Court Opinion

ID: 9553687
Source: CourtListenerOpinion
Date Created: 2023-08-07 19:33:27.962956+00
Date Added: 2024-06-11T15:32:05.343970
License: Public Domain

OPALA, Vice Chief Justice,
with whom LAVENDER, Justice, joins, concurring in part and dissenting in part.
The court pronounces today that because the restrictive noncompetitive covenants [covenants] in the three contracts under review are overly broad and would require material judicial alteration to bring them within the rule of reason, they are void and unenforceable. The court notes that covenants in restraint of trade may be modified by imposition of reasonable time, geographical and activity limitations, but holds *1176that defects in the provisions relating to (a) accepting or servicing clients, (b) restricting the promisor [Pickard] from competing in lines of business unrelated to the insurance field and (c) restricting the sale of any kind of insurance to the employer’s clients cannot be cured by judicial circumscription of these limitations. I must recede from the view that the contracts in suit cannot be judicially modified.
The enforcement of covenants not to compete is subject to the rule of “reasonableness” 1 which' clearly favors some form of judicial modification.2 A restraint is deemed reasonable only if it (1) is no greater than is required for the employer’s protection, (2) does not impose undue hardship on the employee and (3) is not injurious to the public.3 The court must balance these competing interests to determine the reasonableness of the noncompetitive covenant. The inquiry for gauging the restraint’s reasonableness generally focuses on three factors — the types of activities embraced, the geographical area and the span of time.4
The infirmities asserted in the contracts under review relate solely to the first factor — the nature of the business activity affected by the restraint and the classes of persons with whom Pickard has promised not to do business. When a restrictive covenant is found to be unreasonable, the court must decide whether a lesser degree of restraint can be fashioned without impairing the public interest and causing the parties undue hardship.5 This balancing of equities for assessment of the appropriate limits does not result in making a new contract for the parties; rather, its purpose is to give effect to the covenants by enforcing their reasonable terms.6
*1177Because an appellate court’s primary concerns in modifying a restrictive covenant are equitable,7 a wide variety of reasons has been advanced as a basis for limiting or barring judicial modification.8 Consideration of the various factors warranting a time, space or activity limitation gives the court the flexibility it needs to balance the interests of the parties and to award the employer a reasonable shield from unfair dealing. While equity should not enforce covenants unnecessary to protect the employer’s legitimate interests, neither should it permit an unconscionable result caused by total rejection of an overly broad covenant. A partial enforcement rule based on what is reasonable under the circumstances enables courts to impose some degree of restraint on employees who would otherwise be totally freed from their promissory obligations,9
I would hence permit the noncompetitive covenants’ partial enforcement, based on what would be reasonable under all the circumstances,10 while disallowing relief where the employer has in fact acted in bad faith. This approach — adopted by a number of courts11 — would assure the parties who desire to enter into a legitimate covenant the benefit of preserving their intent as a preferable alternative to invalidating the covenant because a phrase within the restriction was found to be impermissibly broad.
An employer should be allowed to protect his stock of customers and their good will against appropriation by a former employee when this interest is not exercised in such a way as to unreasonably deprive the public of essential goods and services.12
On this record, I cannot view as unreasonable a judicial application of both a “nonsales” and “nonsolicitation” restraint to present and former customers of Pick-ard’s employer as well as to prospective customers contacted by him during his employment with the company.13 I would agree that a restraint is overly broad when it includes lines of businesses unrelated to the field in which the employee was engaged. To that extent the covenant should be pared down.14
The trial court’s summary judgment for Pickard rests on the unwarranted legal conclusion that the covenants are facially *1178void and unmodifiable. No evidentiary hearing was afforded to consider the circumstances surrounding the . challenged agreements or their effect on the interests of the employer, the employee and the public. A decision to deny modification before probing into all the facts and circumstances that bear on the noncompetitive agreements’ restraints constitutes error of law.15 I would hence reverse summary judgment for Pickard and remand the cause for a full-scale equitable inquiry.16 Absent a showing of the employer’s bad faith the agreements should not be invalidated but rather modified; injunctive relief ought to be fashioned to the extent necessary to protect the competing interests in suit.

