ERVIN, Judge.
Plaintiff Outdoor Lighting Perspectives Franchising, Inc., appeals from an order entered by the trial court denying its request for the issuance of a preliminary injunction against Defendants Patrick Harders, Outdoor Lighting Perspectives of Northern Virginia, Inc. (OLP-NVA), and Enlightened Lighting, LLC, prohibiting Mr. Harders and Enlightened Lighting from having any involvement in an outdoor lighting business. On appeal, Plaintiff argues that the trial court erred by failing to enforce the non-competition agreement between itself, on the one hand, and Mr. Harders and OLP-NVA, on the other, in its entirety on the grounds that none of the covenant's provisions were overly broad or otherwise unenforceable. After careful consideration of Plaintiff's challenges to the trial court's order in light of the record and the applicable law, we conclude that the trial court's order should be affirmed.
Plaintiff is a corporation which enters into franchise agreements authorizing franchisees to engage in the design, construction, and installation of residential and commercial outdoor lighting products. Mr. Harders began operating an OLP franchise, OLP-NVA, between July and October of 2001. Pursuant to the underlying franchise agreement, Mr. Harders had the right to operate an OLP franchise in an exclusive territory consisting of Arlington, Fairfax, Prince William, and Loudoun Counties in Virginia using the trademarked name of "Outdoor Lighting Perspectives®" for a five-year term. According to the franchise agreement, Mr. Harders and OLP-NVA were required to safeguard confidential OLP information and trade secrets during the term of the agreement. The franchise agreement also required Mr. Harders and OLP-NVA to return all franchise materials to OLP upon the termination of the contract or the expiration of the franchise term and prohibited Mr. Harders and OLP-NVA from operating another outdoor lighting business within a specified area for a period of two years beginning on the date upon which the franchise agreement terminated or expired.
In the course of his work as an OLP franchisee, Mr. Harders received training and support services from OLP in the form
In 2008, Plaintiff was purchased by Outdoor Living Brands (OLB), an entity which owned two subsidiaries: Mosquito Squad® and Archadeck®. OLB had not been previously involved in the outdoor lighting business. During the acquisition process, OLB surveyed OLP franchise owners for the purpose of inquiring into their level of satisfaction with the franchise system. Mr. Harders offered exclusively positive comments in the course of responding to this survey.
In October 2011, Plaintiff contacted Mr. Harders for the purpose of informing him of the steps that needed to be taken in order to renew the franchise agreement. At that time, Mr. Harders informed Plaintiff that he had received a phone call from a customer informing him that the customer had been contacted by an individual representing himself to be the new owner of OLP-NVA who claimed to have been going through Mr. Harders' database for the purpose of introducing himself to all of Mr. Harders' existing customers. After receiving that information, Plaintiff assured Mr. Harders that the franchise had not been awarded to anyone else and determined that no one had had access to Mr. Harders' database without first having received permission to do so from him. Even so, Mr. Harders and OLP-NVA allowed their franchise agreement with Plaintiff to expire on 23 October 2011, specifically informing Plaintiff two days later that they no longer had any interest in remaining affiliated with OLP.
In January of 2012, Corey Schroeder, Plaintiff's Vice President and Chief Financial Officer, read an article in Loudoun Magazine which indicated that Mr. Harders was operating an outdoor lighting business under the name of "Enlightened Landscape Lighting." A number of projects which Mr. Harders had completed while operating as an OLP franchise were displayed on the new business' website. As a result, counsel for Plaintiff sent a letter to Defendants' attorney dated 18 January 2012 stating that Plaintiff was aware that Mr. Harders was operating an outdoor lighting business within his former territory and giving Mr. Harders ten days to voluntarily comply with the post-expiration restrictions contained in the franchise agreement. In addition, Plaintiff requested that Mr. Harders cease attempting to supply other OLP franchisees with fixtures from China because of quality issues associated with the use of such fixtures and because Mr. Harders was not an approved supplier of such products. Plaintiff did not, however, attempt to totally exclude Mr. Harders from participating in the interior lighting business. Mr. Harders, however, refused to cease operating his outdoor lighting business and to deliver allegedly proprietary information in his possession, including his customer list, to Plaintiff.
