Beverage Sys. of the Carolinas, LLC v. Associated Beverage Repair, LLC

• Court: North Carolina Court of Appeals
• Writing for the Court: HUNTER
• Citation: Beverage Sys. of the Carolinas, LLC v. Associated Beverage Repair, LLC, 762 S.E.2d 316 (N.C. App. 2014)
• Decision Date: 05 August 2014
• Docket Number: No. COA14–185.,COA14–185.
• Parties: BEVERAGE SYSTEMS OF THE CAROLINAS, LLC, Plaintiff, v. ASSOCIATED BEVERAGE REPAIR, LLC, Ludine Dotoli and Cheryl Dotoli, Defendants.

762 S.E.2d 316

BEVERAGE SYSTEMS OF THE CAROLINAS, LLC, Plaintiff,

v.ASSOCIATED BEVERAGE REPAIR, LLC, Ludine Dotoli and Cheryl Dotoli, Defendants.

No. COA14–185.

Court of Appeals of North Carolina.

Aug. 5, 2014.

Appeal by plaintiff from order entered 3 October 2013 by Judge A. Robinson Hassell in Iredell County Superior Court. Heard in the Court of Appeals 20 May 2014.

Jones, Childers, McLurkin & Donaldson, PLLC, Mooresville, by Kevin C. Donaldson and Dennis W. Dorsey, for plaintiff-appellant.

Eisele, Ashburn, Greene & Chapman, PA, Statesville, by Douglas G. Eisele, for defendants-appellees.

HUNTER, ROBERT C., Judge.

Plaintiff timely appeals from an order entered 3 October 2013 granting defendants' motion for summary judgment. After careful review, because the trial court had express authority to revise the restrictions of the non-compete agreement, we reverse the trial court's order and remand for the trial court to revise the geographic area covered by the non-compete to include those areas necessary to reasonably protect plaintiff's business interests. Furthermore, since there is a genuine issue of material fact as to whether Ludine Dotoli violated the revised non-compete, we reverse the order granting summary judgment on the breach of contract claim and remand for trial. Finally, because plaintiff presented evidence showing a genuine issue of material fact for the remaining tort claims and request for injunctive relief, we reverse the order granting defendants' motion for summary judgment and remand for trial.

Background

The pertinent facts alleged in plaintiff's complaint are as follows: In 2009, Mark Gandino (“Gandino”) created and organized Beverage Systems of the Carolinas, LLC, a company that supplies, installs, and services beverage products and beverage dispensing equipment in North Carolina (“plaintiff”). Beginning in 2008 and continuing through 2009, Gandino negotiated with Thomas and Kathleen Dotoli, the parents of defendant Ludine Dotoli (“Ludine”) ¹ (collectively, Thomas, Kathleen, and Ludine are referred to as “the Dotolis”), about the potential purchase of the business and assets of Imperial Unlimited Services, Inc. (“Imperial”) and Elegant Beverage Products, LLC (“Elegant”) (collectively, Imperial and Elegant are referred to as “the businesses”). On or about 20 July 2009, plaintiff entered into an “Asset Purchase Agreement” (the “Agreement”) with Elegant, Imperial, and the Dotolis. The Agreement provided for the sale of Imperial's and Elegant's assets, trade names, customer lists, accounts receivable, current customers and customer contracts, all equipment, and real property.

As part of the Agreement, Thomas, Kathleen, and Ludine agreed to execute a “Non–Competition Agreement” (the “non-compete”). Specifically, section 1 of the non-compete provided that:

Subject to the provisions of Section 6 hereof, Seller and Shareholder shall not, from the effective date of the Asset Agreement in the states of North Carolina or South Carolina until the earlier of (i) October 1, 2014 (the “Non–Competition Period ”), or (ii) such other period of time as may be the maximum permissible period of enforceability of this covenant (the “Termination Date ”), without the prior written, consent of Purchaser, directly or indirectly, for himself or on behalf of or in conjunction with any person, partnership, corporation or other entity, compete, own, operate, control, or participate or engage in the ownership, management, operation or control of, or be connected with as an officer, employee, partner, director, shareholder, representative, consultant, independent contractor, guarantor, advisor or in any other manner or otherwise, directly or indirectly, have a financial interest in, a proprietorship, partnership, joint venture, association, firm, corporation or other business organization or enterprise that is engaged in the business of the Purchaser or any of its respective affiliates or subsidiaries on behalf of clients (the “Business ”).

The non-compete went on to say that:

If, at the time of enforcement of any provisions of Sections 1, 3 or 4 hereof, a court holds that the restrictions stated herein are unreasonable under circumstances then existing, the parties hereto agree that the maximum period, scope or geographical area that are reasonable under such circumstances shall be substituted for the stated period, scope or area, and that the court shall be allowed to revise the restrictions contained in Sections 1, 3 and 4 hereof to cover the maximum period, scope and area permitted by law.

