Full opinion text
ORDER REGARDING PLAINTIFF’S MOTION FOR PRELIMINARY INJUNCTION PURSUANT TO FED.R.CIV.P. 65(a) BENNETT, District Judge. I. INTRODUCTION AND PROCEDURAL HISTORY.........................1231 II. FINDINGS OF FACT....................................................1232 A. Curtis 1000’s Training Of Its Sales Staff...............................1233 1. Level I Contacts..................................................1233 2. Level II Contacts.................................................1234 3. Level III Contacts ................................................1234 L Level IV Contacts And Other Training.............................1235 B. Restrictive Covenants.................................................1236 C. Youngblade’s Employment History With Curtis 1000 ....................1238 1. The Development Of Problems Between Youngblade And Curtis 1000____1239 a. Compensation.................................................1239 b. Short Counting ...............................................1239 2. Youngblade’s Termination.........................................1240 D. Events After Youngblade’s Termination ................................1241 III. CONCLUSIONS OF LAW................................................1243 A. Standards For Granting A Preliminary Injunction.....................1243 1. State Or Federal Standards ?.......................................1243 2. Dataphase And Its Progeny.......................................1244 a. Purpose And Standards For Preliminary Injunctions............1244 b. The Individual Factors And Their Relationship............_.....1245 i. Likelihood Of Success On The Merits.................’.....1246 ii. Threat Of Irreparable Harm...............................1247 Hi. Balance Of Harm.........................................1248 iv. The Public Interest .......................................1249 3. Stipulated Grounds For Injunction.................................1249 B. Conflict of Laws......................................................1251 1. The Iowa Conflict Of Laws Rules For Contract Cases...............1251 2. Application Of The Choice Of Law Rules...........................1253 a. The Chosen State Has No Substantial Relationship..............1254 b. The Chosen State’s Law Is Contrary To Iowa’s Policy...........1255 C. The Covenant Not To Compete........................................1256 1. Covenants Not To Compete Under Iowa Law.......................1257 a. An Overview..................................................1257 b. The Consideration Requirement................................1259 c. The Enforceability Analysis....................................1260 d. Summary Of Iowa Law.......................................1263 2. Covenants Not To Compete Under Delaware Law...................1264 3. Comparison Of Iowa And Delaware Law...........................1267 D. The Grant Or Denial Of A Preliminary Injunction: Application Of The Dataphase Factors...............................1268 1. Likelihood Of Success On The Merits: The Validity And Enforceability Of This Covenant................1268 a. Validity And Enforceability Under Iowa Law...................1269 b. Under Delaware Law..........................................1272 D. The Grant Or Denial Of A Preliminary Injunction: — Continued 2. Threat of Irreparable Harm.......................................1272 3. Balance Of Harms................................................1274 J. o T'wto'i'OQf 197J. E. The Requirements Of Fed.R.Civ.p'. '65(c) '& '(d)'.'.'.'.'.'.'.'.'.'.'.'.'.'.'.'.'.'.'.'.'.'.'.'.'.'. 1275 1. The Scope Of A Preliminary Injunction............................1275 2. FedR.Civ.P. 65(c)’s Security Requirement...........................1275 TV. CONCLUSION...........................................................1280 This application for a preliminary injunction requires the court to confront a number of intriguing questions raised by a covenant not to compete in an employment contract. First, the court must decide whether a covenant not to compete in an employment contract should be enforced according the law chosen in the contract between the parties (Delaware), which is the law of a forum with no substantial contacts with the parties or the transaction, or the law of the state in which the contract was substantially performed (Iowa). Second, the court must decide whether the covenant is valid and enforceable under the law of either state, identifying in the process significant differences between those bodies of law concerning covenants not to compete. Third, the court must decide whether issuing a preliminary injunction is appropriate in the circumstances of this case. This third issue requires the court to consider what standards apply to the determination of whether the injunction should issue, state law, federal law, or a clause of the contract between the parties which purportedly establishes a lower threshold for this court’s exercise of such equitable powers. An employer, a nationally-recognized manufacturer of business forms and papers, seeks a preliminary injunction against a former top sales representative enjoining the sales representative from violating a covenant not to compete found in the sales representative’s employment contract. The sales representative, who was terminated from his position shortly after filing a declaratory judgment action in Iowa district court seeking to determine his rights under the covenant not to compete, has found employment with another local business, and has allegedly been contacting customers he originally obtained for his former employer. Some of those customers have switched allegiance to the sales representative’s new company, allegedly causing or potentially causing his former employer serious economic harm and other injuries. The court notes that from at least late 1993, the employee’s repeated indications that he could do better elsewhere and could probably take some of his customers with him when he went “hung like the sword of Damocles over the heads of’ the employer. The value of the Damoclean sword is “that it hangs — not that it drops.” LaSociete Generale Immobiliere v. Minneapolis Community Development Agency, 44 F.3d 629, 637 (8th Cir.1994) (quoting Marshall, J., dissenting, in Arnett v. Kennedy, 416 U.S. 134, 231, 94 S.Ct. 1633, 1682, 40 L.Ed.2d 15 (1974)). When it did drop in this case, it may have severed more than the employee anticipated. I. INTRODUCTION AND PROCEDURAL HISTORY This matter comes before the court pursuant to the motion of plaintiff Curtis 1000, Inc. (“Curtis 1000”), for a preliminary injunction filed December 22,1994, in an action filed the same day. On January 6, 1995, an amended complaint was filed by Curtis 1000. Curtis 1000’s amended complaint seeks, in Count I, an injunction for breach of contract, and, in Count II, an injunction for violation of Iowa’s Uniform Trade Secrets Act, Iowa Code § 550.3 (1993). A return of service was executed on defendant Daniel Youngblade on January 11, 1995. On December 29, 1994, Youngblade also filed a lawsuit, but in the Iowa District Court for Woodbury County, in a case styled Youngblade v. Curtis 1000, Inc., Equity No. 110095C. In his lawsuit, Youngblade seeks a declaratory judgment with respect to the parties’ rights pursuant to a covenant not to compete found in an employment contract between the parties. On January 19, 1995, Curtis 1000 removed that action to this court on the ground that diversity of citizenship