Case Title: CENT. BANCSHARES OF THE SOUTH v. Puckett

Citation: 584 So. 2d 829

Docket Number: 

State: alabama

Court: Alabama Supreme Court

Date: 1991-07-12T00:00:00Z

Document:
584 So. 2d 829 (1991)
CENTRAL BANCSHARES OF THE SOUTH, INC., and Central Bank of the South
v.
W. Dan PUCKETT and Terence C. Brannon.
89-1850.

Supreme Court of Alabama.
July 12, 1991.
Michael L. Edwards, John P. Scott, Jr. and Michael D. Freeman of Balch & Bingham, Birmingham, for appellants.
James W. Gewin and John E. Goodman of Bradley, Arant, Rose & White, Birmingham, for appellees.
STEAGALL, Justice.
W. Dan Puckett and Terence C. Brannon are former executive officers of Central Bancshares of the South, Inc., and Central Bank of the South (hereinafter referred to collectively as "Central Bank"); they were two of the bank's top five officers. Both men were considered, along with Paul Jones, for the position of chief executive officer in 1988. In early 1989, Harry Brock, a founder of Central Bank and its only C.E.O. up until that time, chose Paul Jones to succeed him as C.E.O.
Having been passed over for C.E.O., Puckett and Brannon began to discuss the possibility of owning their own bank. They contend that they wished to continue in Central Bank's employ; Brock and Jones recall that they wished to terminate their employment as soon as possible. On June 27, 1989, they were told that they must resign their offices with Central Bank. By letters dated July 7, 1989, Puckett and Brannon resigned.
On August 4, 1989, Puckett and Brannon sought a declaration of their rights and obligations under certain covenants not to compete that they had signed in connection with exercising stock options while employed by Central Bank. They challenged the validity of the covenants not to compete, claiming they were overbroad and unreasonable. Central Bank filed a counterclaim, seeking restitution of the profits Puckett and Brannon had realized from exercising stock options and seeking to enforce the covenants not to compete in the banking business.
Puckett and Brannon offered evidence at trial that in previous dealings Central Bank had defined its protectable interest as limited to a discreet number of identifiable customers. On June 5, 1990, the trial judge entered an order enjoining Puckett and *830 Brannon from soliciting business from any of Central Bank's customers and from soliciting any employees of Central Bank for the remainder of the two-year period ending July 7, 1991. The judge did not prohibit Puckett and Brannon from competing in the banking business within the state of Alabama, nor did he order them to pay restitution.
Subsequently, Puckett and Brannon filed a "Motion to Confirm Understanding of the Trial Judge's Order." The trial judge replied with an "Amendment to Order" in which he explained that Puckett and Brannon were enjoined from soliciting or causing any bank with which they may be associated to do business with any persons, firms, or corporations who were customers of Central Bank for the remainder of the two-year period ending July 7, 1991. The judge further explained that the word "customer" in his order was intended to include all customers of Central Bank as of July 7, 1989, not just those persons for whom Puckett and Brannon had had account responsibility. Central Bank appeals from the denial of its motion to alter, amend, or vacate the judgment or, in the alternative, for a new trial, contending that the court also should have enjoined the employees from competing in the banking business anywhere in Alabama.
The covenants not to compete entered into by Puckett and Brannon with Central Bancshares on January 21, 1985, read, in pertinent part:
(Emphasis added.)
The enforceability of agreements by former employees not to compete is governed by Alabama Code 1975, § 8-1-1, which provides, in pertinent part:
Contracts in restraint of trade are generally disfavored in Alabama as being against public policy, unless the contract comes within the exceptions set out in § 8-1-1(b) above:
Robinson v. Computer Servicenters, Inc., 346 So. 2d 940, 943 (Ala.1977) (citations omitted; emphasis added). See, also, Devoe v. Cheatham, 413 So. 2d 1141 (Ala.1982) *831 and James S. Kemper & Co. v. Cox & Associates, 434 So. 2d 1380 (Ala.1983).
Nevertheless, the terms of a covenant not to compete will be enforced if:
James S. Kemper & Co. v. Cox & Associates, 434 So. 2d  at 1384 (citation omitted). See, also, Booth v. WPMI Television Co., 533 So. 2d 209 (Ala.1988).
The trial court specifically found:
While we agree with the trial judge that Central Bank has a protectable interest in its customer relations and relations with its employees, we do not agree that that protectable interest is limited to its customers and employees. As the trial judge indicated, Central Bank has a prominent position in the banking industry in the state of Alabama. Moreover, Brannon and Puckett, as key employees of Central Bank, had peculiar access to all of the techniques and strategies of the bank responsible for that position. "`[I]f an employee is in a position to gain confidential information, access to secret lists, or to develop a close relationship with clients, the employer may have a protectable interest.'" James S. Kemper & Co. v. Cox & Associates, 434 So. 2d  at 1384, quoting Devoe v. Cheatham, 413 So. 2d  at 1143.
We find that the restriction regarding competition in the banking business is reasonably related to Central Bank's protectable interest, because the restriction is designed to protect Central Bank only in the area in which it has a legitimate interest: the banking industry. The agreement specifically prohibits Brannon and Puckett from competing in the banking business; it does not preclude Brannon and Puckett from pursuing work outside of banking. As this Court stated in Cullman Broadcasting Co. v. Bosley, 373 So. 2d 830, 835 (Ala.1979):