The Dotolis executed the non-compete at the closing on 30 September 2009. Plaintiff claimed that it collectively paid the Dotolis, Imperial, and Elegant $10,000 as consideration for the non-compete.

In March 2011, plaintiff learned that Ludine's wife Cheryl Dotoli (“Cheryl”) had created defendant Associated Beverage Repair, LLC, (“Associated Beverage”) (for purposes of this opinion, Associated Beverage, Ludine, and Cheryl are collectively referred to as “defendants”) and that Ludine was the manager of Associated Beverage. Moreover, plaintiff alleged that it found out that Ludine was soliciting business from plaintiff's existing customers, specifically PF Chang's and Bunn–O–Matic.

On 8 July 2013, plaintiff filed an amended complaint alleging the following causes of action: (1) breach of the non-compete against Ludine; (2) a request for preliminary and permanent injunctive relief against Ludine; (3) tortious interference with contract against all defendants; (4) unfair and deceptive practices against all defendants; (5) tortious interference with prospective economic advantage against all defendants; and (6) punitive damages. On 11 September 2013, defendants filed a motion for summary judgment as to all causes of action. In support of their motion, defendants filed an affidavit by Ludine claiming that “the deepest penetration by either Elegant or Imperial for the conduct of their business into South Carolina was Rock Hill ... and to Spartanburg,” and the “western-most penetration” included Gaffney. Furthermore, Ludine averred that in North Carolina, the furthest west the companies' business went was Morganton. The eastern-most penetration was to Wake County. Finally, Ludine denied contacting, communicating, or in any way inducing any prior customers of Imperial or Elegance or present customers of plaintiff into switching their business to Associated Beverage.

The matter came on for hearing on 30 September 2013. On 3 October 2013, the trial court entered an order granting defendants' motion for summary judgment as to all claims. Plaintiff timely appealed.

Standard of Review

“Our standard of review of an appeal from summary judgment is de novo; such judgmentis appropriate only when the record shows that there is no genuine issue as to any material fact and that any party is entitled to a judgment as a matter of law.” In re Will of Jones, 362 N.C. 569, 573, 669 S.E.2d 572, 573 (2008) (internal citations omitted).

Arguments

I. The Non–Compete Agreement

Plaintiff first argues that the trial court erred in granting summary judgment on its breach of contract claim against Ludine. Specifically, plaintiff contends that the non-compete is valid as a matter of law and that there is an issue of material fact as to whether Ludine violated it. In the alternative, should the Court determine that the non-compete is unenforceable as to South Carolina, plaintiff argues that the non-compete may still be enforced in North Carolina based on the “blue pencil doctrine.” Because the trial court had express authority to revise the territorial restrictions of the non-compete pursuant to the terms of the agreement, we reverse the trial court's order granting summary judgment and remand this issue for the trial court to revise the geographic territories to include those areas reasonably necessary to protect plaintiff's business interests acquired by the purchase of Elegant and Imperial. Furthermore, there is a genuine issue of material fact as to whether Ludine violated the terms of the non-compete for the jury to resolve.

It is the rule today that when one sells a trade or business and, as an incident of the sale, covenants not to engage in the same business in competition with the purchaser, the covenant is valid and enforceable (1) if it is reasonably necessary to protect the legitimate interest of the purchaser; (2) if it is reasonable with respect to both time and territory; and (3) if it does not interfere with the interest of the public.

Jewel Box Stores Corp. v. Morrow, 272 N.C. 659, 662–63, 158 S.E.2d 840, 843 (1968). Whether a covenant not to compete is reasonable is a matter of law to be decided by the court. Id. at 663, 158 S.E.2d at 843. “Greater latitude is generally allowed in these covenants given by the seller in connection with the sale of a business than in covenants ancillary to an employment contract.” Seaboard Indus., Inc. v. Blair, 10 N.C.App. 323, 333, 178 S.E.2d 781, 787 (1971). Here, only the first two elements need to be addressed since defendants did not argue before the trial court nor on appeal that the non-compete interfered with the interest of the public.

A. Legitimate Interest

“A covenant must be no wider in scope than is necessary to protect the business of the employer.” Hartman v. W.H. Odell & Associates, Inc., 117 N.C.App. 307, 316, 450 S.E.2d 912, 919 (1994) (internal quotation marks omitted).

Here, the scope of prohibited employment activities in the non-compete is reasonably necessary to protect plaintiff's business. In his affidavit, Ludine stated that he had not only been the creator and owner of Elegant, but he had also been the “principal technician” of Imperial. Thus, his employment activities for the businesses would have included both employee ones and activities related to management, operation, and control. The non-compete prohibits Ludine from competing, owning, managing, operating or...