Court Opinion

ID: 4230040
Source: CourtListenerOpinion
Date Created: 2017-12-19 13:10:06.243418+00
Date Added: 2024-06-11T14:43:16.954193
License: Public Domain

IN THE COURT OF APPEALS OF NORTH CAROLINA

                                     No. COA17-342

                               Filed: 19 December 2017

Guilford County, No. 15 CVS 10300

MARKET AMERICA, INC., Plaintiff,

             v.

PAMELA LEE and RUSTY ANCHOR GROUP, INC., Defendants.

      Appeal by plaintiff from orders entered 17 August 2016 and 16 November 2016

by Judge Patrice A. Hinnant in Guilford County Superior Court. Heard in the Court

of Appeals 19 September 2017.

      Womble Carlyle Sandridge & Rice, LLP, by Pressly M. Millen and Samuel B.
      Hartzell, for plaintiff-appellant.

      Essex Richards, P.A., by Marc E. Gustafson, for defendants-appellees.

      DAVIS, Judge.

      There are two questions presented in this appeal. The first issue is whether a

plaintiff is permitted to voluntarily dismiss its claims pursuant to Rule 41(a)(1) of the

North Carolina Rules of Civil Procedure after the trial court has announced its ruling

against the plaintiff on the defendant’s dispositive motion but before the court’s

ruling is memorialized in a written order.           The second issue concerns the

circumstances under which a covenant not to compete contained in an employment

contract can be held unenforceable as a matter of law under Rule 12 of the North

Carolina Rules of Civil Procedure.
                                 MARKET AMERICA, INC. V. LEE

                                         Opinion of the Court

       Market America, Inc. (“Market America”) appeals from the trial court’s 17

August 2016 order vacating its notice of voluntary dismissal and dismissing with

prejudice its claims against Pamela Lee1 and from the court’s 16 November 2016

order denying its motion for reconsideration. Because we conclude that Market

America’s voluntary dismissal was improperly taken, we affirm the portion of the

trial court’s order vacating the voluntary dismissal.                 However, in light of our

determination that the court’s dismissal of Market America’s claims under Rule 12

constituted error, we reverse that portion of the trial court’s order.

                          Factual and Procedural Background

       We have summarized the pertinent facts below using Market America’s own

statements from its complaint, which we treat as true in reviewing a trial court’s

order granting a motion to dismiss. See, e.g., Stein v. Asheville City Bd. of Educ., 360
N.C. 321, 325, 626 S.E.2d 263, 266 (2006) (“When reviewing a complaint dismissed

under Rule 12(b)(6), we treat a plaintiff’s factual allegations as true.”).

       Market America is a product brokerage company that is headquartered in

Greensboro, North Carolina and “sells its products through a network of independent

distributors.” Its employees have the opportunity to attain the status of “certified

trainers” in order to provide specialized training to Market America’s distributors.

       1  While the body of the trial court’s 17 August 2016 order refers to Lee as Pamela Everett, the
captions of both orders being appealed refer to her as Pamela Lee. For the sake of consistency, we
refer to her herein as Pamela Lee.

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                            MARKET AMERICA, INC. V. LEE

                                   Opinion of the Court

Certified trainers are required to sign a Certified Trainer Agreement, which requires

them to agree not to compete or solicit other distributors in a specified geographic

area for one year after ceasing their employment with Market America.

      Market America’s employees can also become “approved speakers” who

“represent the company’s finest distributors and, as a result of their role, also attain

a high profile with the Market America field sales organization.” Approved speakers

must sign a Speakers Bureau Agreement, which also imposes “certain restrictions

concerning confidentiality and non-solicitation of Market America distributors.”

      Lee was hired as an independent distributor in 1997. During her employment

with Market America, she became a certified trainer and later — through her

corporate entity, Rusty Anchor Group, Inc. — an approved speaker. On 14 March

2008, she signed the Certified Trainer Agreement. On 26 June 2015, she signed the

Speakers Bureau Agreement.

      In 2015, while she was still employed with Market America, Lee began working

with a network marketing company called ARIIX, which used “person-to-person

and/or Internet sales of products or services directly to consumers in their homes or

at places other than fixed, permanent retail establishments, through independent

distributors or salespersons.” Market America learned of Lee’s involvement with

ARIIX and discovered that she had “actively solicited other Market America

distributors to become involved in ARIIX.”            Based on this discovery, Lee’s

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                            MARKET AMERICA, INC. V. LEE

                                    Opinion of the Court

employment with Market America was terminated. After her employment with

Market America ended, Lee continued to solicit Market America distributors to join

ARIIX.

