MSC Industrial Direct Co., Inc. v. Steele, No. COA08-418 (N.C. App. 8/18/2009)

• Decision Date: 18 August 2009
• Docket Number: No. COA08-418,COA08-418
• Parties: MSC INDUSTRIAL DIRECT CO., INC., Plaintiff, v. JAMES GREGORY STEELE, Defendant.
• Court: North Carolina Court of Appeals

Page 1

Unpublished Opinion

MSC INDUSTRIAL DIRECT CO., INC., Plaintiff, v.JAMES GREGORY STEELE, Defendant.

No. COA08-418

Court of Appeals of North Carolina

Filed August 18, 2009

This case not for publication

Union County No. 07 CVS 2847.

Appeal by plaintiff from an order entered 30 January 2008 by Judge W. David Lee in Union County Superior Court. Heard in the Court of Appeals 22 October 2008.

Jackson Lewis, LLP, by Paul H. Derrick, for plaintiff-appellant.

Black Ruth Grossman & Cain, P.A., by Aimee E. Cain and Lucas T. Baker, for defendant-appellee.

JACKSON, Judge.

MSC Industrial Direct Co., Inc.("plaintiff") appeals the 30 January 2008 denial of a preliminary injunction and dissolution of a temporary restraining order.For the reasons stated below, we affirm.

Plaintiff, a direct marketer of industrial products, hired James Gregory Steele("defendant") on 17 October 1994 as an Outside Sales Associate.He was promoted to the position of Senior Account Executive in 1999.On 19 August 2005, defendant signed an Associate Confidentiality, Non-Solicitation and Non-Competition Agreement in connection with his having been given the use of a company car.

On 19 February 2006, defendant signed a second Associate Confidentiality, Non-Solicitation and Non-Competition Agreement ("the Agreement") which, pursuant to its terms, superceded "any and all prior agreements or understandings" between the parties.The Agreement stated that defendant signed it in exchange for (1) restricted shares of plaintiff's stock, (2) his continued employment, (3) his compensation, and (4)plaintiff's entrustment to him of confidential information related to its business.Plaintiff terminated defendant's employment on 11 May 2007 for alleged violations of the Agreement.In August 2007, defendant began working for Hagemeyer North America, one of plaintiff's competitors.

On 10 October 2007, plaintiff filed a complaint in Union County Superior Court seeking a temporary restraining order ("TRO") and preliminary injunction, enjoining and restraining defendant from engaging in allegedly restricted activity.Also on that date, plaintiff filed a motion seeking the same relief.An order granting a TRO in favor of plaintiff was filed 11 October 2007.Defendant's deposition was taken on the morning of 21 December 2007, and a Consent Temporary Restraining Order was filed later that afternoon.Plaintiff's motion for a preliminary injunction was heard 14 January 2008.The trial court denied the motion and dissolved the TRO.Plaintiff appeals.

As a preliminary matter, we must determine if this appeal has been brought prematurely."A preliminary injunction is interlocutory in nature and therefore not immediately appealable unless it deprives the appellant of a substantial right that he would lose absent immediate review."Redlee/SCS Inc. v. Pieper,153 N.C. App. 421, 423, 571 S.E.2d 8, 11(2002)(citingWade S. Dunbar Ins. Agency, Inc. v. Barber,147 N.C. App. 463, 466, 556 S.E.2d 331, 334(2001)).

In QSP, Inc. v. Hair,152 N.C. App. 174, 566 S.E.2d 851(2002), this Court noted that "[i]n 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."Id. at 175, 566 S.E.2d at 852.QSP went on to hold that the denial of a preliminary injunction "(1) prohibiting defendant from using or disclosing QSP's confidential information and trade secrets and (2) prohibiting defendant from soliciting for one year the same customers defendant solicited while working for QSP" would deprive the plaintiff of a substantial right absent a review prior to a final determination.Id. at 176, 566 S.E.2d at 852.As plaintiff in the casesub judice sought a similar preliminary injunction which was denied, the appeal is appropriate for our review at this time.

We first address defendant's contention that the issue is moot because the period covered by the Agreement has passed.We disagree.

"Whenever, during the course of litigation it develops that. . . the questions originally in controversy between the parties are no longer at issue, the case should be dismissed, for courts will not entertain or proceed with a cause merely to determine abstract propositions of law."In re Peoples,296 N.C. 109, 147, 250 S.E.2d 890, 912(1978)(citations omitted), cert. denied,442 U.S. 929, 61 L. Ed. 2d 297(1979).

