Case Title: Wyatt Safety Supply Co. v. INDUS. SAFETY PORD., INC.

Citation: 566 So. 2d 728

Docket Number: 

State: alabama

Court: Alabama Supreme Court

Date: 1990-07-27T00:00:00Z

Document:
566 So. 2d 728 (1990)
WYATT SAFETY SUPPLY COMPANY, INC.
v.
INDUSTRIAL SAFETY PRODUCTS, INC.
88-1653.

Supreme Court of Alabama.
July 27, 1990.
Louis E. Braswell of Hand, Arendall, Bedsole, Greaves & Johnston, Mobile, and Joseph S. Bird III and John E. Goodman of Bradley, Arant, Rose & White, Birmingham, for appellant.
Jerome E. Speegle, Michael Gillion and Michael R. Mills of Miller, Hamilton, Snider & Odom, Mobile, for appellee.
ADAMS, Justice.
Industrial Safety Products, Inc. ("Industrial"), filed an action against Wyatt Safety Supply Company, Inc. ("Wyatt"), alleging that Wyatt had tortiously interfered with contractual relationships between Industrial and two of its employees, Joseph Michael Lushington and Edna Faye Harridge, by inducing Lushington and Harridge to breach noncompetition agreements that they had signed. Industrial also sought to enjoin Wyatt from employing Lushington and Harridge, alleging that such employment would be in breach of the noncompetition agreements. The trial court granted Industrial's motion for a preliminary injunction, and Wyatt appeals. A.R.App.P. 4(a)(1). Industrial had a corporate predecessor that was also named Industrial Safety Products, Inc. We refer to that corporation, which underwent a reorganization described below, as "Old Industrial." We reverse and remand.
Industrial has its principal place of business in Mobile, and it is engaged in the sale of safety equipment and supplies to contractors, plants, and industry; Wyatt, which has its principal place of business in Birmingham, also engages in the sale of safety equipment and supplies.
In February 1987, both Lushington and Harridge, who were employees of Old Industrial in Pensacola, Florida, executed a covenant not to compete with Old Industrial. The covenants provided that Lushington and Harridge would not, for a period of two years following the termination of their employment, compete with Old Industrial within Mobile or within 200 miles in any direction.
Between November 1 and December 3, 1987, a series of interrelated corporate transactions involving Old Industrial took *729 place. Old Industrial entered into a "Reorganization Agreement" with Control Resources Industries, Inc. ("Control"), and ISP, Inc. ("ISP"), as well as a merger agreement with ISP. The agreements involved the creation of a shell corporation, ISP, wholly-owned by Control, into which Industrial as it then existed (Old Industrial, as we have been calling it in this opinion), was merged. ISP then changed its name back to Industrial Safety Products, Inc. (Industrial, as we call it in this opinion). Old Industrial transferred 100 percent of its stock to Control.
Lushington and Harridge became employees of Industrial, and they worked for Industrial in Pensacola until July 1989. Lushington and Harridge resigned from Industrial on July 7, 1989, and began employment with Wyatt, still in the Pensacola area, on July 10, 1989.
Wyatt contends that Industrial cannot enforce the noncompetition agreement because all such agreements are void according to Ala.Code 1975, § 8-1-1(a), except as provided in § 8-1-1(b) and (c), and Wyatt further argues that the noncompetition agreement does not fall within either of those exceptions. Section 8-1-1 provides:
The noncompetition agreement at issue falls within the general prohibition of § 8-1-1(a). Accordingly, the dispositive issue is whether § 8-1-1(b) exempts the agreement from that prohibition and thus makes it enforceable. Section 8-1-1(b) explicitly provides that the successor to a purchaser of the good will of a business can enforce a noncompetition agreement against the sellers of that good will; however, § 8-1-1(b) does not state that Industrial, a successor to Old Industrial, can enforce a noncompetition agreement made by Lushington and Harridge with Old Industrial, their former employer. In other circumstances, we have addressed § 8-1-1's failure to make an explicit exception to the provision's prohibition of contracts in restraint of trade, and we examine those cases for guidance.
In Odess v. Taylor, 282 Ala. 389, 211 So. 2d 805 (1968), the Court addressed a noncompetition agreement between two doctors, Dr. Odess and Dr. Taylor. Taylor entered practice with Odess and agreed not to practice within 50 miles of Birmingham if he left his association with Odess. Later, Taylor stated that Odess was treating him unfairly with regard to the practice, and he left his practice with Odess. Odess sought to enjoin Taylor from practicing medicine in Birmingham, but the trial court denied Odess's request for such a permanent injunction. In affirming the trial court's judgment, the Court wrote:
282 Ala. at 395-96, 211 So. 2d  at 810-11.
In Gant v. Warr, 286 Ala. 387, 240 So. 2d 353 (1970), the Court followed its reasoning in Odess v. Taylor to hold that a "professional" was not subject to the statutory exception. The Court quoted Odess v. Taylor extensively and, consistent with its opinion in that case, wrote:
286 Ala. at 391, 240 So. 2d  at 356. The Court again stated this rationale in Thompson v. Wiik, Reimer & Sweet, 391 So. 2d 1016, 1019 (Ala.1980) (per Jones, J., with three Justices concurring and Beatty, J., concurring in the result).
If we apply that same statutory construction, the following holding results: Although the language of § 8-1-1(b) does not explicitly allow Industrial to enforce the noncompetition agreement against Lushington and Harridge, it does explicitly provide for a buyer of the good will of a business and the buyer's successor to enforce a noncompetition agreement against the seller of the good will; accordingly, the legislature's omission of a provision that would allow Industrial to enforce the agreement against Lushington and Harridge, while the legislature specifically provided for successor purchasers of the good will of a business to be able to enforce such agreements against the seller of the good will, would indicate that the legislature did not intend to give Industrial the benefit of the § 8-1-1(b) exception to the general prohibition of such agreements. We must determine whether to adopt that rationale, and further discussion is necessary to reach that determination.
The United States District Court for the Northern District of Alabama, confronted *731 with the same issue we now address, adopted that rationale. That court held that § 8-1-1(b) does not allow a successor employer to enforce a noncompetition agreement made by an employee and a predecessor employer. In Metromedia, Inc. v. Jennings, CV 83-H-5866-NE (N.D. Ala. 1984), Jennings, who was employed by Creative Displays, Inc. ("Creative"), signed a noncompetition agreement with that corporation; that agreement purported to prevent Jennings from competing with Creative in Huntsville for two years following the termination of his employment. Creative entered into an asset-purchase agreement with Metromedia, Inc. ("Metromedia"), and all of Creative's assets were transferred to Metromedia. Jennings was employed with Metromedia for a period of time, then he resigned. Metromedia filed an action, alleging that Jennings had breached the noncompetition agreement that he had signed with Creative. Jennings did not have a contract with Metromedia.
"Id.
Furthermore, we note that § 8-1-1 expresses the public policy of Alabama that contracts in restraint of trade are disfavored, "because they tend not only to deprive the public of efficient service but also tend to impoverish the individual." James S. Kemper & Co. Southeast, Inc. v. Cox & Associates, Inc., 434 So. 2d 1380, 1384 (Ala. 1983), citing Robinson v. Computer Servicenters, Inc., 346 So. 2d 940, 943 (Ala. 1977).
Against all this, Industrial cites Ala. Code 1975, § 10-2A-145(b)(4) and (5), and argues that as a surviving corporation to a merger, Industrial possesses by law "all rights [and] privileges" as well as all "liabilities and obligations" of the merged corporations. That section, entitled "Effect of merger or consolidation," provides:
Section 8-1-1 is specific. It addresses only contracts in restraint of trade. Section 10-2A-145(b)(4) and (5) is general and relates to the consequences of all statutory mergers or consolidations. "There is a rule of statutory construction that specific provisions relating to specific subjects are understood as exceptions to general provisions relating to general subjects." Murphy v. City of Mobile, 504 So. 2d 243 (Ala. 1987); Bouldin v. City of Homewood, 277 Ala. 665, 174 So. 2d 306 (1965). Accordingly, we hold that § 8-1-1 is an exception to § 10-2A-145(b)(4) and (5) and that under § 10-2A-145(b)(4) and (5) there is no right to enforce noncompetition agreements that does not exist under § 8-1-1.
Subscribing to the sound reasoning in Metromedia, Odess v. Taylor, Gant v. Warr, and Thompson v. Wiik, Reimer, & Sweet, we hold that Industrial may not enforce the noncompetition agreement against Lushington and Harridge, because the agreement violates the general prohibition of Ala.Code 1975, § 8-1-1(a), and does not fall within the exceptions of § 8-1-1(b) and (c). The legislature did not provide for employers situated as Industrial is to be able to enforce noncompetition agreements against employees situated as Lushington and Harridge are in relation to Industrial. We will not create such a right of enforcement *733 for Industrial either, especially in light of our public policy against contracts in restraint of trade. The judgment is due to be reversed and the cause remanded.