      On 22 December 2015, Market America filed a complaint against Lee and

Rusty Anchor Group, Inc. (collectively “Defendants”) in Guilford County Superior

Court, alleging that Lee had breached the Certified Trainer Agreement and the

Speakers Bureau Agreement. On or about 2 March 2016, Defendants filed an answer

along with a motion to dismiss based on Rule 12(b)(6) and a motion for judgment on

the pleadings pursuant to Rule 12(c).

      On 6 July 2016, a hearing was held before the Honorable Patrice A. Hinnant

on the Rule 12 motions. At the close of the hearing, Judge Hinnant announced from

the bench that she was granting Defendants’ motions and directed Defendants’

counsel to draft a written order.

      A few hours after Judge Hinnant announced her ruling in open court, Market

America filed a notice of voluntary dismissal stating that it was dismissing without

prejudice all of its claims against Defendants pursuant to Rule 41(a)(1). On 11 July

2016, Defendants filed a motion to vacate the notice of voluntary dismissal on the

ground that the dismissal was ineffective because it was not taken in good faith.

      On 17 August 2016, Judge Hinnant entered a written order (1) granting

Defendants’ motion to vacate the voluntary dismissal; (2) dismissing Market

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                            MARKET AMERICA, INC. V. LEE

                                   Opinion of the Court

America’s claims against Rusty Anchor Group without prejudice; and (3) dismissing

its claims against Lee with prejudice to the extent that those claims were based upon

a breach of paragraphs 18(b) and (c) and 19(b) and (c) of the Certified Trainer

Agreement.

      Market America filed a motion for reconsideration on 31 August 2016. On 16

November 2016, Judge Hinnant entered an order denying this motion.              Market

America subsequently filed a notice of appeal as to both of the trial court’s orders.

                                       Analysis

I. Appellate Jurisdiction

      As an initial matter, we must determine whether we have jurisdiction to hear

this appeal. “A final judgment is one which disposes of the cause as to all the parties,

leaving nothing to be judicially determined between them in the trial court.” Duval

v. OM Hospitality, LLC, 186 N.C. App. 390, 392, 651 S.E.2d 261, 263 (2007) (citation

omitted). Conversely, an order or judgment is interlocutory if it does not settle all of

the issues in the case but rather “directs some further proceeding preliminary to the

final decree.” Heavner v. Heavner, 73 N.C. App. 331, 332, 326 S.E.2d 78, 80, disc.

review denied, 313 N.C. 601, 330 S.E.2d 610 (1985). In the present case, Lee asserts

that Judge Hinnant’s rulings were interlocutory because “the trial court did not

dismiss those portions of Market America’s claim involving [Lee]’s alleged breach of

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                            MARKET AMERICA, INC. V. LEE

                                   Opinion of the Court

the Speakers Bureau Agreement or [Lee]’s alleged breach of Paragraph 18(a) and

Paragraph 19(a) of the Certified Trainer Agreement.”

      “Generally, there is no right of immediate appeal from interlocutory orders and

judgments.” Paradigm Consultants, Ltd. v. Builders Mut. Ins. Co., 228 N.C. App.
314, 317, 745 S.E.2d 69, 72 (2013) (citation and quotation marks omitted). The

prohibition against interlocutory appeals “prevents fragmentary, premature and

unnecessary appeals by permitting the trial court to bring the case to final judgment

before it is presented to the appellate courts.” Russell v. State Farm Ins. Co., 136
N.C. App. 798, 800, 526 S.E.2d 494, 496 (2000) (citation and brackets omitted).

             However, there are two avenues by which a party may
             immediately appeal an interlocutory order or judgment.
             First, if the order or judgment is final as to some but not
             all of the claims or parties, and the trial court certifies the
             case for appeal pursuant to N.C. Gen. Stat. § 1A-1, Rule
             54(b), an immediate appeal will lie. Second, an appeal is
             permitted under N.C. Gen. Stat. §§ 1-277(a) and 7A-
             27(d)(1) if the trial court’s decision deprives the appellant
             of a substantial right which would be lost absent
             immediate review.

N.C. Dep’t of Transp. v. Page, 119 N.C. App. 730, 734, 460 S.E.2d 332, 334 (1995)

(internal citations omitted).

