Court Opinion

ID: 2729228
Source: CourtListenerOpinion
Date Created: 2014-09-08 21:40:03.368806+00
Date Added: 2024-06-11T15:44:51.495652
License: Public Domain

NO. COA13-297
                     NORTH CAROLINA COURT OF APPEALS
                          Filed:    4 February 2014
COPYPRO, INC.,
     Plaintiff

                                            Pitt County
     v.
                                            No. 12 CVS 2887

JOSEPH EDWARD MUSGROVE,
     Defendant

    Appeal by defendant from order entered 19 December 2012 by

Judge Thomas D. Haigwood in Pitt County Superior Court.               Heard in

the Court of Appeals 12 September 2013.

    White & Allen,        P.A.,    by    David     J.   Fillippeli,   Jr.,   for
    Plaintiff.

    Cranfill Sumner & Hartzog LLP, by Benton L. Toups and Susie
    E. Sewell, for Defendant.

    ERVIN, Judge.

    Defendant    Joseph    Edward       Musgrove    appeals   from    an   order

granting a preliminary injunction sought by Plaintiff CopyPro,

Inc., prohibiting Defendant from working in any capacity for a

competitor.   On appeal, Defendant contends that Plaintiff failed

to demonstrate that it would likely succeed on the merits of its

claim or that it would suffer harm in the absence of the issuance

of the injunction.     After careful consideration of Defendant’s

challenges to the trial court’s order in light of the record and
                                         -2-
the applicable law, we conclude that the trial court’s order should

be reversed, in part.1

                             I. Factual Background

                              A. Substantive Facts

     Plaintiff has been engaged in the selling, maintaining and

leasing of office equipment systems for the past forty-two years,

with ninety percent of Plaintiff’s business being derived from the

leasing of office equipment.            Almost all of Plaintiff’s leases are

for a term of either 36, 48, or 60 months.                     All of Plaintiff’s

customers    are     located    in   various        counties   in    eastern    North

Carolina.

     Sales       personnel    working    for    Plaintiff      are   provided    with

access to pricing and customer information in four principal ways.

First, each sales representative has access to a company database

that contains important information relating to the customers

within     the    territory    assigned        to    that   employee,    with    the

information contained in that database consisting of material such

     1As will be discussed in more detail below, the trial court’s
order enforced a contractual provision that prohibited Defendant
from disclosing or making use of certain specified information and
a separate contractual provision that prohibited Defendant from
working for or having any connection with a competitor. On appeal,
Defendant has challenged the validity of the noncompetition
agreement, but has made no challenge to the trial court’s decision
to enforce the nondisclosure agreement. As a result, we have no
basis for overturning the trial court’s decision to enforce the
nondisclosure agreement and leave that part of the trial court’s
order undisturbed.
                                    -3-
as customer names, phone numbers, “decision-makers’” names, and

lease    expiration     reports.          Secondly,     Plaintiff’s        sales

representatives receive a weekly spreadsheet that shows order logs

for the entire company organized on a territory by territory basis.

The weekly spreadsheets list customer names, the date and amount

of each sale, and the nature of the equipment sold.             However, the

weekly spreadsheet does not provide information concerning the

length of specific leases.         Thirdly, Plaintiff’s sales persons

have access to an electronic database known as Recollect, which

contains copies of each contract that Plaintiff has entered into

with any customer.     Finally, pricing changes are communicated to

sales representatives using a revised electronic price book that

is sent out each time such a change takes place.

       On 10 November 2009, Defendant entered into an employment

contract with Plaintiff under which he agreed to work for Plaintiff

as a salesperson.     As a condition of his employment, Defendant was

required to sign a nondisclosure agreement and a covenant not to

compete.    In the nondisclosure agreement, Defendant agreed to

refrain from disclosing or making any use of any of Plaintiff’s

customer lists during or after his employment except to the extent

that    Defendant’s   activities    benefitted        Plaintiff.      In     the

noncompetition   agreement,   Defendant      agreed     that   he   would    not
                                     -4-
engage in certain activities for a period of three years after the

end of his employment with Plaintiff.