. See, e.g., New Haven Tobacco Co. v. Perrelli, 11 Conn.App. 636, 528 A.2d 865, 867 [1987]; Central Adjustment Bureau, Inc. v. Ingram, 678 S.W.2d 28, 37 [Tenn.1984]; Reddy v. Community Health Foundation of Man, 298 S.E.2d 906, 910-911 [W.Va.1982]; Ehlers v. Iowa Warehouse Company, 188 N.W.2d 368, 370-374 [Iowa 1971], modified on other grounds, 190 N.W.2d 413 [Iowa 1971]; Solari Industries, Inc. v. Malady, 55 N.J. 571, 264 A.2d 53, 61 [1970]; Raimonde v. Van Vlerah, 42 Ohio St.2d 21, 325 N.E.2d 544, 546-547 [1975]; see also Aspelund, Employee Noncompetition Law, § 6.04 et seq., pgs. 6-48 through 6-166 [1987].

. Central Adjustment Bureau, Inc. v. Ingram, supra note 1 at 36; Ehlers v. Iowa Warehouse Company, supra note 1, 188 N.W.2d at 370-374; Solari Industries, Inc. v. Malady, supra note 1 at 56; see also Fisher, Post Employment Restraints: An Analysis of Theories of Enforcement, and a Suggested Supplement to the Covenant Not to Compete, 17 Tulsa LJ. 155, 156-57 [1981]; Aspelund, supra note 1 at § 8.01, p. 8-3, where the author — citing to Fisher, supra, and Restatement (Second) of Contracts § 184, comment b, illustrations 2, 3 [1981] — observes that the current trend favors allowing complete modification of restrictive noncompetitive covenants.

. Ehlers v. Iowa Warehouse Company, supra note 1 at 370; Central Adjustment Bureau, Inc. v. Ingram, supra note 1 at 37.

. Piercing Pagoda, Inc. v. Hoffner, 465 Pa. 500, 351 A.2d 207, 212 [1976]; Raimonde v. Van Vlerah, supra note 1, 325 N.E.2d at 547; Westec Sec. Services, Inc. v. Westinghouse Elec., 538 F.Supp. 108, 122-123 [E.D.Penn.1982]; 14 Willi-ston, Contracts, § 1647B at 286-288 [1972]. In the Restatement (Second) of Contracts § 188, Comment d, it is stated:
“The extent of the restraint is a critical factor in determining its reasonableness. The extent may be limited in three ways: by type of activity, by geographical area, and by time. If the promise proscribes types of activity more extensive than necessary to protect those engaged in by the promisee, it goes beyond what is necessary to protect his legitimate interests and is unreasonable.... What limits as to activity, geographical area, and time are appropriate in a particular case depends on all the circumstances." [Emphasis added.]

. Ceresia v. Mitchell, 242 S.W.2d 359, 364 [Ky. 1951]; Raimonde v. Van Vlerah, supra note 1, 325 N.E.2d at 547; Wood v. May, 73 Wash.2d 307, 438 P.2d 587, 591 [1968]. In Wood the court noted that partial enforcement permits accomplishment of the basic purpose of the contract.

. See 14 Williston on Contracts, supra note 4 at 285, which states that:
"Although a contract may contain excessively restrictive promises which are unenforceable, the contract may not be invalidated in its entirety where its general purpose is lawful." [Emphasis added.]
In Solari Industries, Inc. v. Malady, supra note 1, 264 A.2d at 56, the court, quoting from Corbin on Contracts, noted "the fact that the restriction on an employee goes too far to be valid as a whole does not prevent a court from enforcing it in part insofar as it is reasonable and not oppressive"; see also Kershaw v. Knox Kershaw, Inc., 523 So.2d 351, 359 [Ala.1988].

