1:50.)

 5. Laidlaw is a wholly owned subsidiary of Laidlaw, Inc. Laidlaw is in the transit business, specifically including school bus transportation. (Tr. at 1:49.)

 6. Laidlaw is the principal consolidator in the school bus industry in North America. (Tr. at 4:141.)

 7. Laidlaw's 1997 revenues were $ 1.36 billion. (Tr. at 4:142.)

 8. Laidlaw's market share of school buses operated by the private sector in North America is 25%. (Tr. at 4:142.)

 9. In terms of revenues, Laidlaw is three times larger than Ryder -- its next largest competitor in the school bus transportation industry. (Tr. at 2:22.)

 b. STA

 10. STA currently operates in three states: California, Oregon and Pennsylvania. In September 1998, STA will begin formal operations in New Jersey. (Tr. at 6:41.)

 11. STA's total assets are approximately $ 10 million. (Tr. at 6:41.)

 12. STA's current revenues are approximately $ 13 million. (Tr. at 6:41.)

 13. STA currently owns approximately 450 school buses. (Tr. at 6:41.)

 14. STA has approximately 400 employees in the school bus business. (Tr. at 6:41.)

 15. Since its formation, STA has purchased four companies: (1) Santa Barbara Transportation in Santa Barbara, California; (2) North Bend Transportation in Oregon; (3) Bortner Bus ("Bortner") in western Pennsylvania; and (4) George Ku & Sons ("Ku") in western Pennsylvania. (Tr. at 6:16-17.)

 c. The Individual Defendants

 i. Gallagher

 16. Gallagher is a 1976 graduate of Monmouth College with a B.S. in Business Administration. He has over 20 years of experience in the school bus transportation industry. (Tr. at 5:168-72.)

 17. Gallagher is currently the Chairman and CEO of Global Passenger Services ("Global"). (Tr. at 5:166.)

 18. Global has two subsidiaries--Travelways, Inc., an entertainment transportation company, which is involved with airlines, cruise lines, tour operators, and theme parks, and STA, which provides student transportation services. (Tr. at 6:12-13.)

 ii. Robert Byrne

 19. Byrne attended the University of Windsor, Canada, where he received a degree in economics in 1980. Byrne attended Windsor Law School, where he earned an LLB in 1983. He is licensed to practice law in Ontario, Canada. (Tr. at 6:190-92.)

 20. In 1985, Byrne joined a law firm specializing in taxation, where he stayed for approximately one year. In 1986, he joined the Toronto law firm Morris Rose, where he made partner in late 1989. At Morris Rose, he became involved with transportation clients, advising trucking, courier, and bus companies. (Tr. at 6:192-93.)

 21. Byrne's current position is Senior Vice President of Global Passenger Services and Senior Vice President, Legal Affairs for both Travelways and STA. (Tr. at 6:190.)

 iii. Peter Pearson

 22. Pearson received a B.S. in Marketing from Gannon University in Pennsylvania in 1984. His first job after leaving Gannon was with Federal Express in 1985, where he worked until September of 1991. At the time of his departure from Federal Express, Pearson was a Premium Location Manager. (Tr. at 6: 147-49.)

 23. Pearson is now employed by STA and Travelways as Vice President of Operations for both companies. (Tr. at 6:147, 156.)

 iv. John Reddan

 24. Reddan graduated from St. Joseph's College, New Jersey, in 1972. From 1967-1991, Reddan held various jobs in the human resources and labor relations fields. (Tr. at 7:48-50.)

 25. Reddan's current position is Vice President of Human Resources for Global Passenger Services. More than 90% of his time is spent on the Travelways business. (Tr. at 7:47.)

 v. Thomas Gallagher

 26. Thomas Gallagher -- Denis's father -- is 72 years old and is recovering from quadruple bypass surgery. (Tr. at 6:69.)

 27. Thomas Gallagher does no substantive work for STA. Before his surgery, Thomas Gallagher came into the office twice a week for a couple of hours and works on tasks such as bus numbering and license and registrations. (Tr. at 6:70-71.)

 2. The 1987 Sale of the Gallaghers' Business

 a. Gallagher Enterprises, Inc.

