A.E.P. Industries, Inc. v. McClure

• Decision Date: 31 May 1983
• Docket Number: No. 445A82,445A82
• Citation: 308 N.C. 393,302 S.E.2d 754
• Parties: A.E.P. INDUSTRIES, INC. v. R. Bruce McCLURE.
• Court: North Carolina Supreme Court

Page 754

302 S.E.2d 754

308 N.C. 393

A.E.P. INDUSTRIES, INC. v. R. Bruce McCLURE.

No. 445A82.

Supreme Court of North Carolina.

May 31, 1983.

Bell, Seltzer, Park & Gibson by James D. Myers and Ronald T. Lindsay, Charlotte, for plaintiff-appellant.

Elam, Seaford, McGinnis & Stroud by Keith M. Stroud, Charlotte, for defendant-appellee.

MEYER, Justice.

A preliminary injunction is interlocutory in nature, issued after notice and hearing, which restrains a party pending final determination on the merits. G.S. § 1A-1, Rule 65. Pursuant to G.S. § 1-277 and G.S. § 7A-27, no appeal lies to an appellate court from an interlocutory order or ruling of a trial judge unless such order or ruling deprives the appellant of a substantial right which he would lose absent a review prior to final determination. As we recently stated in State v. School, 299 N.C. 351, 357-58, 261 S.E.2d 908, 913, appeal dismissed, 449 U.S. 807, 101 S.Ct. 54, 66 L.Ed.2d 11 (1980):

The purpose of a preliminary injunction is ordinarily to preserve the status quo pending trial on the merits. Its issuance is a matter of discretion to be exercised by the hearing judge after a careful balancing of the equities. Its impact is temporary and lasts no longer than the pendency of the action. Its decree bears no precedent to guide the final determination of the rights of the parties. In form, purpose, and effect, it is purely interlocutory. Thus, the threshold question presented by a purported appeal from an order granting a preliminary injunction is whether the appellant has been deprived of any substantial right which might be lost should the order escape appellate review before final judgment. If no such right is endangered, the appeal cannot be maintained. (Citations omitted.)

See Waters v. Personnel, Inc., 294 N.C. 200, 240 S.E.2d 338 (1978); Pruitt v. Williams, 288 N.C. 368, 218 S.E.2d 348 (1975).

The Court of Appeals did not consider the appealability of this interlocutory order. There is little doubt that the denial of the motion for a preliminary injunction in this case deprived plaintiff of a substantial right. In fact, as of the filing of this opinion, plaintiff has essentially lost its case because the eighteen month time limitation under the employment agreements expired in March of 1983. Likewise, as the trial judge noted in his order, had the preliminary injunction been granted, "the plaintiff would in effect have prevailed in the action no matter what the final determination might be." Thus, it appears that in a case such as the one now under consideration, although involving a substantive right of the appealing party, where time is of the essence, the appellate process is not the procedural mechanism best suited for resolving the dispute. The parties would be better advised to seek a final determination on the merits at the earliest possible time. Nevertheless, because this case presents an important question affecting the respective rights of employers and employees who choose to execute agreements involving covenants not to compete, we have determined to address the issues.

As a general rule, a preliminary injunction

is an extraordinary measure taken by a court to preserve the status quo of the parties during litigation. It will be issued only (1) if a plaintiff is able to show likelihood of success on the merits of his case and (2) if a plaintiff is likely to sustain irreparable loss unless the injunction is issued, or if, in the opinion of the Court, issuance is necessary for the protection of a plaintiff's rights during the course of litigation. Waff Bros., Inc. v. Bank, 289 N.C. 198, 221 S.E.2d 273; Pruitt v. Williams, 288 N.C. 368, 218 S.E.2d 348; Conference v. Creech, 256 N.C. 128, 123 S.E.2d 619.

Investors, Inc. v. Berry, 293 N.C. 688, 701, 239 S.E.2d 566, 574 (1977).

The first stage of the inquiry is, therefore, whether plaintiff is able to show likelihood of success on the merits. In the present case, the trial judge conceded "that there is probable cause to believe the plaintiff may prevail at the hearing" and that "plaintiff makes out an apparent case for issuance of a temporary injunction by showing some recognized equity." Thus the trial court found that there was a reasonable likelihood that the agreements were reasonable and valid and that plaintiff would likely prevail on the merits.

We note that on appeal from an order of superior court granting or denying a preliminary injunction, an appellate court is not bound by the findings, but may review and weigh the evidence and find facts for itself. Pruitt v. Williams, 288 N.C. 368, 218 S.E.2d 348; Telephone Co. v. Plastics, Inc., 287 N.C. 232, 214 S.E.2d 49 (1975); Huskins v. Hospital, 238 N.C. 357, 78 S.E.2d 116 (1953). Plaintiff questioned before the trial court and before the Court of Appeals the effect of a provision in the employment agreements that the agreements would be "governed by the laws of the State of New Jersey." Thus, we must first consider 1) whether the agreements, are, in fact, governed by New Jersey law, and 2) if so, whether there is a likelihood that plaintiff will prevail on the merits in light of New Jersey law.

