Presto-X-Company v. Beller

• Decision Date: 29 August 1997
• Docket Number: No. S-95-935,PRESTO-X-COMPANY,S-95-935
• Parties: , a Nebraska corporation, Appellant, v. John BELLER, Appellee.
• Court: Nebraska Supreme Court

Page 235

568 N.W.2d 235

253 Neb. 55

PRESTO-X-COMPANY, a Nebraska corporation, Appellant, v. John BELLER, Appellee.

No. S-95-935.

Supreme Court of Nebraska.

Aug. 29, 1997.

Syllabus by the Court

1. Injunction: Equity. An injunction is a form of equitable relief.

2. Equity: Appeal and Error. In equity actions, an appellate court reviews the factual findings de novo on the record and reaches a conclusion independent of the findings of the trial court.

3. Vendor and Vendee: Consideration: Restrictive Covenants. The purchase of the property and business of another furnishes a sufficient consideration for a covenant not to compete by the seller which is reasonably necessary to protect legitimate business interests of the purchaser.

4. Vendor and Vendee: Goodwill: Restrictive Covenants. The restraint of trade that is permissible in connection with the sale of goodwill as a business asset is no greater than is necessary to attain the desired purpose--the purpose of making goodwill a transferable asset. It is lawful for the seller to restrict his own freedom of trade only so far as is necessary to protect the buyer in the enjoyment of the goodwill for which he pays. The restraint on his own freedom must be reasonable in character and in extent of space and time.

5. Restrictive Covenants. Whether a covenant not to compete is reasonable is dependent upon the facts of each case.

6. Restrictive Covenants: Reformation. An unreasonable covenant not to compete is of no effect, and its scope cannot be judicially reformed in order to make it enforceable.

Michael J. O'Bradovich, Omaha, for appellant.

Jeffery T. Peetz, of Milbourn, Fehringer, Kessler & Peetz, P.C., Columbus, for appellee.

WHITE, C.J., and CAPORALE, WRIGHT, CONNOLLY, GERRARD, STEPHAN, and McCORMACK, JJ.

STEPHAN, Justice.

Presto-X-Company brought this action against John Beller to enforce a covenant not to compete. The covenant was contained in a written agreement whereby Presto-X purchased the trade name, customer accounts, and goodwill of Beller's pest control business. Presto-X alleged that Beller violated the covenant and sought injunctive relief. Following a bench trial, the district court for Platte County found that the covenant not to compete was void and entered judgment for Beller. Because we conclude on de novo review that the covenant not to compete was unreasonably restrictive and, therefore, void, we affirm the judgment of the district court.

FACTS

John Beller began his career in the pest control industry in 1977. After working as an employee for several pest control companies, Beller started his own pest control business in Columbus, Nebraska, in June 1988. The business was organized as a Nebraska corporation known as Beller Pest Control, Inc. Beller and his wife were officers, directors, and stockholders of the corporation. The company employed Beller and one other person who serviced accounts in the general vicinity of Columbus, Norfolk, Albion, Seward, Schuyler, Fullerton, and Fremont, Nebraska.

Presto-X-Company is a Nebraska corporation engaged in the pest control business. It was a direct competitor of Beller Pest Control. In 1990, discussions between Presto-X and Beller culminated in the sale of assets of Beller Pest Control to Presto-X. To effect this sale, the parties entered into an "Asset Purchase Agreement" (Agreement) dated September 24, 1990. This Agreement provided that Presto-X would buy certain assets from Beller Pest Control described as: "a. Pest control service contracts, 'oneshots' and associated customer accounts; b. Goodwill with the right to use the Seller's trade name."

As a part of this transaction, Beller Pest Control provided Presto-X with a list of 81 customer accounts which were being transferred. Of the 81 customers, 10 were swine producers. Other assets of Beller Pest Control were specifically excluded from the Agreement, including cash and certificates of deposit, service vehicles, "[t]ermite control service contracts and termite control inspection accounts," and service equipment, supplies, and materials used by Beller Pest Control in its pest control business. At the same time as this transaction, Beller Pest Control sold a service vehicle and certain inventory and supplies to Presto-X under a separate agreement.

The Agreement contained the following provision:

P. COVENANT NOT TO COMPETE

1. The Seller [Beller Pest Control] agrees to refrain from any business activity, which would compete, directly or indirectly, with the business currently being sold by the Seller to the Purchaser [Presto-X], for a period of ten (10) years following the effective date of this Agreement, within one hundred (100) miles of the now- existing trade area serviced by the Seller, namely Columbus, Nebraska.