exists between the parties, and the court therefore has jurisdiction in that case pursuant to 28 U.S.C. § 1332. On January 19, 1995, Curtis 1000 filed a motion to consolidate this action with the action for declaratory judgment filed by Youngblade. Also, on January 19, 1995, Youngblade filed his answer which raises the following defenses: that despite Youngblade’s intention to continue working for Curtis 1000, he was fired; that his termination was contrary to public policy, because it was motivated by his filing of a declaratory judgment action concerning the covenant not to compete in Iowa district court; that Curtis 1000 has no protectible interest in enforcing the covenant; that the covenant is not supported by adequate consideration; that Curtis 1000 has breached the contract; that the equities balance in favor of Youngblade and against enforcement of the covenant; and that the covenant is excessive in its scope and therefore is unenforceable; that Youngblade cannot be restricted under the covenant from pursuing customers outside of the specified geographical area originally identified in the contract of employment; enforcement of the contract is contrary to the public interest; and that the application for preliminary injunction is impermissibly based on allegations of possible future conduct only. A hearing on Curtis 1000’s motion for preliminary injunction was held on January 20, 1995. Curtis 1000 appeared through its counsel Roger T. Stetson of Belin, Harris, Lamson, McCormick, Des Moines, Iowa. Defendant Youngblade was represented at the hearing by James C. Hanks and Douglas L. Phillips of Klass, Hanks, Stoos, Stoik, Mugan & Villone, Sioux City, Iowa. Prior to the January 20, 1995 hearing, Curtis 1000 filed a brief in support of their motion for preliminary injunction. Youngblade did not file a pre-hearing brief. At the conclusion of the hearing, the court suggested the parties brief, on an expedited basis, several issues. In order to assist the parties in filing the expedited briefs, the court waived the formal requirements of the local rules for filing briefs and allowed the parties to submit letter briefs by facsimile by no later than January 24,1995. Both parties did so. Curtis 1000 also filed a reply by facsimile on January 26, 1995. A telephonic hearing was held on January 26, 1995 for the purpose of allowing counsel to orally argue their positions with regard to the granting or denial of the requested preliminary injunction. Roger T. Stetson appeared on behalf of the Curtis 1000 and Douglas L. Phillips appeared on behalf of Youngblade. Both counsel made superb and forceful oral presentations on behalf of their respective clients and were exceptionally responsive to the court’s questions and concerns. As a result of the high quality of advocacy and the array of close legal issues presented, and recognizing that, in the context of a demand for a preliminary injunction, the court must move with speed, although not with haste, this court is mindful that “[h]ow one wishes to decide a case comes lightly to mind, on a wing; but often how one must decide it comes arduously, weighed down by somber thought.” Letelier v. Republic of Chile, 748 F.2d 790, 791 (2d Cir.1984), cert. denied, 471 U.S. 1125, 105 S.Ct. 2656, 86 L.Ed.2d 273 (1985). II. FINDINGS OF FACT For the purposes of the January 20, 1995 preliminary injunction hearing, the court issues the following factual findings. On December 11, 1984, Youngblade entered into a written contract (“the Agreement”) with Curtis 1000, Inc., for a sales representative position with Curtis 1000. Curtis 1000 is a national printing company which markets envelopes, forms, labels, and commercial printing to businesses. At the time Youngblade was hired by Curtis 1000, the company offered between 700 and 850 products to its customers. Curtis 1000 is made up of 15 divisions with each division having its own printing facility. The Minnesota division includes, inter alia, Iowa, Minnesota, and at least part of South Dakota. Curtis 1000’s headquarters are located in Atlanta, Georgia. A. Curtis 1000’s Training Of Its Sales Staff Curtis 1000 provides its sales staff with extensive training. Unlike many national printing concerns, which hire sales staff already experienced in the area of printing supplies, most of the individuals hired by Curtis 1000 as sale personnel have no experience in either sales or in the printing industry. As a result, Curtis 1000 educates it sales personnel on the printing process, and product lines before sending them into the field. After being hired by Curtis 1000, a new sales trainee is sent to Atlanta, Georgia for two weeks of intensive training. The sales representatives spend eight hours a day in the classroom and several hours a night learning the printing process, how to identify the various types of paper used in the industry, Curtis 1000’s sales techniques, and the products that Curtis 1000 has to offer. The sales representatives also sharpen their sales methods by engaging in role playing. 1. Level 1 Contacts Once the two week program in Atlanta is completed, the sales representatives are sent to spend one week at the headquarters of the division to which they are assigned. During this week the sales representative meets with the technical support staff, views the equipment, and learns the products offered by Curtis 1000 in that division. The sales manager for that division then goes out with the new sales representative and helps set up the sales representative’s office. This is referred to as the 1-1 contact. The sales manager then spends two days with the sales representative making sales calls on customers and developing a “contact schedule” for the sales representative. Approximately ten days after the 1-1 contact, the sales manager visits the sales representative again for two days. The sales manager spends one day in the office and one day in the field with the sales representative. This second visit is referred to as an 1-2 contact. After the initial contacts, the sales manager has contacts with the sales representative in the field for two days each month. These monthly contacts continue for two years. During the sales representative’s fourth month in the field, and approximately five weeks after completion of the 1-2 contact, a level 1-3 contact is conducted by the sales manager. During this review, the sales manager makes a time analysis of the sales representative, explains sales programs, reviews the sales approach taken by the sales representative, and previews required division sales and product training seminars. After the 1-3 contact, the new sales representative takes in a division sales and product training seminar. Two weeks after completing the division sales and product training seminar, a level I-4 contact is made by the division sales manager. The primary goal of this contact is to reinforce the training taught at the seminar regarding setting telephone appointments. In addition, the sales manager views a video tape with the sales representative concerning commercial account selling. Five weeks after the 1-4 contact, the sales representative has a level 1-5 contact with the division sales manager. During this contact the sales manager focuses on sales presentation skills. The sales manager also reviews the sales representative’s travel schedule to ensure that the sales representative is making more solid contacts with customers each month. In the sales representative’s sixth or seventh month on the job, and approximately five weeks after completion of the 1-5 contact, the sales manager conducts a level 1-6 review. This evaluation results in either the sales representative being elevated to level II, put on probation at the level 1-4 contact level, or terminated for lack of performance. This contact focuses on a territorial analysis which includes in-depth reviews of each account. 