Bybee v. Isaac

• Court: Idaho Supreme Court
• Writing for the Court: Burdick
• Citation: Bybee v. Isaac, 178 P.3d 616, 145 Idaho 251 (Idaho 2008)
• Decision Date: 30 January 2008
• Docket Number: No. 33251.,33251.
• Parties: Stanley BYBEE, individual, and Bybee Air Service, Inc., an Idaho corporation, Plaintiffs-Counterdefendants-Respondents, v. Denise ISAAC, an individual, Defendant-Counterclaimant-Appellant, and Dusty's Flying Service, Inc., an Idaho corporation, and Farm Air, LLC, an Idaho limited liability company, Defendants-Appellants.

178 P.3d 616

145 Idaho 251

Stanley BYBEE, individual, and Bybee Air Service, Inc., an Idaho corporation, Plaintiffs-Counterdefendants-Respondents, v. Denise ISAAC, an individual, Defendant-Counterclaimant-Appellant, and Dusty's Flying Service, Inc., an Idaho corporation, and Farm Air, LLC, an Idaho limited liability company, Defendants-Appellants.

No. 33251.

Supreme Court of Idaho, Boise, December 2007 Term.

January 30, 2008.

Rehearing Denied March 14, 2008.

Lojek Law Offices, Boise, for appellants. Donald W. Lojek argued.

Kormanick, Hallam & Sneed, Meridian, for respondents. Thomas Guy Hallam, Jr., argued.

BURDICK, Justice.

This case arises from a dispute over a covenant not to compete. After trial, the jury found the covenantor, Appellant Denise Isaac, breached the non-compete agreement. Appellants, Isaac and Farm Air, LLC, allege several errors were made below and appeal from the district court's denial of their alternative motions for judgment notwithstanding the verdict and a new trial. We affirm.

I. FACTUAL AND PROCEDURAL BACKGROUND

Appellant Denise Isaac owned and operated Dusty's Flying Service, Inc., a crop dusting business servicing the area around Mountain Home. Isaac sold the company to Respondent Stanley Bybee in 2001. The purchase agreement included a covenant that "Denise Isaac d/b/a Dusty's Flying Service shall not compete directly or indirectly with Stan Bybee d/b/a Nyssa Air Service" for five years. Bybee formed a corporation in 2002 named "Bybee Air Service, Inc." (Bybee Air), and he transferred all of the inventory and assets of Nyssa Air Service into the corporation.

After the sale, Isaac worked for Bybee d/b/a Nyssa Air Service and continued to work in the same capacity for Bybee Air after the corporation was formed. Isaac quit in 2004 and began to work for Farm Air, LLC (Farm Air). Once Isaac began working for Farm Air, it obtained many of the customers that were previously customers of Bybee Air. Bybee and Bybee Air filed suit against Isaac for breach of contract and breach of the implied covenant of good faith and fair dealing. Respondents also brought claims of tortious interference with contract and tortious interference with prospective economic advantage against Farm Air. Isaac counterclaimed for breach of employment contract, verbal abuse, harassment, discrimination, and non-payment of wages.

After trial, the jury found that Isaac breached the non-competition agreement and that Farm Air tortiously interfered with contract and prospective economic advantage. The jury also found Bybee Air did not breach its employment contract with Isaac. Isaac filed alternative motions for judgment notwithstanding the verdict and a new trial, which were denied. Isaac and Farm Air appealed.

II. ANALYSIS

Appellants argue this Court should reverse the district court's denial of various motions and vacate the district court's order, or in the alternative, remand for a new trial. As to the non-compete covenant, Isaac asserts it is not ambiguous, that it is overbroad and unenforceable, that it is not assignable, and that the jury was improperly instructed on the law. Farm Air asserts there was insufficient evidence on the claims for tortious interference with contract and prospective economic advantage and thus, instructing the jury on those claims was improper. Additionally, Isaac argues Bybee breached the covenant of good faith and fair dealing by sexually harassing her. Finally, Isaac argues judgment should have been entered against Bybee because, as an individual, he did not prevail on any of his claims. We address each of these issues in turn.

A. Standard of Review

Isaac contends this Court should reverse the district court's denial of the Appellants' motions for directed verdict, judgment notwithstanding the verdict, and new trial on the basis of several errors.¹ When this Court determines whether a motion for a directed verdict or j.n.o.v. should have been granted, we apply the same standard as the court that originally passed on the motion. Vendelin v. Costco Wholesale Corp., 140 Idaho 416, 430, 95 P.3d 34, 48 (2004). "This Court exercises free review and does not defer to the findings of the trial court." Id. We "must determine whether, admitting the truth of the adverse evidence and drawing every legitimate inference most favorably to the opposing party, there exists substantial evidence to justify submitting the case to the jury." Id. (internal quotations and citations omitted).

