Court Opinion

ID: 3219715
Source: CourtListenerOpinion
Date Created: 2016-07-05 12:06:55.160244+00
Date Added: 2024-06-11T12:51:24.473679
License: Public Domain

IN THE COURT OF APPEALS OF NORTH CAROLINA

                                    No. COA15-521

                                   Filed: 5 July 2016

Guilford County, No. 13 CVS 5637

ALLEN INDUSTRIES, INC., Plaintiff,

             v.

JODY P. KLUTTZ, Defendant

      Appeal by defendant from order entered 15 October 2014 by Judge Lindsay R.

Davis, Jr. in Superior Court, Guilford County. Heard in the Court of Appeals 21

October 2015.

      Tuggle Duggins P.A., by Denis E. Jacobson and Brandy L. Mills, for plaintiff-
      appellee.

      Ferguson, Scarbrough, Hayes, Hawkins & DeMay, PLLC, by James R. DeMay,
      for defendant-appellant.

      STROUD, Judge.

      Defendant appeals an order denying her motion for damages on a preliminary

injunction bond. Because the trial court correctly determined, in light of the facts

and legal arguments presented by the parties, that the preliminary injunction was

not wrongfully entered at the inception of the lawsuit, we affirm the trial court’s order

denying defendant’s motion for damages.

                                      I.    Background
                         ALLEN INDUS., INC. V. KLUTTZ

                                  Opinion of the Court

      Plaintiff is in the business of making commercial signs and awnings, and

defendant used to be plaintiff’s employee who managed “daily relationship[s] with

customers” for plaintiff. On 9 May 2013, plaintiff filed a complaint against defendant

alleging that defendant had begun working for a “direct competitor” and had

breached her employment contract by using customer information she had gained

from plaintiff. Plaintiff sought both an injunction and monetary relief. Plaintiff also

filed a separate motion for a preliminary injunction.

      On 28 June 2013, the trial court granted plaintiff’s motion for a preliminary

injunction based on “the non-competition clause” of the employment contract. The

order enjoined defendant from working for Atlas Sign Industries of NC, LLC,

plaintiff’s competitor, through 14 March 2014. The order also required a $20,000

bond from plaintiff. On 3 June 2013, defendant appealed the preliminary injunction

order. In May of 2014, in an unpublished opinion, this Court dismissed defendant’s

appeal as moot and declined to address the merits of the case because the time period

of the covenant not to compete had already expired. See Allen Industries, Inc. v.

Kluttz, ___ N.C. App. ___, 759 S.E.2d 711 (2014) (unpublished).

      After the case was remanded to the trial court, in July of 2014, plaintiff

voluntarily dismissed the case. The following month, defendant made a “MOTION

IN THE CAUSE FOR DAMAGES ON PRELIMINARY INJUNCTION BOND”

(“motion for damages”) requesting payment to her of the $20,000 bond for the

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                         ALLEN INDUS., INC. V. KLUTTZ

                                  Opinion of the Court

preliminary injunction she contended was wrongfully entered. On 15 October 2014,

the trial court denied defendant’s motion for damages based on its interpretation of

the employment contract. Defendant appeals the denial of her motion for damages.

                            II.    Preliminary Injunction Bond

      Defendant argues that “[t]he trial court erred in finding that [defendant] is not

entitled to recover damages on the preliminary injunction bond.” (Original in all

caps.) Defendant contends based upon Industries Innovators, Inc. that “[a] voluntary

dismissal of a complaint is equivalent to a finding that the defendant was wrongfully

enjoined.” 99 N.C. App. 42, 51, 392 S.E.2d 425, 431, disc. rev. denied, 327 N.C. 483,

397 S.E.2d 219 (citations and quotation marks omitted) (1990). We consider whether

the trial court’s findings of fact and conclusions of law are sufficient to support the

judgment. See generally id. at 42, 49, 392 S.E.2d at 430.

      In order to recover the preliminary injunction bond, defendant needed to

demonstrate that she was “wrongfully enjoined[.]” N.C. Gen. Stat. § 1A-1, Rule 65(c)

(2013); see generally Indus. Innovators, Inc., 99 N.C. App. at 49, 392 S.E.2d at 430.

But Industries Innovators, Inc. explains “three possibilities” for concluding whether

a party has been wrongfully enjoined, not all of which require a final determination

on the merits. 99 N.C. App. at 49-51, 392 S.E.2d at 430-31. However, Industries

Innovators, Inc. acknowledges that there is no hard and fast rule for determining

whether an individual has been wrongfully enjoined:

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                        ALLEN INDUS., INC. V. KLUTTZ

                                 Opinion of the Court

            North Carolina case law presents a somewhat confusing
            picture of the standard for determining liability under an
            injunction bond.
                   Any standard for determining whether the
            defendant was wrongfully enjoined should be consistent
            with the very purpose of the bond which is to require that
            the plaintiff assume the risks of paying damages he causes
            as the price he must pay to have the extraordinary
            privilege of provisional relief.      Consistent with that
            purpose, and we believe consistent with present North
            Carolina case law, Professor Dobbs observed:
                   The fact that the plaintiff’s position seemed
                   sound when it was presented on the ex parte
                   or preliminary hearing is no basis for
                   relieving him of liability, since the very risk
                   that requires a bond is the risk of error
                   because such hearings are attenuated and
                   inadequate. To say that proof of the
                   inadequate hearing, against which the bond is
                   intended to protect, relieves of liability on the
                   bond is merely to subvert the bond’s purpose.
                   Thus the few cases that seem to deal with this
                   situation seem correct in assessing liability to
                   the plaintiff who loses on the ultimate merits,
                   even when his proof warranted preliminary
                   relief at the time it was awarded.
                   Accordingly, a defendant is entitled to damages on
            an injunction bond only when there has been a final
            adjudication substantially favorable to the defendant on
            the merits of the plaintiff’s claim. Such an adjudication is
            equivalent to a determination that the defendant has been
            wrongfully enjoined. A final judgment for the defendant
            which does not address the merits of the claim, i.e.,
            dismissal for lack of jurisdiction, gives rise to damages on
            the injunction bond only if the trial court determines that
            defendant was actually prohibited by the injunction from
            doing what he was legally entitled to do.