2. Level II Contacts If the sales representative meets all the requirements for advancement to level II, the sales representative undertakes Intermediate Classroom Training. Five weeks after this classroom training the sales representative has a level II — 1 contact with the sales manager or supervisor. During this contact, one-half day is spent in the sales representative’s office discussing the classroom training, a tape rental program, and obtaining referrals. The training at level II is more focused on in-depth sales techniques, advanced selling skills such as negotiating skills, pricing strategies, and major account selling. Five weeks after the level II — 1 contact, the level II — 2 contact occurs. On this contact a new travel schedule is completed. The sales manager discusses selling to major accounts. The sales manager is to discuss with the sales representative the need to be intimately familiar with the customer’s business in order to allow the sales representative to sell in a consultive manner. In order to counteract possible recruiting efforts by competitors, the sales manager is also supposed to reemphasize the benefits of staying with Curtis 1000. Contact II — 3 occurs five weeks later, and takes place at the division headquarters. One day is spent at the headquarters reviewing orders, answering the sales representative’s questions, and discussing problem areas. Finally, the use of plant tours is discussed with the sales representative. A level II-4 contact at the sales representative’s office is then made five weeks after the level II-3 contact. Another travel schedule and time analysis is" completed on this visit. At some point after the level II-4 contact, the sales representative attends a negotiating seminar. Five weeks after the level 11^4 contact, the level II — 5 contact is made by the sales manager or supervisor. During this contact a product review is done and the sales manager discusses the negotiation seminar with the sales representative. In addition, the sales manager discusses contract selling with the sales representative. Five weeks later, the level II — 5 contact is made by the sales manager or supervisor. One-half day is spent in the sales representative’s office discussing product lines and sales strategies. The remaining day and a half of the visit is spent in the field with the sales representative. The level II — T contact is made five weeks after the level II-6 contact. The two days of this contact are spent in the field. A review of plant tour opportunities are discussed with the sales representative. In addition, the sales representative is reminded of the upcoming level II-8 contact evaluation. The level II — 8 evaluation takes place five weeks after the level II — 7 contact. This evaluation results in the sales representative being elevated to Level III, put on probation at the level II — 5 contact, or terminated. The analysis begins with a territory analysis which includes an in-depth discussion of each account. The purpose of this evaluation is to review the sales representative’s approach and effectiveness. The sales manager is supposed to provide guidance to the sales representative regarding sales strategies, approaches and planning. 3. Level III Contacts If elevated to level III, a level III — 1 contact is made eight weeks after the level II — 8 evaluation. Prior to this contact, the sales representative undergoes advanced classroom training. During the level III — 1 contact the sales manager or supervisor discusses this training with the sales representative, and also encourages him or her to stay with Curtis 1000. A level III-2 contact is made eight weeks after the III — 1 contact. The sales representative will have been with Curtis 1000 approximately two years at this point. A new travel schedule is completed on this visit and the sales representative’s prospective customers are reviewed. The level III — 3 contact is made eight weeks after the III-2 contact. This visit takes place at division headquarters. The emphasis on this trip is to build relationships between the sales representative and the administrative and production departments. The sales representative also reviews orders and is able to have questions answered by-individuals at headquarters. A level III-4 contact is then made eight weeks after the level III — 3 contact. One day is spent at the sales representative’s office preparing a new travel schedule, and reviewing accounts. One day is then spent in the field with the sales representative. The level III-5 contact is made eight weeks later, and involves the sales manager spending two days in the field with the sales representative meeting with the sales representative’s four or five best clients. As Curtis 1000’s Field Contact Outline Curtis 1000 Sales Masters Career Development Program points out: Be sure the rep has scheduled at least four or five of his/her best accounts for this contact. It is critical that our better accounts get to recognize, know, and trust Curtis 1000 people other than the rep. In addition to adding to the credibility of our company, it gives the customers added “security” of knowing who they can call should an extraordinary situation develop. In the event of a rep turnover, this familiarity with Curtis management would also serve to put us in a better position to maintain the business. Id. at III/9. A level III — 6 contact is made eight weeks later at the sales representative’s office. A complete territory analysis is done during this visit. The purpose of this visit is to help the sales representative review his sales approach and strategies. Eight weeks after this visit, a level III — 7 contact occurs in the field for two days. During this trip the sales manager observes the sales representative’s sales efforts. The sales manager is also to reemphasize the benefits of staying with Curtis 1000 rather than switching to a competitor. Eight weeks later, a level III-8 contact occurs. The sales representative will have been -with Curtis 1000 for three years at this point. A new travel schedule is completed during this visit at the sales representative’s office. A review of current prospects also occurs during this trip. The sales manager or representative is also supposed to discuss the sales representative’s career progress with him or her. A level III — 9 contact at the division headquarters occurs eight weeks later. The focus of this visit, like the level II — 2 contact which took place approximately one year before, is to build relationships between the sales representative and the administration and products departments at the division headquarters. A level III — 10 contact occurs eight weeks after the visit to division headquarters. During this trip to the sales representative’s office, the sales manager and sales representative complete a new sales schedule, discussing each account, and reviewing a mailing list. Eight weeks later a level III — 11 contact is made in the field by the sales manager or supervisor. During this visit, like the level III- 5 contact, the sales representative and sales manager meet with the sales representative’s best four or five accounts in order to familiarize these customers with other Curtis 1000 personnel. An evaluation of the sales representative occurs at the sales representative’s office during the level III — 12 contact. The sales representative is either promoted to level IV, placed on probation at level III-7, or terminated. 