NO. COA14-185
NORTH CAROLINA COURT OF APPEALS
Filed: 5 August 2014
Beverage Systems of the Carolinas,
LLC,
Plaintiff,
v. Iredell County
No. 12 CVS 1519
Associated Beverage Repair, LLC,
Ludine Dotoli and Cheryl Dotoli,
Defendants.
Appeal by plaintiff from order entered 3 October 2013 by
Judge A. Robinson Hassell in Iredell County Superior Court.
Heard in the Court of Appeals 20 May 2014.
Jones, Childers, McLurkin & Donaldson, PLLC, by Kevin C.
Donaldson and Dennis W. Dorsey, for plaintiff-appellant.
Eisele, Ashburn, Greene & Chapman, PA, by Douglas G.
Eisele, for defendants-appellees.
HUNTER, Robert C., Judge.
Plaintiff timely appeals from an order entered 3 October
2013 granting defendants’ motion for summary judgment. After
careful review, because the trial court had express authority to
revise the restrictions of the non-compete agreement, we reverse
the trial court’s order and remand for the trial court to revise
the geographic area covered by the non-compete to include those
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areas necessary to reasonably protect plaintiff’s business
interests. Furthermore, since there is a genuine issue of
material fact as to whether Ludine Dotoli violated the revised
non-compete, we reverse the order granting summary judgment on
the breach of contract claim and remand for trial. Finally,
because plaintiff presented evidence showing a genuine issue of
material fact for the remaining tort claims and request for
injunctive relief, we reverse the order granting defendants’
motion for summary judgment and remand for trial.
Background
The pertinent facts alleged in plaintiff’s complaint are as
follows: In 2009, Mark Gandino (“Gandino”) created and organized
Beverage Systems of the Carolinas, LLC, a company that supplies,
installs, and services beverage products and beverage dispensing
equipment in North Carolina (“plaintiff”). Beginning in 2008
and continuing through 2009, Gandino negotiated with Thomas and
Kathleen Dotoli, the parents of defendant Ludine Dotoli
(“Ludine”)1 (collectively, Thomas, Kathleen, and Ludine are
referred to as “the Dotolis”), about the potential purchase of
the business and assets of Imperial Unlimited Services, Inc.
1
Throughout their pleadings and brief, plaintiff and defendants
refer to Mr. Dotoli as “Ludine” even though it appears from his
affidavit that his name is spelled “Loudine.” For consistency,
we use the same spelling as the parties in this opinion.
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(“Imperial”) and Elegant Beverage Products, LLC (“Elegant”)
(collectively, Imperial and Elegant are referred to as “the
businesses”). On or about 20 July 2009, plaintiff entered into
an “Asset Purchase Agreement” (the “Agreement”) with Elegant,
Imperial, and the Dotolis. The Agreement provided for the sale
of Imperial’s and Elegant’s assets, trade names, customer lists,
accounts receivable, current customers and customer contracts,
all equipment, and real property.
As part of the Agreement, Thomas, Kathleen, and Ludine
agreed to execute a “Non-Competition Agreement” (the “non-
compete”). Specifically, section 1 of the non-compete provided
that:
Subject to the provisions of Section 6
hereof, Seller and Shareholder shall not,
from the effective date of the Asset
Agreement in the states of North Carolina or
South Carolina until the earlier of (i)
October 1, 2014 (the “Non-Competition
Period”), or (ii) such other period of time
as may be the maximum permissible period of
enforceability of this covenant (the
“Termination Date”), without the prior
written, consent of Purchaser, directly or
indirectly, for himself or on behalf of or
in conjunction with any person, partnership,
corporation or other entity, compete, own,
operate, control, or participate or engage
in the ownership, management, operation or
control of, or be connected with as an
officer, employee, partner, director,
shareholder, representative, consultant,
independent contractor, guarantor, advisor
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or in any other manner or otherwise,
directly or indirectly, have a financial
interest in, a proprietorship, partnership,
joint venture, association, firm,
corporation or other business organization
or enterprise that is engaged in the
business of the Purchaser or any of its
respective affiliates or subsidiaries on
behalf of clients (the “Business”).
The non-compete went on to say that:
If, at the time of enforcement of any
provisions of Sections 1, 3 or 4 hereof, a
court holds that the restrictions stated
herein are unreasonable under circumstances
then existing, the parties hereto agree that
the maximum period, scope or geographical
area that are reasonable under such
circumstances shall be substituted for the
stated period, scope or area, and that the
court shall be allowed to revise the
restrictions contained in Sections 1, 3 and
4 hereof to cover the maximum period, scope
and area permitted by law.
The Dotolis executed the non-compete at the closing on 30
September 2009. Plaintiff claimed that it collectively paid the
Dotolis, Imperial, and Elegant $10,000 as consideration for the
non-compete.
In March 2011, plaintiff learned that Ludine’s wife Cheryl
Dotoli (“Cheryl”) had created defendant Associated Beverage
Repair, LLC, (“Associated Beverage”) (for purposes of this
opinion, Associated Beverage, Ludine, and Cheryl are
collectively referred to as “defendants”) and that Ludine was
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the manager of Associated Beverage. Moreover, plaintiff alleged
that it found out that Ludine was soliciting business from
plaintiff’s existing customers, specifically PF Chang’s and
Bunn-O-Matic.