Mr. Harders, who had purchased an OLP franchise in 2001, served as president of OLP-NVA. As part of the process of operating an OLP franchise, Mr. Harders entered into a franchise agreement that was drafted by OLP on or about 23 October 2006. During the time in which he operated as an OLP franchisee, both OLP and OLP-NVA were in the business of providing low-voltage outdoor landscape lighting. However, neither entity was involved in providing "mercury vapor (moonlighting), high voltage outdoor landscape installations, and exterior attached home lighting using 120 volt fixtures and wiring (security lighting, entranceway lighting, outdoor lampposts)."
During the time in which Mr. Harders operated as an OLP franchisee, entities holding OLP franchises encountered numerous problems with OLP suppliers. Since OLB purchased Plaintiff in 2008, numerous franchises have closed and the OLP business model has been devalued. Among other things, Plaintiff failed to provide its franchisees with adequate support, feedback, and product innovation. Although the information provided to Mr. Harders and OLP-NVA by OLP was alleged to be proprietary, much of it was publicly available and common knowledge in the industry. Similarly, the training that Mr. Harders had received from Plaintiff was readily available without charge in many national home improvement stores.
In spite of the apparent decline in the value of an OLP franchise, Mr. Harders engaged in discussions aimed at the renewal of his franchise agreement in the summer of 2011. Although Mr. Harders had scheduled a meeting with OLP representatives to discuss the possible renewal of his franchise on 26 October 2011, an unidentified individual called at least one of Mr. Harders' customers on or about 20 October 2011 and asked about the status of the customer's outdoor lighting. During the ensuing conversation, the caller told the customer that Mr. Harders was no longer associated with OLP, that Mr. Harders no longer owned OLP-NVA, and that OLP-NVA was now under new ownership. Mr. Harders deemed these actions to constitute a premature termination of his franchise agreement.
At some unspecified point, Mr. Harders began operating Enlightened Lighting, in which he used training obtained from sources other than OLP to perform advanced installations that the training which he had received from OLP did not qualify him to perform. The physical address and telephone number for Enlightened Lighting differed from that of OLP-NVA, and Mr. Harders refrained from "actively solicit[ing]" former customers. Although the website that Mr. Harders created for Enlightened Lighting contained photographs of completed jobs, all of the projects depicted in these photographs had been finished after the expiration of the franchise agreement between Plaintiff and Mr. Harders. In addition, despite the fact that he admitted having retained certain manuals, records, and other information from OLP, Mr. Harders claimed to have kept nothing other than the documents needed to defend himself and his businesses in this action.
After Enlightened Lighting began operating, Plaintiff informed Mr. Harders that it would seek to enforce the post-expiration provisions of the franchise agreement. Among other things, OLP specifically told Mr. Harders that serving as a wholesale supplier of outdoor lights would constitute a violation of the agreement. In March 2011, OLB informed Mr. Harders that, in the event that he opened a business installing interior, as compared to exterior, lights, OLP would invoke the provisions of the franchise agreement in an effort to prevent him from operating such a business.
On 5 March 2012, Plaintiff filed a complaint against Defendants seeking damages stemming from Defendants' failure to pay royalties and other fees, misappropriation of good will, and engaging in a civil conspiracy; injunctive relief stemming from Defendants'
Although Plaintiff's motion for the issuance of a preliminary injunction was originally scheduled to be heard on 3 April 2012, Defendants filed a motion seeking to have this case designated as a mandatory complex business case pursuant to N.C. Gen.Stat. § 7A-45.4 on 27 March 2012. On 28 March 2012, Defendants' motion was granted. Subsequently, this case was assigned to the trial court.
