Optical Partners, Inc. v. Dang

• Decision Date: 14 April 2011
• Docket Number: No. 10–629.,10–629.
• Citation: 381 S.W.3d 46,2011 Ark. 156
• Court: Arkansas Supreme Court
• Parties: OPTICAL PARTNERS, INC., d/b/a Pearle Vision, Appellant, v. Kevin DANG d/b/a Dang Eye Care & Associates, P.A., Appellee.

2011 Ark. 156

381 S.W.3d 46

OPTICAL PARTNERS, INC., d/b/a Pearle Vision, Appellant,

v.Kevin DANG d/b/a Dang Eye Care & Associates, P.A., Appellee.

No. 10–629.

Supreme Court of Arkansas.

April 14, 2011.

John Randolph Shock, Fort Smith, for appellant.

Michael Jered Medlock, Fort Smith, for appellee.

JIM GUNTER, Justice.

Appellant Optical Partners, Inc., doing business as Pearle Vision, appeals two orders of the Sebastian County Circuit Court: (1) an order entered on June 5, 2009, denying appellant's motion for an emergency temporary restraining order and declaring the covenant not to compete valid in certain respects but unenforceable for lacking a legitimate business interest to protect, and (2) the verdict and judgment filed on February 18, 2010, following a bench trial wherein the circuit court determined that appellee Kevin Dang, doing business as Dang Eye Care & Associates, breached his lease agreement with appellant and owed damages for underpaid rent, unpaid rent, and lost profits. Appellee cross appeals on the issue of damages, asserting that lost profits should have been calculated differently. We affirm on both direct appeal and cross-appeal.

This case involves a covenant not to compete embedded in a lease agreement between appellant and appellee. Appellant is a business that manufactures and dispenses eyeglasses. Appellee is an optometrist who performs eye exams, writes prescriptions for glasses and contact lenses, and diagnoses and treats eye diseases. Appellee leased office space and equipment from appellant since August 1, 2000. The initial lease required appellee to assign all of his gross proceeds to appellant in return for a six-figure guaranteed amount and required appellee to be physically present at the location during specific business hours. On October 1, 2003, appellee signed a new lease agreement with appellant. The 2003 agreement was automatically renewed each year unless terminated by written thirty-day notice. The agreement provided that appellant and appellee were independent contractors and that neither party was employee, agent, joint venturer, or partner of the other. Appellee assumed more of the costs of equipment and staff than he did under the original lease, and the new lease required appellee to pay ten percent of his gross sales per month as rent. The 2003 agreement included the following covenant-not-to-compete provision:

During the term of this Agreement and for one (1) year thereafter, Sublessee agrees that s/he will not engage in the practice of optometry or the dispensing of optical products as a sole practitioner, partner, employee, contractor, or sublessee of any person or entity or in any other capacity within a radius of three (3) miles from the Subleased Premises.

On May 11, 2009, appellant filed a complaint against appellee alleging appellee breached the lease agreement by failing to properly account for or pay the proper percentage of his gross sales per the agreement; by abandoning the agreement without proper notice on February 21, 2009; by absconding with the business telephone numbers owned by appellant; and by resuming business operations in violation of the covenant not to compete. As damages, appellant requested unpaid and underpaid rent based on appellee's gross sales, loss of income due to appellee's improper termination of the agreement, loss of business due to appellee's taking of the telephone numbers, and continuing loss of income as a result of appellee's breach of the noncompete clause. Contemporaneous with the complaint, appellant filed a Motion for Emergency Temporary Restraining Order, in which it allegedthat it suffered irreparable harm as a result of appellee's abandoning the agreement, wrongfully withholding the telephone numbers, and breaching the covenant not to compete. Appellant contended that it had suffered a fifty-percent decrease in business income since February 21, 2009, as a result of appellee's actions.

Appellee filed an answer on May 14, 2009, denying all material claims appellant made in its complaint. Also on May 14, appellee filed a response to the motion for emergency relief, denying the allegations made therein, and a counterclaim for declaratory judgment asking the court to declare the restrictive covenant invalid under Arkansas law. Appellant responded to the counterclaim for declaratory judgment on May 28, 2009, asking that the court determine that the covenant was enforceable under the law and that the court deny appellee relief on that issue.