 28. From 1977-1979, Gallagher worked as a garage mechanic and bus dispatcher in Neptune, New Jersey for Coast Cities, Inc. ("Coast Cities"), a family business started by his grandfather in 1922. From 1978-1979, he was a bus dispatcher in Neptune. In 1979, he joined the management of Coast Cities, and from 1979 until 1984 he served as a Vice President of Coast Cities responsible for day-to-day operations in New Jersey. In 1984, Gallagher became President and CEO of Coast Cities, and acquired a 10% ownership interest in Gallagher Enterprises, Inc. ("Gallagher Enterprises"), the holding company for Coast Cities and its affiliates. (Tr. at 5:168-72.)

 29. Gallagher owned Gallagher Enterprises along with his father, Thomas, and his brother, Doug. Denis and Doug each owned 10% of the shares of the company and Thomas owned the remaining 80%. (Tr. at 5:172.)

 30. At the time the Gallaghers sold Gallagher Enterprises in 1987, it, through Coast Cities, had seven locations throughout New Jersey, owned approximately 400 school buses and was operating approximately 350, and was serving between 30 and 40 school districts in approximately 14 of the 21 counties in New Jersey. (Tr. at 5:178-80, 6:73; Ex. P-70.)

 31. Gallagher Enterprises did no school bus transportation business outside the state of New Jersey. (Tr. at 5:178-79.)

 32. Coast Cities was the largest independent school bus contractor in New Jersey at the time Laidlaw acquired it. (Tr. at 6:74; Ex. P-70.)

 b. Negotiations for the Sale of Gallagher Enterprise

 33. From 1983 until May 1998, Nick Ferreri served as a consultant to Laidlaw. He worked on between 50 and 100 acquisitions for Laidlaw during this period. (Tr. at 5:141-42.)

 34. During the acquisition process, Ferreri would send the vendor with whom he was negotiating: (1) a confidentiality agreement on Laidlaw letterhead that he had signed on behalf of Laidlaw; and (2) a letter from Laidlaw's board of directors confirming that he was authorized to sign the confidentiality agreement on behalf of Laidlaw. Ferreri received the letterhead from Vic Webster, who was president of Laidlaw at the time. (Tr. at 5:144-47.)

 35. During the acquisition process, Ferreri was responsible for conducting the initial due diligence for Laidlaw, as well as placing a value on the company to be purchased. (Tr. at 5:148-49.)

 36. When Ferreri negotiated acquisitions of school bus companies for Laidlaw, he was Laidlaw's primary negotiator. The Laidlaw attorneys would not become involved until it was time for the parties to sign the letter of intent. (Tr. at 5:145-46.)

 37. Ferreri was acting as Laidlaw's authorized agent during the preliminary negotiations for Laidlaw's acquisition of Gallagher Enterprises. (Tr. at 5:151-52.)

 c. The 1987 Sales Agreement

 38. On October 9, 1987, Laidlaw acquired Gallagher Enterprises (Tr. at 5:172; Ex. P-1.)

 39. Laidlaw, Inc.'s subsidiary, Travelways, Inc., was the company that acquired Gallagher Enterprises. Travelways, Inc. later became Laidlaw. (Tr. at 1:53, 59, 4:52.)

 40. Travelways, Inc., then Laidlaw, Inc.'s subsidiary, was incorporated in the State of Delaware and was qualified and authorized to do business in New Jersey. (Ex. P-84.)

 41. Pursuant to the 1987 Sales Agreement ("Sales Agreement"), Laidlaw acquired the contracts, customers, goodwill and reputation of Gallagher Enterprises and its Coast Cities subsidiaries. (Tr. at 3:169-70, 6:103-04.)

 42. The Sales Agreement provides that Travelways, Inc. would pay $ 3 million for all of the outstanding shares of Gallagher Enterprises, plus $ 1 million each to Denis and Thomas Gallagher as compensation for non-competition agreements. (Ex. P- 1, Sales Agreement §§ 2.01 & 7.0-1(d).)

 43. The Sales Agreement provided that both Denis and Thomas Gallagher would execute non-competition agreements, in the form of "Schedule F" attached to the Sales Agreement. On October 9, 1987, Gallagher executed Schedule F. The consideration paid to Gallagher for the non-competition agreement was $ 1 million, payable in two $ 500,000 payments--the first on January 1, 1988 and the second on or before January 1, 1989. (Ex. P-1, Sales Agreement § 7.01(d); Ex. P-2, Schedule F.)

 44. The only consideration paid to Gallagher for this non-competition agreement was the $ 1 million payment. (Tr. at 3:168.)