On 12 April 2012, the trial court held a hearing for the purpose of considering the issues raised by Plaintiff's motion for the issuance of a preliminary injunction. On 13 April 2012, Defendants filed an answer in which they denied the material allegations of Plaintiff's complaint and requested that the post-expiration restrictions in the franchise agreement be deemed invalid. On 14 May 2012, the trial court entered an order which prohibited Defendants from using, and requiring the return of, certain allegedly proprietary information, including customer-related information, manuals, and similar protected items. However, the trial court denied Plaintiff's request for the issuance of a preliminary injunction prohibiting the operation of Enlightened Lighting or any other outdoor lighting business. Plaintiff noted an appeal to this Court from the trial court's order.
"A preliminary injunction is interlocutory in nature. As a result, issuance of a preliminary injunction cannot be appealed prior to final judgment absent a showing that the appellant has been deprived of a substantial right which will be lost should the order `escape appellate review before final judgment.'" Clark v. Craven Reg'l Med. Auth., 326 N.C. 15, 23, 387 S.E.2d 168, 173 (1990) (quoting State ex rel. Edmisten v. Fayetteville Street Christian School, 299 N.C. 351, 358, 261 S.E.2d 908, 913 (1980)) (citations omitted). "In reviewing the denial of a [request for the issuance of a] preliminary injunction, an appellate court is not bound by the trial court's findings of fact, but may weigh the evidence anew and enter its own findings of fact and conclusions of law; our review is de novo." Kennedy v. Kennedy, 160 N.C. App. 1, 8, 584 S.E.2d 328, 333, appeal dismissed, 357 N.C. 658, 590 S.E.2d 267 (2003). A reviewing court should uphold the issuance of a preliminary injunction "(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." A.E.P. Industries, Inc. v. McClure, 308 N.C. 393, 401, 302 S.E.2d 754, 759-60 (1983) (quoting Investors, Inc. v. Berry, 293 N.C. 688, 701, 239 S.E.2d 566, 574 (1977)).
As a result of the fact that Defendants have not contended that Plaintiff would not
In its brief, Plaintiff emphasizes the fact that the trial court referenced a number of cases arising from litigation over the validity of restrictions contained in an employment contract instead of relying exclusively on cases arising from the sale of a business.
According to well-established North Carolina law, non-competition agreements contained in an employment contract are "more closely scrutinized than" those contained in a contract for the sale of a business. Keith v. Day, 81 N.C. App. 185, 193, 343 S.E.2d 562, 567 (1986), disc. review improvidently granted, 320 N.C. 629, 359 S.E.2d 466 (1987). As the Supreme Court stated over half a century ago:
Beam v. Rutledge, 217 N.C. 670, 673-74, 9 S.E.2d 476, 478 (1940). As a result, on the one hand, a non-competition agreement contained in an employment contract is enforceable if it is "(1) in writing; (2) reasonable as to time and territory; (3) made a part of the employment contract; (4) based on valuable consideration; and (5) designed to protect a legitimate business interest of the employer." Young v. Mastrom, Inc., 99 N.C. App. 120, 122-23, 392 S.E.2d 446, 448, disc. review denied, 327 N.C. 488, 397 S.E.2d 239 (1990) (citing A.E.P. Indus., 308 N.C. at 402-03, 302 S.E.2d at 760). "The territory embraced by the restrictive covenant shall be no greater than is reasonably necessary to secure the protection of the business or good will of the employer." Clyde Rudd & Assocs., Inc. v. Taylor, 29 N.C. App. 679, 684, 225 S.E.2d 602, 605 (citing Harwell Enterprises, Inc. v. Heim, 276 N.C. 475, 478-79, 173 S.E.2d 316, 319 (1970)), disc. review denied, 290 N.C. 659, 228 S.E.2d 451 (1976). On the other hand:
Jewel Box Stores Corp. v. Morrow, 272 N.C. 659, 662-63, 158 S.E.2d 840, 843 (1968).