On 8 July 2013, plaintiff filed an amended complaint
alleging the following causes of action: (1) breach of the non-
compete against Ludine; (2) a request for preliminary and
permanent injunctive relief against Ludine; (3) tortious
interference with contract against all defendants; (4) unfair
and deceptive practices against all defendants; (5) tortious
interference with prospective economic advantage against all
defendants; and (6) punitive damages. On 11 September 2013,
defendants filed a motion for summary judgment as to all causes
of action. In support of their motion, defendants filed an
affidavit by Ludine claiming that “the deepest penetration by
either Elegant or Imperial for the conduct of their business
into South Carolina was Rock Hill . . . and to Spartanburg,” and
the “western-most penetration” included Gaffney. Furthermore,
Ludine averred that in North Carolina, the furthest west the
companies’ business went was Morganton. The eastern-most
penetration was to Wake County. Finally, Ludine denied
contacting, communicating, or in any way inducing any prior
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customers of Imperial or Elegance or present customers of
plaintiff into switching their business to Associated Beverage.
The matter came on for hearing on 30 September 2013. On 3
October 2013, the trial court entered an order granting
defendants’ motion for summary judgment as to all claims.
Plaintiff timely appealed.
Standard of Review
“Our standard of review of an appeal from summary judgment
is de novo; such judgment is appropriate only when the record
shows that there is no genuine issue as to any material fact and
that any party is entitled to a judgment as a matter of law.”
In re Will of Jones, 362 N.C. 569, 573, 669 S.E.2d 572, 573
(2008) (internal citations omitted).
Arguments
I. The Non-Compete Agreement
Plaintiff first argues that the trial court erred in
granting summary judgment on its breach of contract claim
against Ludine. Specifically, plaintiff contends that the non-
compete is valid as a matter of law and that there is an issue
of material fact as to whether Ludine violated it. In the
alternative, should the Court determine that the non-compete is
unenforceable as to South Carolina, plaintiff argues that the
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non-compete may still be enforced in North Carolina based on the
“blue pencil doctrine.” Because the trial court had express
authority to revise the territorial restrictions of the non-
compete pursuant to the terms of the agreement, we reverse the
trial court’s order granting summary judgment and remand this
issue for the trial court to revise the geographic territories
to include those areas reasonably necessary to protect
plaintiff’s business interests acquired by the purchase of
Elegant and Imperial. Furthermore, there is a genuine issue of
material fact as to whether Ludine violated the terms of the
non-compete for the jury to resolve.
It
is the rule today that when one
sells a trade or business and, as an
incident of the sale, covenants not to
engage in the same business in competition
with the purchaser, the covenant is valid
and enforceable (1) if it is reasonably
necessary to protect the legitimate interest
of the purchaser; (2) if it is reasonable
with respect to both time and territory; and
(3) if it does not interfere with the
interest of the public.
Jewel Box Stores Corp. v. Morrow, 272 N.C. 659, 662-63, 158
S.E.2d 840, 843 (1968). Whether a covenant not to compete is
reasonable is a matter of law to be decided by the court. Id.
at 663, 158 S.E.2d at 843. “Greater latitude is generally
allowed in these covenants given by the seller in connection
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with the sale of a business than in covenants ancillary to an
employment contract.” Seaboard Indus., Inc. v. Blair, 10 N.C.
App. 323, 333, 178 S.E.2d 781, 787 (1971). Here, only the first
two elements need to be addressed since defendants did not argue
before the trial court nor on appeal that the non-compete
interfered with the interest of the public.
A. Legitimate Interest
“A covenant must be no wider in scope than is necessary to
protect the business of the employer.” Hartman v. W.H. Odell &
Associates, Inc., 117 N.C. App. 307, 316, 450 S.E.2d 912, 919
(1994) (internal quotation marks omitted).
Here, the scope of prohibited employment activities in the
non-compete is reasonably necessary to protect plaintiff’s
business. In his affidavit, Ludine stated that he had not only
been the creator and owner of Elegant, but he had also been the
“principal technician” of Imperial. Thus, his employment
activities for the businesses would have included both employee
ones and activities related to management, operation, and
control. The non-compete prohibits Ludine from competing,
owning, managing, operating or controlling, or be connected to
someone who has a financial interest in any business involved in
the beverage dispensing or servicing industry. Thus, the non-
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compete prohibits Ludine from engaging in employment activities
he used to perform for Elegant and Imperial, and the scope of
the non-compete reasonably protects a legitimate business
interest of plaintiff.
B. Time and Territory Reasonableness
The non-compete restricted Ludine’s activities for a five-
year period following the sale of Elegant and Imperial.
Although our Court has stated that “[a] five-year time
restriction is the outer boundary which our courts have
considered reasonable” and has noted that five-year restrictions
“are not favored” in employment contracts, Farr Assocs., Inc. v.
Baskin, 138 N.C. App. 276, 280, 530 S.E.2d 878, 881 (2000),
“[i]n cases where the covenants not to compete accompanied the
sale of a trade or business, time limitations of ten, fifteen
and twenty years, as well as limitations for the life of one of
the parties, have been upheld by the Supreme Court of North
Carolina[,]” Seaboard Indus., 10 N.C. App. at 335, 178 S.E.2d
at 788. Furthermore, the five-year restriction was reasonable
based on Imperial’s past business presence in the industry.
Imperial had been operating since 1999. In fact, plaintiff
recognized how valuable Imperial’s presence was in the beverage
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dispensing industry and specifically purchased its “goodwill”
for $100,000. Accordingly, the time restraint was reasonable.
