Court Opinion

ID: 9691605
Source: CourtListenerOpinion
Date Created: 2023-08-24 20:42:43.824981+00
Date Added: 2024-06-11T18:19:23.321359
License: Public Domain

MILLER, Chief Justice
(concurring specially).
[¶ 36.] I am deeply concerned with the precedent this case will set, because I think that two companies such as Gateway and CTS should be able to contract with one another to prevent their employees from being “raided.” However, I cannot ignore the impact that this contract has on Densmore, and since there is no way to enforce the contract as between Gateway and CTS, but not between CTS and Densmore, I concur.
[¶ 37.] I believe that this is an area that is best left to legislative determination, and as this situation does not meet one of the statutory exceptions to SDCL 53-9-8, the contract in question is an unlawful restraint of a “lawful profession, trade, or business.” The effect of the contract between CTS and Gateway is that Densmore is precluded from seeking employment in South Dakota. This is done even though CTS never signed a covenant not to compete with him. SDCL 53-9-11 allows for covenants not to compete under certain circumstances. It appears that CTS was hoping to gain the benefits of such a covenant without having to give anything up in return to Densmore. Such a sidestep of an area already considered by the legislature should not be tolerated.
[¶ 38.] The dissent cites to Lien v. Northwestern Eng’g Co., 73 S.D. 84, 92, 39 N.W.2d 483, 487 (1949), for the proposition that SDCL 53-9-8 simply “eliminates from the controversy the question of reasonableness where a case falls within one of the exceptions.” I respectfully disagree. The California case of City Carpet-Beating, Etc., Works v. Jones, 102 Cal. 506, 36 P. 841 (1894), the Lien majority was relying on had been repudiated. See Lien, 73 S.D. at 107, 39 N.W.2d at 495 (Hayes, J., dissenting). In Merchants Ad-Sign Co. v. Sterling, 124 Cal. 429, 57 P. 468, 470 (1899), the California Supreme Court held that unless a contract restraining exercise of a lawful trade is incidental or ancillary to a transaction expressly excepted by statute from the general rule, the contract is void.
[¶ 39.] This notion that the old common law test of reasonableness has been specifically replaced by statute comports with our own statutory scheme. SDCL 53-9-8 provides that “[ejvery contract restraining exercise of a lawful profession trade or business is void to that extent, except as provided by §§ 53-9-9 to 53-9-11, inclusive.” (Emphasis added.) This statute is very clear and only provides for a few exceptions, none of which apply to the agreement between CTS and Gateway.
[¶ 40.] To that same extent, I do not read our decision in Central Monitoring Service, Inc. v. Zakinski, 1996 SD 116, ¶ 33, 553 N.W.2d 513, 518, the same as the dissent. Central Monitoring Service involved a covenant not to compete, and cited to the Restatement (Second) of Contracts § 188 to determine if such a covenant is unreasonably in restraint of trade. Section 188 states that it pertains to promises to “refrain from competition.” I would submit that a test of reasonableness can apply to one of the statutory exceptions to SDCL 53-9-8, but not to other contracts in restraint of trade.
[¶41.] Finally, this is not a contract in “furtherance of trade.” In Great Western Distillery Products, Inc. v. John A. Wathen Distillery Co., 10 Cal.2d 442, 74 P.2d 745, 746 (1937), it was held that “courts will not hold to be in restraint of trade a contract between *133individuals, the main purpose and effect of which are to promote and increase business in the line affeeted[.]” The court further held that a contract was not a restraint of trade even if it “in some theoretical way incidentally and directly restrict[ed] trade in such line.” Id. I believe the effect on Dens-more in the present case is more than “theoretical” or “incidental.”
[¶ 42.] In 1st American Systems, Inc. v. Rezatto, 311 N.W.2d 51, 57 (S.D.1981), we observed that agreements not to disclose information or not to solicit clients are not contracts in restraint of trade. However, we also held that a contract cannot prevent a former employee from “accepting” clients of his/her former employer. Id. at 59. This is because these clients are not parties to the contract and should be allowed to choose who they would like to do business with. That is similar to the attempt by CTS to prevent Densmore from seeking employment with Gateway, without ever contracting with him.
[¶43.] The legislature has spoken in this area. CTS should not be allowed to effectively preclude Densmore from obtaining employment in South Dakota, without complying with the relevant statutes. It should be up to the legislature and not this Court to decide as a matter of public policy whether the rights of companies, such as CTS, or employees, such as Densmore, should be protected.