Central Monitoring Service, Inc. v. Zakinski

• Decision Date: 04 September 1996
• Docket Number: No. 19371,19371
• Citation: 553 N.W.2d 513,1996 SD 116
• Parties: 1997-1 Trade Cases P 71,666, 12 IER Cases 7, 1996 SD 116 CENTRAL MONITORING SERVICE, INC., Plaintiff and Appellee, v. Stanley ZAKINSKI, Defendant and Appellant.
• Court: South Dakota Supreme Court

Page 513

553 N.W.2d 513

1997-1 Trade Cases P 71,666, 12 IER Cases

7, 1996 SD 116

CENTRAL MONITORING SERVICE, INC., Plaintiff and Appellee, v. Stanley ZAKINSKI, Defendant and Appellant.

No. 19371.

Supreme Court of South Dakota.

Argued March 11, 1996.

Decided Sept. 4, 1996.

Gene N. Lebrun of Lynn, Jackson, Shultz & Lebrun, Rapid City, for plaintiff and appellee.

Wayne F. Gilbert of Johnson Huffman, Rapid City, for defendant and appellant.

RUSCH, Circuit Judge

¶1 The defendant, Stanley Zakinski (Zakinski) appeals from a decision of the trial court granting an injunction which forbids him from working for any competitor of Central Monitoring Service, Inc. (Central) in the State of South Dakota for a period of two years or from disclosing certain information about Central at any time. ¹

¶2 We affirm in part, reverse in part and remand.

ISSUES

¶3 This case presents two different issues, namely, whether a noncompetition agreement entered into subsequent to the original employment contract requires additional consideration and whether the agreement at issue here is reasonable.

FACTS

¶4 Central is a South Dakota Corporation which provides security services. Central is owned by Kenneth Knight and his wife Marcey Knight. Kenneth Knight has been in the security business in Rapid City since 1984, and incorporated his company in December 1992. ²

¶5 In December 1991, Knight hired Zakinski as a security consultant and sales representative upon the recommendation of another employee, Jack Wright. Zakinski had spent twenty-three years in law enforcement and had been in the private security business for approximately ten years. ³ He is now sixty years of age.

¶6 The employment agreement between Knight and Zakinski was oral and both parties admit there was no discussion of a non-compete agreement at the time he was hired. Six months later, in June 1992, Knight asked all of his employees, including Zakinski to sign a Non-Compete And Confidentiality Agreement (the agreement). Knight and Zakinski were alone in the Central office when the request was made and there is a dispute about what was said. ⁴

¶7 Knight did not tell any of his employees that they would be fired if they did not sign the agreement and he admits that he never fired any employee for not signing the agreement. However, he claims that he always considered such an action to be an available option. Only employee Jack Wright refused to sign the agreement.

¶8 Jack Wright continued to work for Central until the spring of 1995 when he quit and went to work for a competitor. About one month later, Knight fired Zakinski. Knight testified that this discharge occurred because he believed that Zakinski, "was lacking in technical ability in many of the systems" and that he was of no value to Central. At the time of his firing, Zakinski was informed that Central intended to enforce the agreement against him. ⁵ Nevertheless, within one month, Zakinski went to work for a competitor. Shortly after beginning the new employment, Zakinski was again warned that Central would enforce the agreement. When Zakinski did not quit his new employment, Central brought this action for an injunction restraining him from violating both the non-compete and the non-disclosure portions of the agreement.

DECISION

¶9 Noncompetition (non-compete) and confidentiality (non-disclosure) agreements are both contracts in restraint of trade and generally, contracts in restraint of trade are void. SDCL 53-9-8 provides Every contract restraining exercise of a lawful profession, trade, or business is void to that extent, except as provided by §§ 53-9-9 to 53-9-11, inclusive. ⁶

SDCL 53-9-11, which is in issue in this case, is one of the exceptions to SDCL 53-9-8. Such exceptions must be construed narrowly so as to promote the prohibition against contracts in restraint of trade. American Rim & Brake, Inc. v. Zoellner, 382 N.W.2d 421, 424 (S.D.1986).

¶10 I. The Confidentiality Portion of the Agreement.

¶11 The agreement signed by Zakinski was both a "Non-Compete and Confidentiality Agreement." A non-compete agreement and a confidentiality or non-disclosure agreement are two different things. ⁷ In 1st American Systems v. Rezatto, 311 N.W.2d 51, 56 (S.D.1981) this Court said "the trial court erred because the contract was divisible and a non-disclosure agreement differs from a noncompetition agreement."