With regard to the reasonableness of the territory, this
Court has noted that
to prove that a geographic restriction in a
covenant not to compete is reasonable, an
employer must first show where its customers
are located and that the geographic scope of
the covenant is necessary to maintain those
customer relationships. A restriction as to
territory is reasonable only to the extent
it protects the legitimate interests of the
employer in maintaining its customers. The
employer must show that the territory
embraced by the covenant is no greater than
necessary to secure the protection of its
business or good will.
Hartman, 117 N.C. App. at 312, 450 S.E.2d at 917 (internal
citations omitted).
Here, the non-compete was limited to North and South
Carolina. Ludine’s affidavit stated that Imperial’s and
Elegant’s combined business extended from Wake County to
Morganton in North Carolina. In South Carolina, Ludine averred
that their business only reached as deep as Rock Hill and
Spartanburg and as far west as Gaffney. Consequently, the
geographic area covered by the non-compete was not limited to
places where Elegant and Imperial had former customers and
included areas not necessary to maintain plaintiff’s customer
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relationships; thus, it was unreasonable.2 Plaintiff requests
that should the Court find that the geographic territory in the
non-compete is overly broad, the Court should enforce the non-
compete only as to North Carolina under the “blue pencil
doctrine.”
North Carolina has adopted the “strict blue pencil
doctrine”:
When the language of a covenant not to
compete is overly broad, North Carolina’s
“blue pencil” rule severely limits what the
court may do to alter the covenant. A court
at most may choose not to enforce a
distinctly separable part of a covenant in
order to render the provision reasonable. It
may not otherwise revise or rewrite the
covenant.
Hartman, 117 N.C. App. at 317, 450 S.E.2d at 920. Under this
doctrine, the trial court may use its inherent power to enforce
the reasonable, divisible provisions of the non-compete.
2
It should be noted that any area in which plaintiff itself had
former or existing customers would also be reasonable to include
in the non-compete. However, defendants contended in their
motion for summary judgment that “[t]here is no pleading or
proof that [plaintiff] operated anywhere in North Carolina or
South Carolina prior to concluding purchase of the assets of
Imperial and Elegant[.]” Plaintiff did not refute this nor did
it provide any evidence in the record that it either had been
operating in North or South Carolina prior to the acquisition or
that it has existing customers it did not acquire from Imperial
or Elegant. Therefore, for purposes of reasonableness, only
former customers of Imperial and Elegant will determine the
scope of the territory.
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Welcome Wagon Int’l, Inc. v. Pender, 255 N.C. 244, 248, 120
S.E.2d 739, 742 (1961).
We agree with plaintiff that, under the “blue pencil
doctrine,” the trial court could have, but chose not to, strike
the unreasonable territorial provisions of the non-compete.
However, the trial court had authority to enforce the non-
compete through paragraph six of the non-compete which
specifically and expressly gave the trial court authority to
“revise the restrictions . . . to cover the maximum period,
scope and area permitted by law.” In other words, the trial
court’s ability to revise the non-compete is not subject to the
restrictions of the “blue pencil doctrine” which prohibits a
trial court from revising unreasonable provisions in non-compete
agreements. Instead, here, the parties included a specific
provision in the non-compete—specifically, paragraph six—
enabling the trial court to revise the non-compete. Given the
fact that non-competes drafted based on the sale of a business
are given more leniency than those drafted pursuant to an
employment contract since the parties are in relatively equal
bargaining positions, the trial court should not have held the
entire non-compete unenforceable nor should the trial court’s
power to revise and enforce reasonable provisions of the non-
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compete be limited under the “blue pencil doctrine.” Instead,
the trial court should have invoked its power under paragraph
six and revised the non-compete to make it reasonable based on
the evidence before it.
The facts of this case are distinguishable from those in
which the trial court’s authority to revise a non-compete is
substantially limited by the “blue pencil doctrine” because
those non-competes did not give the trial court express
authority to revise the agreements. See Hartman, 117 N.C. App.
at 318, 450 S.E.2d at 920 (ruling that the non-compete “could
not be saved by ‘blue penciling’”); Manpower of Guilford Cnty.,
Inc. v. Hedgecock, 42 N.C. App. 515, 523, 257 S.E.2d 109, 115
(1979) (noting that “th[e] Court cannot in the absence of
clearly severable territorial divisions, enforce the
restrictions only insofar as they are reasonable” under the
“blue pencil doctrine”). In contrast, pursuant to the sale of a
business, these parties, who were at arms-length with equal
bargaining power, agreed to allow the trial court to revise the
non-compete to make it reasonable, and the trial court should
have done so. In sum, unlike previous cases, the parties here
specifically contracted to give the court power to revise the
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scope of the non-compete should part of it be determined to be
unenforceable.
While this precise issue has not arisen in our Courts,
i.e., the right of a trial court to revise the provisions of a
non-compete based on the express language of the contract for
the sale of a business, this Court has noted that similar
language has appeared in a franchisor-franchisee contract in
Outdoor Lighting Perspectives Franchising, Inc. v. Harders, __
N.C. App. __, 747 S.E.2d 256 (2013). In Outdoor Lighting, __
N.C. App. at __, 747 S.E.2d at 261, the franchise agreement
between the parties gave the franchisor the right to reduce the
scope of the non-compete, a right which the franchisor attempted
to invoke. In looking at this particular provision, the Court
noted that “it appears, given the language of the agreement,
that [the franchisor] had the right to modify the non-
competition provision in this manner and exercised this
authority in an appropriate manner.” Id. at __, 747 S.E.2d at
265, n.3. However, the Court was not required to “determine the
effectiveness of [that] exercise in private ‘blue penciling’”
because the modified geographic scope was still unreasonable.
