Roanoke Engineering Sales Co., Inc. v. Rosenbaum

• Decision Date: 30 April 1982
• Docket Number: No. 791536,791536
• Citation: Roanoke Engineering Sales Co., Inc. v. Rosenbaum, 223 Va. 548, 290 S.E.2d 882 (1982)
• Parties: ROANOKE ENGINEERING SALES COMPANY, INC. v. Curtis ROSENBAUM and Rosenbaum of Roanoke, Inc. Record
• Court: Virginia Supreme Court

Page 882

290 S.E.2d 882

223 Va. 548

ROANOKE ENGINEERING SALES COMPANY, INC. v.Curtis ROSENBAUM and Rosenbaum of Roanoke, Inc.

Record No. 791536.

Supreme Court of Virginia.

April 30, 1982.

Alan G. Fleischer, Keith D. Boyette, Richmond (G. Marshall Mundy, Roanoke, Hirschler, Fleischer, Weinberg, Cox & Allen, Richmond, Mundy & Strickland, Roanoke, on briefs), for appellant.

Harry F. Hambrick, Jr., Roanoke (S. D. Roberts Moore; Gentry, Locke, Rakes & Moore, Roanoke, on brief), for appellees.

Before CARRICO, C. J., and COCHRAN, POFF, COMPTON, THOMPSON, STEPHENSON and RUSSELL, JJ.

RUSSELL, Justice.

This appeal presents a question concerning the enforceability of a non-competition covenant and the appropriate remedy for its breach.

Harry L. Rosenbaum, Sr., entered into business as a manufacturer's representative in the Roanoke area in 1920, dealing in building supplies.By 1962, the business, which had expanded to encompass branches in Richmond, Roanoke, and McLean, Virginia, and Charlotte, North Carolina, was incorporated as Roanoke Engineering Sales Company, Inc.(RESCO).All of the stock was owned by the owner's four sons--Joseph, Harry, Jr., Robert, and Curtis.Each son served as an officer, director, and manager of a branch office.Harry, Sr., continued to serve as Chairman of the Board.Curtis, the defendant in the trial court, was manager of the Roanoke branch, Senior Vice President, Treasurer, and a director.

In 1970, the four brothers each entered into separate but similar employment contracts with RESCO which defined their responsibilities and compensation.The agreement signed by Curtis provided:

Agreement made January 1, 1970 and amended January 15, 1977, between Roanoke Engineering Sales Company, Incorporated, a Virginia Corporation, with principal offices in Richmond, Virginia, herein called "Roanoke," and Curtis Rosenbaum of Roanoke, Virginia, herein called "Employee."

Whereas, Employee is presently employed as treasurer of Roanoke, and General Manager of its Roanoke, Virginia, branch

* * *

* * *

4.For a period of three years after the termination of this agreement, for a reason other than the cessation of Roanoke's business or its bankruptcy, Employee will not, in the territory covered by Roanoke, directly or indirectly, own, manage, operate, control, be employed by, participate in, or be associated in any manner with the ownership, management, operation or control of any business similar to the type of business conducted by Roanoke at the time of the termination of this agreement.

Although the agreement was amended in 1977, the original language quoted above was unchanged.The employment contracts of the other three brothers contained identical non-competition clauses.All were in effect in 1978.

In April, 1978, after a policy disagreement with his brothers, Curtis was discharged from all corporate offices and relegated to employment as a salesman.He resigned as an employee, and during the following month, accepted employment as manager of Mahone, Inc. Mahone was a manufacturer's representative in the Roanoke area and a direct competitor of RESCO, selling similar products.On July 1, 1978, Curtis purchased all the assets of Mahone and changed its corporate name to Rosenbaum of Roanoke, Inc.¹

On October 5, 1978, RESCO filed its bill of complaint in the circuit court asking the court to enjoin Curtis "from violating paragraph 4."After trial ore tenus, the chancellor, in a written opinion, ruled that the non-competition clause was "unreasonable in that it is greater than necessary to protect the company in its legitimate business interests, and is unreasonable from the standpoint of Curtis because it is unduly harsh on him in conducting his legtimate efforts to earn a livelihood," and thus unenforceable under the test of Richardson v. Paxton Company, 203 Va. 790, 127 S.E.2d 113(1962).