 45. Paragraph (1) of the Non-Competition Agreements states as follows:

 
The Covenantor covenants and agrees with Laidlaw that, for a period of five (5) years from the date hereof, or, if the Covenantor shall receive remuneration from Laidlaw or any of its affiliates after the date hereof, for a period of five (5) years from the date hereof or the date on which the Covenantor last receives remuneration from Laidlaw, whichever is later that:
 
(a) The Covenantor will not within the State of New Jersey, either directly or indirectly, as principal, agent, owner, employee, partner, shareholder, advisor or otherwise howsoever, own, operate or engage in the operation of or have any financial interest in or provide, directly or indirectly, financial assistance to any business operation, whether a proprietorship, partnership, joint venture, private company or otherwise howsoever, carrying on or engaged in any business identical with or similar to the school bus transportation business and related charter services carried on by the Company (the "Business").
 
(b) The Covenantor shall not directly, or indirectly for himself, itself or for any other person:
 
(i) solicit passenger transportation business from or perform passenger transportation services for any person, company or other entity which is now a customer of the Company or is hereafter a customer of Laidlaw; or
 
(ii) induce or attempt to persuade any person now employed by the Company to terminate his employment relationship; or
 
(iii) advise any person not to do business with the Company or Laidlaw or any of Laidlaw's affiliates.
 
(c) The Covenantor shall not disclose or use without Laidlaw's prior written consent any secret or confidential information or knowledge relating to the Company, the Business or Laidlaw or any affiliate thereof.

 (Exs. P-2 & P-3, P 1.)

 46. In the Sales Agreement, the Gallaghers acknowledged that they received valid consideration for their Non-Competition Agreements. (Exs. P-2 and P-3, P 2; see Tr. at 6:86.)

 47. The Gallaghers further agreed that money damages could not adequately compensate Laidlaw for violations of the agreements and stipulated that Laidlaw would be entitled to injunctive relief in the event either of them violated his Non-Competition Agreement. (Exs. P-2 and P-3, P 3; see Tr. at 6:87.)

 48. The Sale Agreement also provided for Denis and Thomas Gallagher's employment with Gallagher Enterprises, which was, at that point, a wholly-owned subsidiary of Laidlaw. (Ex. P-1, P 7.01(h); Tr. at 4:52-53.)

 49. The Sale Agreement guaranteed Gallagher employment for two years, commencing at closing. (Ex. P-1, P 7.01(h).)

 50. The Sale Agreement also provided that Gallagher would be paid $ 40,000 per year above the salary Laidlaw normally paid for Gallagher's position. (Tr. at 6:129.)

 51. The Sale Agreement guaranteed Thomas Gallagher employment for five years, commencing at closing. (Ex. P-1, P 7.01(h).)

 52. The parties agreed that the Sales Agreement "shall be governed by the law of New Jersey." (Ex. P-1, Sales Agreement § 10.11.)

 53. Laidlaw drafted the Sales Agreement, including Schedule F to that Agreement (Denis and Thomas Gallagher's non-compete agreements). (Tr. at 3:158-59, 5:181.)

 54. Shortly after the closing, Laidlaw transferred Gallagher to its payroll. (Tr. at 5:192.)

 55. The parties vigorously dispute the time from which the Gallaghers' non-competes began to run. The focus of this dispute is whether remuneration, as stated in the Sales Agreement, means the $ 1 million consideration for the non-competes, or is broader so that it includes salary.

 56. When Laidlaw acquires a company, the principals of the acquired company often become Laidlaw employees. In such cases, Laidlaw contends that it often seeks to obtain a non-competition agreement that extends beyond the period of employment, in order to protect the purchased good will, as well as the goodwill that developed after Laidlaw came in with their capital strength and their own good will. (See Tr. at 1:55-56.) Laidlaw argues that the parties' intent, as expressed in the Sales Agreement, was that the non-compete ran from the last date Gallagher drew salary from Laidlaw.

 57. In contrast, Gallagher states that no one at Laidlaw ever explicitly told him that the five-year non-competition agreement would run for five years from when he ceased employment with the company. (Tr. at 5:188.)

 58. Gallagher states that Ferreri told him that the five-year non-competition agreement would run from the date Laidlaw made its last $ 500,000 installment on the $ 1 million for the non-compete. Gallagher states, therefore, that it was his understanding that his five-year period of non-competition began to run when he received that final payment for the non-compete as opposed to any final salary for his employment with Laidlaw. (Tr. at 5:188.)