The court held a hearing on June 1, 2009. Dwight Rogers, co-owner with his wife Zoella of Optical Partners, testified that he had done business as Pearle Vision at the Fort Smith Central Mall location since 1993. He stated that his wife had been an optician for thirty-two years and explained that she fills eyeglass prescriptions, dispenses eyeglasses, and fits eyeglasses. Rogers admitted that his wife and appellee did not make referrals to each other, that his wife in no way regulated or controlled appellee's business, and that appellee's patients were free to use any optician. Rogers noted that being next door provided convenience for many of appellee's patients to use Pearle Vision to fill their prescriptions. Rogers testified that appellee was not an employee of Optical Partners or Pearle Vision. Rogers stated that his business was “complimentary” to appellee's business. Rogers described the contract between his business and appellee as a lease agreement for real property and equipment. Appellee's office space was physically located inside appellant's retail space. Rogers explained that when appellee first signed the lease agreement in 2000, he was fresh out of optometry school and had no patient base. Rogers explained that, prior to 2000, he and his wife had operated out of that location for seven years.

Rogers testified that Optical Partners operated under a franchise agreement with Pearle Vision in which Optical Partners paid nine percent of its gross income to Pearle Vision for advertising purposes. Seven percent of that amount was used for national brand advertising, and two percent of that amount was given back to Optical Partners for local advertising. Rogers testified that he used the two percent to advertise that his franchise had an independent optometrist on site and often advertised appellee by name. Rogers stated that on February 17, 2009, appellee stopped seeing patients at the Pearle Vision location and began practicing optometry less than three miles away at another location. Rogers said that appellee did not give written notice of his intent to terminate the lease agreement until April 17. Rogers stated that appellee's sister, Cindy Dang, replaced appellee as optometrist at the Pearle Vision location and that there was never a time period where appellant was without an optometrist on site.

On cross-examination, Rogers admitted that his business was not in direct competition with appellee's business. Rather, Rogers stated that appellee was competing with appellant by “taking away ... patients.” However, Rogers acknowledged that those patients were free to use appellant for dispensing eyeglasses regardless of where appellee was located and that those patients were never required to use appellant to fill prescriptions written by appellee.

Appellee Kevin Dang testified that he was never appellant's employee, that he never bought any part of appellant's business, and that he never had any agreement to become a partner in that business. He said that he was an optometrist; that he wrote prescriptions for eyeglasses and contact lenses, and that he sold contact lenses; but that he did not have an optical lab to manufacture and fit eyeglasses. He stated that he was not in competition with appellant. Appellee maintained that he had no obligation to refer patients to appellant to fill prescriptions and, in fact, was prohibited by law from making such a referral. Appellee stated that he was currently leasing space from Eye Mart under a similar lease agreement that he had with appellant. Appellee stated that he orally notified appellant sixty days prior to his termination of the lease agreement that he was planning to leave. Appellee admitted that he did not give written notice until after he had terminated the lease agreement.

The circuit court entered an order on June 5, 2009, finding that appellee clearly violated the noncompete clause contained in the lease agreement by opening, within one year, an optometry office located less than three miles from appellant's place of business. However, the circuit court also found that the restrictive covenant was unenforceable under Arkansas law. The court relied on this court's holding in Dawson v. Temps Plus, Inc., 337 Ark. 247, 987 S.W.2d 722 (1999), to find that appellant did not have a valid interest to protect because the covenant not to compete did not arise out of a contract of employment or contract for the transfer of goodwill or property. Without a valid interest, the circuit court found that the noncompete clause was unenforceable.

On January 21, 2010, appellee filed an amended answer in which he admitted that he had failed to properly account for the percentage of his gross income by which to calculate his rent; that he had abandoned the lease agreement on February 21, 2009; that he had given written notice of his intent to terminate the agreement on April 17, 2009; that he had retained ownership of the telephone number for a short period of time after he abandoned the agreement; and that he had resumed his business at a different location. Appellee admitted that he did not give written notice of his intent to terminate the agreement when he left on February 19, 2009. However, appellee claimed that any damages should be limited to thirty days after he gave oral notice, or alternatively, that “under any set of circumstances,” damages should be limited to thirty days from April 17, 2009, the date when ...