REVERSED AND REMANDED.
HORNSBY, C.J., and SHORES, HOUSTON and KENNEDY, JJ., concur.
MADDOX, J., concurs in the result.
ALMON, J., concurs specially.
MADDOX, Justice (concurring in the result).
I concur in the result reached, but I must strongly disagree with the holding of the majority opinion that noncompetition agreements executed by an employee with a corporate employer, which is merged into and becomes a part of a successor corporation, cannot be enforced by the successor corporation.
One of the appellant's arguments is that the noncompetition agreements contained a clause providing that "[t]his contract shall become null and void should [Industrial] as it now stands be sold to another party or change management," and that the facts of this case clearly show that Industrial was "sold" or that its management was "changed" within the meaning of this clause in the contract.
I agree with the appellant's argument on this issue. Construing the "null and void" clause of the contracts, and applying the rule that the public policy of this State is to disfavor this kind of contract, I am constrained to hold that what happened in this case constituted a "sale" or "change" of management within the meaning of those contract clauses.
I cannot agree, however, with the holding of this Court, and the holding of my learned friend Federal District Judge James Hancock in Metromedia, Inc. v. Jennings, CV83-H-5866-NE (N.D.Ala.1984) that Ala.Code 1975, § 8-1-1(b), does not permit a successor employer to enforce a noncompetition agreement made by an employee and a predecessor employer.
I find support for my position that the merger and transfer in this case constituted a "sale" within the contemplation of the parties when they executed the contract containing the "null and void" provision in this Court's case of First Alabama Bancshares, Inc. v. McGahey, 355 So. 2d 681 (Ala. 1978). While not exactly the same as this case, McGahey supports my position in this case that but for the "null and void" clause, these contracts would be enforceable.
In McGahey, a bank holding company brought an action against McGahey, a former stockholder and officer of the bank, to enforce a noncompetition agreement. This Court set out the issue in that case, as follows:
355 So. 2d  at 682.
After concluding that an individual stockholder could sell the good will of a corporation in proportion to his interest in that corporation, this Court held:
355 So. 2d  at 682-83.
While somewhat different from the present case in its facts, McGahey shows that a noncompetition agreement can remain valid after a merger and be enforced by the successor corporation. Based on the reasoning of this Court in McGahey, I think there was a "sale" within the meaning of the "null and void" provision of the noncompetition agreements; therefore, I concur in the result reached, but the reasons given by the majority for the holding in this case, I believe, are not sound, and I take this opportunity to respectfully state my view of the law.
ALMON, Justice (concurring specially).
I agree with Justice Maddox's conclusion that the clause in the noncompetition agreements with the former Industrial Safety Products, Inc., voiding those agreements upon a sale of the company, is triggered by the sale that took place here. Prior to that sale, Melvin and Ronnie Hyer owned all of the stock of Industrial. After the sale, Control Resource Industries, Inc., owned all of the stock of the new Industrial, which had undergone a merger (with I.S.P., Inc.) and a name change (back to Industrial Safety Products, Inc.) in the process. As part of the consideration for the transaction, the Hyers received a total of six per cent of the stock of Control. The clause voiding the noncompetition agreements should be construed against its drafter, Industrial, and under such a construction this transaction should be considered a "sale" and the noncompetition agreements should be considered void.
Absent that clause, I would have serious questions about voiding the noncompetition agreements simply because of the sale of the stock of Industrial. A corporation might have as its most valuable assets valid noncompetition agreements with its key employees, but the majority's reasoning would make that company unable to merge with another corporation or otherwise transfer its assets to a successor entity. I agree that § 8-1-1(a) expresses a *735 policy of disfavoring contracts in restraint of trade, but contracting parties are entitled to rely on the exceptions found in § 8-1-1(b). The exceedingly strict construction of § 8-1-1(b) articulated by the majority is unnecessary in this case, and, as applied in other cases, might raise serious questions regarding vested rights, deprivation of property without due process of law, and impairment of contracts.