Pursuant to the terms of the Agreement, if valid, defendant is prohibited from (1) using or disclosing confidential information for so long as the information generally is not known to the public, (2) competing with plaintiff while employed there and for one year after the termination of his employment, and (3) soliciting its customers while employed there and for one year after the termination of his employment.However, in the event it is determined that defendant violated the Agreement, the duration of the second and third restrictions would be extended for an amount of time equal to the period during which such violations occurred.

Clearly, with respect to the first restriction, the restrictive period could extend indefinitely.With respect to the second and third restrictions, because defendant was terminated on 11 May 2007, with no other facts appearing, the applicable period would expire 10 May 2008, which has passed.However, it is alleged that defendant violated the Agreement.Therefore, pursuant to the Agreement the restricted period would extend for an amount of time equal to the period during which the violations occurred, if such violations are found to have occurred.

A TRO was ordered on 11 October 2007 and was to "remain in full force and effect until such time as this [c]ourt specifically orders otherwise[.]"The 11 October order also set a hearing on plaintiff's motion for 17 October 2007.It appears from defendant's deposition testimony that a hearing was held on that date and that the TRO remained in effect from that point in time.However, there is no direct evidence in the record with respect to a hearing on 17 October 2007 or at any other time prior to the deposition.The 21 December 2007 consent order does not purport to extend an existing TRO.It orders that a TRO "issue immediately" and that plaintiff post bond.This implies that an existing TRO was not in effect at that time.In any event, a TRO finally was dissolved on 14 January 2008, by order filed 30 January 2008.

With the exception of the three-month period during which a TRO was in place, defendant is alleged to have been in violation of the terms of the Agreement.As of the date of this opinion, if a court were to determine that defendant was, in fact, in violation of the Agreement, his business activities would be restricted by the Agreement's terms for a period of time equal to at least an additional twenty-four months beyond the one-year post-separation period, or at least 10 May 2010 which has not passed yet.Because the question originally in controversy between the parties — whether defendant's activities are restricted, and if so, for how long — has not been resolved, the issue is not moot.

Therefore, we consider the merits of the appeal.Plaintiff argues that the trial court erred in failing to grant a preliminary injunction because it demonstrated a substantial likelihood of success on the merits.We disagree.

The scope of appellate review of a trial court's grant or denial of a preliminary injunction is essentially de novo because the appellate court"is not bound by the [trial court's] findings [of fact], but may review and weigh the evidence and find facts for itself."A.E.P. Industries v. McClure,308 N.C. 393, 402, 302 S.E.2d 754, 760(1983)(citations omitted).

In considering the propriety of a preliminary injunction, this Court does not determine whether a confidentiality, no-solicitation, and non-competition agreement is in fact enforceable, but reviews the evidence and determines (1) whether plaintiff has met its burden of showing a likelihood of success on the merits and (2) whether plaintiff is likely to sustain irreparable loss unless the injunction is issued.

QSP,152 N.C. App. at 176, 566 S.E.2d at 853(citingA.E.P. Industries,308 N.C. at 401, 302 S.E.2d at 759).However, "[w]here a preliminary injunction is sought to enforce a non[-]competition clause in an employment contract, [the Supreme] Court has held that the employment agreement itself must be valid and enforceable in order for the employer to be able to show the requisite likelihood of success on the merits."Triangle Leasing Co. v. McMahon,327 N.C. 224, 227-28, 393 S.E.2d 854, 857(1990)(citingA.E.P. Industries,308 N.C. 393, 302 S.E.2d 754).

Although both parties discussed in their briefs the issue of choice of law — the Agreement called for New York law to apply — plaintiff did not assign error to the trial court's determination that North Carolina law governs the enforceability of the Agreement."[T]he scope of review on appeal is confined to a consideration of those assignments of error set out in the record on appeal[.]"N.C. R. App. P. 10(a)(2007).Because no assignment of error addresses choice of law, the issue is not within the scope of our review.Therefore, we apply the same law the trial court did — North Carolina law.

"Under North Carolina law, covenants not to compete are valid and enforceable if: `(1) in writing; (2) made part of a contract of employment; (3) based on valuable consideration; (4) reasonable both as to time and territory; and (5) not against public policy.'"Calhoun v. WHA Med. Clinic, PLLC,178 N.C. App. 585, 597, 632 S.E.2d 563, 571(2006)(quotingQSP,152 N.C. App. at 176, 566 S.E.2d at 852), disc. rev. denied,361 N.C. 350, 644 S.E.2d 5(2007).Defendant contends that plaintiff was not likely to...