       Judge Hinnant’s order does not contain a certification under Rule 54(b).

Therefore, Market America’s appeal is proper only if it can demonstrate a substantial

right that would be lost absent an immediate appeal. See Embler v. Embler, 143 N.C.

App. 162, 166, 545 S.E.2d 259, 262 (2001) (“The burden is on the appellant to

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                            MARKET AMERICA, INC. V. LEE

                                   Opinion of the Court

establish that a substantial right will be affected unless he is allowed immediate

appeal from an interlocutory order.” (citation omitted)).

      Here, Lee concedes — and we agree — that a substantial right is affected with

respect to the trial court’s order vacating Market America’s voluntary dismissal.

However, Lee argues that Market America will not be deprived of a substantial right

in the event it is required to await a final judgment in this case before it is permitted

to appeal Judge Hinnant’s ruling on Lee’s Rule 12 motions.

      Assuming, without deciding, that Market America has failed to make the

requisite showing of a substantial right with regard to the court’s ruling under Rule

12, based on considerations of judicial economy and pursuant to our discretion under

Rule 21 of the North Carolina Rules of Appellate Procedure, we elect to treat Market

America’s appeal as a petition for certiorari with regard to this issue. See Carolina

Bank v. Chatham Station, Inc., 186 N.C. App. 424, 428, 651 S.E.2d 386, 389 (2007)

(“[B]ecause the case sub judice is one of those exceptional cases where judicial

economy will be served by reviewing the interlocutory order, we will treat the appeal

as a petition for a writ of certiorari and consider the order on its merits.”). Thus, we

address below each of the arguments Market America has raised in its appeal.

II. Voluntary Dismissal

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                                 MARKET AMERICA, INC. V. LEE

                                        Opinion of the Court

       We first consider Market America’s challenge to the portion of the trial court’s

order vacating its notice of voluntary dismissal as to its claim against Lee.2 Market

America does not specifically contest any of Judge Hinnant’s findings as to the

circumstances under which the notice of voluntary dismissal was filed. Instead, it

challenges only the conclusion that the voluntary dismissal was legally ineffective,

arguing that “[s]trategic dismissals are not bad faith.”

       Rule 41(a)(1) of the North Carolina Rules of Civil Procedure states, in pertinent

part, as follows:

               (1) By Plaintiff; by Stipulation. — Subject to the
                   provisions of Rule 23(c) and of any statute of this State,
                   an action or any claim therein may be dismissed by the
                   plaintiff without order of court (i) by filing a notice of
                   dismissal at any time before the plaintiff rests his
                   case . . .

N.C. R. Civ. P. 41(a)(1).

       Our Supreme Court has explained that

               [t]he purpose of our long-standing rule allowing a plaintiff
               to take a voluntary dismissal . . . is to provide a one-time
               opportunity where the plaintiff, for whatever reason, does
               not want to continue the suit. The range of reasons clearly
               includes those circumstances in which the plaintiff fears
               dismissal of the case for rule violations, shortcomings in
               the pleadings, evidentiary failures, or any other of the
               myriad reasons for which the cause of action might fail. The
               only limitations are that the dismissal not be done in bad
               faith and that it be done prior to a trial court’s ruling

       2  The parties do not challenge in this appeal the trial court’s dismissal without prejudice of
Market America’s claim against Rusty Anchor Group. Therefore, we do not address that portion of the
trial court’s ruling.

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                            MARKET AMERICA, INC. V. LEE

                                   Opinion of the Court

             dismissing plaintiff’s claim or otherwise ruling against
             plaintiff at any time prior to plaintiff resting his or her case
             at trial.

Brisson v. Santoriello, 351 N.C. 589, 597, 528 S.E.2d 568, 573 (2000) (emphasis

added).

      Thus, two limitations exist on the general rule permitting voluntary

dismissals. First, voluntary dismissals may not be taken in bad faith. Second, a

voluntary dismissal cannot be taken after the plaintiff has rested its case. Boyd v.

Rekuc, __ N.C. App. __, __, 782 S.E.2d 916, 918, disc. review denied, __ N.C. __, 792
S.E.2d 517 (2016).

      In the present case, the trial court relied on the bad faith exception in vacating

Market America’s voluntary dismissal. In so doing, the court made the following

pertinent findings:

             1.   At the time [Market America] filed its Notice of
                  Voluntary Dismissal, [Market America] knew that the
                  Court had ruled against [Market America] on the
                  merits of Defendants’ Rule 12 Motions just hours
                  before and that the Court was awaiting the submission
                  by counsel for Defendants of a written order of
                  dismissal.

