Showe-Time Video Rentals, Inc. v. Douglas
| Decision Date | 06 April 1987 |
| Docket Number | No. 15011,SHOWE-TIME,15011 |
| Citation | 727 S.W.2d 426 |
| Parties | VIDEO RENTALS, INC., a Missouri corporation, Appellant, v. James H. DOUGLAS and Norma J. Douglas, Respondents. |
| Court | Missouri Court of Appeals |
Daniel T. Moore, Poplar Bluff, for appellant.
No appearance for respondents.
This appeal presents the question whether equity will enforce a covenant not to compete, in an agreement that either party can terminate at will, where the covenant restricts only one party, and the other party terminates the agreement, then seeks to enforce the covenant.
Appellant ("Showe-Time") is engaged in the business of renting movie videocassettes to the general public. Showe-Time's videocassettes are available at various outlets, referred to at trial as "branch facilities" and "pit stops." Individuals can obtain "credit cards" from Showe-Time, and use them in renting the videocassettes at the outlets.
On July 30, 1985, respondents ("the Douglases"), proprietors of a retail store known as Lake Road Grocery, entered into a written agreement with Showe-Time. The agreement provided, among other things, that Showe-Time would place a minimum of 30 and a maximum of 250 movie videocassettes at Lake Road Grocery, for rental to the public. The Douglases were to collect the rental fees, which were to be apportioned 30 per cent to them, and 70 per cent to Showe-Time. The Douglases agreed to make available to Showe-Time all rental records concerning the videocassettes, and to remit the amounts due Showe-Time on the second and fourth Tuesdays each month.
The Douglases granted Showe-Time the authority to advertise Lake Road Grocery as a location where the public could rent Showe-Time's movies. The title and nature of the movies to be supplied by Showe-Time to Lake Road Grocery were left to Showe-Time's discretion.
The provisions of the agreement crucial to this appeal are paragraphs 11 and 12:
After the agreement was signed, Showe-Time, at its expense, ran newspaper advertisements, and also mailed a "flier" each month to approximately 5,000 members of its "video club." Those announcements listed Lake Road Grocery as one of the sites where Showe-Time's movies could be rented.
The agreement remained in force about 13 months, then Steve Wisdom, president of Showe-Time, came to the conclusion that the Douglases "weren't turning in enough money." Consequently, Wisdom sent the Douglases written notice terminating the agreement.
After Wisdom had removed Showe-Time's videocassettes from Lake Road Grocery, the Douglases purchased 50 videocassette movies from a supplier in St. Louis, and began renting them to customers at Lake Road Grocery.
Soon thereafter, the Douglases received a letter from Showe-Time, informing them that they were in violation of the covenant not to compete. Undeterred, the Douglases continued to rent their movies.
On October 15, 1986, Showe-Time commenced this action, seeking, among other relief, an injunction barring the Douglases "from engaging or being involved in the business of movie tape rentals for a period of two years, within the confines of Butler County, Missouri." At Showe-Time's behest, the trial court immediately issued a temporary restraining order.
The cause was tried a week later, and on October 24, 1986, the trial court entered a decree dissolving the temporary restraining order, and denying Showe-Time's prayer for a permanent injunction. Showe-Time appeals from that decree. 1
Nothing in the record before us indicates that either party specified any fact issues for the trial court to resolve, and the legal file, Rule 81.12(a), 2 contains no findings of fact or conclusions of law. In such circumstances, all fact issues shall be considered as having been found in accordance with the result reached, Rule 73.01(a)(2), and the decree will be upheld under any reasonable theory supported by the evidence. O'Bar v. Nickels, 698 S.W.2d 950, 955 (Mo.App.1985); Elliott v. West, 665 S.W.2d 683, 689-90 (Mo.App.1984).
Showe-Time relies on one assignment of error, which states:
"The trial court erred in refusing to grant [Showe-Time] injunctive relief and thus failing to enforce the contractual agreement of a covenant not to compete between [Showe-Time] and [the Douglases] because as a matter of law, the covenant not to compete was reasonable both by the limitations on time and area contained in the agreement."