. In Waterfield Mortgage Co. v. O’Connor, 172 Ind.App. 673, 361 N.E.2d 924, 926 [1977], a suit to enforce an employee's noncompetitive covenant, the court characterizes the ultimate determination as one of law, yet it holds summary judgment was improper because the suit's resolution must invariably rest on adequate facts. Aspelund, supra note 1, § 6.01, pg. 6-4, n. 10, cites a number of cases repeating the rubric that reasonableness must turn on the circumstances and facts of each case which, he observes, would appear to make the dispositive issue of reasonableness one of fact. But because a number of courts have expressly classified the dis-positive determination as one of law, Aspelund concludes that the question may be more accurately characterized as a mixed question of law and fact. § 6.01, pg. 6-5, n. 12. Even so, it clearly appears that whether the issue is viewed as one of law or fact the reasonableness and enforceability of a restraint is measured by the facts and circumstances of the case, not solely by the text of the written agreement.

. See Solari Industries, Inc. v. Malady, supra note 1, 264 A.2d at 61; Eastern Distributing Co., Inc. v. Flynn, 222 Kan. 666, 567 P.2d 1371, 1379 [1977]; Raimonde v. Van Vlerah, supra note 1, 325 N.E.2d at 548.

. See Ehlers v. Iowa Warehouse Company, supra note 1, 188 N.W.2d at 374; Westec Sec. Services, Inc. v. Westinghouse Elec., supra note 4; Bess v. Bothman, 257 N.W.2d 791, 795 [Minn.1977]; Karpinski v. Ingrasci, 28 N.Y.2d 45, 320 N.Y.S.2d 1, 6, 268 N.E.2d 751, 755 [1971].

. See Aspelund, supra note 1 at § 8.01 at pgs. 8-1 through 8-13. A claim for injunctive relief implicates equitable principles which must govern the court’s determination whether the covenants should be enforced. See Wood v. May, supra note 5, 438 P.2d at 590; Aspelund, supra note 1, § 8.02[1][e] at p. 8-27.

. In Cascade Exchange, Inc. v. Reed, 278 Or. 749, 565 P.2d 1095, 1098 [1977], the court noted that “fejquity has but little patience with men who deliberately violate their solemn promises and will enforce their obligations if any reasonable basis therefor may be found." [Emphasis added.] See also Ehlers v. Iowa Warehouse Company, supra note 1 at 371.

. "What limits as to activity ... are appropriate in a particular case depends on all the circumstances.” Restatement (Second) of Contracts § 188, Comment d, supra note 4.

. A number of courts have established and been guided by good faith as a requirement for modification. See Ehlers v. Iowa Warehouse Company, supra note 1, 264 A.2d at 370, where the court adopted the rule that unless the facts and circumstances indicate bad faith on the employer's part, the court will enforce noncompetitive covenants to the extent they are reasonably necessary to protect the employer's legitimate interests without imposing undue hardship on the employee when the public interest is not adversely affected; Fullerton Lumber Co. v. Torborg, 270 Wis. 133, 70 N.W.2d 585, 592 [1955]; Solari Industries, Inc. v. Malady, supra note 1, 264 A.2d at 56; Smith, Batchelder & Rugg v. Foster, 119 N.H. 679, 406 A.2d 1310, 1313 [1979]; 14 Williston, supra note 4 at § 1647(C) at 293-297; Aspelund, supra note 1, § 8.01 at p. 8-6.

. See Mills v. Murray, 472 S.W.2d 6, 12 [Mo. App.1971]; New Haven Tobacco Co. v. Perrelli, supra note 1, 528 A.2d at 869.

. Solari Industries, Inc. v. Malady, supra note 1, 264 A.2d at 61; Coolidge Co. v. Mokrynski, 472 F.Supp. 459, 463 [S.D.N.Y.1979]; Mills v. Murray, supra note 12 at 11-12, upholds as reasonable a covenant forbidding a management consultant to solicit or service former clients; New Haven Tobacco Co. v. Perrelli, supra note 1, 528 A.2d at 867-869.

. See Coolidge Co., Inc. v. Mokrynski, supra note 13 at 463.