     During the time that he worked for Plaintiff, Defendant was

assigned responsibility for accounts within Pender and Onslow

Counties.   In carrying out his job responsibilities, Defendant was

responsible for servicing the accounts that were assigned to him

and obtaining new accounts.        Although Plaintiff did business in 33

eastern North Carolina counties, Defendant focused his efforts on

his assigned area and only contacted potential customers outside

that area on a few occasions, with such extra-territorial contacts

including customers in Craven, Duplin, New Hanover, and Sampson

Counties and an old hunting friend in Carteret County.                        As a

result, 95% to 97% of Defendant’s time was spent working with

customers or potential customers in Onslow and Pender Counties.

     Defendant     remained       employed    by    Plaintiff         until     his

resignation   on   28    August   2012.      Defendant    decided      to     leave

Plaintiff’s   employment     after   learning      that   he    was   no    longer

Plaintiff’s sole service representative in Onslow County, which

made up the majority of his assigned territory.                A few days after

he resigned from his employment with Plaintiff, Defendant went to

work for Coastal Document Systems, an entity which competes with

Plaintiff and operates solely in Brunswick, Columbus, and New

Hanover Counties.       After beginning to work for Coastal, Defendant
                                             -5-
refrained from calling on customers in Onslow or Pender Counties.

In fact, Coastal officials informed Defendant that his employment

would be terminated if he contacted any of Plaintiff’s customers

or conducted business within the territory that had been assigned

to him during his employment with Plaintiff.                   However, Plaintiff

learned in late August that Defendant was working for Coastal when

one of its sales representatives visited a potential customer,

learned that Coastal had provided the potential customer with a

quote, and saw that one of Defendant’s business cards was attached

to Coastal’s proposal.

                             B. Procedural Facts

     On 29 October 2012, Plaintiff filed a complaint in which it

alleged     that    Defendant         had    breached    the   nondisclosure   and

noncompetition agreements and sought the issuance of a temporary

restraining        order,   a     preliminary       injunction,      a    permanent

injunction and an award of attorneys’ fees.                    After conducting a

hearing with respect to Plaintiff’s request for the issuance of a

preliminary injunction on 15 November 2012, the trial court entered

an order on 19 December 2012 granting Plaintiff’s motion and

enjoining     Defendant         for     violating       the    nondisclosure   and

noncompetition       provisions         of    his   contract     with    Plaintiff.

Defendant noted an appeal to this Court from the trial court’s

order.
                                     -6-
                           II. Legal Analysis

                               A. Appealability

       “A preliminary injunction is interlocutory in nature,” which

means that an order issuing a preliminary injunction “cannot be

appealed prior to [a] final judgment absent a showing that the

appellant has been deprived of a substantial right which will be

lost   should    the   order   escape   appellate   review   before   final

judgment.”      Clark v. Craven Regional Medical Authority, 326 N.C.
15, 23, 387 S.E.2d 168, 173 (1990) (internal quotation marks

omitted) (quoting State ex rel. Edmisten v. Fayetteville Street

Christian School, 299 N.C. 351, 358, 261 S.E.2d 908, 913, cert.

denied, 449 U.S. 807, 101 S. Ct. 55, 66 L. Ed. 2d 11 (1980)).

However, when the entry of an order granting a request for the

issuance of a preliminary injunction has the effect of destroying

a party’s livelihood, the order in question affects a substantial

right and is, for that reason, subject to immediate appellate

review.    See Precision Walls, Inc. v. Servie, 152 N.C. App. 630,

635, 568 S.E.2d 267, 271 (2002).        As a result of the fact that the

challenged order prohibits Defendant from working for Coastal for

a period of three years, we conclude that his appeal from the trial

court’s order is properly before us.
                                    -7-
                         B. Standard of Review

      “[O]n appeal from an order of superior court granting or

denying a preliminary injunction, an appellate court is not bound

by the findings, but may review and weigh the evidence and find

facts for itself.”      A.E.P. Indus., Inc. v. McClure, 308 N.C. 393,

402, 302 S.E.2d 754, 760 (1983).               As a general proposition,

however, “a decision by the trial court to issue or deny an

injunction will be upheld if there is ample competent evidence to

support the decision, even though the evidence may be conflicting

and   the   appellate   court   could   substitute    its      own   findings.”

Wrightsville Winds Townhouse Homeowners’ Ass’n v. Miller, 100 N.C.

