{
  "id": 8520760,
  "name": "ELECTRICAL SOUTH, INC. v. J. GREGORY LEWIS",
  "name_abbreviation": "Electrical South, Inc. v. Lewis",
  "decision_date": "1989-11-07",
  "docket_number": "No. 8918SC19",
  "first_page": "160",
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    "judges": [
      "Judges Johnson and ORR concur."
    ],
    "parties": [
      "ELECTRICAL SOUTH, INC. v. J. GREGORY LEWIS"
    ],
    "opinions": [
      {
        "text": "GREENE, Judge.\nPlaintiff (hereafter \u201cCompany\u201d or \u201cplaintiff\u201d) and defendant J. Gregory Lewis (hereafter \u201cEmployee\u201d) were parties to a non-competition agreement. Plaintiff requested and was granted a preliminary injunction by the trial court, restraining defendant from disclosing trade secrets and confidential information. The trial court denied the Company\u2019s request for a preliminary injunction restraining defendant from competing with the Company. Plaintiff Company appeals.\nThe evidence presented to the trial court at the preliminary injunction hearing tended to show that the Company and Employee executed an \u201cEmployment Contract\u201d (Contract) on or about 24 July 1984. The Contract provided in pertinent part:\n9. Non-disclosure of Trade Secrets and Confidential Information. The employee agrees that during the term of his employment hereunder and thereafter, he will not disclose, other than to an employee of the company, any confidential information or trade secrets of the company that were made known to him by the company, its officers or employees, or learned by him while in the company\u2019s employ, without the prior written consent of the company, and that upon termination of his employment for any reason, he will promptly return to the company any and all properties, records, figures, calculations, letters, papers, drawings, blue prints or copies thereof or other confidential information of any type or description. It is understood that the term \u201cTrade Secrets\u201d as used in this agreement is deemed to include lists of the companies [sic] customers, information relating to the industrial practices, know how [sic], processes, inventions, decisions and formulas [sic] of the company and any other information of whatever nature which gives to the company an opportunity to obtain an advantage over its competitors who do not have access to such information, but it is understood that said term does not include knowledge, skills or information which is common to the trade or profession of the employee.\n11. Covenant Not to Compete. The employee covenants and agrees that for a period of twenty-four (24) months after the termination of his employment with the company, regardless of whether such termination is voluntary or involuntary, and whether with or without cause, the employee will not directly or indirectly own, manage, operate, be employed by, participate in, or be connected in any manner with the ownership, management, operation or control of any concern which manufactures or designs industrial solid state electronic equipment or which repairs or services industrial solid state electronic equipment, or which competes directly or indirectly, with the company in such endeavors, within a radius of two hundred (200) miles of the company\u2019s branch office to which the employee is assigned at the time of such termination. . . . (Emphasis added.)\nPursuant to the Contract, Employee worked with the Greensboro office of Company in its business of repairing industrial electronic equipment. Employee resigned his employment with the Company in late February 1988, and on or about 1 March 1988, Employee began working for an electronics company in Pickens, South Carolina.\nThe Company\u2019s complaint alleges that Employee is now directly competing with the Company\u2019s business in performing repairs on industrial electronic equipment. The Company also alleges that Employee\u2019s new employer is located within a two-hundred-mile radius of Greensboro, North Carolina, and that Employee has solicited the Company\u2019s customers within a two-hundred-mile radius of Greensboro.\nThe trial court preliminarily enjoined Employee from disclosing the Company\u2019s trade secrets and confidential information. The trial court denied the Company\u2019s request for a preliminary injunction for the Covenant Not To Compete, entering in its order the following pertinent findings of fact and conclusions of law:\nFindings of Fact\n6. The covenant not to compete contained in the employment contract between plaintiff and defendant prohibits the defendant from working for any employer, wherever located, if that employer competes, directly or indirectly, with the plaintiff within a 200-mile radius of the plaintiff\u2019s office in the City of Greensboro, North Carolina. [Emphasis added.]