Johnston v. Wilkins, 02-356.

• Decision Date: 13 June 2003
• Docket Number: No. 02-356.,02-356.
• Citation: 830 A.2d 695
• Court: Vermont Supreme Court
• Parties: Craig JOHNSTON v. Sheryl WILKINS, Thomas Dandurand and Catamount Veterinary Services.

830 A.2d 695

Craig JOHNSTON v. Sheryl WILKINS, Thomas Dandurand and Catamount Veterinary Services.

No. 02-356.

Supreme Court of Vermont.

June 13, 2003.

Before AMESTOY, C.J., DOOLEY, JOHNSON, SKOGLUND, JJ., and FREDERIC W. ALLEN, C.J. (Ret.), Specially Assigned.

ENTRY ORDER

¶ 1. This appeal concerns a dispute between sibling veterinarians. Both plaintiff Craig Johnston and defendant Sheryl Wilkins appeal from the superior court's order reforming the parties' noncompetition agreement, which was part of a stipulated settlement and court order in a prior lawsuit between the parties. Because we conclude that the doctrine of res judicata precludes either party from collaterally attacking the noncompetition agreement, at least without a demonstration that the criteria of V.R.C.P. 60(b) have been met, we reverse the superior court's reformation order without addressing the reasonableness of the agreement. Further, because we conclude that Wilkins violated the agreement, and that Johnston was entitled to injunctive relief, we remand the matter for the superior court to award Johnston reasonable attorney's fees.

¶ 2. The parties' father was a veterinarian who began his practice in Jeffersonville, Vermont in 1956. Johnston graduated from veterinary school in 1982 and took over his father's practice two years later. Shortly thereafter, Wilkins joined the practice. She and her brother formed a partnership and ran the practice together during the next fifteen years. In 1998, the parties' relationship began to deteriorate, and dissolution discussions commenced. Wilkins stopped working at the clinic in 1999 after she was diagnosed with cancer and began treatments for the disease. Discussions regarding dissolution of the partnership stalled, and Wilkins filed suit against Johnston.

¶ 3. On August 10, 2000, during the trial in that action, the parties reached a settlement agreement. The agreement provided that Johnston would buy out Wilkins' half-interest in the veterinary practice, including its goodwill, for $25,000 and would deed her his half-interest in their joint real estate, valued at $41,500. In return, Wilkins agreed "not to conduct a small animal veterinarian practice within a 20 mile radius of the village of Jeffersonville VT for 5 years" from the date of the agreement. The stipulated settlement, which was incorporated into the court's order resolving the litigation between the parties, required the parties to exchange documents within thirty days to effectuate the agreement. On September 11, 2000, at the closing on the real estate, the parties signed a covenant not to compete in which Wilkins agreed not to "compete against Johnston, in the practice of small animal veterinary medicine, until after August 10, 2005, directly or indirectly (without the written consent of Johnston) within a twenty (20) mile radius from the Village of Jeffersonville, Vermont."

¶ 4. In February 2001, Wilkins began working for Thomas Dandurand, a veterinarian who operated a practice in Sheldon Junction, Vermont under the trade name of Catamount Veterinary Services (hereinafter Catamount). The following month, Johnston's attorney wrote Wilkins' attorney a letter stating that Wilkins was violating the covenant not to compete by working at Catamount. When Johnston did not receive an immediate response from Wilkins, he filed suit, seeking to enforce the noncompetition agreement. Wilkins answered the complaint by denying that Catamount was within the protected area established by the parties' agreement. In September 2001, following an evidentiary hearing, the superior court denied Johnston's request for a preliminary injunction, ruling that (1) there was a significant factual dispute as to whether Catamount was outside the protected area; (2) the covenant not to compete was so broad that it might not be enforceable; and (3) there appeared to be an adequate remedy at law for damages. In January 2002, following another evidentiary hearing, the superior court found that Catamount's office was 18.8 miles from Jeffersonville on a direct line, and that, therefore, Wilkins would be in violation of the covenant if it were enforceable. The court denied Johnston's motion for an attachment of Wilkins' property, however, stating that it was unclear whether the parties' agreement was enforceable and thus whether Johnston would be the prevailing party at the final hearing on the merits. Wilkins, who had stopped working for Catamount in August 2001, began working there again in February 2002.

¶ 5. The final hearing took place in May 2002. Johnston produced expert witnesses who testified that both the twenty-mile radius and the five-year time limit set forth in the parties' agreement were reasonable. Following the hearing, the court first rejected Wilkins' argument that the twenty-mile distance should be measured by highway miles rather than a straight line. The court determined that the term "radius" chosen by the parties unambiguously referred to a straight line drawn, in any direction, from the Jeffersonville center point. Nevertheless, relying on the evidence presented by Johnston's experts, the court ruled that the twenty-mile radius was not commercially reasonable and thus was unenforceable. In the court's view, Johnston's own exhibits demonstrated that his core area of trade, wherein he derived eighty percent of his business, was a smaller area that did not include Catamount. Accordingly, the court reformed the parties' agreement by establishing the protected area as the irregular line denoting Johnston's core area of trade.

¶ 6. Although Wilkins was working at a veterinary clinic outside Johnston's core trade area, the court determined that the parties' agreement prevented Wilkins not only from practicing in that area but also from actively seeking customers who resided within that area. The court concluded that any violation of the agreement by Wilkins thus far had been de minimis, and that Johnston had "utterly and completely" failed to establish any actual damage to his practice. Nonetheless, the court granted Johnston's request for a permanent injunction to prevent potential harm to his practice by prohibiting Wilkins from seeing customers who resided within Johnston's core area of trade and were not already established Catamount customers. Finally, the court denied Johnston's request for attorney's fees, ruling that any violation of the agreement thus far had been de minimis, and that Johnston was in a far better position than Wilkins to pay for his attorney's fees.

¶ 7. On appeal to this Court, Johnston argues that (1) certain findings made by the superior court are clearly erroneous; (2) the court erred in reforming the parties' agreement because the doctrine of res judicata precluded the court from reviewing the agreement for reasonableness, and, in any event, the terms of the agreement were reasonable; (3) the court erred by failing to award him attorney's fees; (4) the court should have extended the duration of the noncompetition agreement for an additional two years; and (5) the court erred by not awarding him at least nominal damages and attorney's fees for Catamount's intentional interference with the parties' agreement. In her cross-appeal, Wilkins argues that the superior court erred by ruling that the parties' noncompetition agreement prohibited her from soliciting customers who reside within Johnston's core trade area, even if she was practicing outside that area.

¶ 8. We conclude that the doctrine of res judicata precluded the superior court from reforming the parties' noncompetition agreement, and thus we need not review the court's determination that the agreement...