 59. However, when Gallagher negotiated acquisitions on behalf of Laidlaw, on at least one occasion Gallagher stated that it was Laidlaw's position that non-competes in their acquisition agreements started from the time one stopped working for Laidlaw or received any money from Laidlaw whatsoever. He also stated that "remuneration" as used in the acquisition agreements meant any kind of remuneration, be it wages, the non-compete consideration, or money for the sale of the business. (Tr. at 2:85, 112.)

 60. Gallagher recalls that he received the two $ 500,000 payments specified in the Sales Agreement sometime prior to January 1, 1989. Thus, Gallagher received the full $ 1 million remuneration for the non-compete agreement no later than January 1, 1989. (Tr. at 5:182-83; See Ex. P-2, Schedule F.)

 3. The Individual Defendants' Employment History

 a. Gallagher

 61. Other than the two-year agreement contained within the Sales Agreement, Gallagher did not have a written or oral employment agreement with Laidlaw. After 1989, he was an at-will employee. (Tr. at 3:160-63, 4:112, 5:193.)

 62. After the sale of Gallagher Enterprises to Laidlaw, Gallagher continued to work for Gallagher Enterprises as the Director of Operations. In 1988, he went to work for Laidlaw as Regional Vice President responsible for school bus operations in New Jersey, Delaware, and Pennsylvania. In 1992, Laidlaw expanded his responsibilities to include Alabama and Georgia. In June 1994, Laidlaw promoted him to Senior Vice President with responsibility for school bus operations on the East Coast. (Tr. at 5:194-95.)

 63. In this position, Gallagher had marketing, sales and operational responsibilities for over 200 locations, 13,000 vehicles and 15,000 employees, which generated revenues in excess of $ 350 million. ( Ex. P-46, Bates No. 100578 P 5.)

 64. He reviewed and approved bids made in the East Coast and was responsible for operations, employees, buses, customer contacts, and customer service. (Tr. at 5:196.)

  65. Gallagher also served as Laidlaw's chief marketing officer and headed Laidlaw's National Marketing Council. (Tr. at 4:66.) He planned marketing strategy, including conversions. (Ex. P-40, P 4.)

  66. A "conversion" is when a provider of school bus transportation services convinces the school district that the district would be better off if the district converts from providing its own school bus transportation services to having a private contractor provide those services. (Tr. at 3:122-23.)

  67. Gallagher was also a member of the Executive Committee of the Passenger Services Group. (Tr. at 4:70-71.)

  68. In November or December of 1995, Gallagher, along with three others, met with an investment banker in New York City to discuss the possibility of forming a sightseeing business. (Tr. at 5:201-03.)

  69. In February 1996, Gallagher decided to resign from Laidlaw. Gallagher tendered his resignation on February 28, 1996 and left on April 1, 1996. (Tr. at 5:205.)

  70. In 1987, Gallagher made $ 100,000 per year. This figure increased to $ 175,000 at the time he resigned. (Tr. at 4:71-73; Ex. P-1, Sales Agreement, P 7.01(h).)

  71. In September or October 1996, Gallagher became the CEO of Liberty Helicopters. (Tr. at 5:208-09.)

  72. In December 1996, Gallagher helped form Sightseeing Tours of America, and Liberty Helicopters became one subsidiary of Sightseeing Tours of America. Sightseeing Tours of America subsequently purchased Golden Touch Transportation, an airline crew transportation business. (Tr. at 5:209-10, 6:8.)

  73. Between February 1997 and May 1997, Gallagher had discussions with Golder, Thoma, Cressey, Rauner, Inc. ("GTCR"), a private equity firm, about the possibility of forming a new company. (Tr. at 6:9, 11.)

  74. In May 1997, Gallagher reached a deal with GTCR to form a new company, Global. Two subsidiaries of Global were also formed at the time of closing: STA and Travelways, Inc. (Tr. at 6:11.)

  b. Byrne

  75. Byrne began working at Laidlaw in June 1992. (Tr. at 6:195-96.)

  76. Byrne did not have a written employment contract with Laidlaw. He was an at-will employee. (Tr. at 1:65-66.)

  77. At Laidlaw, Byrne was responsible for a variety of legal and business issues including, among other things, acquisitions, leases, customer agreements, assisting with bids for school bus contracts, demand letters, annual reports, documentation of corporate governance, mergers, windups, amalgamations, trademarks, and operating licenses work. (Ex. P-43, P 20.)