¶12 Zakinski conceded during oral argument that he was not contesting the non-disclosure portion of the injunction which enjoined him from removing any of Central's records, including the names and addresses of Central's customers, from Central's premises either in original form or duplicate or any copy form or any facts contained in such records or from disclosing any of Central's business and proprietary technical and non-technical information, including inventions, discoveries, designs, improvements, security codes or customer lists. A party is bound by the concessions that they make during oral argument. Bienert v. Yankton School District 63-3, 507 N.W.2d 88 (S.D.1993); State v. Hurst, 507 N.W.2d 918 (S.D.1993); Poppen v. Walker, 520 N.W.2d 238 (S.D.1994), footnote 28.

¶13 II. The Non-Compete Portion of the Agreement.

¶14 However, Central is requesting enforcement of the agreement so that not only is Zakinski prevented from disclosing any of its confidential information but so that he is prevented from employment anywhere in the state of South Dakota by any competing private security business for a period of two years. Zakinski claims that the non-compete portion of the agreement is unenforceable because there was no consideration for it.

¶15 A. Consideration for a non-complete agreement.

¶16 Consideration is an essential element of a contract both under common law and by statute in South Dakota. Andrews v. Bellman, 50 S.D. 21, 208 N.W. 175, 176 (1926); SDCL 53-1-2(4). ⁸ In this case the non-compete agreement was entered into after Zakinski had been employed for about six months. After signing the agreement, Zakinski's duties and compensation did not change. Zakinski was not told that his continued employment hinged upon execution of the agreement. Both parties agree that the question which must be decided is whether additional consideration is required in order to enforce a non-compete agreement entered into after employment has begun. ⁹

¶17 The trial court found that there does not have to be any new consideration for a non-compete agreement even though it is entered into after an employee has been employed for a period of time. ¹⁰ Such a legal conclusion is fully reviewable by this Court on appeal, on a de novo basis, and no deference is given to the trial court's conclusions of law. Centrol, Inc. v. Morrow, 489 N.W.2d 890, 893 (S.D.1992).

¶18 The fact that Zakinski entered into the non-compete agreement six months after beginning his employment with Central does not make a difference because SDCL 53-9-11 authorizes an employee to enter into a non-compete agreement with an employer at the time of employment or at any time during his employment. However, Zakinski maintains that this statute does not eliminate the need for consideration.

¶19 In American Rim & Brake, supra, this Court held that standard contract law governs the enforceability of a non-compete agreement. In that case the Court said:

Both defendants were already employed when they signed the employment agreement, and received no additional compensation. It was conceded at oral argument, however, that when originally employed defendants signed an employment contract containing a noncompetition clause in different form. Defendants were asked to sign these contracts containing a less restrictive noncompetition clause following the 1984 revision of SDCL 53-9-11. In light of this, we deem this argument to be without merit, considering SDCL 53-8-7.

Id. 382 N.W.2d at 424.

¶20 SDCL 53-8-7, provides that "A contract in writing may be altered by a contract in writing without a new consideration or by an executed oral agreement, and not otherwise. (emphasis supplied)."

¶21 Zakinski argues that the holding in American Rim & Brake does not apply to this case because that case involved a written modification of an existing written employment agreement whereas in this case there was no earlier written employment agreement. He argues that since his employment agreement was oral, SDCL 53-8-7 has no application to his case. He is correct that SDCL 53-8-7 applies only to modification of written contracts so it has no application to this oral contract but SDCL 53-8-6 is fatal to his argument. It provides:

A contract not in writing may be altered in any respect by consent of the parties, in writing, without a new consideration, and is extinguished thereby to the extent of the alteration (emphasis supplied).

¶22 Both American Rim & Brake and Centrol recognize that SDCL 53-8-7 permits alteration of written contracts without new consideration. SDCL 53-8-6 provides for the alteration of oral contracts as well without the need for new consideration. In fact, SDCL 53-8-6 is broader than SDCL 53-8-7 because it allows the alteration in any respect.

¶23 Clearly, under SDCL 53-8-6, if the non-compete agreement between Central and Zakinski is an alteration of the existing employment contract, no new consideration is required. However, if the non-compete agreement is a completely new contract, new consideration is required.

¶24 The words "in any respect," used in SDCL 53-8-6, indicate that a broad interpretation should be applied. "Any" as used in a statute means "all" or "every" and suggests a broad and expansive meaning. O'Connor v. Wells, 252 N.Y.S.2d 861, 863, 43 Misc.2d 1075 (N.Y.Sup.1964); State v. Zueger, 459 N.W.2d 235, 237 (N.D.1990); Christianson v. City of Bismarck, 476 N.W.2d 688, 690 (N.D.1991).

¶25 The facts in this case indicate that the non-compete agreement was not a "stand-alone" agreement but was part and parcel of the...