4. Level IV Contacts And Other Training Once elevated to level IV status, a sales representative has quarterly contacts. Level IV- 1 and level IV-2 contacts occur in the field. During these quarterly visits, the sales manager or supervisor observes the sales representative while making the rounds and critiques the sales approaches of the sales representative. A level IV-3 contact is a one day visit to the division headquarters. The agenda for this trip is the same as that used in level III — 9 and level II-2 contacts. This trip to division headquarters takes place one quarter after the level IV-2 contact. One quarter later, the level IV-4 contact takes place. During this trip the sales manager makes a yearly territorial analysis of the sales representative. The level IV contacts are then repeated. After two years of level IV contacts, the sales representative is eligible to attend the Masters’ Seminar I. Upon completion of that seminar the sales representative is elevated to level V. In addition to meetings with the division sales manager, sales representatives are subject to “interchanges” in which they may be sent to work in another sales representative’s sales territory in order to observe and learn new sales techniques. Sales representatives also are sent to the national headquarters for additional sales training and information on new products. Curtis 1000 pays for all expenses related to the training of its sales representatives. Curtis 1000 spends approximately $40,000 for training of each new sales representative during the sales representative’s first year of employment. The emphasis of Curtis 1000’s sales program is to have its sales representative become an integral part of their customers’ businesses. In order to achieve this objective, in addition to the training described herein, Curtis 1000 provides its sales representatives with support from the division headquarters in the form of order editors and other personnel who aid sales representatives by providing them with such information as product availability, price, and whether it is feasible to produce a product at the division’s plant. At the preliminary injunction hearing, Frank Hunter, division manager of the Minnesota division of Curtis 1000, testified that: Our emphasis at Curtis 1000 in trying — in training our sales representatives, as you — as we have discussed the technical standpoint, our emphasis is building our sales representatives to become an integral part of a company’s organization. We foster the belief that if you thoroughly know your customers, what their needs are, if you become intregrally [sic] involved with your customers, you cannot only help to— help continue to supply them with the correct product, you can also be of value — a valuable assistance to them in helping to— helping them to streamline their printing. Tr. 20. B. Restrictive Covenants Because of the considerable expenditure of funds and time in training its sales representatives, and the emphasis on having its sales personnel become involved with their respective clients’ businesses, Curtis 1000 includes restrictive covenants in its contracts with its sales representatives. The Agreement entered into between Curtis 1000 and Youngblade on December 21, 1984, contained several restrictive covenants concerning Youngblade’s actions during or subsequent to his employment with Curtis. Those restrictive covenants provided as follows: 5. RESTRICTIVE COVENANTS (a) The Company is engaged in the business of marketing envelopes, business forms, flat printing, and other related products of the Company, and the Sales Representative will acquire by reason of his employment certain valuable and confidential information concerning the Company’s accounts, customers, business methods, procedures, and techniques. The Sales Representative agrees to keep confidential such information as the Company may from time to time impart to him regarding its business affairs (including the names of customers), and agrees that he will not at any time disclose said information in whole or in part to any person not in the employ of the Company. (b) The Sales Representative will devote his entire working time, attention and energy to the performance of his duties and shall not directly or indirectly sell or offer for sale, goods or services of any other business while employed under this Agreement. (c) The Sales Representative agrees that at all times he will be governed by instructions and orders of the Company as the same may be issued to him from time to time through its executive officers, department managers or other persons delegated to give such instructions, directions and orders. If the Sales Representative shall not faithfully and properly comply with such instructions, directions and orders, the same shall be sufficient reason for immediate termination of his employment. (d) In consideration of the valuable business of the Company in the Sales Representative’s territory and accounts, the time and expense incurred by the Company in training the Sales Representative, the Company’s disclosing to the Sales Representative valuable and confidential information concerning the Company’s accounts, customers, business methods, procedures and techniques, and recognizing the highly competitive nature of the Company’s business, the Sales Representative hereby expressly covenants and agrees, which covenants and agreements are of essence to this contract that he will not, in the territory assigned to him as set forth in Paragraph 3, for a period of two years immediately following the termination of his employment, directly or indirectly, either solely for his own benefit or for the benefit of another, as that person’s agent, employee, partner, or joint venture: (i) solicit, or provide assistance to another in the taking or soliciting of, orders for printing, envelopes, business forms or other products marketed by the Company and which Sales Representative was authorized to sell, from any account or customer to which the Sales Representative or the Company made one or more sales during the two years immediately preceding the termination of Sales Representative’s employment and on whom Sales Representative called for the purpose of soliciting business for the Company; (ii) call upon or assist another in calling upon any account or customer to whom the Sales Representative or Company made one or more sales during the two years immediately preceding the termination of Sales Representative’s employment and on whom the Sales Representative called for the purpose of soliciting business for the Company, for the purpose of selling or soliciting the sale of any product which is the same or similar to those products marketed or sold by the Company which the Sales Representative was authorized to sell while employed by the Company; (in) Solicit, or provide assistance to another in the taking or soliciting of, orders for printing, envelopes, business forms or other products marketed by the Company and which Sales Representative was authorized to