2. The Purchaser retains the right to enforce said non-competition agreement in any way allowed under the law, and has the option to sue for damages for violation of the non-competition agreement. This non-competition agreement is enforceable against the Seller, its assigns and successors.

3. Those covered by this non-competition agreement shall be the corporate entity itself, any shareholders, members of the Board of Directors or officers of the corporation.

The Agreement further provided that as of the closing date, "John Beller is bound by a non-competition agreement as are any other shareholders of the corporation and the corporation itself with the Purchaser set forth in paragraph P1 infra."

The Agreement recited a total purchase price of $45,000, with $18,000 payable at closing and the balance in six installments of $4,500, each payable at 6-month intervals from April 1, 1991, to October 1, 1993. The Agreement allocated the purchase price as follows:

E. ALLOCATION OF PURCHASE PRICE AND RELATED PAYMENTS

1. Non"Competition Agreement -- $ 7,500.00

2. Service Contracts -- 33,340.00

3. Interest -- 4,160.00

The Agreement further provided that it was to be governed by Nebraska law.

Following the asset sale, Beller was employed by Presto-X as a service technician in Columbus, Nebraska, from October 1, 1990, until December 22, 1992, when he resigned due to dissatisfaction with his employment. During his employment with Presto-X, Beller serviced some of the accounts which Beller Pest Control had transferred to Presto-X, as well as other Presto-X accounts in the Columbus area.

Immediately after leaving his employment with Presto-X, Beller started his own pest control business, which he initially operated as a sole proprietorship. He later incorporated the business as Pest Tech, Inc. As of the time of trial, Beller was the sole employee of Pest Tech, which performed "pest maintenance services" exclusively for the swine industry. Beller described these services as having two purposes: (1) to limit disease to livestock within confinement structures and (2) to prevent damage to the structures themselves.

Prior to the asset sale to Presto-X, Beller Pest Control provided structural pest management services to Sand Systems, a company which manages hog production facilities in the Columbus vicinity. After the asset sale, Presto-X assumed responsibility for this account. Sand Systems became dissatisfied with the service provided by Presto-X and eventually terminated the business relationship on February 8, 1993. Several months later, a representative of Sand Systems contacted Beller, who by that time had left his employment with Presto-X, and asked him to provide structural pest management services to Sand Systems. Beller agreed and entered into a contract with Sand Systems. James Pillen, the chief executive officer of Sand Systems from 1991 to 1993, testified that Sand Systems contacted Beller for pest control because it did not have confidence in Presto-X and because Beller was the only person he knew who could give Sand Systems the help it needed.

Hastings Pork is a hog production business with facilities in Clay and Adams Counties. In February 1994, Beller contacted Hastings Pork to solicit business on behalf of Pest Tech. This was a "cold call," in that Beller had never previously provided pest control services to Hastings Pork, either while in business for himself or as an employee of Presto-X. However, at the time of Beller's initial contact, Hastings Pork was using Presto-X for its pest control requirements. On March 10, 1994, Beller entered into an agreement with Hastings Pork to provide structural pest control services, and Hastings Pork terminated its business relationship with Presto-X on the same day. Beller testified that the Hastings Pork facilities which he serviced were 102 to 105 miles from Columbus using the route he normally traveled.

Presto-X filed an action against Beller in the district court for Platte County, alleging that he breached the covenant not to compete contained in the Agreement. Presto-X sought temporary and permanent injunctive relief and an accounting for lost profits resulting from the alleged breach. It did not seek recovery of the portion of the purchase price which was allocated to the covenant not to compete. Following a bench trial, the district court entered judgment for Beller on June 28, 1995, which included a specific finding that "the covenant not to compete is void." Presto-X appealed this judgment to the Nebraska Court of Appeals, and we transferred the case to our docket pursuant to our power to regulate the caseloads of the Court of Appeals and this court.

ASSIGNMENT OF ERROR

In its sole assignment of error, Presto-X contends that the district court erred in determining that the covenant not to compete contained in the Agreement was void.

SCOPE OF REVIEW

An injunction is a form of equitable relief. See, Omega Chem. Co. v. United Seeds, 252 Neb. 137, 560 N.W.2d 820 (1997); Robertson v. School Dist. No. 17, 252 Neb. 103, 560 N.W.2d 469 (1997); Sid Dillon Chevrolet v. Sullivan, 251 Neb. 722, 559 N.W.2d 740 (1997).

In equity actions, an appellate court reviews...