App. 531, 535, 397 S.E.2d 345, 346 (1990) (citing Robins & Weill

v. Mason, 70 N.C. App. 537, 540, 320 S.E.2d 693, 696, disc. review

denied, 312 N.C. 495, 322 S.E.2d 559 (1984)), disc. review denied,

328 N.C. 275, 400 S.E.2d 463 (1991).              In light of that fact,

“‘there is a presumption that           the judgment entered below is

correct, and the burden is upon appellant to . . . show error.’”

Western Conference of Original Free Will Baptists of N.C. v.

Creech, 256 N.C. 128, 140, 123 S.E.2d 619, 627 (1962) (quoting

Lance v. Cogdill, 238 N.C. 500, 504, 78 S.E.2d 319, 322 (1953)).

As a result, we will uphold a trial court’s decision to issue a

preliminary    injunction   “(1)   if     a   plaintiff   is    able   to   show

likelihood of success on the merits of his case and (2) if a
                                        -8-
plaintiff    is    likely   to   sustain      irreparable    loss    unless   the

injunction is issued.”        Ridge Cmty. Investors, Inc. v. Berry, 293
N.C. 688, 701, 239 S.E.2d 566, 574 (1977).                In view of the fact

that the evidence received at the hearing held before the trial

court was essentially undisputed and reflected in the trial court’s

findings of fact, the ultimate question for our consideration is

whether the trial court correctly applied the applicable law to

the undisputed record evidence, a determination that requires us

to utilize a de novo standard of review.            Robins & Weill, 70 N.C.

App. at 540, 320 S.E.2d at 696.

                  C. Validity of Noncompetition Agreement

     In   his     brief,    Defendant    contends    that    the    trial    court

erroneously granted the requested preliminary injunction on the

grounds that Plaintiff failed to establish that it was likely to

succeed on the merits of its underlying breach of contract claim.

According to Defendant, the evidentiary materials contained in the

record demonstrate that the noncompetition agreement contained in

his employment contract prohibited an unreasonably wide range of

activities      and    should,   for    that    reason,     have    been    deemed

unenforceable.        Defendant’s argument has merit.

     A noncompetition agreement contained in or associated with an

employment agreement is subject to careful scrutiny.                   Keith v.

Day, 81 N.C. App. 185, 193, 343 S.E.2d 562, 567 (1986), disc.
                                   -9-
review improvidently granted, 320 N.C. 629, 359 S.E.2d 466 (1987).

A valid noncompetition agreement entered into in the employer-

employee context must be “(1) in writing; (2) reasonable as to

time and territory; (3) made a part of the employment contract;

(4) based on valuable consideration; and (5) designed to protect

a legitimate business interest of the employer.” Young v. Mastrom,

Inc., 99 N.C. App. 120, 122-23, 392 S.E.2d 446, 448 (citing A.E.P.

Indus., 308 N.C. at 403-04, 302 S.E.2d at 760-61), disc. review

denied, 327 N.C. 488, 397 S.E.2d 239 (1990).        On the one hand, an

employer has a right “‘to protect, by reasonable contract with

[its] employee, the unique assets of [its] business, a knowledge

of which is acquired during the employment and by reason of it,’”

with   these   unique   assets   having   “been   defined   as   ‘customer

contacts’ and ‘confidential information.’”           Elec. S., Inc. v.

Lewis, 96 N.C. App. 160, 165-66, 385 S.E.2d 352, 355 (1989)

(alterations in original) (quoting Kadis v. Britt, 224 N.C. 154,

159, 29 S.E.2d 543, 546 (1944), and citing United Laboratories,

Inc. v. Kuykendall, 322 N.C. 643, 653, 657, 370 S.E.2d 375, 381,

384 (1988)), disc. review denied, 326 N.C. 595, 393 S.E.2d 876

(1990). On the other hand, an enforceable noncompetition agreement

must “not impose unreasonable hardship on the [employee],” Kadis,
224 N.C. at 161, 29 S.E.2d at 547, and should not, for that reason,

be “broader than necessary to protect its legitimate business
                                -10-
interest.”   Hartman v. W.H. Odell & Assocs., 117 N.C. App. 307,

