Background
Scott Huset worked for Earth Services & Abatement, LLC (ESA), an asbestos abatement, demolition, and remediation company, beginning in 2009. EIS Ultimate Holding, LP and EIS Operating Enterprises, LLC later owned and controlled ESA. While employed there, Huset signed a Management Incentive Unit Grant Agreement containing confidentiality and noncompete provisions and an arbitration requirement. The noncompete broadly restricted direct and indirect competitive activities throughout the United States and other countries where the partnership group conducted or proposed business, during employment and for two years afterward.
Huset signed the agreement in March 2022, effective March 4. In March 2023, he and Jeff Wright formed Impact Industrial Services, LLC, initially a trucking brokerage. Huset owned 35% and left ESA in May 2023 to work for Impact full-time. The trial court found that Impact’s work did not compete with ESA or EIS’s other subsidiaries. After Huset resigned, defendants sent three demand letters expressing an intent to enforce the restrictive covenants.
Huset and Impact sued in Weld County District Court in August 2023, seeking a declaration that the covenants were unenforceable under section 8-2-113(7), C.R.S. 2026, plus damages, interest, penalties, fees, and costs. Defendants separately pursued federal litigation and an American Arbitration Association proceeding. The state court denied their motion to dismiss and compel arbitration, granted summary judgment to defendants on the plaintiffs’ separate intimidation claim under section 8-2-113(1.5), and held a two-day bench trial on the remaining claims. It found the covenants unreasonable and void, rejected damages, but awarded fees and costs and imposed a $5,000 penalty under section 8-2-113(8)(b).
The Court’s Holding
The Colorado Court of Appeals affirmed. It first held that defendants waived any right to compel arbitration. Although denial of a motion to compel arbitration is reviewed de novo and implicates subject-matter jurisdiction, a contractual arbitration right remains waivable. In an October 7, 2024 letter, ESA stated that it no longer intended to enforce either the restrictive covenants or the agreement’s arbitration provisions, and defendants subsequently dismissed their AAA proceeding. The court held that this unqualified waiver covered both offensive and defensive use of arbitration. It therefore did not decide defendants’ substantive challenges to the arbitration ruling.
The court also rejected mootness, reviewing that jurisdictional question de novo even if the particular argument was unpreserved. The plaintiffs’ requests for damages, penalties, interest, fees, and costs remained unresolved, and defendants’ promise not to enforce the covenants did not assure that enforcement efforts would not resume. Expiration of the express two-year term likewise did not eliminate the economic claims. A federal preliminary injunction was neither a final merits judgment nor binding on the state court.
On trade secrets, the court distinguished preliminary-injunction decisions from a final merits determination. At trial, the employer must prove by a preponderance of the evidence that one or more bona fide trade secrets actually exist; language merely purporting to protect trade secrets does not establish the exception in section 8-2-113(2)(b). Defendants did not challenge the specific factual findings as clearly erroneous, so no remand for additional evidence was warranted.
In the first published Colorado decision addressing this issue, the court held that section 8-2-113(8)(a)’s prohibition on attempting to enforce a void covenant, and subsection (8)(b)’s remedies, apply when enforcement occurs after August 10, 2022, even if the covenant was executed earlier and was already void. The covenants here were void under both the 2021 and later statutes because defendants failed to prove trade secrets and the restrictions were unreasonably broad. Applying the enforcement prohibition and remedies to later conduct was prospective, not impermissibly retroactive. The court also upheld, under clear-error review, the finding that defendants lacked good faith, citing their demand letters and aggressive proceedings in multiple forums despite their inability to prove trade secrets.
Finally, the court found no abuse of discretion in refusing post-trial judicial notice of a federal amended complaint filed three months after trial and a preliminary-injunction transcript containing counsel’s arguments. Allegations and arguments were not indisputable adjudicative facts under CRE 201. As prevailing parties on appeal, plaintiffs were entitled to reasonable appellate attorney fees and costs under section 8-2-113(8)(b). The court remanded for the trial court to determine their amount and did not reach plaintiffs’ alternative frivolous-appeal argument.
Key Takeaways
- Post-August 10, 2022 attempts to enforce a covenant that was void when adopted can trigger section 8-2-113(8)(a) and (b), even when the agreement predates the 2022 amendments.
- At a final merits trial, the trade-secret exception requires proof of actual bona fide trade secrets, not merely contractual language invoking trade-secret protection.
- An employer’s unqualified statement that it will not enforce an agreement, followed by dismissal of its arbitration proceeding, can waive arbitration both offensively and defensively.
- Nonenforcement representations and expiration of a noncompete’s term do not moot unresolved statutory economic claims.
Why It Matters
The decision gives employers a concrete enforcement-date rule for Colorado’s statutory penalties: an older agreement is not insulated merely because it predates H.B. 22-1317. Employers contemplating demand letters, arbitration, or litigation must assess whether the covenant was already void and whether actual trade secrets and reasonable scope can be proved.
The opinion also underscores the litigation consequences of later disclaiming enforcement. Such statements may waive arbitration without eliminating declaratory, penalty, fee, or cost exposure. The judgment was affirmed, with remand limited to determining reasonable appellate attorney fees and costs.