Oxman v. Sherman

• Decision Date: 30 October 1961
• Docket Number: No. 17841,17841
• Parties: Maxwell OXMAN, Roy Markus, Eva Markus, Hy Garfinkel and J. E. Koolkin d/b/a South Carolina Agency, a partnership, and United Insurance Company of America, Respondents, v. Victor SHERMAN, Appellant.
• Court: South Carolina Supreme Court

Page 559

122 S.E.2d 559

239 S.C. 218

Maxwell OXMAN, Roy Markus, Eva Markus, Hy Garfinkel and J E. Koolkin d/b/a South Carolina Agency, a partnership, and United Insurance Company of America, Respondents, v. Victor SHERMAN, Appellant.

No. 17841.

Supreme Court of South Carolina.

Oct. 30, 1961.

McLain & Sherrill, Robert P. Wilkins, Columbia, for appellant.

Philip Wittenberg, Columbia, for respondents.

OXNER, Justice.

This action was brought to enforce by injunction certain covenants by defendant to the effect that after the termination of his employment he would not, within a certain specified territory, engage in a business similar to or competitive with that of his employer, and would not interfere with the contractual relations which plaintiffs had with their employees and policyholders. By demurrer defendant challenged the validity of the covenants. From an order of the Circuit Court overruling the demurrer and sustaining the covenants, defendant has appealed.

On October 2, 1956, a contract was entered into between the individual plaintiffs, who designated themselves 'State Manager' within the State of South Carolina for the United Insurance Company of America, and defendant, who is referred to as 'Agent', under which defendant was appointed an agent to solicit within the State of South Carolina applications for life, health, accident and hospital insurance written by said Company. He was to receive as his compensation commissions, referred to as 'Service Fees', according to a schedule attached to the contract. The 'State Manager' was given the right to cancel the contract for certain enumerated causes not material to this controversy. The covenants sought to be enforced in this action are contained in Paragraph 24 of this contract, which reads as follows:

'While the Agent is soliciting applications for policies of insurance issued by the Company under the supervision of the State Manager and for a period of one year thereafter, Agent agrees that he will not directly or indirectly be connected with any other health and accident or life insurance company engaged in similar business to the business conducted by the State Manager in any territory within the State of South Carolina. Agent further agrees that in the event of the termination of his association with the Company and the State Manager that he will not directly or indirectly induce or attempt to induce any Agents, Unit Managers, Collectors or employees of the State Manager to terminate their association with the State Manager of the Company; nor will the Agent induce or attempt to induce any policyholder of the Company to terminate his or her insurance with the Company. It is agreed by and between the State Manager, Company and the Agent that there is no adequate remedy at law in the event the Agent violates any of the aforesaid covenants and, therefore, it is agreed that injunction proceedings may be brought against the Agent in the event of any such violations; and it is further agreed that in the event Agent violates any of the aforesaid covenants contained in this Paragraph his rights to Service Fees on renewal premiums, if any, shall immediately cease and terminate.'

It is alleged in the complaint that after entering into the contract, defendant was assigned a territory consisting of Orangeburg and Calhoun Counties; 'that soon thereafter he was promoted to unit manager to supervise and train new agents in Orangeburg and contiguous Counties; that on or about the first part of 1958 he was promoted to the position whereby he was the field manager over all of the agents in South Carolina; that in this position he was to train new agents in the field and retrain those older agents who needed help, all of which necessitated his traveling to virtually all of the Counties in the State of South Carolina to assist in the production of business of the agents as aforesaid.' It is further alleged that the foregoing employment gave defendant access to the Company's list of policyholders, claims paid in South Carolina, the names of the Company's agents, and certain confidential trade secrets and methods used by the Company.

It is then alleged that on January 7, 1961, defendant terminated his association with the plaintiffs; that on February 13, 1961 he became a licensed agent for another insurance company issuing insurance policies similar to those offered by plaintiffs; that defendant 'has begun to utilize for the benefit of said competitor the special training which he received from Plaintiffs and the special knowledge of Plaintiffs' confidential trade secrets, methods and techniques, lists and other information as aforesaid by soliciting business from a prior policyholder or holders and that he will induce or attempt to induce policyholders to terminate their insurance written by or through Plaintiffs in order to sell the policies of said competitor; and Plaintiffs are further informed and believe that Defendant has and will contact Plaintiffs' agents in order to induce or attempt to induce them to terminate their association with Plaintiffs in order to become associated with said competitor.'

Finally, it is alleged that the foregoing acts of defendant constituted a violation of the covenants contained in Paragraph 24 of the contract and that he should be enjoined from further violations.

The action was originally brought by the individuals who designated themselves in the contract as 'State Manager'. Defendant demurred to the complaint upon the grounds (1) that plaintiffs were not the real parties in interest, (2) that there was a defect of parties plaintiff in that United Insurance Company of America was a necessary party to the action, and (3) that the covenants were void as against public policy. The Court sustained the first and second grounds to the extent that the Insurance Company was a necessary party and gave plaintiffs leave to amend their complaint by adding the Company as a party plaintiff. The third ground of the demurrer was overruled. Thereafter an amended complaint was served joining the Insurance Company as a party plaintiff. Therefore, the first and second grounds of the demurrer have been eliminated from the case and the only question presented on this appeal is the validity of the covenants.

A restrictive covenant not to compete ancillary to a contract of employment is generally looked upon by the courts with disfavor. It is critically examined and construed strictly against the employer. Arthur Murray Dance...