316, 450 S.E.2d 912, 919 (1994), disc. review denied, 339 N.C.
612, 454 S.E.2d 251 (1995).   Although the record before us in this

case clearly establishes that the noncompetition agreement at

issue here was in writing, was made part of the employment contract

between Plaintiff and Defendant, and was supported by valuable

consideration, we conclude that the noncompetition agreement at

issue prohibits Defendant from engaging in a much broader array of

activities than is necessary to protect Plaintiff’s legitimate

business interests.2

     The noncompetition agreement between the parties provides

that:

           [f]or a period of three (3) years from the
           date of the termination of his/her employment,
           the Employee will not, within the geographical
           limits of the Counties of Beaufort, Bertie,
           Bladen, Brunswick, Camden, Carteret, Chowan,

     2In addition to contending that the noncompetition agreement
was broader than necessary to protect Plaintiff’s legitimate
business interests, Defendant challenges its temporal and
territorial restraints as well.     Although Plaintiff has raised
serious questions about the validity of these temporal and
territorial restraints, which prohibit Defendant from working in
counties outside his assigned territory for a period of three
years, we need not address Defendant’s challenges to these
provisions given our decision to reverse the trial court’s order
on the grounds that the noncompetition agreement between the
parties prohibits a broader array of activities than is necessary
to protect Plaintiff’s legitimate business interests.     For that
same reason, we decline to address Defendant’s specific objections
concerning the extent to which Plaintiff demonstrated that it would
suffer irreparable harm absent the issuance of a preliminary
injunction.
                               -11-
          Columbus, Craven, Currituck, Dare, Duplin,
          Edgecombe, Gates, Greene, Halifax, Hertford,
          Hyde, Jones, Lenoir, Martin, Nash, New
          Hanover,    Northampton,   Onslow,    Pamlico,
          Pasquotank,     Pender,     Pitt,     Tyrrell,
          Washington, Wayne, Wilson or within a sixty
          (60) mile radius of Greenville and Wilmington,
          directly or indirectly, own, manage, operate,
          join, control, be employed or participate in
          the ownership, management, operation or
          control of, or be connected in any manner with
          any business of the type and character of the
          business engaged in by the Employer at the
          time of such termination.

As our decisions reflect, we have held on numerous occasions that

covenants restricting an employee from working in a capacity

unrelated to that in which he or she worked for the employer are

generally overbroad and unenforceable.   E.g., Henley Paper Co. v.

McAllister, 253 N.C. 529, 534-35 117 S.E.2d 431, 434 (1960)

(holding that a noncompetition agreement was unenforceable on the

grounds, in part, that it precluded the defendant from engaging in

activities unrelated to those inherent in the sales position that

he had occupied while employed by the plaintiff); Med. Staffing

Network, Inc. v. Ridgway, 194 N.C. App. 649, 656-57, 670 S.E.2d
321, 327-28 (2009) (holding that a noncompetition agreement that

prohibited an employee from working for a competing business even

if the employment duties assigned to that employee by the competing

business were not similar to the duties that the employee had

performed while working for the plaintiff was unenforceable);

VisionAIR, Inc. v. James, 167 N.C. App. 504, 508-09, 606 S.E.2d
                                     -12-
359, 362-63 (2004) (alterations in original) (holding that a

covenant that prohibited an employee from “own[ing], manag[ing],

be[ing] employed by or otherwise participat[ing] in, directly or

indirectly, any business similar to” the employer’s business was

overly broad and unenforceable); Hartman, 117 N.C. App. at 317,

450 S.E.2d at 920 (holding that a noncompetition agreement was

unenforceable   on   the   grounds    that   the   agreement    in   question

prohibited the plaintiff from having any “association whatsoever

with any business that provides actuarial services”).                We have

even held similar restrictions to be unenforceable outside the

employment contract context.       E.g., Outdoor Lighting Perspectives

Franchising v. Harders, __ N.C. App. __, __, 747 S.E.2d 256, 267-

68 (2013) (holding that a noncompetition agreement contained in a

franchise agreement was unenforceable because it prevented the

franchisee   from    associating     with    or    owning   a   business   in

competition with any of the franchisor’s affiliates regardless of

the extent to which the franchisor’s affiliates engaged in a

business similar to that in which the franchisee was currently

employed).   As a result, in the absence of unusual factors tending

to justify such a restriction, the appellate courts in this

jurisdiction have typically refused to allow the enforcement of

noncompetition agreements precluding an employee from engaging in
                                    -13-
activities   that   have   no    bearing   on   the   employer’s   business

interests.