  78. During his tenure at Laidlaw, Byrne was responsible for acquisitions of school bus companies throughout the United States and Canada. (Tr. at 6:200-01; Ex. P-43.)

  79. He worked on structuring the acquisitions as well as reviewing leases and any other legal issues that arose in connection with an acquisition. (Tr. at 4:76-77.)

  80. Approximately one-half of the acquisitions Byrne worked on were school bus companies. (Tr. at 4:79-81, 6:201; Ex. P-43.) Accordingly to Laidlaw, Byrne was the primary legal support for many of the acquisitions of school bus companies. (See Tr. at 2:136.)

  81. Byrne had access to Laidlaw's purchase and sale agreements and prospect lists. (Tr. at 4:84-85.)

  82. Otherwise, Byrne did not have any operational responsibilities, and he did not have management responsibilities for the operations side of Laidlaw's business, but he was advising those managers. (Tr. at 4:133, 6:203.)

  83. Byrne announced his departure from Laidlaw on December 13, 1996 and left approximately one week after that date. (Tr. at 6:212-14.)

  84. Byrne initiated the employment discussions with Gallagher. (Tr. at 6:213.)

  85. Byrne joined Sightseeing Tours of America at the end of December 1996 as a shareholder and employee. (Tr. at 6:212, 217.)

  86. Byrne has been involved in 22 acquisitions for Global. Twenty of those acquisitions involved Travelways -- Global's motor-coach subsidiary. When Byrne left Laidlaw, Laidlaw was not involved in the motor-coach business in the United States. (Tr. at 6:216-17.)

  87. Byrne has also worked on two STA acquisitions: (1) Santa Barbara Transportation in Santa Barbara, California, and (2) North Bend in Oregon. According to Byrne, Laidlaw did not show interest in acquiring either of those companies while Byrne was at Laidlaw. (Tr. at 6:216-17.)

  c. Pearson

  88. Pearson did not have a written employment contract with Laidlaw. He was an at-will employee. (Tr. at 1:65-66.)

  89. In September 1991, Pearson started working for Laidlaw. He held the position of District Director of Operations ("DDO") for South and Central New Jersey from September 1991 to May or June 1992. (Tr. at 6:148-49.)

  90. In May or June 1992, Pearson became a Division Manager in Pittsburgh for Laidlaw, with responsibility for seven or eight Laidlaw facilities or terminals and approximately 600 vehicles. He held this position until December 1996. The school bus transportation contracts that Pearson had responsibility for during this period were primarily in Westmoreland County, Pennsylvania. During this period, Pearson was responsible for three other counties in Pennsylvania, Fayette, Greene, and Allegheny Counties. In these latter three counties, however, Laidlaw had a total of only four contracts. (Tr. at 3:82-83, 6:149-52.)

  91. Pearson was not responsible for the entire western portion of Pennsylvania. In fact, Laidlaw employed three additional division managers other than Pearson in western Pennsylvania at that time. (Tr. at 6:150, 152.)

  92. In this position, he had extensive customer contact and assisted in contract negotiations. (Tr. at 3:82-83.)

  93. On January 1, 1996, Pearson was promoted to DDO in the Southeast, which included North Carolina, South Carolina, Florida, and Georgia. In January 1997, Pearson became Director of Business Development for Laidlaw for Florida, a position he held until he resigned from Laidlaw in September 1997. (Tr. at 1:95, 2:130, 6:153-54.)

  94. In this last position, Pearson and his direct supervisor were responsible for developing business for Laidlaw through conversions of school districts from using public transportation to private contractors. (Tr. at 2:130.)

  95. Pearson initiated employment discussions with Gallagher. Pearson joined STA and Travelways on or about September 22, 1997. (Tr. at 6:155-56.)

  d. John Reddan

  96. In August 1991, Reddan joined Laidlaw as the Director of Human Resources for the Mid-Atlantic region. His responsibilities later expanded to include the entire east coast. At Laidlaw, Reddan had responsibility for labor contract negotiations and limited responsibility for recruiting. (Tr. at 7:50-52, 55-56.)

  97. Reddan did not have a written employment contract with Laidlaw. He was an at-will employee. (Tr. at 1:65-66, 7:59.)

  98. At Laidlaw, Reddan had no responsibilities for preparing bids for school bus transportation contracts, nor did he have any customer contacts. He never received or reviewed Laidlaw's maintenance, conversion, or driver training manuals. He did not help prepare any business or strategic plans. Reddan never received copies of those plans. (Tr. at 7:56, 70-71.)