Id. Although Outdoor Lighting’s holding does not directly
affect the outcome in this case, it indicates a willingness of
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our Courts to recognize and enforce revised non-compete
agreements when the parties contract for the right to revise a
non-compete outside the employment context.
Finally, in recognizing the importance of allowing parties
who agree that provisions of a non-compete may be revised in an
effort to enforce them, we believe that this practice makes good
business sense and better protects both a seller’s and
purchaser’s interests in the sale of a business. It not only
protects the business interests of the purchaser, which is a
notable concern especially in cases where the seller, similar to
Elegant and Imperial, has spent a substantial amount of time
building up goodwill in a particular industry, but it also
allows the seller to make more money than it would have had it
just sold the assets of the business. This is especially true
in North Carolina where our Supreme Court has been unwilling to
adopt a more flexible approach to the “blue pencil doctrine,”
leaving the courts with few options to try to enforce non-
competes in a rapidly changing economy.3 In addition, potential
buyers may be reluctant to buy a business not only if a seller
3
Judge Steelman highlighted this issue in his concurring opinion
in MJM Investigations, Inc. v. Sjostedt, 205 N.C. App. 468, 698
S.E.2d 202, 2010 WL 2814531, *5 (No. COA09-596) (July 20, 2010)
(unpublished), noting that: “The law of restrictive covenants
should be re-evaluated by our Supreme Court in the context of
changing economic conditions.”
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was unwilling to sign a non-compete but also if that non-compete
could not be modified and enforced by the courts. As a final
note, it is important to remember that, here, pursuant to the
sale of Imperial and Elegant, Ludine agreed to sign the non-
compete and was compensated for that agreement as well as
getting, arguably, a higher price for the businesses’ assets.
Then, after allegedly violating the non-compete and being sued
by plaintiff, he asked the courts to hold the negotiated-for
non-compete invalid.
In support of its conclusion that the trial court could not
have revised the non-compete despite the fact that paragraph six
explicitly gave it the power to, the dissent notes that the
language of paragraph six limits the trial court’s authority to
revise to that “permitted by law.” Thus, according to the
dissent, paragraph six “by its very terms makes the ‘blue
pencil’ doctrine applicable.” However, this interpretation of
the language of paragraph six would construe the provision
meaningless. By this logic, the parties would be giving the
trial court authority to revise the agreement but, in the same
sentence, restrict its power under the “blue pencil doctrine”
which expressly prohibits any and all revisions by the trial
court.
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Instead, in interpreting the language of paragraph six, the
phrase “permitted by law” applies to how the trial court revises
the agreement, requiring it to revise under the parameters of
reasonableness in terms of time and territory. On remand, the
trial court is tasked with revising the territorial restrictions
of the non-compete to make them reasonable based on the former
client base of Imperial and Elegant. Thus, by the terms of this
opinion, the trial court is revising the scope in such a way as
to make it enforceable, i.e., “permitted,” by law.
For all the above mentioned reasons, we reverse the trial
court’s order and remand this matter to the trial court to
revise the non-compete provisions after determining where in
North Carolina and South Carolina it would be reasonable to
enforce the non-compete based on Elegant’s and Imperial’s former
customer base.
In addition, although, as a matter of law, the trial court
should have revised the non-compete to make it reasonable and
enforceable, there exists a genuine issue of material fact as to
whether Ludine violated the non-compete. Plaintiff alleged that
its customers claimed that Ludine was attempting to solicit
their business to Associated Beverage. Although Ludine refutes
this in his affidavit, “[c]ontradictions or discrepancies in the
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evidence must be resolved by the jury rather than the trial
judge[,]” Martishius v. Carolco Studios, Inc., 355 N.C. 465,
481, 562 S.E.2d 887, 897 (2002). Thus, once the trial court
revises the non-compete to include only those areas reasonably
necessary to protect plaintiff’s business interests, the issue
of whether Ludine violated the non-compete should be tried to
determine whether Ludine violated the non-compete.
II. Tortious Interference with a Contract
Next, plaintiff argues that the trial court erred in
granting summary judgment as to its claim for tortious
interference with a contract. Specifically, plaintiff contends
that it had implied-in-fact contracts with third parties based
on past business dealings and that there is a material issue of
fact as to whether defendants interfered with those contracts.
To establish a claim for tortious
interference with contract, a plaintiff must
show: (1) a valid contract between the
plaintiff and a third person which confers
upon the plaintiff a contractual right
against a third person; (2) the defendant
knows of the contract; (3) the defendant
intentionally induces the third person not
to perform the contract; (4) and in doing so
acts without justification; (5) resulting in
actual damage to plaintiff.
Sellers v. Morton, 191 N.C. App. 75, 81, 661 S.E.2d 915, 921
(2008).
