United Laboratories, Inc. v. Kuykendall

• Decision Date: 20 October 1987
• Docket Number: No. 8628SC1204,8628SC1204
• Citation: 361 S.E.2d 292,87 N.C.App. 296
• Court: North Carolina Court of Appeals
• Parties: UNITED LABORATORIES, INC., a Delaware Corporation v. William Douglas KUYKENDALL, and Share Corporation, a Wisconsin Corporation.

Page 292

361 S.E.2d 292

87 N.C.App. 296

UNITED LABORATORIES, INC., a Delaware Corporation v. William Douglas KUYKENDALL, and Share Corporation, a Wisconsin Corporation.

No. 8628SC1204.

Court of Appeals of North Carolina.

Oct. 20, 1987.

Petree, Stockton & Robinson by Jackson N. Steele, Winston-Salem, and Simon & Welnhofer by Paul G. Simon, Oakbrook Terrace, for plaintiff-appellee.

Brock & Drye by Michael W. Drye, Asheville, and Fox, Carpenter, O'Neill & Shannon by Bruce C. O'Neill, Milwaukee, Wis., for defendants-appellants.

GREENE, Judge.

Plaintiff filed suit seeking injunctive relief requiring defendant Kuykendall to comply with the noncompetition provisions in two agreements and requiring defendant Share Corporation to refrain from interfering with those agreements and using information acquired by the breach of the noncompetition provisions. Plaintiff also requested damages and attorney's fees.

Kuykendall was at one time employed by plaintiff as a sales representative. At the time the complaint was filed, he was a sales representative for defendant Share Corporation, one of plaintiff's competitors in the cleaning chemical business. On 8 January 1986, the trial court entered a preliminary injunction against Kuykendall and "all persons in active concert or participation with him...." Plaintiff's action for a permanent injunction and damages was tried before a jury.

Plaintiff manufactures chemical cleaning products which it retails through sales representatives. Plaintiff's method of selling its products is typical of the cleaning chemical business: each sales representative is given designated territories. Some territories are exclusive, while others are designated as "open-registered."

During its case, plaintiff offered evidence tending to show that it first employed Kuykendall as a sales representative in 1971. It trained Kuykendall in customer services. In 1979, Kuykendall left plaintiff's employ and began working for a competitor in the same sales territory which he had previously covered for plaintiff. Shortly thereafter, plaintiff rehired Kuykendall as a regional sales manager. In 1982, Kuykendall returned to his former position as one of plaintiff's sales representatives. Plaintiff provided sales literature, samples, supplies and information as to potential customers in Kuykendall's assigned sales territory in western North Carolina. At that time, he and plaintiff entered into a "Sales Representative Agreement" (hereinafter the "1982 agreement"). In 1983, Kuykendall enrolled in plaintiff's profit sharing plan for sales representatives and signed a "Supplementary Compensation Agreement" (hereinafter the "1983 agreement").

The 1982 and the 1983 agreements were admitted into evidence. They both contained noncompetition clauses. The 1982 agreement stated that North Carolina law would apply to its interpretation and enforcement. The 1983 agreement designated Illinois law as controlling. Although entitled "Supplementary Compensation Agreement," the 1983 agreement contained the following provision: "This Agreement contains all of the terms agreed upon by the parties with respect to the subject matter hereof and supersedes all prior agreements, arrangements and communications between the parties dealing with such subject matter, whether oral or written."

Sometime around August 1985, Kuykendall left plaintiff's employ to work for Share Corporation. He then began calling on some of the same customers he had called on when he worked for plaintiff. Plaintiff presented evidence that Share Corporation was aware of the 1982 and 1983 agreements and that Share told Kuykendall it would pay the cost of any lawsuit plaintiff might bring against Kuykendall for breach of the noncompetition provisions. Plaintiff also introduced evidence that, after Kuykendall was employed by Share Corporation, plaintiff's gross sales to the customers Kuykendall had originally serviced decreased by $5,804 per month. After the close of plaintiff's evidence, defendants made motions for directed verdicts which the trial court denied.

Defendants offered evidence tending to show the cleaning chemical business is very competitive and sales representatives must compete not only with representatives from other companies, but often also with representatives from their own company. Territories in which they must compete with other representatives from their own company are called "open-registered accounts." In an "open-registered" territory, a customer account becomes "registered" to a particular sales representative once that sales representative makes a sale to the customer. No other representative from the "registered" representative's employer may call on that customer until the "registered" sales representative fails to make a sale to that customer for a specified period of time. Plaintiff's period of time was nine months.

