Kennedy v. Kennedy

Decision Date19 August 2003
Docket NumberNo. COA02-1198.,COA02-1198.
Citation584 S.E.2d 328,160 NC App. 1
PartiesJeffrey R. KENNEDY, D.D.S., P.A. v. K. Carroll KENNEDY and Jerre Kennedy.
CourtNorth Carolina Court of Appeals

Tuggle Duggins & Meschan, P.A., by J. Reed Johnston, Jr., Denis E. Jacobson and Amanda L. Fields, Greensboro, for plaintiffappellant.

Law Offices of Thomas H. Stark, by Thomas H. Stark, Research Triangle Park, for defendant-appellees.

MARTIN, Judge.

Jeffrey R. Kennedy, D.D.S., P.A. ("plaintiff") appeals from an order denying its motion for preliminary injunction. We reverse and remand for entry of an order granting the preliminary injunction.

Plaintiff is a dental practice located in Chapel Hill, North Carolina and owned by Jeffrey R. Kennedy, D.D.S. ("Jeff"). Defendant K. Carroll Kennedy, D.D.S. ("Carroll") formed the practice in 1967. In 1984, Carroll hired Jeff, his nephew. In 1992, Carroll sold Jeff a one-half interest in the practice for $250,000. Carroll and Jeff thereafter worked together as partners for five years. During that time, the practice hired an associate dentist, defendant Jerre Kennedy, D.D.S. ("Jerre"), Carroll's niece and Jeff's first cousin. On 31 July 1996, Carroll sold his remaining interest in the practice to Jeff for $250,000 through an Asset Purchase Agreement. The Asset Purchase Agreement incorporated several exhibits into the agreement, including a restrictive covenant agreement, which included a covenant not to compete, and a provider agreement, which governed Carroll's provision of dental services within the practice (collectively, "the Purchase Agreement"). The Purchase Agreement provided for an initial five-year non-termination period wherein Carroll's employment could be terminated only for cause. After the five-year period, Carroll could be terminated for any reason with 90 days prior written notice. The restrictive covenant agreement would continue in full force and effect in the event the provider agreement were terminated without cause following the initial five-year non-termination period.

As part of the restrictive covenant agreement, Carroll agreed not to open a dentistry practice within a fifteen mile radius of the practice located at 123 W. Franklin Street, Chapel Hill for a period commencing with the sale of the practice on 31 July 1996 and ending three years after Carroll ceased employment with plaintiff. The Purchase Agreement allowed Jeff to assign the agreement to a professional corporation or partnership, provided the assignee executed a guaranty to the effect that it would be jointly and severally liable with Jeff under the Purchase Agreement.

In August 2001, shortly after expiration of the five-year non-termination period, Jeff approached Carroll and informed him that he wanted Carroll to work a more regimented schedule as an employee of the practice. Carroll did not desire to do so, and the two mutually agreed to disassociate. In October 2001, plaintiff provided Carroll written confirmation of the parties' intent that Carroll leave the practice. In his affidavit, Carroll stated that he and Jeff orally agreed that Carroll could open a new practice in Hillsborough despite its being located within a fifteen mile radius of plaintiff's practice, in contravention to the terms of the restrictive covenant agreement.

Plaintiff contends that from August 2001 through February 2002, Carroll actively solicited its patients and employees to follow him to his new Hillsborough practice. In early February, Jeff learned of Jerre's plans to join Carroll in Hillsborough. On 8 February 2002, plaintiff provided Carroll two weeks notice to vacate its office. Carroll and Jerre moved out of plaintiff's office on 22 February 2002 and opened a dental practice in Hillsborough in March 2002.

On 15 April 2002, plaintiff filed a complaint against Carroll and Jerre alleging breach of contract, misappropriation of confidential information, and tortious interference with prospective advantage. Defendants answered and asserted counterclaims against plaintiff for anticipatory repudiation of the Purchase Agreement, breach of that agreement, fraud, breach of fiduciary duty, and unfair and deceptive practices. Defendants also asserted equitable defenses of estoppel and the doctrine of unclean hands.

On 7 May 2002, plaintiff moved for a preliminary injunction to enforce the covenant not to compete alleging immediate and irreparable harm. In denying plaintiff's motion on 6 June 2002, the trial court found: (1) plaintiff had breached and repudiated the contract documents and could not enforce them under legal and equitable principles; (2) enforcement of the covenant not to compete would infringe on the rights of patients to choose their own dentists; (3) the covenant not to compete was overbroad as to time and place; (4) identity of dental patients and contact information was not a trade secret; and, (5) plaintiff had not demonstrated a likelihood of success on the merits or the existence of irreparable harm. The trial court preserved for trial the parties' claims to money damages. Plaintiff appeals.