As to the first question, we stated in Land Co. v. Byrd, 299 N.C. 260, 262, 261 S.E.2d 655, 656 (1980), that "where parties to a contract have agreed that a given jurisdiction's substantive law shall govern the interpretation of the contract, such a contractual provision will be given effect." We note that plaintiff is a New Jersey corporation with headquarters in New Jersey and that during his employment, the defendant had numerous contacts with the New Jersey office. We therefore hold that the substantive law of New Jersey is applicable to the interpretation of the agreements.

Our review of New Jersey law in the area of the validity and enforceability of covenants not to compete indicates that the governing principles are similar to those in North Carolina. In this State a covenant not to compete is valid and enforceable upon a showing that it is:

1. In writing.

2. Made part of a contract of employment.

3. Based on reasonable consideration.

4. Reasonable both as to time and territory.

5. Not against public policy.

U-Haul Co. v. Jones, 269 N.C. 284, 152 S.E.2d 65 (1967); Exterminating Co. v. Griffin and Exterminating Co. v. Jones, 258 N.C. 179, 128 S.E.2d 139 (1962); Asheville Associates v. Miller and Asheville Associates v. Berman, 255 N.C. 400, 121 S.E.2d 593 (1961); Scott v. Gillis, 197 N.C. 223, 148 S.E. 315 (1929).

The seminal case in New Jersey recognizing the validity and enforceability of noncompetitive clauses in employment agreements is Solari Industries, Inc. v. Malady, 55 N.J. 571, 264 A.2d 53 (1970), where that court stated that:

... while a covenant by an employee not to compete after the termination of his employment is not, because of the countervailing policy considerations, as freely enforceable, it will nonetheless be given effect if it is reasonable in view of all the circumstances of the particular case. It will generally be found to be reasonable where it simply protects the legitimate interests of the employer, imposes no undue hardship on the employee, and is not injurious to the public....

Id. at 576, 264 A.2d at 56.

As in North Carolina, the New Jersey courts have considered, as a prerequisite to the enforceability of noncompetitive employment agreements:

1. Whether the covenant is reasonable as to time and territory. Mailman, Ross, etc. v. Edelson, 183 N.J.Super. 434, 444 A.2d 75 (1982).

2. Whether it is made a part of a contract of employment and based on reasonable consideration. Hogan v. Bergen Brunswig Corp., 153 N.J.Super. 37, 378 A.2d 1164 (1977).

3. Whether the covenant is against public policy or unreasonable. Ellis v. Lionikis, 162 N.J.Super. 579, 394 A.2d 116 (1978) (invalid where the sole purpose is to prevent competition rather than protect a legitimate interest of the employer.)

4. Whether the employee has, in fact, violated the terms of the covenant. Mailman, Ross, etc. v. Edelson, 183 N.J.Super. 434, 444 A.2d 75.

For North Carolina cases see Enterprises, Inc. v. Heim, 276 N.C. 475, 173 S.E.2d 316 (1970); Jewel Box Stores v. Morrow, 272 N.C. 659, 158 S.E.2d 840 (1968); Moskin Bros. v. Swartzberg, 199 N.C. 539, 155 S.E. 154 (1930); Schultz and Assoc. v. Ingram, 38 N.C.App. 422, 248 S.E.2d 345 (1978); Amdar, Inc. v. Satterwhite, 37 N.C.App. 410, 246 S.E.2d 165, disc. rev. den. 295 N.C. 645, 248 S.E.2d 249 (1978).

On the Record before us, we agree that there is a reasonable likelihood that the plaintiff will prevail at the hearing on the merits. The covenant appears to be valid and enforceable. It is in writing, reasonable as to time and territory, was made a part of the contracts of employment, was based on reasonable consideration, and is designed to protect a legitimate business interest of the plaintiff. As a general rule, courts have denied the primary relief of enforcement where the agreement itself is found to be harsh, unjust, unreasonable or void; that is, where the agreement fails to satisfy one or more of the criteria insuring its validity. See 43A C.J.S. Injunctions § 95 (1978). In every case where the covenant not to compete is found to be reasonable and valid, however, the plaintiff is entitled to a remedy; either the agreement must be enforced or the court must find that plaintiff has an adequate remedy at law for money damages.

The trial court, having determined that the plaintiff would likely prevail on the merits, nonetheless found that:

In this case the plaintiff's evidence does not establish prima facie a case of irreparable damage. All of the statements contained in the complaint and affidavit are conclusory and the only inference which can be drawn is that the damages, if any, which will be sustained by the plaintiff are speculative and conjectural. In view of the evidence as to the manner in which the sales of polyethylene are carried out, I cannot...