     A careful reading of the relevant contractual language at

issue here establishes, as confirmed by the testimony of David

Jones, Plaintiff’s chief of operations, that the noncompetition

agreement at issue here was intended to and actually did prohibit

Defendant from working for Coastal in any capacity, including as

a custodian.      As the cases summarized above clearly establish,

such overly broad restrictions are generally not enforceable in

the employer-employee context on the grounds that the scope of the

restrictions   contained    in    such   agreements    far   exceeds   those

necessary to protect an employer’s legitimate business interests.

E.g., Hartman, 117 N.C. App. at 317, 450 S.E.2d at 920 (holding

that a noncompetition agreement that would prevent a non-custodial

“plaintiff from working as a custodian for any ‘entity’ which

provides ‘actuarial services’” was unenforceable).            As a result,

we conclude that the noncompetition agreement at issue here is

unenforceable.3

     3The ordering paragraphs in the trial court’s order do not
contain the “in any manner” language found in the noncompetition
agreement.    Although Defendant contends that this omission
represents an implicit attempt to “blue pencil” the noncompetition
agreement in order to render it enforceable, we are inclined to
agree with Plaintiff that the omission of this language from the
trial court’s order simply reflects the nature of Defendant’s
activities on behalf of Coastal rather than a “blue penciling”
exercise. However, to the extent that this limitation on the scope
                                 -14-
      In seeking to   persuade us to reach a different result,

Plaintiff places principal reliance upon our decision in Precision

Walls.   In Precision Walls, the defendant worked as one of the

plaintiff’s project managers, having responsibility for customer

contacts,   calculating   job   costs,   projecting   bids,   ordering

materials, and engaging in other similar activities.          Precision

Walls, 152 N.C. App. at 632, 568 S.E.2d at 269.       After signing a

covenant that prevented him from being employed in any capacity

with a competing business for a period of one year, the defendant

went to work for a competitor.    Id. at 632-33, 568 S.E.2d at 269-

70.   In holding that the noncompetition agreement at issue in that

case was enforceable against a challenge predicated on the theory

that it prohibited an unduly broad array of activities, we stated:

of the trial court’s order did represent an attempt to “blue
pencil” the noncompetition agreement in order to make it
enforceable, that effort must be deemed unavailing given that the
exclusion of the omitted language for the reason suggested by
Defendant would amount to an effort to rewrite the noncompetition
agreement rather than a refusal to enforce a severable provision.
E.g., Welcome Wagon Int’l, Inc. v. Pender, 255 N.C. 244, 248, 120
S.E.2d 739, 742 (1961) (stating that, “where, as here, the parties
have made divisions of the territory, a court of equity will take
notice of the divisions the parties themselves have made, and
enforce the restrictions in the territorial divisions deemed
reasonable and refuse to enforce them in the divisions deemed
unreasonable”); Whittaker Gen. Med. Corp. v. Daniel, 324 N.C. 523,
528, 379 S.E.2d 824, 828 (1989) (stating that, “[t]he courts will
not rewrite a contract if it is too broad but will simply not
enforce it,” and that, “[i]f the contract is separable, however,
and one part is reasonable, the courts will enforce the reasonable
provision”).
                                       -15-
              that defendant would not be less likely to
              disclose   the   information   and   knowledge
              garnered from his employment with plaintiff if
              he worked for one of plaintiff’s competitors
              in a position different from the one in which
              he worked for plaintiff. If defendant’s new
              employer asked him about information he gained
              while working for plaintiff, defendant would
              likely feel the same pressure to disclose the
              information.    Thus, plaintiff’s legitimate
              business interest allows the covenant not to
              compete to prohibit employment of any kind by
              defendant with a direct competitor.

Id. at 639, 568 S.E.2d at 273.               However, we do not believe that

Precision Walls is controlling in this case.