The issues are: (1) whether the interlocutory order affects a substantial right that is properly reviewable by this Court; (2) whether plaintiff has standing to enforce the terms of the Purchase Agreement; (3) whether the restrictive covenant agreement is enforceable; (4) whether there was a novation of the Purchase Agreement; (5) whether plaintiff repudiated or breached the Purchase Agreement; (6) whether defendants misappropriated trade secrets; and (7) whether plaintiff is entitled to equitable relief.

I. Interlocutory Appeal

Plaintiff asserts this interlocutory appeal affects a substantial right and is reviewable even though other issues remain for disposition. We agree. "In cases involving an alleged breach of a non-competition agreement and an agreement prohibiting disclosure of confidential information, North Carolina appellate courts have routinely reviewed interlocutory court orders both granting and denying preliminary injunctions, holding that substantial rights have been affected." QSP, Inc. v. Hair, 152 N.C.App. 174, 175, 566 S.E.2d 851, 852 (2002) (citing A.E.P. Industries, Inc. v. McClure, 308 N.C. 393, 302 S.E.2d 754 (1983); Iredell Digestive Disease Clinic, P.A. v. Petrozza, 92 N.C.App. 21, 373 S.E.2d 449 (1988), affirmed, 324 N.C. 327, 377 S.E.2d 750 (1989); Cox v. Dine-A-Mate, Inc., 129 N.C.App. 773, 501 S.E.2d 353 (1998); Masterclean of North Carolina, Inc. v. Guy, 82 N.C.App. 45, 345 S.E.2d 692 (1986)). Plaintiff's appeal is properly before this Court and is reviewable.

II. Standing

Defendants cross-assign as error the trial court's failure to find that plaintiff is not the proper party in interest and lacks standing to enforce the Purchase Agreement, including the restrictive covenant agreement, as an alternative basis for denying the injunction. Defendants argue the Purchase Agreement was executed between Jeff and Carroll, and that even if Jeff attempted to assign his rights and obligations under the agreement to plaintiff, any such assignment was invalid because the agreement required that an assignment be accompanied by a guaranty executed by the assignee providing that it would be jointly and severally liable under the agreement, and plaintiff never executed any such guaranty. We disagree.

First, we believe the evidence of record is sufficient to show plaintiff's likelihood of success in showing that Jeff assigned his rights and obligations under the agreement to plaintiff. Plaintiff alleges in its complaint that the assignment occurred; Jeff testified that he reviewed the allegations of the complaint, including that he assigned the Purchase Agreement to plaintiff, and that all statements were accurate; Jeff further testified that plaintiff became owner of the asset acquired in the Purchase Agreement, and it was plaintiff who made payments on the loan obtained for the purchase price under the agreement; defendants' answer asserts counterclaims for anticipatory repudiation and breach of contract against plaintiff based upon the terms of the Purchase Agreement, effectively conceding that an assignment occurred; defendants concede in their brief that after Jeff established plaintiff as a corporate entity, both Jeff and Carroll became "employed by that corporate entity ... and all parties went forward doing business as employ[ees] or contractors of [plaintiff]," rather than Jeff individually; and the evidence shows plaintiff performed the obligations owed Carroll under the Purchase Agreement for several years. Nothing in the record contradicts this evidence tending to show that plaintiff had rights and obligations under the agreement.

Moreover, even if plaintiff failed to execute any required guaranty concurrently with the assignment, plaintiff has shown a likelihood of success in establishing that defendants are estopped from denying the validity of the terms of the Purchase Agreement as between Carroll and plaintiff. As our Supreme Court has noted, the courts of this State recognize the doctrine of quasi-estoppel, also termed "estoppel by acceptance of benefits." Brooks v. Hackney, 329 N.C. 166, 404 S.E.2d 854 (1991). The court stated:

"The doctrine of estoppel rests upon principles of equity and is designed to aid the law in the administration of justice when without its intervention injustice would result." Thompson v. Soles, 299 N.C. 484, 486, 263 S.E.2d 599, 602 (1980). Equity serves to moderate the unjust results that would follow from the unbending application of common law rules and statutes. It is well settled that "a party will not be allowed to accept benefits which arise from certain terms of a contract and at the same time deny the effect of other terms of the same agreement." Advertising, Inc. v. Harper, 7 N.C.App. 501, 505, 172 S.E.2d 793, 795 (1970) (lessee estopped to deny the validity of a lease because of insufficient description of the premises where he had paid the

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