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Here, plaintiff has forecasted evidence that it had implied
contracts with third-party customers. Although it is undisputed
that plaintiff did not have express contracts with third-party
customers, plaintiff presented evidence showing conduct that
created implied contracts. “An implied in fact contract is a
genuine agreement between parties; its terms may not be
expressed in words, or at least not fully in words. The term,
implied in fact contract, only means that the parties had a
contract that can be seen in their conduct rather than in any
explicit set of words.” Miles v. Carolina Forest Ass’n, 167
N.C. App. 28, 35-36, 604 S.E.2d 327, 333 (2004); see also Archer
v. Rockingham Cnty., 144 N.C. App. 550, 557, 548 S.E.2d 788, 793
(2001) (“An implied contract refers to an actual contract
inferred from the circumstances, conduct, acts or relations of
the parties, showing a tacit understanding.”). Defendants
described the businesses’ relationship with its customers as:
“so long as Imperial provided its services competently and at
reasonable rates, its customers kept calling back for additional
services. So long as Elegant called on its accounts and
successfully promoted and sold the coffee and tea products
provided to Elegant by its vendors, Elegant continued
representing its suppliers.” Thus, there was evidence of a
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substantial business relationship between the businesses and
third-party customers based on the prior dealings between the
parties. Accordingly, plaintiff satisfied its burden of showing
a genuine issue of fact as to this first element since “the
legal effect of an implied in fact contract is the same as that
of an express contract in that it too is considered a ‘real’
contract or genuine agreement between the parties[,]” Miles, 167
N.C. App. at 36, 604 S.E.2d at 333.
With regard to the second element, it is undisputed
defendants knew about those contracts since plaintiff acquired
those customers when it purchased Elegant and Imperial. Thus,
defendants would have been aware of those contracts. As to the
third element, plaintiff has forecasted evidence that Ludine, on
behalf of Associated Beverage, induced or attempted to induce
the customers to switch their business to defendants.
Regarding the fourth element, this Court has noted that:
“In order to demonstrate the element of acting without
justification, the action must indicate no motive for
interference other than malice.” Area Landscaping, L.L.C. v.
Glaxo-Wellcome, Inc., 160 N.C. App. 520, 523, 586 S.E.2d 507,
510 (2003) (internal quotation marks omitted). Plaintiff
alleged that defendants maliciously interfered with the
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contracts in violation of the non-compete. As discussed above,
because there is a genuine issue of fact as to whether Ludine
violated the non-compete once it has been revised on remand,
there is also a genuine issue of fact as to whether he acted
without justification.
Finally, with regard to the last element, plaintiff
forecasted evidence that it suffered damages in the form of lost
business and lost profits. Specifically, plaintiff claimed that
although it used to generate $70,000 in business, it now only
generates $20,000 based on defendants’ alleged interference with
third-party customers. Thus, in sum, plaintiff has forecasted
evidence for each element of tortious interference with a
contract, and the trial court erred in granting defendants’
motion for summary judgment as to this claim.
III. Tortious Interference with a Prospective Economic Advantage
Next, plaintiff argues that the trial court erred in
granting defendants’ summary judgment motion on its claim for
tortious interference with a prospective economic advantage.
“In order to maintain an action for tortious interference
with prospective advantage, a [p]laintiff must show that [the]
[d]efendants induced a third party to refrain from entering into
a contract with [the] [p]laintiff without justification.
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Additionally, [the] [p]laintiff must show that the contract
would have ensued but for [the] [d]efendants’ interference.”
DaimlerChrysler Corp. v. Kirkhart, 148 N.C. App. 572, 585, 561
S.E.2d 276, 286 (2002).
Here, as discussed, plaintiff alleged that third-party
customers switched their business to defendants instead of
continuing their business relationships with plaintiff.
Furthermore, as noted above, defendants were not justified in
their conduct because, according to plaintiff’s contentions,
they did so in violation of the non-compete signed by Ludine.
Accordingly, there is a genuine issue of fact whether customers
refrained from entering into contracts or continuing previous
implied contracts with plaintiff but for defendants’ unjustified
interference. Therefore, the trial court erred in granting
summary judgment on this claim.
IV. Unfair and Deceptive Practices or Acts
Next, plaintiff argues that the trial court erred in
granting summary judgment as to his claim for unfair and
deceptive practices or acts. Specifically, plaintiff contends
that since there is a material issue of fact whether defendants
solicited business away from plaintiff and whether Ludine’s
breach of the non-compete was accompanied by aggravating
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factors, the unfair and deceptive practice claim survives as
well.
“Although [N.C. Gen. Stat. § 75-1.1] was intended to
benefit consumers, its protections do extend to businesses in
appropriate situations.” DaimlerChrysler Corp., 148 N.C. App.
at 585, 561 S.E.2d at 286. To prevail on a claim of unfair and
deceptive practices, a plaintiff must show: “(1) defendants
committed an unfair or deceptive act or practice; (2) in or
affecting commerce; and (3) that plaintiff was injured thereby.”
First Atl. Mgmt. Corp. v. Dunlea Realty Co., 131 N.C. App. 242,
252, 507 S.E.2d 56, 63 (1998).
Here, plaintiff’s unfair and deceptive practices claim
rests on its claims for Ludine’s breach of the non-compete,
tortious interference with contract, and tortious interference
with an economic advantage. Initially, we note that plaintiff’s
claims for tortious interference with contract and tortious
interference with an economic advantage allege that defendants
engaged in an unfair method of competing with plaintiff. As
discussed above, since there is a material issue of fact whether
defendants solicited business away from plaintiff in violation
of the non-compete, plaintiff’s allegations may also maintain an
unfair and deceptive practice claim.
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With regard to plaintiff’s contention that its unfair and
deceptive practices claim could be based upon Ludine’s breach of
the non-compete, “a mere breach of contract, even if
intentional, is not sufficiently unfair or deceptive to sustain
an action under N.C.G.S. § 75–1.1. The plaintiff must show
substantial aggravating circumstances attending the breach to
recover under the Act.” Eastover Ridge, L.L.C. v. Metric
Constructors, Inc., 139 N.C. App. 360, 368, 533 S.E.2d 827, 833
(2000) (internal quotation marks and citations omitted). Here,
plaintiff has pled sufficient facts showing aggravating
circumstances accompanying Ludine’s alleged breach of the non-
compete to support its unfair and deceptive practices claim.