The above point and the argument that follows it assume that if the provisions in a covenant not to compete are reasonable as to length of time and size of territory, and if the evidence establishes that the covenant is ancillary to a legitimate protectable interest of the party in whose favor the covenant runs, the covenant must be enforced. Such assumption ignores the more fundamental question posed at the outset of this opinion.
As the trial court made no findings of fact or conclusions of law, there was obviously no holding by the trial court that the Douglases had breached any provision of the agreement. While Wisdom was dissatisfied with the amount of money Showe-Time was receiving from the Douglases there was no evidence that the Douglases withheld any money due Showe-Time. Wisdom's testimony on that subject was:
"Q. ... When the--When the contract was terminated, it was--it was because they weren't making enough money or they weren't--Let me strike that. They weren't turning in enough money; is that the reason it was terminated?
A. Yes.
Q. You don't know whether the rentals were made or not, but the income figures they produced to you weren't satisfactory?
A. Yes."
Norma Douglas' testimony on the subject was:
"Q. Did you ever rent any movies from Show Time [sic] Video and not pay the percentage to Show Time [sic] Video?
A. No.
Q. You never hid any tickets or--
A. No.
Q. --didn't make out a ticket?
A. You have--Well, all--
Q. Just answer my question, ma'am.
A. No. No.
Q. You never did that?
A. No."
From what has been set forth, a perceptive observer will begin to discern the troublesome aspect of this case. Consider the following hypotheticals.
Suppose, soon after Showe-Time had entered into the agreement with the Douglases, a new, attractive supermarket had opened for business a short distance from Lake Road Grocery. The supermarket immediately attracts a greater number of customers than Lake Road Grocery. Mindful of this, and foreseeing that more videocassettes can be rented at the supermarket than at Lake Road Grocery, Showe-Time terminates the agreement under paragraph 11, supra, moves its videocassettes from Lake Road Grocery to the supermarket, then insists that the Douglases--who through no fault of their own have been stripped of Showe-Time's videocassettes--refrain from engaging in the videocassette rental business for two years. The harshness of enforcing the noncompete covenant against the Douglases in such circumstances is obvious.
Conversely, suppose that the Douglases, after a year under the agreement with Showe-Time (during which the latter's advertisements generated videocassette rental business at Lake Road Grocery), had received an offer from a competing videocassette rental company to supply more movies than Showe-Time and to allow the Douglases to retain 40 per cent of the rental fees. The Douglases thereupon terminate the agreement with Showe-Time per paragraph 11, and begin renting videocassettes supplied by the new company. Denying Showe-Time the benefit of the non-compete covenant for the two-year period under this scenario would be just as unfair to Showe-Time as enforcing the covenant against the Douglases would have been under the first hypothetical.
The facts of the instant case are not, of course, as extreme as either of the two hypotheticals. For example, we do not know what Showe-Time did with the videocassettes it removed from Lake Road Grocery, nor do we know whether Showe-Time's low revenue from Lake Road Grocery was because (a) the store had a small clientele, (b) Showe-Time placed movies there which did not appeal to the customers, or (c) the Douglases did not remit to Showe-Time all the money due it. We cannot, however, assume "(c)," as there is no evidence to support it, and the trial court made no such finding.
Showe-Time does not cite, 3 and our independent research has not found, a case identical to this one. There are, however, cases similar enough to be helpful.
In Economy Grocery Stores Corporation v. McMenamy, 290 Mass. 549, 195 N.E. 747 (1935), the plaintiff corporation hired the defendant to manage the meat department in one of its stores. The employment contract provided that if the defendant's employment were terminated, either voluntarily or involuntarily, he would not, for a period of one year, engage in or be employed by any food supply business within a two-mile radius of any store owned by the plaintiff where he had worked. Nothing in the contract compelled the plaintiff to employ the defendant for any definite period. The plaintiff discharged the defendant without cause during the third year of his employment. The defendant thereafter obtained employment in a...
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