sell, from any account or customer “followed” by the Sales Representative pursuant to the terms of Paragraph 3(b) on whom Sales Representative called, within the two years immediately preceding the termination of Sales Representative’s employment, for the purpose of soliciting business for the Company. The Agreement at ¶ 5. The Agreement specifically states that “[t]his Agreement and all matters pertaining to i[t]s validity, construction,' interpretation and effect shall be governed by the laws of the State of Delaware.” However, the court finds that apart from incorporation of Curtis 1000 in the state of Delaware, Delaware has no connection either to the parties or to the transactions in question here. Curtis 1000 has its headquarters in Atlanta, Georgia. As is discussed further below, Youngblade’s sales territory was centered in northwest Iowa, with parts of South Dakota and Nebraska, and Youngblade also has his sales office and residence in Iowa, so his performance of the Agreement was primarily in Iowa. The Agreement also sets out that the following sales territory was assigned to Young-blade: IOWA COUNTIES OF: Sioux, O’Brien, Plymouth, Cherokee, Woodbury, Ida, Monona, Crawford, Harrison and Shelby. In addition the town of South Sioux City, Nebraska and the town of North Sioux City, South Dakota The Agreement at ¶ 3(a). The Agreement further provides that sales territory “may be amended from time tó time, subject to correction and modification by the Company.” Id. Such a modification occurred at some point in 1985, when Youngblade was given part of the territory formerly held by another sales representative who died that year. The modification, albeit never reduced to writing as far as the record before the court at this time shows, added to Youngblade’s territory Clay and Union counties in South Dakota. This modification of Youngblade’s territory encompasses his principal customer for Curtis 1000, Gateway 2000, which did not exist at the time of the modification. Additionally, the court takes judicial notice of the fact that, at the time Youngblade entered into the Agreement with Curtis 1000, the property on which Gateway 2000 is now located was outside the corporate limits of the town of North Sioux City, South Dakota. The property on which Gateway 2000 is located was not annexed by the City of North Sioux City, South Dakota, until two years after the date of the Agreement. However, the property was included in the modification to the Agreement adding Union County to Youngblade’s sales territory approximately a year before annexation of the property by North Sioux City. .. ,C. Youngblade’s Employment History With Curtis 1000 Youngblade’s early history as a sales representative with Curtis 1000 followed the usual course. After completing his two weeks of training in Atlanta, and one week in St. Paul at the Minnesota division headquarters, Youngblade met with John J. Friederichs to set up his office and make calls on customers in Youngblade’s sales territory from January 2, 1985, through January 4, 1985. Friederichs then made a follow-up visit on January 24, 1985, through January 26, 1985. During this visit Youngblade mentioned to Friederichs that Curtis 1000’s former sales representative, Bill Nooney, was calling on accounts in Youngblade’s sales territory. Subsequent follow-up visits by Friederichs were made on March 28, 1985, through March 29, 1985; April 22, 1985, through April 23, 1985; May 30, 1985, through May 31, 1985; and July 10, 1985, through July 11, 1985. During the July visit, Youngblade and Friederichs discussed Bill Nooney’s sales. In a letter to Youngblade dated July 12, 1985, Friederichs comments: We also had some time to discuss the Mr. Nooney situation. We will be acting as quickly as possible to keep Bill from calling on his previous customers but, until then, you’ll have to treat him as any other competitor. As I previously mentioned, I don’t feel that the best way to attack this situation is by playing Bill Nooney’s game, i.e. bad-mouthing the competition and trying to cut your price so low as to beat his. Remember, Dan Youngblade will be in this for the long-haul and Bill Nooney is in it for the short. Your customers will soon realize that and will be back in good standing with Curtis 1000 in a very short time. You are still the one giving them superior service and new ideas they can use to improve their business. Please keep us informed of any new developments that may happen with this situation. Friederichs had monthly meetings with Youngblade again in August and September 1985. Following the visit in September, Youngblade was then subject to bi-monthly visits by either Friederichs or a supervisor. At some point in 1985, Youngblade was given part of the territory formerly held by sales representative Jim Carpenter, who died that year. Youngblade was given Clay and Union counties in South Dakota. North Sioux City, which already was specifically part of Young-blade’s sales territory, is in Union County, South Dakota. In September 1986, Youngblade took a forms training class in Atlanta, Georgia. In November 1986, Youngblade undertook an interchange with the sales representative in Fort Dodge, Iowa. Throughout this period, Youngblade received favorable evaluations and had increased sales. In 1987, Young-blade had yearly sales of $473,609 and average monthly commissions of $4,259. Young-blade’s sales continued to increase over the next four years. In September of 1990, Youngblade had yearly sales in excess of $565,000. Youngblade became one of the top two salespersons, out of a sales staff of 500, in the company. In 1994, Youngblade had net sales of $2,619,183 and commissions of $241,185. Youngblade’s sales were very important to the Minnesota division since they represented over ten percent of the division’s total sales revenues of $22,000,000 for the year. One customer in particular, Gateway 2000, was responsible for the vast majority of Youngblade’s sales. In 1994, his sales to Gateway 2000 stood at $2,100,000. 1. The Development Of Problems Between Youngblade And Curtis 1000 a. Compensation Problems between Youngblade and Curtis 1000 first began to develop in the winter of 1993. Youngblade and Frank O. Hunter, the division manager for Curtis 1000’s Minnesota division, had a telephone conversation at that time about some concerns Youngblade had regarding Curtis 1000’s commission structure. Youngblade’s complaint was that he could make substantially more money on the same amount of sales if Curtis 1000 was to utilize a different commission structure. During that conversation, Youngblade and Hunter decided that Youngblade would fly to St. Paul, Minnesota to meet with the local management group. At that meeting, attended by Youngblade, Hunter, Doug Bengtson, and Terry Bergson, Youngblade showed the others an analysis he had compiled comparing Curtis 1000’s commission structure with other printing companies in the region. The point of the analysis was that Young-blade could make more in commissions on the same amount of sales for these other companies. Following the meeting, Hunter contacted the regional vice-president, Bob Dahl, to review the situation and Young-blade’s concerns. On May 16, 1993, Young-blade wrote a follow-up letter to Hunter. After receiving this letter Hunter and Dahl met to discuss the situation. It was decided that Youngblade’s commission would be changed as a test case in the Minnesota division for sales on certain