             2.   The timing of the filing of [Market America]’s Notice of
                  Voluntary Dismissal permits no conclusion other than
                  that [Market America] was attempting to prevent the
                  Court from dismissing [Market America’s] claims as
                  set forth above.

             3.   [Market America]’s attempt at voluntary dismissal,
                  taken under these circumstances, cannot be said to

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                                        Opinion of the Court

                    have been made in good faith.

               4.   The Voluntary Dismissal is therefore void and should
                    be vacated.

       Market America does not challenge Finding Nos. 1 and 2 in which the trial

court found that it took a voluntary dismissal in order to prevent the court from

entering a written order memorializing its decision to grant Lee’s Rule 12 motions

after Judge Hinnant had informed the parties of her ruling. Indeed, in its appellate

brief Market America fails to offer any other reason for its decision to file the notice

of voluntary dismissal. Thus, Finding Nos. 1 and 2 are binding on appeal. See

Koufman v. Koufman, 330 N.C. 93, 97, 408 S.E.2d 729, 731 (1991) (“Where no

exception is taken to a finding of fact by the trial court, the finding is presumed to be

supported by competent evidence and is binding on appeal.”).3

       Instead, Market America contests the trial court’s legal ruling that its

voluntary dismissal was taken in bad faith. Specifically, it argues that no published

opinion exists in which North Carolina’s appellate courts have invalidated an

attempted voluntary dismissal based on the bad faith exception under these

circumstances. Market America asserts that the scope of this exception is restricted

exclusively to the unique fact pattern existing in Estrada v. Burnham, 316 N.C. 318,

       3 While Market America describes the trial court’s ruling on this issue as based purely on the
“timing” of the notice of voluntary dismissal, this characterization is incomplete. The trial court’s
findings were that Market America took the voluntary dismissal for the sole purpose of preventing the
court from following through with the ruling it had announced to the parties hours earlier.

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                             MARKET AMERICA, INC. V. LEE

                                    Opinion of the Court

341 S.E.2d 538 (1986), superseded by statute on other grounds as stated in Turner v.

Duke Univ., 325 N.C. 152, 381 S.E.2d 706 (1989) — the case in which our Supreme

Court first recognized the bad faith exception.

      In Estrada, the plaintiff suffered complications during a surgery to repair his

leg wound. Estrada, 316 N.C. at 319, 341 S.E.2d at 539-40. One day before the

applicable three-year statute of limitations was set to expire, the plaintiff filed a bare-

bones medical malpractice complaint. Two minutes after the complaint was filed, the

plaintiff filed a notice of voluntary dismissal. No attempt was ever made to serve the

summons and complaint upon the defendant. Id.

      Over eleven months later, he filed a new complaint arising out of the same

incident that provided more detail as to the basis for his claims. The defendant moved

to dismiss the second complaint as time-barred. In response, the plaintiff argued that

the second complaint was timely because Rule 41 had granted him an additional one-

year period from the date the voluntary dismissal was taken in which to refile the

action. Id. at 321, 341 S.E.2d at 540. Nevertheless, the trial court dismissed the

second complaint as untimely. Id.

      The issue on appeal was whether the voluntary dismissal of the first appeal

was taken in good faith so as to be legally effective and thereby extend the limitations

period for an additional year as provided for in Rule 41. In rejecting the plaintiff’s

argument, our Supreme Court observed that the plaintiff made a “candid admission

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                             MARKET AMERICA, INC. V. LEE

                                    Opinion of the Court

that the . . . lawsuit was filed with the sole intention of dismissing it in order to avoid

the lapse of the statute of limitations” and that such an admission was “tantamount

to a concession that his only purpose in certifying the complaint was to extend the

deadline by which he must draft and file a sufficient complaint.” Id. at 325, 341

S.E.2d at 543. For this reason, the Court held that the voluntary dismissal had been

taken in bad faith and was without legal effect. Id.

       In Eubank v. Van-Riel, 221 N.C. App. 433, 727 S.E.2d 25, 2012 N.C. App.

LEXIS 727 (2012) (unpublished), disc. review denied, 366 N.C. 571, 738 S.E.2d 380

(2013), this Court addressed the applicability of the bad faith exception under Rule

41(a)(1) to the precise circumstances at issue in the present case. In Eubank, the

trial judge notified the parties that it was granting the defendants’ motion to dismiss

and directed the defendants’ counsel to prepare an order for the judge’s signature.