99 N.C. App. at 50, 392 S.E.2d at 431 (citations and quotation marks omitted).

                                        -4-
                         ALLEN INDUS., INC. V. KLUTTZ

                                 Opinion of the Court

       Furthermore, specifically as to the consideration of wrongful enjoinment after

a voluntary dismissal, our Supreme Court determined, in Blatt Co. v. Southwell, that

despite a voluntary dismissal by the plaintiff, the trial court must consider the

reasons for the dismissal in determining whether the defendant was entitled to

recovery:

                   In an action in which the plaintiff has obtained a
            temporary restraining order or injunction by giving bond
            such as that required by G.S. 1-496, (t)he voluntary and
            unconditional dismissal of the proceedings by the plaintiff
            is equivalent to a judicial determination that the
            proceeding for an injunction was wrongful, since thereby
            the plaintiff is held to have confessed that he was not
            entitled to the equitable relief sought.
                   When, however, the dismissal of the action is by an
            amicable and voluntary agreement of the parties, the same
            is not a confession by the plaintiff that he had no right to
            the injunction granted, and does not operate as a judgment
            to that effect. As stated in American Gas Mach. Co. v.
            Voorhees, supra: A judgment of voluntary dismissal by
            agreement of the parties of an action in which a restraining
            order has been issued is not an adjudication that the
            restraining order was improvidently or erroneously issued.

259 N.C. 468, 472, 130 S.E.2d 859, 862 (1963) (citations and quotation marks

omitted).

      This case presents a voluntary dismissal by plaintiff, but the dismissal was

taken only after there was no longer any need to maintain the case because the

covenant not to compete had expired by its own terms. As neither party has cited

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                         ALLEN INDUS., INC. V. KLUTTZ

                                  Opinion of the Court

North Carolina case law on this precise issue of mootness, we also look to general

principles of law on this issue which have been established in other jurisdictions:

             [T[here is no reason for the court to presume that an
             interlocutory injunction deprived the defendant of any
             right. Courts have consistently concluded that a final
             judgment that a claim has been mooted does not mandate
             recovery by the defendant; they have held that they must
             probe the merits of the original claim to determine whether
             the plaintiff is liable for damages resulting from the
             injunction. In examining the merits of the mooted claims,
             however, some courts have held that the defendant can be
             denied recovery if the plaintiff made a claim in good faith
             or a claim that presented serious questions. These courts
             may have deprived defendants of compensation for
             damages resulting from being unjustly deprived of a right.
             The defendant’s entitlement standard would eliminate the
             possibility of that injustice, for it would require the court
             to address the merits before absolving the plaintiff of
             liability or allowing recovery.

Harvard Law Review Association, Recovery for Wrongful Interlocutory Injunctions

Under Rule 65(c), 99 Harv. L. Rev. 828, 839-40 (1986) (quotation marks and footnotes

omitted). Thus, other courts have also determined that no precise factors, rules, or

specific circumstances will be controlling; rather, we must consider the facts of this

specific case in determining whether the trial court properly concluded that

defendant had not been wrongfully enjoined.       See generally id. This treatment of

mootness is also consistent with Industries Innovators, Inc., as the trial court must

“determine[] that defendant was actually prohibited by the injunction from doing

what he was legally entitled to do.” 99 N.C. App. at 50, 392 S.E.2d at 431.

                                         -6-
                         ALLEN INDUS., INC. V. KLUTTZ

                                  Opinion of the Court

      Turning to the specifics of this case, based primarily upon the employment

contract, the trial court determined that the injunction was not wrongfully issued

since defendant’s actions were in violation of the covenant not to compete in spite of

defendant’s arguments that the language of the covenant was overbroad:

             The undisputed record in this case establishes that the
             defendant was employed in a sales-related position by the
             plaintiff, in the course of which she was privy to and used
             confidential and proprietary information, about the
             plaintiff’s products and services relating to sales and
             service. The plaintiff established a legitimate business
             interest in the protection of that information from a direct
             competitor, and considered with the fact that defendant
             left her employment with the plaintiff and took essentially
             the same position with a direct competitor, the language of
             the covenant is no broader than necessary to protect that
             interest.

On appeal, defendant has not challenged any of the findings of fact or conclusions of

law but has relied solely upon her argument that the voluntary dismissal by plaintiff

alone per se entitles her to recover the bond. As defendant misapprehends the law,

we reject this argument and conclude that the trial court properly determined that

defendant was not “wrongfully enjoined” based upon the employment contract as

applied to the facts of this case. Defendant’s argument is overruled.

                                  III.   Conclusion

      The trial court properly denied defendant’s motion for recovery of the bond.

For the foregoing reasons, we affirm.

      AFFIRMED.

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               ALLEN INDUS., INC. V. KLUTTZ

                      Opinion of the Court

Judges STEPHENS and DAVIS concur.

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