A number of prior decisions in this jurisdiction dealing with the enforceability of agreements in which one person agrees to refrain from competing with another have involved situations which do not fit neatly into either the employer-employee category or the business sale category. In such situations, the North Carolina appellate courts
As a result, in light of this determination, we conclude that elements of the tests utilized in both the employee-employer and the business sale context are relevant in analyzing the likelihood that Plaintiff will prevail in the present litigation. Among the factors that have been deemed relevant in evaluating the validity of non-competition agreements entered into in the employment context are:
Clyde Rudd & Assocs., Inc., 29 N.C.App. at 684, 225 S.E.2d at 605. After considering these factors, this Court invalidated a contractual provision that, "rather than attempting to prevent [the] plaintiff from competing for actuarial business, ... appear[ed] to prevent plaintiff from working as a custodian for any `entity' which provide[d] `actuarial services.'" Hartman v. W.H. Odell & Assocs., Inc., 117 N.C. App. 307, 317, 450 S.E.2d 912, 920 (1994), disc. review denied, 339 N.C. 612, 454 S.E.2d 251 (1995). Although the specific job description of the person sought to be restrained has been deemed less relevant when courts analyze a restriction placed on a business owner, we believe that the extent to which a particular contractual provision unreasonably impairs a former franchisee's ability to work in a related field or particular industry is relevant to the reasonableness of a non-competition restriction arising from the termination of a franchise agreement.
Similarly, certain factors typically deemed relevant during the analysis of issues arising in the business sale context, while having little relevance in the employment context, have obvious bearing upon the proper resolution of disputes between franchisors and franchisees. For example, in the business sale context, North Carolina courts have
In its brief, Plaintiff argues that the geographic scope of the restriction at issue in this case is reasonable. We do not, however, find this argument persuasive.
"The party who seeks the enforcement of the covenant not to compete has the burden of proving that the covenant is reasonable." Hartman, 117 N.C.App. at 311, 450 S.E.2d at 916. "The reasonableness of a noncompetition covenant is a matter of law for the court to decide." Beasley v. Banks, 90 N.C. App. 458, 460, 368 S.E.2d 885, 886 (1988). "To carry its burden[,] [the party seeking enforcement] must prove that the covenant not to compete is reasonable as to both time and territory." Hartman, 117 N.C.App. at 311, 450 S.E.2d at 916. The reasonableness of a geographic restriction contained in a non-competition agreement does not depend exclusively on the size of the area in question, e.g. Harwell Enterprises, Inc., 276 N.C. at 481, 173 S.E.2d at 320 (holding that, "to a company actually engaged in nation-wide activities, nation-wide protection would appear to be reasonable and proper"); Manpower of Guilford Cnty., Inc. v. Hedgecock, 42 N.C. App. 515, 523, 257 S.E.2d 109, 115 (1979) (stating that, while an employer had no legitimate interest in preventing an employee "from competing with other Manpower franchisees in other cities or states ... the [national] franchisor[] may have a legitimate right to prohibit its franchisees from competing with it or its affiliates throughout the country"); instead, the reasonableness of a geographic restriction depends upon where the business' "customers are located and [whether] the geographic scope of the covenant is necessary to maintain those customer relationships." Hartman, 117 N.C.App. at 312, 450 S.E.2d at 917.
The contractual language at issue here incorporates two separate geographical restraints, with the first prohibiting Mr. Harders from operating an outdoor lighting business within a 100-mile buffer surrounding the area in which OLP-NVA previously operated and the second prohibiting Mr. Harders from operating a particular type of business within the territory assigned to any of Plaintiff's franchisees or affiliates. More specifically, as originally written, section 14.2(b) of the franchise agreement provided that:
In apparent recognition of the problematic nature of the 100 mile buffer provision, Plaintiff filed an affidavit executed by Mr. Schroeder on 6 March 2012 indicating that it would not seek to enforce that portion of the non-competition agreement. The revised language created by Plaintiff's affidavit prohibited Mr. Harders from operating "any Competitive Business within the Territory or any other franchisee's Franchisor's or Affiliates['] territory."