After the court’s ruling was announced but before the order was signed, the plaintiff

filed a voluntary dismissal of his claim against the defendants. Id. at *32. The trial

court ruled that the voluntary dismissal under these circumstances was ineffective.

Id. at *28.

       Writing for a panel of this Court, Judge (now Justice) Ervin stated as follows:

                     The record in this case clearly shows that, on 30
              March 2011, the trial court notified the parties that it had
              granted Defendants’ dismissal motion and directed
              Defendants’ counsel to prepare an order to that effect for
              the court’s signature. Plaintiff’s “voluntary dismissal” was
              filed on the following day, a point in time after Plaintiff

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                           MARKET AMERICA, INC. V. LEE

                                  Opinion of the Court

             knew that the trial court had ruled against him on the
             merits of Defendants’ motion and prior to the entry of a
             formal dismissal order. The timing of Plaintiff’s motion
             permits no conclusion other than that he was attempting
             to prevent the trial court from dismissing his complaint. A
             voluntary dismissal taken under these circumstances
             cannot possibly be said to have been taken in good faith, so
             that the purported voluntary dismissal by plaintiffs is void
             and is hereby vacated.

Id. at *32-33 (internal citation, quotation marks, and brackets omitted).

      Unpublished opinions of this Court lack precedential authority. See N.C. R.

App. P. 30(e)(3) (providing that “an unpublished decision . . . does not constitute

controlling legal authority”). Nevertheless, we deem Eubank to be instructive on this

issue and reach a similar conclusion in the present case.

      While Rule 41(a)(1) clearly permits plaintiffs to voluntarily dismiss their

claims for a multitude of reasons, such a dismissal must be taken in good faith.

Taking a voluntary dismissal based on concerns about the potential for a future

adverse ruling by the Court is permissible. Dismissing an action after such a ruling

has actually been announced by the court is not. Once the trial court has informed

the parties of its ruling against the plaintiff on the defendant’s dispositive motion,

Rule 41 does not permit the proceeding to devolve into a footrace between counsel to

see whether a notice of voluntary dismissal can be filed before the court’s ruling is

memorialized in a written order and filed with the clerk of court. To hold otherwise

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                                 MARKET AMERICA, INC. V. LEE

                                         Opinion of the Court

would “make a mockery of” the court’s ruling. Maurice v. Hatterasman Motel Corp.,

38 N.C. App. 588, 592, 248 S.E.2d 430, 433 (1978).4

       We are unable to agree with Market America’s argument that the bad faith

exception under Rule 41 should be limited to the specific type of bad faith at issue in

Estrada because it has failed to offer any persuasive argument as to why that should

be the case. Bad faith can exist in a variety of forms, and we are satisfied that it

occurred in connection with Market America’s attempted voluntary dismissal here.

       Market America also contends that application of the bad faith exception on

the facts of this case would be inconsistent with this Court’s decisions in Schnitzlein

v. Hardee’s Food Sys., Inc., 134 N.C. App. 153, 516 S.E.2d 891, disc. review denied,

351 N.C. 109, 540 S.E.2d 365 (1999); Carlisle v. CSX Transp., Inc., 193 N.C. App. 509,

668 S.E.2d 98 (2008), cert. denied and disc. review denied, 363 N.C. 123, 675 S.E.2d
40 (2009); and Whitehurst v. Va. Dare Transp. Co., 19 N.C. App. 352, 198 S.E.2d 741

(1973). However, this assertion is incorrect. In none of those cases was the issue of

bad faith actually addressed by this Court. Thus, while Market America states that

Eubank is the only North Carolina appellate decision finding bad faith in this context,

       4 While Market America notes that a footnote in Eubank raised the possibility that scenarios
may exist where the taking of a voluntary dismissal after the trial court has announced its ruling does
not constitute bad faith, we need not address the possible existence of such scenarios given that — as
noted above — Market America has not attempted to challenge Judge Hinnant’s findings as to its
motive for filing its notice of voluntary dismissal. We observe that in the same footnote this Court
stated that under the circumstances at issue in Eubank — which are identical to the circumstances at
issue here — the voluntary dismissal was “clearly [taken] in bad faith . . . .” Eubank, at *32 n.3.