\n[Conclusions of Law]\n2. The covenant not to compete provision contained in Paragraph 11 of the employment contract is overly broad with relation to territory or area encompassed in the prohibition in that it prohibits defendant from working for any employer wherever located which competes, directly or indirectly, with the plaintiff within a 200-mile radius of plaintiff\u2019s office in the City of Greensboro, North Carolina.\nNow, Therefore, It Is Ordered:\n1. Plaintiffs motion pursuant to Rule 65 of the North Carolina Rules of Civil Procedure for an order preliminarily enjoining defendant from competing with plaintiff within a 200-mile radius of plaintiff\u2019s office in the City of Greensboro, North Carolina, is denied.\n2. Plaintiff\u2019s motion for an order preliminarily enjoining defendant from divulging trade secrets or other confidential business information under Paragraph 9 of the employment contract is hereby granted; and defendant is hereby preliminarily enjoined from disclosing any confidential information or trade secrets of the plaintiff that were made known to him by Electrical South, Inc., its officers or employees, while in the company\u2019s employ, including lists of the Company\u2019s customers, processes, inventions, and formulas [sic] which are unique in nature and which give plaintiff an opportunity to obtain an advantage over its competitors who do not have access to such information; provided, that such trade secrets and confidential information do not include knowledge, skills, or information which is common to the trade or profession of the defendant.\n3. Defendant shall immediately return to the company any and all property, records, figures, calculations, letters, papers, drawings, blue prints or copies thereof of any confidential information of any type or description of the plaintiff Electrical South, Inc.[,] which the defendant presently has in his possession.\nThe issue presented in this case is whether th\u00e9 Company\u2019s restrictive covenant can bar Employee from employment with a competitor located anywhere in the world who does business within 200 miles of the Company\u2019s branch office in Greensboro, North Carolina. The answer to this question resolves the ultimate issue of whether the trial judge properly denied the Company\u2019s request for a preliminary injunction.\nNo appeal lies from a trial court\u2019s denial of an interlocutory preliminary injunction unless the appellant would be deprived of a substantial right which he would lose absent a review prior to final determination. A.E.P. Industries, Inc. v. McClure, 308 N.C. 393, 400, 302 S.E.2d 754, 759 (1983). This court must consider whether plaintiff has a right of appeal \u201ceven though the question of appealability has not been raised by the parties themselves.\u201d Waters v. Qualified Personnel, Inc., 294 N.C. 200, 201, 240 S.E.2d 338, 340 (1978) (emphasis added). Plaintiff has offered no argument, contention or evidence that it would be deprived of a substantial right if we do not hear this case. However, we determine that plaintiff would lose a substantial right prior to final determination of the covenant on its merits in that plaintiff has \u201cessentially lost its case because the [two-year] time limitation\u201d under the covenant expires in March 1990. A.E.P., 308 N.C. at 401, 302 S.E.2d at 759. Although \u201cthe appellate process is not the procedural mechanism best suited for resolving the dispute . . . [nevertheless, because this case presents an important question affecting the respective rights of employers and employees who choose to execute agreements involving covenants not to compete, we have determined to address the issues.\u201d A.E.P., 308 N.C. at 401, 302 S.E.2d at 759.\nA preliminary injunction is an equitable remedy, and will issue only if the movant is able to show at the hearing the \u201c \u2018likelihood of success on the merits of his case.\u2019 \u201d A.E.P., 308 N.C. at 401, 302 S.E.2d at 759 (emphasis omitted) (citations omitted). This \u2018likelihood of success\u2019 results from the movant\u2019s prima facie showing of prerequisites to the enforceability of a covenant: its reasonableness as to time and territory. A.E.P., 308 N.C. at 402-03, 302 S.E.2d at 761. \u201cSince the determinative question is one of public policy, the reasonableness and validity of the contract is a question for the court and not for the jury, to be determined from the contract itself and admitted or proven facts. . . .\u201d Kadis v. Britt, 224 N.C. 154, 158, 29 S.E.2d 543, 545 (1944).\nBecause grant of an injunction is an equitable matter, the trial court in its sound discretion considers the \u201cquestion of undue hardship imposed on the defendant.\u201d Kadis, 224 N.C. at 164, 29 S.E.2d at 549. The public\u2019s interest in preserving an individual\u2019s ability to earn a living outweighs the employer\u2019s protection from competition \u201c[w]hen the contract is defective . . . because its practical effect is merely to stifle normal competition. . .