     Aside from the fact that the restriction at issue in Precision

Walls   was    to   remain   in     effect    for   only   one   year   while   the

noncompetition agreement at issue here will remain in effect for

three   years,      the   present    record    contains    no    indication     that

Defendant ever had either the same level of responsibility or the

same level of access to competitively sensitive information as the

defendant whose conduct was at issue in Precision Walls.                   Simply

put, the record developed in this case, unlike the record developed

in Precision Walls, contains no evidence that Defendant had the

responsibility for developing client-specific pricing proposals or

adjusting prices for competitive reasons or that Defendant was

involved in the development and operation of his employer’s bidding

or pricing strategies.        Although Plaintiff contended in the court

below that Defendant might share vital information even if he were
                                       -16-
hired by a competing business as a custodian, nothing in the

present     record   indicates      that      Defendant      actually    possessed

sufficiently important information to render him a competitive

threat regardless of the position he held with a subsequent

employer.    Although our opinion in Precision Walls indicates that

the defendant possessed all of the information about which the

employer was concerned, Defendant denied having taken any of

Plaintiff’s materials with him when he left its employment, claimed

that he had never accessed the Recollect system during the entire

time that he worked for Plaintiff, stated that his failure to

access the Recollect system prevented him from knowing the identity

of Plaintiff’s customers, and testified that, in the event that he

determined that a potential customer upon whom he called while

working     for    Coastal    was   currently      receiving      service    from

Plaintiff, his standard reply was to describe Plaintiff as a “fine

company” and depart without leaving a business card.

     In order to affirm the trial court’s order in this case, we

would have to hold that an employer’s decision to merely make

information available to employees, without more, would support

the enforcement of a noncompetition agreement like that at issue

here.     Such a result would be a substantial expansion of our

decision    in    Precision   Walls,    and     would   be    inconsistent    with

decisions    such    as   Henley     Paper,      Medical      Staffing    Network,
                                    -17-
VisionAIR, and Hartman.4      Although Plaintiff would have clearly

had the right to seek “to prohibit defendant from working in an

identical position with a competing business,” id. at 638, 568

S.E.2d at 273, its decision to draft a much broader noncompetition

agreement that prohibited Defendant from engaging in a wide array

of activities which posed no competitive threat to Plaintiff and

which involved an employee who had very different responsibilities

than those at issue in Precision Walls causes us to conclude that

Precision Walls does not control the outcome in this case.

     Aside from Precision Walls, Plaintiff has cited no authority

in support of its contention that a noncompetition agreement that

precludes an employee from working for a competitor in a capacity

unrelated   to   the   employer’s   competitive   position   protects   a

legitimate business interest.         In light of the absence of any

controlling authority tending to suggest that restrictions such as

those at issue here are appropriate in this case and in light of

the fact that, contrary to many prior decisions of the Supreme

Court and this Court, the noncompetition agreement at issue here

     4Although   Plaintiff  asserts   that   Defendant   possessed
information that would allow him to approach Plaintiff’s customers
when their existing leases were about to expire, this argument is
not valid unless one assumes that Defendant actually accessed the
Recollect system or concludes that the fact that Defendant did, at
one point, have access to the information contained in the
Recollect system is sufficient to support a decision to uphold the
enforceability of the noncompetition agreement at issue here, a
step that we are unwilling to take.
                                    -18-
precludes Defendant from working for a competitor in a manner which

does not affect the employer’s legitimate business interests, we

hold that the noncompetition agreement at issue here is much

broader   than    is   necessary   to   protect   Plaintiff’s   legitimate

business interests and is, for that reason, unenforceable.           As a

result, the trial court erred by issuing a preliminary injunction

enforcing   the    noncompetition       provisions   of   the   employment

agreement between Plaintiff and Defendant.

                             III. Conclusion

     Thus, for the reasons set forth above, we conclude that, while

the trial court’s decision to enforce the nondisclosure agreement

should be affirmed, the trial court erred by concluding that the

noncompetition agreement at issue here was enforceable and by

issuing a preliminary injunction enforcing that agreement.           As a

result, the trial court’s order should be, and hereby is, affirmed

in part and reversed in part.

     AFFIRMED IN PART; REVERSED IN PART.

     Judges ROBERT N. HUNTER, JR. and DAVIS concur.