We review a trial court's order granting or denying a motion for new trial for a manifest abuse of discretion. Jones v. Panhandle Distribs., Inc., 117 Idaho 750, 755, 792 P.2d 315, 320 (1990). This Court reviews the evidence, but does not "weigh" it as does the trial court. Id. Abuse of discretion is determined by a three part test which asks whether the district court "(1) correctly perceived the issue as one of discretion; (2) acted within the outer boundaries of its discretion and consistently with the legal standards applicable to the specific choices available to it; and (3) reached its decision by an exercise of reason." Sun Valley Potato Growers, Inc. v. Texas Refinery Corp., 139 Idaho 761, 765, 86 P.3d 475, 479 (2004).

The district court recognized the decision to grant a new trial was a discretionary decision and supported its decision on the various claims of errors with analysis demonstrating an exercise of reason. Therefore, whether the trial court erred by denying the motions for directed verdict, j.n.o.v., and new trial depends on whether the court erred as a matter of law.

B. The covenant not to compete is ambiguous.

Isaac contends the district court erred by ruling the covenant not to compete is ambiguous. "When the language of a contract is clear and unambiguous, its interpretation and legal effect are questions of law." Lamprecht v. Jordan, LLC, 139 Idaho 182, 185, 75 P.3d 743, 746 (2003). When interpreting the contract, we determine the intent of the contracting parties at the time the contract was entered into and do so by viewing the contract as a whole. Id. "Whether a contract is ambiguous is a question of law." Id. A contract is ambiguous when it is reasonably subject to conflicting interpretations. Id. Generally, an ambiguous term in a contract requires the fact finder to determine the intent of the parties. Griffith v. Clear Lakes Trout Co., Inc., 143 Idaho 733, 737, 152 P.3d 604, 608 (2007).

The covenant not to compete provides:

DENISE ISAAC d/b/a DUSTY'S FLYING SERVICE, Shall not compete directly or indirectly against STAN BYBEE d/b/a NYSSA AIR SERVICE for five (5) years From the date hereof within a fifty (50) mile radius of Mountain Home, Idaho.

    /s/
                    Denise Isaac, Owner
                    Dusty's Flying Service, Inc
                    /s/
                    Stan Bybee, Owner
                    Nyssa Air Service
                

Isaac contends the non-compete covenant is unambiguous and that consequently, testimony as to the intent of the parties should not have been admitted. The contract names Denise Isaac d/b/a Dusty's Flying Service. However, Dusty's Flying Service was a corporation, which is a distinct legal entity. See Jolley v. Idaho Sec., Inc., 90 Idaho 373, 387, 414 P.2d 879, 887 (1966). Thus, it was unclear whether the agreement applied to Isaac as an individual or solely to the corporation, Dusty's Flying Service, Inc. Therefore, we hold the district court did not err by allowing evidence as to that ambiguous term.

C. The non-compete covenant is not overbroad or unenforceable as a matter of law.

Isaac contends the non-compete covenant is unenforceable as a matter of law. The parties support their arguments with cases involving non-compete agreements in employment contracts; however, the non-compete covenant in this case was ancillary to the sale of a business.² Though this Court has said non-compete covenants are disfavored in the employment context, we have not said they are disfavored when ancillary to the sale of a business. Stipp v. Wallace Plating, Inc., 96 Idaho 5, 6, 523 P.2d 822, 823 (1974) ("restrictive covenants in contracts limiting an employee's natural right to pursue an occupation and thus support himself and his family will be strictly scrutinized," but courts are less strict in construing the reasonableness of such covenants ancillary to the sale of a business); Marshall v. Covington, 81 Idaho 199, 203, 339 P.2d 504, 506 (1959) (restrictive covenants in employment contracts are more strictly construed than those ancillary to the sale of a business). Covenants not to compete in business purchase agreements "are designed to protect the goodwill integral to the business from usurpation by the former owner, while at the same time allowing an owner to profit from the goodwill, which he or she may have spent years creating." 54a Am.Jur.2d Monopolies, Restraints of Trade, and Unfair Trade Practices § 853 (1996) (footnotes omitted).

Covenants not to compete are valid when they are reasonable as applied to the covenantor, the covenantee, and the general public. Stipp, 96 Idaho at 6, 523 P.2d at 823. When the covenant not to compete is ancillary to the sale of a business, any decision on the reasonableness of the covenants must recognize "that the vendee is usually purchasing the good will of the business and thus is entitled to reasonable protection from competition by the seller." Id. at 6-7, 523 P.2d at 823-24; see also Vancil v. Anderson, 71 Idaho 95, 101, 227 P.2d 74, 77 (1951).

A non-compete covenant must be reasonably limited as to time, scope, and territorial extent. Vancil, 71 Idaho at 101, 227 P.2d at 77; 54a Am.Jur.2d Monopolies, Restraints of Trade, and Unfair Trade Practices § 853. A court determines whether the covenantee has a legitimate business interest worthy of protection and if so, whether the covenant is a reasonable means of protecting that interest. Shakey's Inc. v. Martin, 91 Idaho 758, 763-65, 430 P.2d 504, 509-11 (1967); see also Freiburger v. J-U-B Eng'rs, Inc., 141 Idaho 415, 420-21, ...