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                                 MARKET AMERICA, INC. V. LEE

                                         Opinion of the Court

a more accurate statement would be that Eubank is the only case in which this issue

has ever been expressly addressed by our appellate courts, and it expressly rejected

the argument being advanced here by Market America.

       Finally,     Market      America’s      contention       that   Judge     Hinnant’s      ruling

impermissibly infringed upon its “unfettered ability to dismiss its claims” is equally

unavailing. (Quotation marks omitted.) As our case law makes abundantly clear, a

plaintiff’s right to take a voluntary dismissal is, in fact, “fettered” by the requirements

that such a dismissal not be taken in bad faith or after a party has rested its case.

See, e.g., Brisson, 351 N.C. at 597, 528 S.E.2d at 573. Thus, our holding today simply

applies an exception that our Supreme Court has expressly recognized. Accordingly,

we affirm the portion of the trial court’s 17 August 2016 order vacating Market

America’s voluntary dismissal.5

III. Lee’s Rule 12 Motions

       Market America’s final argument on appeal is that the trial court erred by

granting Lee’s motions under Rule 12. We agree.

       5   Market America argues in the alternative that even assuming Judge Hinnant’s
interpretation of Rule 41(a)(1) on these facts was correct, her order vacating its notice of voluntary
dismissal should not have encompassed its dismissal of those claims unaffected by her ruling on the
Rule 12 motions — that is, those claims alleging a breach of provisions of the agreements at issue other
than paragraphs 18(b) and (c) and 19(b) and (c) of the Certified Trainer Agreement. While Market
America is technically correct on this point, the issue is moot in light of our holding below reversing
the court’s ruling on Lee’s Rule 12 motions.

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                             MARKET AMERICA, INC. V. LEE

                                   Opinion of the Court

      “It is well settled that both a motion for judgment on the pleadings and a

motion to dismiss for failure to state a claim upon which relief can be granted should

be granted when a complaint fails to allege facts sufficient to state a cause of action

or pleads facts which deny the right to any relief.” Bank of Am., N.A. v. Rice, __ N.C.

App. __, __, 780 S.E.2d 873, 882 (2015). “This Court will review de novo the grant of

a motion to dismiss under Rule 12(b)(6) and for judgment on the pleadings under Rule

12(c).” Freedman v. Payne, __ N.C. App. __, __, 800 S.E.2d 686, 689, disc. review

denied, __ N.C. __, 803 S.E.2d 387 (2017).

      “Under North Carolina law, a covenant not to compete is valid and enforceable

if it is (1) in writing; (2) made a part of the employment contract; (3) based on valuable

consideration; (4) reasonable as to time and territory; and, (5) designed to protect a

legitimate business interest of the employer.” Okuma Am. Corp. v. Bowers, 181 N.C.

App. 85, 88, 638 S.E.2d 617, 620 (2007) (citations omitted).

      In its 17 August 2016 order, the trial court granted Lee’s Rule 12 motions based

on its ruling that the territorial restrictions contained in Paragraphs 18(b) and (c)

and 19(b) and (c) of the Certified Trainer Agreement were “unreasonable and

overbroad as a matter of law.” Market America argues that the trial court’s order

was erroneous at the Rule 12 stage because the enforceability of the provisions at

issue could not be determined absent evidence to be obtained through discovery

showing the precise scope of the restrictions placed on Lee.

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                            MARKET AMERICA, INC. V. LEE

                                  Opinion of the Court

      In determining whether the geographic scope of a covenant not to compete is

reasonable, this Court has looked to the following factors: “(1) the area, or scope, of

the restriction; (2) the area assigned to the employee; (3) the area where the employee

actually worked or was subject to work; (4) the area in which the employer operated;

(5) the nature of the business involved; and (6) the nature of the employee’s duty and

his knowledge of the employer’s business operation.” Hartman v. W.H. Odell &

Assocs., 117 N.C. App. 307, 312, 450 S.E.2d 912, 917 (1994), disc. review denied, 339
N.C. 612, 454 S.E.2d 251 (1995). Moreover, we have held that

             the time and geographic limitations of a covenant not to
             compete must be considered in tandem, such that a longer
             period of time is acceptable where the geographic
             restriction is relatively small, and vice versa. Although
             either the time or the territory restriction, standing alone,
             may be reasonable, the combined effect of the two may be
             unreasonable. Nevertheless, the scope of the geographic
             restriction must not be any wider than is necessary to
             protect the employer’s reasonable business interests.

