Kasco Services Corp. v. Benson, B-S

• Decision Date: 31 March 1992
• Docket Number: No. 900260,B-S,900260
• Citation: 831 P.2d 86
• Parties: KASCO SERVICES CORPORATION, Plaintiff and Appellant, v. Larry D. BENSON and Connie A. Benson dba Tri-upply, Defendants and Appellees.
• Court: Utah Supreme Court

Page 86

831 P.2d 86

KASCO SERVICES CORPORATION, Plaintiff and Appellant, v. Larry D. BENSON and Connie A. Benson dba Tri-B-Supply Defendants and Appellees.

No. 900260.

Supreme Court of Utah.

March 31, 1992.

Rehearing Denied May 1, 1992.

Michael F. Richman, David L. Arrington, Salt Lake City, for plaintiff and appellant.

Reid Tateoka, Shawn D. Turner, Salt Lake City, for defendants and appellees.

HOWE, Associate Chief Justice:

This interlocutory appeal arises out of an action by Kasco Services Corporation against defendants Larry D. Benson, his wife Connie A. Benson, and Tri-B-Supply for an injunction and damages resulting from an alleged breach of a covenant not to compete contained in an employment contract. We granted this appeal pursuant to Utah Code Ann. § 78-2-2(3)(j) and rule 5 of the Utah Rules of Appellate Procedure.

In 1982, Larry Benson was employed by Keene Corporation. They entered into an employment agreement which contained a restrictive covenant that upon termination, Benson would not compete for eighteen months. The agreement specifically provided that Benson would not

(i) call upon any Keene Customer for the purpose of soliciting, selling, renting and/or servicing Butcher Products,

(ii) directly or indirectly, solicit, divert, take away or attempt to take away any Keene Customer, or the business or patronage of any such customer for Butcher Products, or

(iii) directly or indirectly, engage in any manner in the business of the sale, rental or servicing of Butcher Products in any geographic territory in which [Larry Benson] had called upon Keene Customers during the period of his employment with Keene....

The agreement further prohibited Benson from using or disclosing confidential information. He was given confidential customer and pricing lists and was entrusted with preexisting customers. The agreement expressly stated that the parties' rights and obligations "bind and inure to the benefit of any successor or successors of Keene by ... merger...." Kasco is a successor in interest to Keene, and the rights and obligations of Keene were assigned to Kasco.

In the summer of 1988, following the merger of Keene with Kasco, employment contracts were sent to all employees including Benson. The preexisting agreements with Keene were "restated for the record." Benson refused to sign the 1988 contract and alleges that he informed Kasco in August 1988 that he considered the noncompetition covenants "null and void." He continued, however, to work for Kasco and on February 15, 1989, provided written notice that he would resign effective March 1, 1989.

Benson was one of Kasco's top five salespersons. Kasco's customers developed a pleasant, ongoing relationship with We have previously held that " 'a covenant not to compete is necessary for the protection of the goodwill of the business when it is shown that although the employee learns no trade secrets, he may likely draw away customers from his former employer, if he were permitted to compete nearby.' " System Concepts, Inc. v. Dixon, 669 P.2d 421, 426 (Utah 1983) (quoting Allen v. Rose Park Pharmacy, 120 Utah 608, 617, 237 P.2d 823, 827-28 (1951)).

him. In effect, Benson was Kasco in his territory, and he was responsible for the goodwill of the business because he was the only sales representative in his territory.

Shortly after terminating employment with Kasco, Benson began a butcher supply business with his wife Connie, in direct competition with Kasco. The business was called Tri-B-Supply, and they employed their son Robert. When Kasco became aware of this, it brought this action for damages and sought a preliminary injunction. The trial judge granted the injunction against Larry Benson, finding that the four requirements set forth in Allen v. Rose Park Pharmacy, 120 Utah at 619, 237 P.2d at 828, had been satisfied. ¹ Moreover, the court determined that Kasco had also met the requirements of Robbins v. Finlay, 645 P.2d 623, 627-28 (Utah 1982), which held that not only must the restrictive covenant be necessary to protect the goodwill of the business, but also the employer must show that the services rendered by the employee are special, unique, or extraordinary. ²

The trial judge determined that the eighteen-month time period specified in the covenant began to run in August 1988, when Benson refused to sign the new employment contract and allegedly told Kasco that he would not abide by the noncompetition covenant. The judge refused to enjoin Connie and later denied Kasco's motion to amend its complaint to add Robert as a defendant. We granted an interlocutory appeal to review these rulings. During the pendency of this appeal, we enjoined Larry, Connie, and Robert Benson, along with Tri-B-Supply, from further soliciting or accepting business from Kasco's customers. The assertion in the dissenting opinion that Kasco did not timely petition for an interlocutory appeal is without merit. The April 10, 1989 order granting a preliminary injunction was not a final order, but an interlocutory order, which by its very nature was subject to modification. See Utah R.Civ.P. 54(b). In 1990, Kasco sought to modify the April 10, 1989 order. This appeal was timely taken from the court's refusal to do so.