undisclosed orders. b. Short Counting The next problem between Curtis 1000 and Youngblade arose in the winter of 1994. In a letter dated February 18, 1994, from Young-blade to Hunter, regarding Youngblade’s concerns that his customers were being shorted, or “short counted” to use the vernacular of the printing industry, on products sold to his customers. Following Young-blade’s letter, Hunter implemented an investigation into the short count problem. Several measures were taken to alleviate the problem. First, a task force was set up to look at all inbound materials to ensure that Curtis 1000 was receiving correct counts at that end. Second, the counters on the equipment were checked to see if they were accurate. Third, meetings were held with employees to emphasize the need for accurate counts on materials. Finally, Curtis 1000 set up procedures in its shipping department, and purchased a scale to check inventory. Special precautions were taken for Young-blade’s customers. These precautions were set out in a letter to Hunter from Dennis Kuperschmidt dated January 1, 1995: At Dan Youngblade’s insistence, we inspect every job for his accounts (customers). A special hand stamp was made for bindery hand-assembly employees. After each one of his orders is weighed, it is stamped (-weigh counted) before going to the Shipping Department. No orders for Dan Youngblade’s territory can leave the building until this has been done. 2. Youngblade’s Termination The next problem with- Youngblade surfaced in August 1994, when he sent a letter to Hunter in which he indicated his dissatisfaction with Curtis 1000’s remedial efforts to solve the short count problems identified in his February 18, 1994, letter. Youngblade also enclosed a copy of a draft of a petition he was contemplating filing in Iowa District Court for declaratory judgment regarding the restrictive covenants in his employment contract with Curtis 1000. In response to this letter Hunter and Youngblade agreed to meet in Atlanta in September. The meeting was attended by Hunter, Youngblade, Bob Dahl, vice-president of the region, Larry Nelson, vice-president of sales and marketing, and Bob Gundeck, president and CEO of American Business Products, which is the holding company of Curtis 1000. The problem with short counts was discussed first, but the bulk of the two-day meeting was spent discussing Curtis 1000’s compensation to its sales staff. Youngblade was seeking to increase the percentage of gross profit he received from his customers’ orders. Young-blade was seeking to receive 65 percent of the gross profit with Curtis 1000 receiving 35 percent. Typically on an order with Curtis 1000, the company would receive 60 to 65 percent of the gross profits. During these discussions, Youngblade brought up the topic of his value and that Curtis 1000’s competitors would like to have someone of Young-blade’s abilities. He also mentioned that one of his customers, Gateway 2000, had made the comment to him about what was he waiting for, that he should go ahead and do what he needs to do. It was discussed that a competitor, Moore Business Forms, had approached Gateway 2000 and offered to produce some forms at a lower price than currently being offered by Curtis 1000. Although Curtis 1000 could match this offer, to do so would result in lower commissions to Youngblade. Gateway gave Youngblade until January 1, 1995, to rectify the situation. On December 19, 1994, Youngblade wrote a letter to Larry Nelson at Curtis 1000 headquarters in which he asserted his concern about a lack of progress in resolution of his complaints since the September meeting in Atlanta. Youngblade points out at the end of the letter than he will be filing a declaratory judgment action on December 22, 1994, “to determine what my legal rights are.” On December 30, 1994, Youngblade had a telephone conversation with Curtis 1000 president Robert G. Baker. During this conversation Baker informed Youngblade that his employment with Curtis 1000 was terminated effective January 6, 1995. In a letter dated December 30, 1994, Baker wrote to Young-blade confirming Youngblade’s dismissal. In the text of that letter Baker points out: Dan, our conversations lead me to believe that your real motive in raising these issues and claiming that they have not been addressed is simply an attempt to find a way to invalidate your employment contract with Curtis 1000 and take your accounts with you to another business in direct violation of your contract. In fact, you have freely told us that is what you intend to do. You also openly stated to three Curtis 1000 managers that you have already discussed this possibility with some of your accounts to see if they would “come with you.” This action on your part is, in fact, a blatant violation of your employment contract. Curtis 1000 subsequently retrieved all of the Curtis 1000 sales material in Youngblade’s possession. D. Events After Youngblade’s Termination Upon learning of Youngblade’s termination, Hunter and Dahl made a trip out to meet with some of Curtis 1000’s larger customers in Youngblade’s former territory. Hunter and Dahl found that the customers were already aware of Youngblade’s termination. At Gateway 2000, Hunter and Dahl were informed by Susan Tillman that, because of Youngblade’s importance to the company, Gateway 2000 was going to take its business to Youngblade. This assessment was reiterated at the preliminary injunction hearing by Earle Grueskin, the facilities’ director at Gateway 2000. In addition, two other customers of Curtis 1000, who Young-blade served as a sales representative for Curtis 1000, the Avery Brothers Sign Company and the Dennis Supply Company indicated through representatives at the hearing that they would take their business to Youngblade. Youngblade’s customers purchased their products from Youngblade without associating him with Curtis 1000. These customers viewed their purchases as being with Youngblade and not Curtis 1000. At some point after their trip to visit Curtis 1000 customers in Youngblade’s former territory, Hunter learned that Youngblade had sent a letter to his former clients on Artisan Press stationery, a competitor of Curtis 1000. In the letter, dated January 7, 1995, the day following the effective date of his discharge from Curtis 1000, Youngblade states: 1/7/94 [sic] Dear Customers and Friends, I am writing you to advise you of my new association with Artisan Press. A locally owned and operated printing company with national connections for all types of printing. Enclosed you will find my new business card along with new 95 calendars. Curtis 1000’s decision to fire me was a surprise and a disappointment. Fortunately, I have had many other options presented to me over the past few years. Now that I have been given the reason to research these, it has been enlightening to see the other options presented from local, regional and other national printers. I chose Artisan Press for many reasons that will benefit both you and me. The owner, Scott Kuehl is young, honest, aggressive and dedicated to this business. They are financially sound (this aspect really woke me up with those I presumed were financially sound). They offer a tristate location with local customer service and support staff. They are an experienced printer, manufacturer and supplier of my entire product line. They currently deal with many of the same mills that I have dealt with in the past. They currently sell to