In Richardson, id. at 794, 127 S.E.2d at 117, (quoting with approval fromWelcome Wagon v. Morris, 224 F.2d 693, 698(4th Cir.1955)), we applied the following criteria:

(1) Is the restraint, from the standpoint of the employer, reasonable in the sense that it is no greater than is necessary to protect the employer in some legitimate business interest?

(2) From the standpoint of the employee, is the restraint reasonable in the sense that it is not unduly harsh and oppressive in curtailing his legitimate efforts to earn a livelihood?

(3) Is the restraint reasonable from the standpoint of a sound public policy?

Non-competition covenants which pass these tests in the light of the facts of each case will be enforced in equity.Meissel v. Finley, 198 Va. 577, 95 S.E.2d 186(1956);Worrie v. Boze, 191 Va. 916, 62 S.E.2d 876(1951).

The trial court found that the covenant applied to Curtis only as an "employee," not as a stockholder or director of RESCO, that his activities as an employee were carried out only within the territory covered by the Roanoke branch, and that the covenant purported to restrict him from business in territory and business activities in which Curtis was not engaged as an employee of the Roanoke branch.For this reason, the court found it to be unnecessarily broad for the protection of the employer, and unduly harsh to the employee.²On the facts in the record, we disagree with this interpretation.

The reference to Curtis as an "employee" in the exordium clause of the contract is, in our view, simply descriptive shorthand which avoids repetition of his name throughout.Its counterpart refers to the other party as "Roanoke" to avoid repetition of its full corporate name.This convenient style evinces no intent to limit the application of the agreement to Curtis' activities as an employee of the Roanoke branch, as distinguished from his functions as stockholder, director, Executive Vice President, and Treasurer.Even if the intent of the parties had been to limit the effect of the contract to Curtis' activities as an employee, it expressly provides: "Whereas employee is presently employed as treasurer of Roanoke...."In this capacity, Curtis had responsibilities as an employee involving the financial affairs of all four branches.

The branches of RESCO were considered "divisions of the corporation," and were not operated by subsidiaries.Curtis, through his corporate offices, had access to the confidential financial records of all four branches, as well as lists of customers, lists of suppliers, detailed knowledge of overhead factors, pricing policies, and bidding techniques.This knowledge qualified him to be a formidable competitor throughout the territories served by all four branches of the corporation in Virginia and North Carolina.In these circumstances, we conclude that the restriction is no greater than necessary to protect RESCO's legitimate business interest.It is appropriately limited in time and is coterminous in area with the territory in which RESCO did business.It is limited to activities "similar to the type of business conducted by Roanoke at the time of termination."³There is no indication in the record that the enforcement of the restraint would be unreasonable from the public policy standpoint, as an undue restriction on free competition or otherwise.We thus conclude that this covenant meets the tests quoted in Richardson, and should have been enforced.

The relief to which RESCO is now entitled presents a more difficult question.The covenant restrained competition for a period of three years from "termination," which occurred on April 29, 1978.The period sought to be protected expired in April, 1981.RESCO filed its bill of complaint in October, 1978, and noted its appeal in August, 1979.An appeal was granted in March, 1980 and the appellant's brief was filed in April, 1980.Oral argument could not be heard until March, 1982, almost a year after the expiration of the protected period.RESCO contends that Curtis has continued his competition in violation of the agreement to the present, enjoying the fruits of his wrongdoing.In the appellant's opening brief, filed while the protected period still had a year to run, RESCO requested this court to enjoin Curtis from violating the non-competition covenant for a period of three years from the date of entry of a final decree.⁴RESCO evidently foresaw that the inevitable delay of litigation would render the issue of enforceability moot before a ruling could be obtained.

Curtis contends that the issue of enforceability of the covenant has become moot by the passage of time, that the court should not write a new contract for the parties specifiying a protected period other than that upon which they agreed, and that the case is controlled by Hallmark v....