This Court has noted that “[a]ggravating circumstances include
conduct of the breaching party that is deceptive[,]” and, when
determining whether conduct is deceptive, “its effect on the
average consumer is considered.” Becker v. Graber Builders,
Inc., 149 N.C. App. 787, 794, 561 S.E.2d 905, 910 (2002). As
discussed, Ludine had been involved in the industry for over
fifteen years and had built significant goodwill in this
particular area. As part of the sale of Elegant and Imperial,
Ludine agreed to sign a non-compete agreement, which would
presumably have been an important part of plaintiff’s
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willingness to buy the businesses. Then, according to
plaintiff, Ludine purposefully violated it in an effort to
solicit customers to his wife’s new business. Given that
plaintiff has pled facts alleging that Ludine purposefully
violated an agreement which served as important consideration
for plaintiff’s decision to buy Imperial and Elegant, plaintiff
has sufficiently pled facts showing the egregious nature of
Ludine’s breach of the non-compete to survive summary judgment.
Accordingly, plaintiff has forecasted evidence that Ludine’s
breach of the non-compete was deceptive and was sufficient to
maintain an unfair and deceptive practice claim.
V. Injunctive Relief
Finally, plaintiff contends that the trial court erred in
granting summary judgment on its claim for injunctive relief.
Specifically, plaintiff alleges that it has shown the likelihood
of success on the merits of its case; thus, it is entitled to
pursue injunctive relief.
“Because a preliminary injunction is an extraordinary
measure, it will issue only upon the movant’s showing that: (1)
there is a likelihood of success on the merits of his case; and
(2) the movant will likely suffer irreparable loss unless the
injunction is issued.” VisionAIR, Inc. v. James, 167 N.C. App.
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504, 508, 606 S.E.2d 359, 362 (2004) (internal quotation marks
omitted). Here, because it held the non-compete unenforceable,
the trial court necessarily found that plaintiff failed to show
there was a likelihood of success on its breach of contract
claim. However, as discussed above, because we are reversing
the trial court’s order and remanding the non-compete to the
trial court to exercise its authority to revise the geographic
scope of the non-compete based on paragraph 6 of the non-
compete, the trial court must determine whether there is a
likelihood of success on the merits of plaintiff’s breach of
contract claim based on the revised non-compete. Should the
trial court conclude there is, it must also determine “whether
the issuance of the injunction is necessary for the protection
of plaintiff’s rights during the course of litigation; that is,
whether plaintiff has an adequate remedy at law.” A.E.P.
Indus., Inc. v. McClure, 308 N.C. 393, 406, 302 S.E.2d 754, 762
(1983). Based on these considerations, the trial court should
determine whether plaintiff is entitled to injunctive relief.
Conclusion
Because the trial court had the express authority to revise
the geographic scope of the non-compete based on the terms of
the agreement, we remand for the trial court to revise the
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territorial area of the non-compete to include those areas where
Elegant and Imperial had former customers. Since there is a
genuine issue of material fact whether Ludine violated the
revised non-compete, we reverse the order granting summary
judgment on plaintiff’s breach of contract claim. In addition,
we conclude that plaintiff has presented evidence showing a
genuine issue of material fact on its remaining tort claims and
request for injunctive relief. Therefore, we reverse the order
granting summary judgment on those claims and remand for trial.
REVERSED AND REMANDED.
Judge McGEE concurs.
Judge ELMORE dissents by separate opinion.
NO. COA14-185
NORTH CAROLINA COURT OF APPEALS
Filed: 5 August 2014
Beverage Systems of the
Carolinas, LLC,
Plaintiff,
v. Iredell County
No. 12 CVS 1519
Associated Beverage Repair,
LLC, Ludine Dotoli and
Cheryl Dotoli,
Defendants.
ELMORE, Judge., dissenting.
Because I believe the “blue pencil” doctrine applies to the
parties’ provision in the non-compete purportedly enabling the
trial court to rewrite or modify the unreasonable territory
restrictions, I would affirm the trial court’s order granting
summary judgment for defendants on plaintiff’s claim of breach
of the non-compete. I would also affirm the trial court’s order
granting defendants’ motion for summary judgment on plaintiff’s
cause of action for tortious interference with a contract
because plaintiff did not forecast enough evidence of conduct to
show that it formed an implied contract-in-fact with its
customers. As such, plaintiff’s claims for tortious
interference with a prospective economic advantage, unfair and
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deceptive trade practices, and injunctive relief would
necessarily fail, and I would affirm the trial court’s order as
to those issues.
I. Analysis
a.) Breach of the non-compete
Plaintiff argues that the trial court erred in granting
defendants’ motion for summary judgment on plaintiff’s claim for
breach of the non-compete. I disagree.
“Our standard of review of an appeal from summary judgment
is de novo; such judgment is appropriate only when the record
shows that ‘there is no genuine issue as to any material fact
and that any party is entitled to a judgment as a matter of
law.’” In re Will of Jones, 362 N.C. 569, 573, 669 S.E.2d 572,
576 (2008) (quoting Forbis v. Neal, 361 N.C. 519, 523-24, 649
S.E.2d 382, 385 (2007)). We must consider “the pleadings,
affidavits and discovery materials available in the light most
favorable to the non-moving party[.]” Pine Knoll Ass'n, Inc. v.