many of you. They have an experienced, new, state-of-the-art press department. To sum it all up, Artisan Press offers us a good opportunity to supply you with a quality product and a stronger support staff. Attached you will find a letter from one of my customers that has let me know that they want me to continue to call on them and providing my services and products. If you would like me to continue calling on you, please let me know. A letter or note would be fine and can be faxed or sent to the location below. Please advise me as soon as possible. In the next couple of weeks, I will be back on my travel schedule seeing all of you in person. Again, thank you for your previous business and I look forward to serving your needs in the future. Sincerely, /s Dan Youngblade A copy of this letter and the attached letter from one of Youngblade’s customers was provided to Curtis 1000 by one of its customers who received this mailing. Despite Young-blade’s rather peculiar argument at the preliminary injunction hearing, that the January 7,1995, letter was not a solicitation, the court specifically finds that this letter constitutes a solicitation of Curtis 1000 customers by Youngblade. The effect on Curtis 1000’s Minnesota division if it loses its customers in Youngblade’s former territory will be a dramatic reduction in the division’s income. Indeed, Frank Hunter, the Minnesota division manager of Curtis 1000, testified at the preliminary injunction hearing that “the economic devastation that will take'place within our division will be very apparent.” Tr. 47. Hunter also testified that due to the loss of business already suffered at the time of the preliminary injunction hearing, the company would likely take further action. Hunter testified that “probably very shortly we will have to start employee cutbacks in order to meet with the loss of revenues that were generated from this territory....” Tr. 47. Hunter further testified that as a result of the loss of business already incurred, other employees’ incomes “and the company’s income will have to be restructured to reflect the loss of those sales.” Tr. 47-48. Hunter further testified that the present situation in the Minnesota division as a result of the loss of income already incurred was “of extreme concern” to him. Tr. 48. As noted above, Youngblade’s sales represented over ten percent of the Minnesota division’s sales. All sales representatives sign an employment contract which contains a covenant not to compete. The term of two years in the restrictive covenant is due to Curtis 1000’s assessment that it takes approximately two years for a new sales representative to go into a territory and build up rapport with the customers in that territory. The reason the restrictive covenant covers only customers the sales representative has called on is due to Curtis 1000’s philosophy that customers are the property of the company and that due to the rapport built up over the years it would be unfair to the company to have that experience used against a new sales representative. The restrictive covenant does not prevent a competitor from hiring a former Curtis 1000 sales representative, or having that sales representative work in the same territory in which he or she previously sold Curtis 1000 products. The restrictive covenant is also limited to customers to whom the sales representative has made sales or on whom the representative has called to solicit business during the two years immediately preceding the termination of the representative’s employment with Curtis 1000. Thus, the covenant does not restrict a representative from soliciting business from any and all customers the representative may have contacted during the entire period of the representative’s employment with Curtis 1000. Because Youngblade did not testify at the hearing the court is unable to ascertain when Youngblade commenced work for Artisan Press, nor what the terms, financial or other benefits of his employment are with Artisan Press, nor when he began soliciting Curtis 1000’s customers for Artisan Press. The court is therefore unable to ascertain what, if any, effect granting a preliminary injunction against Youngblade will have on either him or his new employer. III. CONCLUSIONS OF LAW (INCLUDING SOME ULTIMATE FINDINGS OF FACT) A. Standards For Granting A Preliminary Injunction Before the court can state the appropriate standards for issuing a preliminary injunction, it must identify which standards are applicable, state or federal, in a diversity action such as this one. In an action based upon diversity of citizenship jurisdiction, a federal district court must apply the substantive law of the state in which it sits. Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496, 61 S.Ct. 1020, 1021, 85 L.Ed. 1477 (1941). Nonetheless, the court concludes in the first subsection below that the applicable standards for issuance of a preliminary injunction are the federal standards. Those standards are discussed in the second subsection below. Before applying those standards in this case, however, the court must also consider whether a stipulation in the agreement of the parties that a breach of the agreement by the sales representative shall entitle the employer to an injunction sets aside all other applicable standards, and instead requires issuance of an injunction merely upon a showing of breach of the agreement. 1. State Or Federal Standards? In a diversity action, the federal court is not free to fashion rules of law from whole cloth. Jackson v. Anchor Packing Co., 994 F.2d 1295, 1310 (8th Cir.1993). A federal court is bound to apply the law of the state as it is able to discern it from the rulings of the state’s courts. Id.; see also Klaxon, 313 U.S. at 496, 61 S.Ct. at 1021. Therefore, the federal court first examines state law. See generally Erie Railroad Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938); see also Austin v. Super Valu Stores, Inc., 31 F.3d 615, 618 (8th Cir.1994) (citing Erie); Gilliam v. Roche Biomedical Labs., Inc., 989 F.2d 278, 280 n. 3 (8th Cir.1993). However, federal courts are to apply their own rules of civil procedure. Hanna v. Plumer, 380 U.S. 460, 467, 470-71, 85 S.Ct. 1136, 1141, 1143-44, 14 L.Ed.2d 8 (1965). One court has confronted the question of whether the Erie doctrine requires the court to apply state law to the determination of whether or not it should issue a preliminary injunction. Ferrero v. Associated Materials, Inc., 923 F.2d 1441, 1448 (11th Cir.1991). The court in Ferrero found that Georgia law presumes that injunctions are inappropriate remedies and that they should issue only in very limited cases, while federal law would allow a preliminary injunction to issue on a showing of factors identical to those applied in this circuit. Id. Even though it believed this difference meant that its choice of the applicable law, state or federal, would be “outcome determinative,” the court concluded that reference to the policies of Erie showed that federal courts are to apply their own rules of civil procedure, including Fed.R.Civ.P. 65, which incorporates traditional federal equity practice. Id. (citing Hanna, 380 U.S. at 467, 470-71, 85 S.Ct. at 1141, 1143-44). Thus, the court held that Fed.R.Civ.P. 65 “meets the criteria of Hanna, and therefore we apply federal procedure to determine whether the preliminary injunction was properly issued.” Id. For the reasons cited by the Eleventh Circuit Court of