Defendants' evidence also tended to show that after his initial employment with plaintiff in 1971, Kuykendall was not provided with any customer information or sales leads. He had to develop his own customers within the territories assigned to him. When he went back into sales in 1982, plaintiff did not provide him with any customer information or accounts. Some of the sales territories Kuykendall received in 1982 were "open-registered" territories.

Defendants also presented evidence that in 1985, Kuykendall began looking for other work because he was dissatisfied with his employment with plaintiff. In February 1985, he saw an advertisement in a local newspaper that Share Corporation was seeking a chemical sales representative. He subsequently interviewed with Share Corporation and agreed to work for the company. Kuykendall testified that had he not gone to work with Share Corporation, he nevertheless would have left plaintiff's employ.

At the end of all the evidence, the trial court ruled that the 1982 agreement was superseded by the 1983 agreement, allowed plaintiff's motions for directed verdict on the issues of whether Kuykendall violated the 1983 agreement, whether Share Corporation had interfered with plaintiff's contractual rights, and whether the defendants' actions constituted unfair and deceptive trade practices in violation of N.C.G.S. Sec. 75-1.1. The trial court denied defendants' motions for directed verdict and submitted the issues of damages and attorney's fees to the jury. The jury returned a verdict awarding plaintiff $77,477.77 in damages and $47,522.23 in attorney's fees. Plaintiff agreed to a remittitur of the damages. On 21 July 1986, the trial court trebled the damages pursuant to N.C.G.S Sec. 75-16 and entered a judgment and permanent injunction. The court ordered that plaintiff recover from defendants jointly and severally the sum of $116,216.67 for damages and $47,522.23 in attorney's fees. The injunction restrained defendants from violating the provisions of the noncompetition agreement. Defendants appeal.

The issues we must determine are: 1) whether the 1983 agreement is enforceable, 2) whether the 1982 agreement is enforceable, 3) whether it was error for the trial judge to direct a verdict against defendant Share Corporation for interference with the agreements, and 4) whether it was error for the trial court to direct a verdict against defendants for their alleged violation of N.C.G.S. Sec. 75-1.1.

I

The 1983 agreement was executed in Illinois. The parties agreed it would be construed and governed by Illinois law. The courts of this State will give effect to such contractual provisions. Land Co. v. Byrd, 299 N.C. 260, 262, 261 S.E.2d 655, 656 (1980).

The introductory paragraph to the 1983 agreement stated that:

The Company, desiring to assure itself of the benefit of Representative's special knowledge and sales ability in the future, including the period after termination of Representative's agreement to solicit orders for the Company's products, has proposed a Supplementary arrangement whereunder benefits will be made available to Representative for a specified period following retirement of Representative.

The agreement provided that Kuykendall would provide consulting services to plaintiff after his retirement and would "hold in a fiduciary capacity ... all secret or confidential information, customer lists, or other data of the Company not generally known within the Company's trade which has been divulged in confidence to him or otherwise acquired by him during the Representation or during Retirement...." The agreement also provided that Kuykendall would not, for eighteen months after leaving plaintiff's employ,

engage in or be connected or concerned in any manner, directly or indirectly, with the operation or conduct within the Territory of any business, other than the Company's, which engages in the manufacture, storage, distribution, sale or other disposition of any product or service which is in competition with any product manufactured, stored, distributed, sold or otherwise disposed of by the Company or any service provided by the Company and he shall not take part in any activity detrimental to the Company's business.

The agreement further stated that should Kuykendall commit an act in violation of the restrictive covenants, "the Company shall not thereafter be obligated to make any distribution of benefits" provided for in the agreement.

Unlike North Carolina, Illinois defines "restraints of trade" to include agreements in which an employee agrees to forfeit particular benefits in the event he engages in competition with his former employer. Compare Johnson v. Country Life Ins. Co., 12 Ill.App.3d 158, 300 N.E.2d 11 (1973) and Parenti v. Wytmar & Co., 49 Ill.App.3d 860, 7 Ill.Dec. 618, 364 N.E.2d 909 (1977) with Hudson v. Insurance Co., 23 N.C.App. 501, 209 S.E.2d 416 (1974), cert. denied, 286 N.C. 414, 211 S.E.2d 217 (1975). Under Illinois law, the 1983 agreement is a covenant in restraint of trade. As such, it is enforceable "only if the time and...