Cardon, 126 N.C. App. 155, 158, 484 S.E.2d 446, 448 (1997).
While I agree with the majority that the geographic area
covered by the non-compete was overbroad and thus unreasonable,
the majority further concludes that “the trial court had
authority to enforce the non-compete through paragraph six of
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the non-compete which specifically and expressly gave the trial
court authority to ‘revise the restrictions’ ‘to cover the
maximum period, scope and area permitted by law.’” Thus, the
majority rules that the “blue pencil” doctrine is inapplicable
in the present case due to the parties’ aforementioned agreed
upon provision.
Parties to a contract “may bind themselves as they see fit
. . . unless the contract would violate the law or is contrary
to public policy.” Lexington Ins. Co. v. Tires Into Recycled
Energy & Supplies, Inc., 136 N.C. App. 223, 225, 522 S.E.2d 798,
800 (1999) (citation and quotation marks omitted). The “blue
pencil” doctrine, in part, serves to prevent a court from
“draft[ing] a new contract for the parties.” Seaboard Indus.,
Inc. v. Blair, 10 N.C. App. 323, 337, 178 S.E.2d 781, 790
(1971). The doctrine drastically restricts a court’s authority
to modify an overly broad territory restriction: “A court at
most may choose not to enforce a distinctly separable part of a
covenant in order to render the provision reasonable. It may
not otherwise revise or rewrite the covenant.” Hartman v. W.H.
Odell & Associates, Inc., 117 N.C. App. 307, 317, 450 S.E.2d
912, 920 (1994).
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Here, the provision that purportedly gives the trial court
authority to rewrite the non-compete’s unreasonable territory
restrictions states, in part:
If, at the time of enforcement . . . a court
holds that the restrictions stated herein
are unreasonable under the circumstances
then existing, the parties hereto agree that
. . . the court shall be allowed to revise
the restrictions contained . . . to cover
the maximum period, scope and area permitted
by law.”
(emphasis added). The language of the provision expressly
limits a court’s revision to that “permitted by law.” Thus, the
provision by its very terms makes the “blue pencil” doctrine
applicable. Alternatively, the provision is unenforceable as it
violates the “blue pencil” doctrine on its face. Under either
scenario, the “blue-pencil” doctrine applies.
The trial court was correct by not rewriting the non-
compete to make it reasonable because the law makes clear that a
court cannot engage in such action. However, the trial court
has the authority to enforce portions of a non-compete that are
reasonable and disregard the remaining portions if the non-
compete divides the restricted area into distinct units. See
Welcome Wagon Int’l, Inc. v. Pender, 255 N.C. 244, 248, 120
S.E.2d 739, 742 (1961). While the non-compete in the case at
-5-
bar divides the restricted territory into North Carolina and
South Carolina, the trial court did not enforce any portion of
the non-compete because neither of those restrictions taken
separately are reasonable, even in light of the deference given
towards non-compete covenants resulting from business sales. In
sum, the non-compete’s territory restrictions were unreasonable,
and the trial court was without legal authority to rewrite or
modify the territory restrictions irrespective of the parties’
contractual provision providing otherwise.
While the majority relies on Outdoor Lighting Perspectives
Franchising, Inc. v. Harders, ___ N.C. ___ App. ___, 747 S.E.2d
256 (2013) in support of its holding, that case addressed a
franchisor’s (a party to the non-compete), as opposed to a trial
court’s, right to modify a non-compete outside the context of a
business sales contract. Id. at ___, 747 S.E.2d at 265, n.3.
The majority asserts that Outdoor Lighting “indicates a
willingness of our courts to recognize and enforce revised non-
compete agreements[.]” However, the majority’s ruling in this
case takes a far more drastic approach, ordering the trial court
to undertake the revising and rewriting of the non-compete
rather than the contracting party.
-6-
In light of these reasons, I would affirm the trial court’s
order granting summary judgment for defendants on plaintiff’s
claim of breach of the non-compete because the covenant is
unenforceable and invalid.
b.) Tortious Interference With a Contract
Next, the majority agrees with plaintiff’s argument that
the trial court erred in granting defendants’ motion for summary
judgment on plaintiff’s cause of action for tortious
interference with a contract. Plaintiff avers that a contract
implied-in-fact existed between itself and its customers
acquired from the agreement. I disagree.
The first element of tortious interference with contractual
rights is “(1) the existence of a valid contract between
plaintiff and a third party[.]” Barker v. Kimberly-Clark Corp.,
136 N.C. App. 455, 462, 524 S.E.2d 821, 826 (2000) (citation
omitted). Mutual assent of both parties to the terms of a
contract “is essential to the formation of any contract . . . so
as to establish a meeting of the minds.” Connor v. Harless, 176
N.C. App. 402, 405, 626 S.E.2d 755, 757 (2006) (citation and
quotation omitted). Mutual assent is typically formed “by an
offer by one party and an acceptance by the other, which offer
and acceptance are essential elements of a contract.” Id.
-7-
(citation and quotation omitted) (emphasis in original). An
implied contract-in-fact is “as valid and enforceable as an
express contract.” Creech v. Melnik, 347 N.C. 520, 526, 495
S.E.2d 907, 911 (1998) (citation omitted). The formation of an
implied contract “arises where the intent of the parties is not
expressed, but an agreement in fact, creating an obligation, is
implied or presumed from their acts.” Id. (citation omitted).
The conduct of the parties shall imply an offer and acceptance.