As this Court has previously stated, "[a] restriction as to territory is reasonable only to the extent it protects the legitimate interests of the employer in maintaining his customers." Manpower of Guilford Cnty., Inc., 42 N.C.App. at 523, 257 S.E.2d at 115. Although Plaintiff argued before the trial court that the non-competition provision which it sought to enforce in this case "includes all of the prescribed territory and the territory of other OLP franchises ... [and] is necessary to protect the goodwill associated with OLP's trademarks and to prevent Defendants from trading on the goodwill generated in the OLP ® Marks in this area over the last ten years," the actual language of the provision in question sweeps more broadly than Plaintiff's argument suggests. The relevant contractual language, even as modified in Mr. Schroeder's affidavit, prohibits Defendants from engaging in the outdoor lighting business within the territory assigned to any of Plaintiff's affiliates. According to the franchise agreement, the term "Affiliate" "means any person or entity that controls, is controlled by, or is in common control with, the Franchisor." As we have already noted, Plaintiff has two affiliates that are engaged in lines of business totally unrelated to outdoor lighting. Although Plaintiff argues that we should not consider the existence of these non-lighting affiliates in our analysis on the grounds that the relevant contractual language should not be read to preclude Defendants from competing with affiliates that did not exist at the time of the 2006 agreement, such as Mosquito Squad® and Archadeck®, the relevant contractual language does not provide any basis for inferring the existence of such a temporal limitation. Instead, the applicable contractual provision appears to be equally applicable to all of Plaintiff's affiliates and franchises. As a result, given that the non-competition provision contained in the franchise agreement prohibits Defendant from operating an outdoor lighting business in areas in which neither Plaintiff nor its franchisees or affiliates are engaged in similar activities, we conclude that such a restriction is excessively broad given that Plaintiff has no legitimate reason for precluding Defendants from competing with franchisees or affiliates of Plaintiff which are not engaged in the outdoor lighting business.
Secondly, Plaintiff contends that the non-competition provision contained in the franchise agreement did not preclude Defendants from engaging in an overly broad range of activities. According to Plaintiff, the trial court reached a contrary conclusion because it scrutinized the non-competition provision contained in the franchise agreement using the test appropriately utilized in the employer-employee context rather than that appropriately utilized in the business sale context and would have deemed the
As a preliminary matter, Plaintiff argues that courts should focus on the intent underlying the non-competition agreement in question and refrain from giving any consideration to the plain language in which those agreements are couched in the event that a consideration of the agreement's literal language would extend the reach of the non-competition provision beyond permissible bounds. In seeking to persuade us of the merits of this position, Plaintiff relies on two Supreme Court decisions, neither of which support the position which it espouses. Plaintiff's reliance upon Bicycle Transit Auth., Inc. v. Bell, 314 N.C. 219, 333 S.E.2d 299 (1985), is misplaced given that those "defendants [did] not argue that the covenant as written [was] so broad in scope as to either interfere with the interests of the public or that it [was] not reasonably necessary to protect the legitimate interest of the purchaser" and argued instead that "under any reasonable interpretation of the covenant, [Defendant]'s acts did not rise to the level of a breach." 