Opinion ID: 2005680
Heading Depth: 1
Heading Rank: 3

Heading: Sums Paid to Wright

Text: HRR argues that the trial court erred when it failed to order Wright to remit the $4,000 paid to Wright under the Sale of Assets Agreement after the trial court rescinded the Sale of Assets Agreement, holding it unenforceable. It must be noted that the trial court did not rescind the Sale of Assets Agreement, nor did it hold that the agreement was unenforceable. Rather, the trial court held that the covenant not to compete contained in the Sale of Assets Agreement was unenforceable. In its letter opinion, the court noted that HRR had never been able to furnish the court with a complete copy of the contract that it wished to enforce, and that Wright denied that she had a book of business to sell. The trial court also found that Wright did not have anything to sell. Further, Wright testified that she was to be paid a salary of $25,000 by HRR, but that Tucker told her he would pay her $21,000 as a salary and $4,000 as a buyout. Wright testified that Tucker told her he was paying her in this manner for tax purposes. Tucker, who testified that he had a masters in taxation, disputed this claim, stating that he would not reduce tax costs by treating the $4,000 as a buyout. Wright argues that the trial court considered the $4,000 to be compensation for her employment. Indeed, in the letter opinion, the trial court found that Wright had nothing to sell and noted that Wright's employment agreement contained no provision for compensation. The Sale of Assets Agreement provided that Wright was to be paid $4,000 in twelve equal installments of $333.33 beginning on 5 September 1997 and continuing on each first Friday of every calendar month until twelve such payments have been made or until [Wright] is no longer employed with [HRR], whichever comes first. This language supports a finding that the $4,000 payment to Wright was compensation for employment, and not for the sale of assets. HRR testified that Wright was being paid $4,000 for her book of business, something that she allegedly possessed before she began working for HRR. If Wright had quit or been fired before she received her twelve payments, then she would have received less than $4,000; therefore, the value of the book of business was dependent upon Wright's future employment. Though the trial court did not specifically find that the $4,000 payment to Wright was compensation for employment, we find that the payment of $4,000, which was contingent upon Wright's employment, was compensation for employment, and not compensation for a sale of assets. We will affirm the trial court when it has reached the right result, even though it has announced the wrong reason. Norman v. Norman, 347 Ark. 682, 66 S.W.3d 635 (2002); Madden v. Aldrich, 346 Ark. 405, 58 S.W.3d 342 (2001). The trial court heard testimony from both Wright and Tucker regarding the disputed $4,000, and it was the trial court's decision not to remit the $4,000 to HRR. The chancellor is recognized as being in a superior position to assess the credibility of witnesses. Mobley v. Harmon, 313 Ark. 361, 854 S.W.2d 348 (1993). We do not find that the trial court was clearly erroneous when it declined to have Wright return $4,000 to HRR, and accordingly, we affirm. Covenants Not to Compete The trial court declined to enforce the covenant not to compete in Megee's Sale of Assets Agreement because it found that the consideration for a sale of a book of business which is predicated upon future job performance indicated that the contract was not actually a sale of assets. In addition, the trial court declined to enforce the covenant not to compete because it found $26,000 to be insufficient consideration for a covenant not to compete, and because it found the covenant unreasonable in relationship to the contract. Further, the trial court found that since it was holding the contract unenforceable by its terms and its unreasonableness, the contract was in effect, rescinded, and it ordered Megee to reimburse Tucker for the consideration paid for the alleged sale of the book of business, or $26,000. The trial court also found that Tucker failed to establish that Megee learned or possessed any trade secrets which Megee physically or mentally removed from the office after being terminated. The trial court declined to enforce the covenant not to compete in Megee's Associate Employment Agreement because it found that the geographic location in the covenant was not only unclear, but unreasonable. The covenant, which is the same as the covenant that appears in the Sale of Assets Agreement, states that Megee cannot compete within ... ten (10) miles of 2824 Barrow Road, Little Rock, Arkansas, or such others established by [HRR].... The trial court determined that the such others language apparently leaves the corporation in control of designating a prohibited geographic location at some time without any assent of the employee, and that the ambiguous term fails to establish an enforceable geographic location. In its brief, HRR contends that the language used in the covenant not to compete was necessary given the total circumstances. HRR argues that [w]ithout such opened [sic] ended language, [HRR] could not protect [itself] in the event that Megee decided to breach by cancelling the lease, or losing it in foreclosure, bankruptcy or some other form of divestiture which would force [HRR] to relocate [its] business. Without statutory authorization or some dominant policy justification, a contract in restraint of trade is unreasonable if it is based on a promise to refrain from competition that is not ancillary to a contract for the transfer of goodwill or other property. Bendinger, supra ; However, the law will not protect parties against ordinary competition. Bendinger, supra ; Orkin v. Weaver, 257 Ark. 926, 521 S.W.2d 69 (1975). We have recognized that covenants not to compete in employment contracts are subject to stricter scrutiny than those connected with a sale of business. Bendinger, supra . We have held, in cases involving covenants not to compete in both employment contracts and sales of businesses, that whether a restraint provision is reasonable or unreasonable (and thus valid or invalid) is a matter to be determined under the particular circumstances involved. McLeod v. Meyer, 237 Ark. 173, 372 S.W.2d 220 (1963). In Bendinger, we stated that the failure of the covenant to contain a geographic restriction rendered it overbroad. Bendinger, supra . However, we noted that not every restrictive covenant that failed