Revels v. Miss Am. Org., 182 N.C. App. 334, 337, 641 S.E.2d 721,
724 (2007).
Here, plaintiff concedes that “there are no written
[customer] contracts. The [defendants] didn’t have any when
they sold the business nor did [plaintiff].” However, plaintiff
alleges that defendants “w[ere] aware of the contracts and
customers transferred to [plaintiff] at the time of purchase of
the Business.”
In support of its contention that a contract implied-in-
fact existed with customers, plaintiff referenced 1.) Gandino’s
affidavit stating that plaintiff conducted business with
customers who “had engaged in a regular course of conduct and
business relationships with Imperial and/or Elegant since at
least 2007”; and 2.) Ludine Dotoli’s affidavit that “the
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arrangement was that so long as Imperial provided competent
services at reasonable rates, its customers kept calling back
for additional services. So long as Elegant called on its
account and successfully promoted and sold the coffee and tea
products provided to it by its vendors, Elegant continued
representing its suppliers.” Contrary to the majority’s
holding, the forecast of evidence put forth by plaintiff
suggesting a general business relationship with its customers
was insufficient evidence to constitute an offer, acceptance,
mutual assent, or obligation to fulfill specific terms of an
agreement. Thus, I would affirm the trial court’s order
granting defendants’ motion for summary judgment on this issue
because plaintiff did not forecast enough evidence of conduct to
show that it formed an implied contract-in-fact with its
customers.
c.) Tortious Interference With a Prospective Economic Advantage
Plaintiff also argues that the trial court erred in
granting defendants’ motion for summary judgment on plaintiff’s
cause of action for tortious interference with a prospective
economic advantage. I disagree.
A plaintiff bringing a cause of action for tortious
interference with a prospective economic advantage must
-9-
establish that “the defendant, without justification, induced a
third party to refrain from entering into a contract with the
plaintiff, which would have been made absent the defendant’s
interference.” MLC Auto., LLC v. Town of S. Pines, 207 N.C.
App. 555, 571, 702 S.E.2d 68, 79 (2010) (citation omitted).
As previously discussed, plaintiff did not establish the
existence of any contracts with its customers. Thus,
plaintiff’s forecast of evidence necessarily does not and cannot
identify any actual contract that defendants induced customers
to refrain from entering. Moreover, plaintiff never
specifically alleges defendants’ inducement to refrain from
entering a contract, but merely states, “[a]bsent the
Defendants’ interference, [plaintiff] would have maintained its
customer base[,]” “Defendants have purposely and intentionally
interfered with the contracts . . . of [plaintiff] with the
intent to steal the customers[,]” “Defendants have directly
contacted and solicited the customers of [plaintiff][,]” and
“Defendants have interfered with [plaintiff’s] business
relationships[.]”
While plaintiff had an expectation of a business
relationship with its customers, it forecasts no evidence in the
record to show that but for defendants’ actions, contracts with
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its customers would have been formed. Plaintiff merely makes
general and speculative allegations regarding potential future
contracts: “As a result of Defendants’ interference with
[plaintiff’s] business relationships and business expectancy,
[plaintiff] has suffered damages . . . in excess of $10,000.00.”
Plaintiff’s expectation of a business relationship with current
customers is insufficient by itself to establish a tortious
interference with a prospective economic advantage claim. See
Dalton v. Camp, 353 N.C. 647, 655, 548 S.E.2d 704, 710 (2001)
(rejecting a claim for tortious interference with a prospective
economic advantage claim because “while [plaintiff] may have had
an expectation of a continuing business relationship with
[customer], at least in the short term, he offers no evidence
showing that but for [defendant’s] alleged interference a
contract would have ensued”). Thus, I would affirm the trial
court’s order granting summary judgment in favor of defendants
on this issue.
d.) Unfair and/or Deceptive Trade Practices
Next, plaintiff argues that the trial court erred in
granting summary judgment for defendants on plaintiff’s claim
for unfair and deceptive trade practices. I disagree.
-11-
Plaintiff contends that claims involving breach of a
covenant not to compete, tortious interference with contracts,
and tortious interference with a prospective economic advantage
form the basis for claims of unfair and deceptive trade
practices. Even if we assume arguendo that this is true under
North Carolina law, plaintiff argues that the trial court erred
in granting summary judgment on the issue of unfair and
deceptive trade practices because “[plaintiff] has set forth
sufficient evidence to establish material questions of fact as
to each element of its claims” for tortious interference with a
contract, tortious interference with a prospective economic
advantage, and breach of the non-compete. Since I would rule
that plaintiff failed to establish genuine issues of material
facts on those claims, plaintiff’s claim for unfair and
deceptive trade practices would necessarily also fail.
e.) Injunctive Relief
Finally, plaintiff argues that it is entitled to injunctive
relief because it has established that the trial court erred in
granting summary judgment for defendants. However, since I
would hold that the trial court did not err in granting summary
judgment, plaintiff’s argument for injunctive relief would be
meritless.
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II. Conclusion
In sum, I would affirm the trial court’s order granting
defendants’ motion for summary judgment because no genuine issue
of material fact exists as to plaintiff’s claims for breach of
the non-compete, tortious interference with a contract, tortious
interference with a prospective economic advantage, unfair and
deceptive trade practices, and injunctive relief.
Beverage Systems of the Carolinas, LLC v. Associated Beverage Repair, LLC
Court: Court of Appeals of North Carolina
Date filed: 2014-08-05
Citations: 235 N.C. App. 438
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