  99. Reddan had access to all of Laidlaw's labor agreements and costs, which are not public, as well as confidential salary and bonus information for all of the management staff and performance reviews for each of those people. He knows Laidlaw's succession planning - who is promotable and Laidlaw's plan for developing those individuals. (Tr. at 4:83-84.)

  100. Reddan does not know Laidlaw's current labor costs. (Tr. at 7:72-73.)

  101. Reddan left Laidlaw on January 24, 1997 due at least in part to health reasons. (Tr. at 7:64-69.)

  102. While still at Laidlaw, Reddan initiated contact with Gallagher to see if Gallagher had any employment opportunities for him. Gallagher informed him that there was a position in human resources available at Sightseeing Tours of America. Reddan joined Sightseeing Tours of America at the end of January 1997 as the Vice President of Human Resources. (Tr. at 7:68-70.)

  103. Reddan has never had operational responsibilities in any of the various positions he has held in the human resources field. (Tr. at 7:47, 50.)

  e. Thomas Gallagher

  104. Thomas Gallagher retired from Laidlaw in late 1997. (Tr. at 1:89-90.)

  105. When Thomas Gallagher left Laidlaw, he did not have a written employment contract. He was an at-will employee.

  106. As previously stated, Thomas Gallagher does no substantive work for STA. Before his heart surgery, Thomas Gallagher came into the office twice a week for a couple of hours to work on administrative tasks. (Tr. at 6:70-71.)

  4. Laidlaw's Stock-Option Non-Compete Agreements

  a. History

  107. Laidlaw offered a Stock-Option Plan to senior officers of the company. In exchange for the stock options, participants were required to sign a non-competition agreement. (Tr. at 1:91-92; Ex. P-10.)

  108. Laidlaw had two versions of the Stock-Option Non-Competition Agreement. The initial version was in effect under the 1984 Stock-Option Plan. The Plan and the Non-Competition Agreement were revised in 1991. (Tr. at 4:24-25.)

  109. The 1984 Stock-Option Non-Competition Agreement covered a broader geographic area than the 1991 Stock-Option Non-Competition Agreement. The 1984 form provided that the covenantor would not be involved in a competing business in any one of nine geographic areas, the broadest of which, included: "the geographical areas within which Laidlaw carries on the Business;" and "any municipality in which Laidlaw does business, and 200 miles therefrom." (Ex. D-16, P 3(a).)

  110. The 1984 non-compete prohibited the covenantor from competing "in any aspect of the business of transporting people by motor vehicle." (Ex. D-16, P 3.)

  111. The non-compete period in the 1984 form was five years. (Ex. D-16, P 3.)

  112. In 1989, Gallagher entered the Stock-Option Plan and signed this 1984 version of the stock-option non-compete. (Ex. D-16.)

  113. Laidlaw is not seeking injunctive relief pursuant to Gallagher's 1989 stock-option non-compete agreement. (Tr. at 4:28-29.)

  114. In an August 14, 1987 letter, Jeffrey K. Wohlstadter of the Chicago law firm Katten, Muchin & Zavis, rendered an opinion regarding Laidlaw's 1984 version of the stock-option non-competition agreement ("Katten Muchin Letter"). (Tr. at 5:102, 105; Ex. D-6.)

  115. In the Katten Muchin Letter, Wohlstadter opined:

  
We believe that Laidlaw's standard waste and standard transit non-competition agreements would be extremely difficult to enforce anywhere in the United States, particularly because of the five year term and geographic scope of those agreements.

  (Ex. D-6.)

  116. The Katten Muchin Letter also advised Laidlaw that all non-competition periods in excess of one year risked being unenforceable, particularly with respect to lower level executives. (Ex. D-6.)

  117. The Katten Muchin Letter urged Laidlaw to employ different non-compete provisions depending on the level or position of the executive. (Ex. D-6.)

  118. Finally, the Katten Muchin Letter advised Laidlaw to limit the geographic scope of the restraints to be imposed upon employees based on each individual's exposure to specific confidential materials. (Ex. D-6.)

  119. In the spring of 1989, Gallagher received the Katten Muchin Letter in inter-office mail from Howard Wallack, who was his supervisor at the time.

  120. Gallagher also participated in a Laidlaw management meeting in early 1989 during which management discussed the enforceability of Laidlaw's standard stock-option ...


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