to contain a geographic restriction would be considered unreasonable. Id.; see, e.g., Girard v. Rebsamen Ins. Co., 14 Ark.App. 154, 685 S.W.2d 526 (1985). In Girard , the court of appeals held that a restrictive covenant, under which an insurance salesman was prohibited from soliciting or accepting insurance business from customers whose accounts he serviced at the time of his termination, was reasonable under the circumstances, even though the covenant contained no geographic restriction. Girard, supra . The court of appeals noted that the appellant was free to solicit and accept business from 95% of the overall insurance market, and, in fact, was free to solicit and accept business from 80% of the customers of his former employer's office. Id. This case is factually distinguishable from Girard . In the present case, the covenant not to compete in Megee's Associate Employment Agreement prohibited Megee, for two years after termination, from engaging in the business of insurance restoration, home repair, or any other substantially similar business. While the employee in Girard was free to solicit 95% of the insurance market, in the present case, the covenant not to compete would prohibit Megee from working in any insurance restoration or home repair business. HRR's failure to include an enforceable geographic restriction, combined with the two-year restriction which prohibited Megee from working in insurance restoration, home repair, or other substantially similar businesses renders it overbroad. We agree with the trial court's finding that the covenants not to compete in both the Sale of Assets Agreement and the Associate Employment Agreement are unreasonable. Megee's Commissions HRR argues that the trial court's findings regarding four accounts were clearly against the evidence. HRR contends that the trial court erred in finding that $2,291 remains to be collected on the Neubauer account. HRR contends that pursuant to section 19(b) of Megee's Associate Employment Agreement, there is a 5% charge for all collections, so the commission should have been reduced by $291. The trial court found that Megee was terminated before he was given the opportunity to collect the account, and on those accounts where Megee was terminated before collection, the amount to be collected was reduced by 65%. This was based on Megee's testimony that each account had a 35% profit built in. We do not find the trial court's determination clearly erroneous. HRR argues that the trial court erred when it awarded HRR $540 for the Jernigan account. HRR states that, per the terms of the Associate Employment Agreement, Megee guarantees 20% of the customer contract price to HRR. The court found that the contract price was $4,782. HRR contends that it should have been awarded $932.49. Megee stated that he was advised to stop work on the Jernigan job after the customer had a stroke, so the contract was not completed. The trial court resolved the dispute by determining the contract price to be the amount collected. The trial court further found that the legal expenses necessary to collect the account should be considered as part of the expenses incurred, regardless of how it was characterized on the ledger. We do not find the trial court's determination clearly erroneous. The trial court found that there was litigation over the quality of work performed on the Hinson account. HRR argues that the contract price was $79,224 on the Hinson account, and that the trial court arbitrarily established the contract price of $45,926. HRR argues that pursuant to their agreement, Megee owed HRR 20% of the contract price, or $15,448.68. In addition, HRR argues that Megee also owed HRR the difference from the expenditures on the job and the amount actually collected. Actual expenses were $37,577, and the actual amount collected was $32,875, for a difference of $4,732. We note that the difference between the actual expenses and the actual amount collected is $4,702, not $4,732. HRR argues that it is owed a total amount of $20,180 on the Hinson account. HRR is mistaken in its assertion that the Hinson contract price was $79,224. The record indicates that the Hinson contract price was $45,926, and the National Resort contract price was $79,224. There was a loss of $4,702 on the Hinson account. The trial court found that both Megee and Tucker were responsible for the problems with the performance of the contract, and it allocated the actual loss between the parties. We do not find that the trial court was clearly erroneous in its allocation. The contract price on the Gray account was $2,158. The court found the total expenses to be $2,160. The court awarded HRR one dollar. HRR argues that it was guaranteed 20% of the contract price, so the trial court should have awarded HRR $420.81. In its letter opinion, the trial court found that there was a dispute about the performance of the contract, which was not resolved until litigation was instituted, and the court was unable to determine fault regarding the Gray account. Therefore, the court resolved the dispute by allocating the loss between the parties. The trial court's findings were not clearly erroneous. Finally, HRR argues that the trial court's reduction for expenses by 65% of the contract price is arbitrary and capricious. HRR argues that the agreement between Megee and HRR guarantees 20% of the customer contract price to HRR. HRR argues that the court's findings regarding Megee's commissions for the Byrd, Tatum, Stacklager, National Resort, Papineau, Alderson, Neubauer, and A. Williams accounts is totally contrary to the express language of the employment agreement of [Megee]. Megee was terminated before he was given the opportunity to collect the accounts. Since the accounts needed to be finally settled for the parties, the trial court resolved the dispute by determining the contract price to be the amount collected and by reducing the contract price by 65% of the amount to be collected for expenses. This was based on Megee's testimony that each contract had a 35% profit margin. The court determined the commission by taking 97.5% of the determined contract price and multiplying by the applicable commission percentage of 16% on the Byrd, Tatum, and Stacklager accounts, and 11% on the National Resort, Papineau, Alderson, Neubauer, and Williams, A. accounts. The trial court's resolution of the dispute was not clearly erroneous. In sum, we reverse the trial court's judgment of $25,920 to River City; we affirm the remainder of the trial court's judgment. ARNOLD, C.J., not participating.