314 N.C. at 226, 333 S.E.2d at 304. Similarly, we are not persuaded by Plaintiff's reliance on the Supreme Court's decision in Beam, which arose from a situation in which the defendant worked for the plaintiff, an ear, eye, nose, and throat specialist, and had entered into a non-competition agreement which prevented the defendant from practicing medicine within 100 miles of the town in which they practiced after dissolution of the partnership. Beam, 217 N.C. at 671, 9 S.E.2d at 477. According to Plaintiff, because "[n]owhere in the opinion is there any suggestion that the phrase `the practice of the profession of medicine' was overbroad," we should infer that the Court approved the provision prohibiting the defendant from practicing medicine despite the specialized nature of the plaintiff's practice. Although the Supreme Court did uphold the enforceability of the non-competition agreement at issue in Beam, it did not specifically approve the language in question. Id. at 673-74, 9 S.E.2d at 478. Instead, the arguments advanced in Beam revolved around public policy considerations instead of a detailed analysis of the specific language contained in the non-competition agreement. As a result, we do not believe that it would be appropriate for us to read either of the decisions upon which Plaintiff relies as an invitation to ignore the language of the non-competition agreement contained in the franchise agreement
According to the Supreme Court:
Singleton v. Haywood Elec. Membership Corp., 357 N.C. 623, 629, 588 S.E.2d 871, 875 (2003) (quoting Gaston Cnty. Dyeing Machine Co. v. Northfield Ins. Co., 351 N.C. 293, 299, 524 S.E.2d 558, 563 (2000)) (alterations in original). "If the plain language of a contract is clear, the intention of the parties is inferred from the words of the contract," so that, "[i]f the language is clear and only one reasonable interpretation exists, the courts must enforce the contract as written." Hodgin v. Brighton, 196 N.C. App. 126, 129, 674 S.E.2d 444, 446 (2009) (citations and quotation marks omitted).
Section 14.2(b) of the franchise agreement specifically prohibits Defendants from having an involvement "for two (2) years, in any Competitive Business." The agreement defines "Competitive Business" as "any business operating in competition with an outdoor lighting business or any business similar to the Business [] as carried on from time to time during the Initial Term of this Agreement" and defines "Business" as "the business operations conducted or to be conducted by the Franchisee consisting of outdoor lighting design and automated lighting control equipment and installation services, using the Franchisor's System and in association therewith the Marks." As a result of the fact that the contractual language in question is couched in disjunctive terms, the non-competition agreement prohibits Defendants from both involvement in any business "operating in competition with an outdoor lighting business" and "any business similar to the Business" regardless of the extent to which either type of entity actually competes with Plaintiff. After carefully studying the record, we are unable to see how prohibiting Defendants from having any involvement in any business "operating in competition with an outdoor lighting business" or any business "similar" to the one Mr. Harders operated as an OLP franchisee is necessary to protect any of Plaintiff's legitimate business interests. On the contrary, we believe that the restriction in question goes well beyond the prohibition of activities that would put Defendants in competition with Plaintiff. For example, Mr. Harders would be prohibited from owning a franchise that sold and maintained indoor lighting or from obtaining employment at a major home improvement store that sold outdoor lighting supplies, equipment, or services as a small part of its business even if he had no direct involvement in that retailer's outdoor lighting operations.
In Hartman, this Court considered a non-competition agreement that prevented an employee from owning any "entity providing actuarial services or any other services of the same nature as the service currently offered by the Corporation to the insurance industry and others or otherwise compete against the Corporation in the actuarial or consulting business" in "every city (whether or not [the] defendant did business there) in eight states for five or more years." 117 N.C.App. at 308, 314, 450 S.E.2d at 914-15, 918. In the course of holding that the agreement in question was unenforceable, we noted that the provision in question "purport[ed] to preclude the plaintiff from working with any actuarial business in North Carolina ... even if the business by which he was engaged did not service any customers located in the eight states" and "prohibit[ed] plaintiff from working for any business that provides actuarial services, without reference to
Thus, for the reasons set forth above, we hold that the trial court correctly determined that Plaintiff was unlikely to prevail in its attempt to obtain enforcement of the non-competition agreement contained in the franchise agreement. As a result, the trial court's order should be, and hereby is, affirmed.
AFFIRMED.
Judges BRYANT and ELMORE concur.