Similarly, in the context of the present case, we do not find the limitation on competing in the banking business to be unreasonable. Indeed, in Central Bank of the South v. Beasley, 439 So. 2d 70 (Ala.1983), and First Alabama Bancshares, Inc. v. McGahey, 355 So. 2d 681 (Ala.1977), this Court enforced restrictions on competition within the banking business with regard to two former bank branch officers. Those restrictions were for periods of two years and five years. A two-year restriction period was also held to be reasonable in James S. Kemper & Co. v. Cox & Associates, supra.
Here, the very nature of the positions Brannon and Puckett held at Central Bank warrants the same conclusion as in the above-cited cases. If a two-year limitation is reasonable as applied to branch officers, it is certainly reasonable with regard to two of the bank's top five officers. To hold otherwise would be inconsistent.
Likewise, even though the agreement here restricts competition "in any territory in which the Corporation or any of its subsidiaries has been conducting business," Central Bank argues in its brief that Brannon and Puckett should be restricted from *832 competing with it only in Alabama. Such a statewide limitation was held to be reasonable in James S. Kemper & Co. v. Cox & Associates with regard to an insurance agent:
434 So. 2d  at 1385 (citations omitted).
Finally, the record establishes that Brannon and Puckett were more than adequately compensated for agreeing not to compete, because they received $1,808,767.97 and $814,550.98, respectively, through the exercise of their stock options. We find language in Central Bank of the South v. Beasley, 439 So. 2d  at 74, concerning the element of undue hardship, particularly instructive:
Although this was a nonjury case and the evidence was presented ore tenus, we conclude, after reviewing the record, as well as the applicable law, that the trial judge erred in failing to enforce the covenant not to compete in its entirety and, consequently, that the judgment entered was clearly erroneous. We hold that the restrictions contained in the agreement regarding customer and employee relations, as well as the agreement not to carry on or engage in a similar business, are valid and enforceable within the state of Alabama.[1] We pretermit any consideration of the other issues raised on appeal. Thus, Central Bank was entitled to the relief it sought.
REVERSED AND REMANDED.
HORNSBY, C.J., and MADDOX, ALMON, ADAMS and KENNEDY, JJ., concur.
SHORES and INGRAM, JJ., dissent.
HOUSTON, J., recused.
SHORES, Justice (dissenting).
I dissent. I would affirm the trial judge's order, because it protects the legitimate interest that Central Bank possesses in its customer and employee relationships and does not illegally restrain Brannon and Puckett from exercising their lawful business endeavors.
The trial judge found that Central Bank has a protectable interest in this case, limited to protection against interference with the bank's customers and employees. He said:
The majority has held that Central Bank has a protectable interest beyond its employees and customers. The majority finds that "the restriction regarding competition in the banking business is reasonably related to Central Bank's protectable interest, because the restriction is designed to protect Central Bank only in the area in which it has a legitimate interest: the banking industry." The majority believes Central Bank's claim that Brannon and Puckett have an intimate knowledge of Central Bank's techniques and strategies, and that they agreed, by signing the covenant not to compete, not to use this particular expertise by going into the banking business.
The trial judge, who heard the ore tenus testimony, determined that this claim is not borne out by the record:
I have carefully reviewed the record in this case, and I agree with the trial court's findings that none of the services developed and offered by Central Bank is unique to it, because every service offered by Central Bank is also offered by a number of other banks and institutions. Thus, there is no protectable interest in these employees' knowledge of those services. The testimony of various witnesses, including those called by Central Bank, established that new programs and products are routinely advertised to the public and that the advertising reveals the marketing strategy. Eleanor Strickland, Central Bank's vice president for marketing research and advertising, testified that a bank's advertising about its products reveals the bank's marketing strategy as of the time the product is introduced. The testimony revealed that it is common practice for Central Bank employees to "shop" at competitive banks in order to gain information about products and that the regulators of the banking industry and others publish information that describes banking practices of all banks in the country. Bankers from different banks (including Central Bank) meet *834 periodically and exchange information. The testimony supports the decision of the trial court, not that of the majority.
This case was tried ore tenus.
Clark v. Albertville Nursing Home, Inc., 545 So. 2d 9, 12-13 (Ala.1989). It is clear that there was credible evidence to support the judgment of the trial court.
The majority states that the contract "does not preclude Brannon and Puckett from pursuing work outside of banking." However, banking is the work they know, and to restrict them from competing in the banking business clearly imposes an undue hardship upon them, in violation of our holding in James S. Kemper & Co. v. Cox & Associates, 434 So. 2d  at 1384.
For the reasons stated above, I respectfully dissent.
INGRAM, J., concurs.
[1]  As noted earlier, Central Bank seeks to enforce the agreement only statewide.