TIME FRAME OF THE COVENANT

Kasco contends that the trial court erred in holding that the eighteen months began to run in August 1988 rather than when Benson actually resigned on March 1, 1989. The trial judge reasoned:

The preliminary injunction will be granted to expire 18 months from August, 1988 because I believe at that time the company was on notice that Mr. Benson did not wish to retain any restrictive covenants in his employment, thereafter (Emphasis added.)

the company would be willing to either--required to terminate him or deal otherwise with him. At that point the restrictive covenant would be terminated as to its application to Mr. Benson except for 18 months thereafter.

The trial judge made no specific findings of fact or conclusions of law. The covenant not to compete expressly states that the eighteen-month time frame begins to run after termination. The trial court's finding that Kasco was "on notice" and the noncompetition covenant began to run in August 1988 involves a question of fact and a question of law. Since the finding that Kasco was on notice was a question of fact, we reverse only if we find it clearly erroneous. See Utah R.Civ.P. 52(a); State v. Petersen, 810 P.2d 421, 425 (Utah 1991). However, the effect of that notice, which presumably led the trial court to find an anticipatory repudiation, is a question of law which we review for correctness. State v. Ramirez, 817 P.2d 774, 781-82 n. 3 (Utah 1991); State v. Petersen, 810 P.2d at 425.

An anticipatory breach occurs when a party to an executory contract manifests a positive and unequivocal intent not to render performance when the time fixed for performance is due. Hurwitz v. David K. Richards Co., 20 Utah 2d 232, 234-35, 436 P.2d 794, 796 (1968). The other party can immediately treat the anticipatory repudiation as a breach, or it can continue to treat the contract as operable and urge performance without waiving any right to sue for that repudiation. United California Bank v. Prudential Ins. Co. of America, 140 Ariz. 238, 281, 681 P.2d 390, 433 (Ct.App.1983); see also University Club v. Invesco Holding Corp., 29 Utah 2d 1, 3, 504 P.2d 29, 30 (1972).

Our court of appeals recently noted, "A party that has received a definite repudiation from the breaching party to the contract should not be penalized for its efforts to encourage the breaching party to perform its end of the bargain." Breuer-Harrison, Inc. v. Combe, 799 P.2d 716, 725 (Utah Ct.App.1990) (citing United California Bank, 140 Ariz. at 281, 681 P.2d at 433); see also 4 Arthur L. Corbin, Corbin on Contracts § 981 (1951). The opinion fully explains the "modern rule" of anticipatory breach and the outmoded common law "waiver" theory.

We need not decide here whether Benson's announcement that he did not intend to abide by the noncompetition covenant was an anticipatory repudiation. It makes no difference in this case. If his remarks were an anticipatory repudiation, Kasco simply had an election. It could treat the remark as a breach, or it could continue to treat the contract as operable and encourage performance without waiving any rights under the contract. If there was no anticipatory repudiation, the noncompetition covenant remained in full force. Therefore, anticipatory repudiation or not, it was error for the trial court to rule that the eighteen months began to run when Kasco was put on notice of Benson's intent not to comply with the restrictive covenant. The beginning time should have been the actual date of Benson's resignation.

POWER TO ENJOIN DOES NOT REQUIRE PRIVITY

Kasco contends that the trial court erred by not enjoining Connie Benson. The refusal was because she was not in privity of contract with Kasco. The court believed that a direct contract was a prerequisite to injunctive relief:

JUDGE YOUNG: ... and you [Kasco] fundamentally have no right to enforce anything as to Mrs. Benson in relation to this agreement....

....

MR. RICHMAN: I would assume that this court's order is not precluding us from seeking a permanent injunction against Mrs. Benson at a later time, just a denial at this time.

JUDGE YOUNG:

Well, I don't see that I have any basis for having jurisdiction over her in relation to a contract at all.

We have previously held [T]he granting or refusing of injunction rests to some extent within the sound discretion of the trial court, and its judgment ... will not be disturbed on appeal unless it can be said the court abused its discretion, or that the judgment rendered is clearly against the weight of the evidence.

System Concepts, Inc. v. Dixon, 669 P.2d at 425 (quoting Johnson v. Ward, 541 P.2d 182, 188 (Okla.1975)). The trial court's discretion must be exercised...