Appeals in Ferrero, this court concludes that it should apply federal rather than Iowa law to the determination of whether a preliminary injunction should issue in this case. As a practical matter, application of federal rather than Iowa law to the question before this court will not be “outcome determinative,” as it was for the court in Ferrero. That is because Iowa law applies roughly the same test as do federal courts to issuance of a preliminary injunction, although the Iowa standard may in fact be more lenient. The leading case under Iowa law regarding preliminary or temporary injunctions is Kleman v. Charles City Police Dept., 373 N.W.2d 90 (Iowa 1985). In Kleman, the court noted that a temporary injunction is a preventive remedy and its purpose is to “maintain the status quo of the parties prior to final judgment and to protect the subject of the litigation.” Id. at 95 (citing Kent Prod., Inc. v. Hoegh, 245 Iowa 205, 214, 61 N.W.2d 711, 716 (Iowa 1953)); Atlas Mini Storage, Inc. v. First Interstate Bank of Des Moines, N.A., 426 N.W.2d 686, 689 (Iowa Ct.App.1988). Recognizing that the court may issue a preliminary injunction in its discretion, the court articulated standards to guide that discretion: [T]he district court must have before it some evidence — an affidavit or sworn testimony or their equivalent — on which it may ascertain the circumstances confronting the parties and balance the harm that a temporary injunction may prevent against the harm that may result from its issuance. Kleman, 373 N.W.2d at 96 (citing Iowa R.Civ.P. 80(b), which requires an affidavit from someone knowing the facts, and O. Fiss & D. Rendleman, Injunctions 343-14 (2d ed. 1984), suggesting factors for the court to consider); cf. State ex rel. Fillers v. Maniccia, 343 N.W.2d 834, 835 (Iowa 1984) (affirming trial court’s dissolution of a temporary injunction and refusal to grant an permanent injunction, citing a “relative hardship” or “balance of convenience” standard considering “irreparable harm,” and lack of an effective remedy at law). The federal court, as explained below, also conducts a more explicit test balancing the harms to the parties. When considering a permanent injunction, Iowa courts apply factors almost identical to those applied by the federal courts at the preliminary injunction stage, focusing, as do federal courts, on irreparable harm. See, e.g., Hockenberg Equip. Co. v. Hockenberg Equip. & Supply Co. of Des Moines, Inc., 510 N.W.2d 153, 158 (Iowa 1993) (“A party is entitled to a permanent injunction if proof exists that the injunction would prevent irreparable harm and if the party has no adequate remedy at law,” adding that such an injunction should be granted “with caution and only when clearly required.”); Presto-X-Co. v. Ewing, 442 N.W.2d 85, 89 (Iowa 1989) (applying the “irreparable harm” standard to an application for injunctive relief in a covenant not to compete case); Fischer v. Driesen, 446 N.W.2d 84, 87-88 (Iowa Ct.App.1989) (“Equity usually invokes its extraordinary injunctive power only when necessary to prevent irreparable harm or when the complaining party is otherwise without an effective remedy. If the injury is light and an injunction would result in serious hardship or loss to defendant, courts have refused to enjoin, leaving the plaintiff to his claim for damages. Under this comparative injury doctrine, injunctions which are likely to cause greater injustice than they seek to prevent are properly refused,” quoting Johnson v. Pattison, 185 N.W.2d 790, 797 (Iowa 1971)). The court concludes that it will apply federal law to the present application for a preliminary injunction, recognizing that if the plaintiff here can meet the slightly more stringent federal standard for such a preliminary injunction, it can assuredly meet the more lenient Iowa standard. 2. Dataphase And Its Progeny a. Purpose And Standards For Preliminary Injunctions Like Iowa courts, the Eighth Circuit Court of Appeals has recognized that the purpose of issuing a preliminary injunction in a lawsuit is to preserve the status quo and to prevent irreparable harm until the court has an opportunity to rule on the lawsuit’s merits. Devose v. Herrington, 42 F.3d 470, 471 (8th Cir.1994) (per curiam) (citing Data-phase Sys., Inc. v. CL Sys., Inc., 640 F.2d 109, 113 & n. 5 (8th Cir.1981) (en banc))-, Sanborn Mfg. v. Campbell Hausfeld/Scott Fetzer Co., 997 F.2d 484, 490 (8th Cir.1993); Rathmann Group v. Tanenbaum, 889 F.2d 787, 789-90 (8th Cir.1989); Ferry-Morse Seed Co. v. Food Com, Inc., 729 F.2d 589, 593 (8th Cir.1984). The court therefore requires as a first step the establishment of a relationship between the injury claimed in the party’s motion and the conduct asserted in the complaint. Devose, 42 F.3d at 471. The Eighth Circuit Court of Appeals has repeatedly cited the standards stated in Dataphase Sys., Inc. v. CL Sys., Inc., 640 F.2d 109, 113 & n. 5 (8th Cir.1981) (en banc), as the basis on which courts are to determine whether or not to issue a preliminary injunction. See, e.g., In re Y & A Group Sec. Litigation, 38 F.3d 380, 383 (8th Cir.1994); Baker Elec. Co-op., Inc. v. Chaske, 28 F.3d 1466, 1472 (8th Cir.1994); City of Timber Lake v. Cheyenne River Sioux Tribe, 10 F.3d 554, 556 (8th Cir.1993), cert. denied,—U.S.-, 114 S.Ct. 2741, 129 L.Ed.2d 861 (1994); Aziz v. Moore, 8 F.3d 13, 15 (8th Cir.1993); Sanborn Mfg., 997 F.2d at 485-86; Aswegan v. Henry, 981 F.2d 313, 314 (8th Cir.1992); Frank B. Hall & Co. v. Alexander & Alexander, Inc., 974 F.2d 1020, 1023 (8th Cir.1992); Cellular Sales, Inc. v. Mackay, 942 F.2d 483, 485 (8th Cir.1991); Glenwood Bridge, Inc. v. City of Minneapolis, 940 F.2d 367, 369 (8th Cir.1991); Tullos v. Parks, 915 F.2d 1192, 1193 (8th Cir.1990). The most recent formulation of the Dataphase standards is as follows: When considering a motion for a preliminary injunction, a district court weighs the movant’s probability of success on the merits, the threat of irreparable harm to the movant absent the injunction, the balance between the harm and the injury that the injunction’s issuance would inflict on other interested parties, and the public interest. Dataphase Sys., Inc. v. C L. Sys., Inc., 640 F.2d 109, 114 (8th Cir.1981) (en banc). We reverse the issuance of a preliminary injunction only if the issuance “is the product of an abuse of discretion or misplaced reliance on an erroneous legal premise.” City of Timber Lake v. Cheyenne River Sioux Tribe, 10 F.3d 554, 556 (8th Cir. 1993), cert. denied,—U.S.-, 114 S.Ct. 2741, 129 L.Ed.2d 861 (1994). Pottgen v. Missouri State High Sch. Activities Ass’n, 40 F.3d 926, 929 (8th Cir.1994); Timber Lake, 10 F.3d at 556 (review is for abuse of discretion or erroneous legal premise); Aswegan, 981 F.2d at 314 (abuse of discretion or erroneous legal premise review); Frank B. Hall, 974 F.2d at 1023 (same); Tullos, 915 F.2d at 1196. The burden of establishing the propriety of a preliminary injunction is on the movant. Baker Elec. Co-op., 28 F.3d at 1472; Modem Computer Sys., Inc. v. Modem Banking Sys., Inc.,- 871 F.2d 734, 737 (8th Cir.1989) (en banc). The movant’s burden is particularly heavy in those cases where granting the preliminary injunction will give that party substantially the relief it would obtain after a full trial on the merits. Sanborn Mfg., 997 F.2d at 496 (citing Dakota Indus., Inc. v. Ever Best Ltd., 944 F.2d 438, 440 (8th Cir. 1991) (hereinafter Ever Best)). b. The Individual Factors And Their Relatio