Okuma, 181 N.C. App. at 89, 638 S.E.2d at 620 (internal citations, quotation marks,

and brackets omitted). “In deciding what is reasonable, the court looks to the facts

and circumstances of the particular case.” Clyde Rudd & Assocs., Inc. v. Taylor, 29
N.C. App. 679, 684, 225 S.E.2d 602, 605 (internal citation and quotation marks

omitted), disc. review denied, 290 N.C. 659, 228 S.E.2d 451 (1976).

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                                 MARKET AMERICA, INC. V. LEE

                                         Opinion of the Court

       In their respective briefs, the parties’ arguments on this issue are based on the

portion of Market America’s complaint that discusses — and quotes from — the

Certified Trainer Agreement.6 The complaint alleges, in relevant part, as follows:

               . . . Certified Trainers . . . based on their high profile and
               positive reputation with the field network of Market
               America distributors, agree that for a period of one year
               after they cease to be Market America distributors they
               will not solicit any current or former Market America
               distributors within the following geographical territory:

                       (a) within 100 miles of Distributor’s residence during
                       the time he/she was a Market America independent
                       distributor; or (b) within 100 miles of the residences
                       of any of Distributor’s personally sponsored Market
                       America independent distributors, or (c) within 100
                       miles of the residence of any Market America
                       independent distributor in distributor’s downline
                       who achieved the level of Executive Coordinator or
                       above during the time that Distributor was a Market
                       America independent distributor.

                . . . Certified Trainers also agree to a limited non-compete
               in that same geographical territory. Specifically, for a
               period of one year after ceasing to act in that role, they
               agree that they will not act in any capacity for another

       6  We note that the trial court’s order makes clear that it reviewed not only Market America’s
complaint but also “the documents specifically referred to therein.” Presumably, this means that the
trial court reviewed the Certified Trainer Agreement itself even though this document was not
attached to Market America’s complaint. In so doing, the trial court was not required to convert Lee’s
motions into a motion for summary judgment. “[A] trial court’s consideration of a contract which is
the subject matter of an action does not expand the scope of a Rule 12(b)(6) hearing and does not create
justifiable surprise in the nonmoving party.” Oberlin Capital, L.P. v. Slavin, 147 N.C. App. 52, 60,
554 S.E.2d 840, 847 (2001) (citation omitted). Here, the Certified Trainer Agreement was a subject of
Market America’s complaint and was quoted from therein.

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                                 MARKET AMERICA, INC. V. LEE

                                         Opinion of the Court

               network marketing company.7

       Our appellate courts have made clear that non-compete agreements are

unenforceable where the time and territorial restrictions contained therein are

overbroad. See, e.g., Henley Paper Co. v. McAllister, 253 N.C. 529, 535, 117 S.E.2d
431, 434 (1960) (three-year restriction on manufacture, sale, or distribution of paper

or paper products within 300-mile radius of any office or branch of defendant

company that had offices in 13 states was void); CopyPro, Inc. v. Musgrove, 232 N.C.

App. 194, 204, 754 S.E.2d 188, 195 (2014) (three-year restriction on working for

similar business within geographical area consisting of over twenty counties in North

Carolina or within a 60-mile radius of Greenville and Wilmington was void);

Hartman, 117 N.C. App. at 315, 450 S.E.2d at 919 (five-year restriction on working

for “competitors” in eight states was void).

       However, this Court has previously held that a ruling on the enforceability of

such an agreement cannot be made at the pleadings stage in cases where evidence is

needed to show the reasonableness of the restrictions contained therein. In Okuma,

the plaintiff brought an action against its former employee for violation of a non-

compete agreement.         Okuma, 181 N.C. App. at 87-88, 638 S.E.2d at 619.                      The

agreement stated that the defendant could not work for a direct competitor of the

       7The complaint states that the Speakers Bureau Agreement also contained a non-solicitation
agreement. However, because the Speakers Bureau Agreement was not a basis for the trial court’s 17
August 2016 order, we do not address the enforceability of the restrictions contained in that document.

                                                - 19 -
                            MARKET AMERICA, INC. V. LEE

                                  Opinion of the Court

plaintiff for six months following the cessation of his employment in “areas in which

[the plaintiff] does business[.]” Id. at 87, 638 S.E.2d at 619. It also prohibited the

defendant “from soliciting business from [the plaintiff]’s customers” during this six-

month time period. Id. at 89, 638 S.E.2d at 620. The defendant filed a motion to

dismiss, asserting that the non-compete language was overly broad and therefore

unenforceable as a matter of law. Id. at 86, 638 S.E.2d at 618. The trial court granted

the motion, and the plaintiff appealed. Id.

      This Court held that “the covenant’s enforceability in this case rests on

questions of fact and cannot be determined as a matter of law.” Id. We held that the

six-month period was “well within the established parameters for covenants not to

compete in this State” and that although “the geographic effect of the restriction is

quite broad . . . taken in conjunction with the six-month duration, it is not per se

unreasonable in light of our courts’ past rulings.” Id. at 90, 638 S.E.2d at 620. Upon

consideration of the legitimate business interest alleged in the plaintiff’s complaint,

we determined that because the non-compete agreement took into account the

defendant’s senior position in the company and only barred his employment with

direct competitors the restrictions were not necessarily unreasonable. Id. at 91-92,

638 S.E.2d at 621-22. We concluded that

             when examining the time and geographic restrictions of a
             covenant not to compete, we are unable to conclude that a
             covenant restricting employment for six months with a
             direct competitor in a related capacity, even with a

                                         - 20 -
                             MARKET AMERICA, INC. V. LEE

                                   Opinion of the Court

             geographic scope potentially extending throughout North
             and South America due to the client-based restrictions, is
             overly broad and unenforceable as a matter of law. In this
             case, the enforceability of the covenant not to compete rests
             on factual questions such as whether the geographic effect
             of the client-based restriction is excessive in light of [the
             defendant’s] actual contacts with customers, the nature of
             his duties, the level of his responsibilities, the scope of his
             knowledge, and other issues relating to how closely the
             geographic limits fit with [defendant’s] work for [the
             plaintiff]. Accordingly, we hold that, when taken as true,
             [plaintiff’s] complaint stated a claim for which relief might
             be granted.

Id. at 92, 638 S.E.2d at 622.

      Here, Market America has alleged in its complaint that certified trainers

maintain a “high profile[,]” hold a “sensitive position . . . in the hierarchy of the

company[,]” and are “expos[ed] to [a] wide variety of Market America

distributors . . . .” For these reasons, the complaint asserts, the restrictions contained

in the Certified Trainer Agreement are necessary to protect Market America’s

confidentiality concerns.

      The provisions at issue in the Certified Trainer Agreement contain a time

restriction of one year.    As an initial matter, we recognize that this Court has

previously held that a “one year time restriction is well within the established

parameters for covenants not to compete.” Precision Walls v. Servie, 152 N.C. App.
630, 638, 568 S.E.2d 267, 273 (2002). Nevertheless, as noted above, the duration of

the time restriction in a covenant not to compete cannot be evaluated in a vacuum.

                                          - 21 -
                            MARKET AMERICA, INC. V. LEE

                                  Opinion of the Court

Rather, the time restriction must be analyzed in conjunction with the geographic

restrictions imposed on Lee.

      In this case, it is impossible to determine based solely on the four corners of

the complaint whether the territorial restrictions in the Certified Trainer Agreement

are appropriately tailored to protect Market America’s legitimate business interests.

Indeed, because of the way the provisions are worded, we presently have no way of

knowing the actual effect of the geographic restrictions on Lee. The complaint does

not specify the number of independent distributors Lee personally sponsored or the

locations of the residences of the independent distributors in Lee’s “downline” who

achieved the level of executive coordinator or above during the time period specified

in the agreement.    Without this and other additional relevant information, the

potential overbreadth of the Certified Trainer Agreement’s restrictions on Lee cannot

be meaningfully assessed.

      Taking Market America’s allegations in the complaint as true, as we must, we

hold that the trial court lacked a sufficient basis to rule as a matter of law that the

provisions of paragraphs 18(b) and (c) and 19(b) and (c) of the Certified Trainer

Agreement are overbroad and unreasonable. Accordingly, we reverse the portion of

the trial court’s 17 August 2016 order granting Lee’s Rule 12 motions.

                                    Conclusion

                                         - 22 -
                           MARKET AMERICA, INC. V. LEE

                                  Opinion of the Court

      For the reasons stated above, we (1) affirm the portion of the trial court’s 17

August 2016 order vacating Market America’s notice of voluntary dismissal; and (2)

reverse the portion of the court’s order granting Lee’s Rule 12 motions.

      AFFIRMED IN PART; REVERSED IN PART.

      Judges BRYANT and INMAN concur.

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