\u201d Id., 224 N.C. at 159, 29 S.E.2d at 546. See also Starkings Court Reporting Ser., Inc. v. Collins, 67 N.C. App. 540, 313 S.E.2d 614 (1984). The \u201cequitable balance between conflicting interests of employer and employee\u201d takes into account \u201cthe right of the employer to protect, by reasonable contract with [its] employee, the unique assets of [its] business, a knowledge of which is acquired during the employment and by reason of it. . . .\u201d Kadis, 224 N.C. at 159, 29 S.E.2d at 546. These \u2018unique assets\u2019 have been defined as \u201ccustomer contacts\u201d and \u201cconfidential information\u201d by our courts. United Laboratories, Inc. v. Kuykendall, 322 N.C. 643, 653, 657, 370 S.E.2d 375, 381, 384 (1988). \u201cTo this [employer\u2019s right] must be added the condition that [the contract does] not impose unreasonable hardship on the [employee]. . . .\u201d Kadis, 224 N.C. at 161, 29 S.E.2d at 547. As a general rule, courts 'will enforce employer-drawn restrictions on an employee\u2019s use of \u2018customer contacts\u2019 and \u2018confidential information,\u2019 \u201c \u2018providing the covenant does not offend against the rule that as to time ... or as to territory it embraces it shall be no greater than is reasonably necessary to secure the protection. . . .\u2019\u201d A.E.P., 308 N.C. at 408, 302 S.E.2d at 763 (citation omitted).\nHere, the trial court preliminarily enjoined Employee from disclosing confidential information about the Company\u2019s business that Employee acquired during employment with the Company. This information encompassed customer lists, \u201cindustrial practices, know how [sic], processes, inventions, decisions and formulas [sic] . . . which gives to the company an opportunity to obtain an advantage over its competitors who do not have access to such information.\u201d The trial court then found as a fact that \u201c[t]he covenant not to compete contained in the employment contract between plaintiff and defendant prohibits the defendant from working for any employer, wherever located, if that employer competes, directly or indirectly, with the plaintiff within a 200-mile radius of the plaintiff\u2019s office in the City of Greensboro, North Carolina[,]\u201d and concluded that the restriction was \u201coverly broad.\u201d\nOur de novo review of the trial court\u2019s grant or denial of a preliminary injunction is based on the \u201cfacts and circumstances of the particular case.\u201d Clyde Rudd & Associates, Inc. v. Taylor, 29 N.C. App. 679, 684, 225 S.E.2d 602, 605, disc. rev. denied, 290 N.C. 659, 228 S.E.2d 451 (1976). When we review the evidence presented at the hearing, \u201c \u2018there is a presumption that the [trial court\u2019s decision was] correct, and the burden is upon appellant -to show [that the trial court erred in ruling].\u2019 \u201d Western Conference v. Creech, 256 N.C. 128, 140, 123 S.E.2d 619, 627 (1962) (citation omitted).\nThe pertinent provision of the contract at issue is Section 11, Covenants Not to Compete. It states that Employee cannot \u201cown, manage, operate, be employed by, participate in, or be con nected in any manner with the ownership, management, operation or control of any concern which manufactures or designs industrial solid state electronic equipment or which repairs or services industrial solid state electronic equipment or which competes directly or indirectly, with the company in such endeavors within a radius of [200] miles of [Greensboro.]\u201d (Emphases added.)\nWe note that the language of the contract, above, is ambiguous, because of the word \u201cor\u201d: \u201cor which competes directly or indirectly with the company in such endeavors . . .\u201d (Emphasis added.) Grammatically, \u2018or\u2019 in this covenant can be read to mean \u201cor\u201d or \u201cand.\u201d It can indicate either two types of business \u2018concerns\u2019 or one business \u2018concern\u2019 with several characteristics. If one reads the covenant so that \u201cor\u201d is used in its disjunctive sense (\u201ceither/or\u201d), the contract language seems to enumerate two types of \u201c[business] concerns\u201d that Employee cannot \u201cbe connected in any manner with\u201d [sic]: the first \u2018which manufactures,\u2019 \u2018designs\u2019 or \u2018repairs\u2019 industrial solid state electronic equipment within 200 miles of Greensboro, or the second \u2018which competes directly or indirectly with the Company\u2019 within 200 miles of Greensboro. If, however, we read the \u201cor\u201d in its conjunctive (\u201cand\u201d) sense, the covenant describes only one type of business \u2018concern\u2019 having two prohibited attributes: one that \u2018manufactures or designs,\u2019 \u2018repairs or services,\u2019 and \u2018which competes directly or indirectly with the Company\u2019 within 200 miles of Greensboro. When the language in a contract is ambiguous, we view the practical result of the restriction by \u201cconstruing the restriction strictly against its draftsman. . .\u201d Manpower of Guilford County, Inc. v. Hedgecock, 42 N.C. App. 515, 522, 257 S.E.2d 109, 115 (1979). Construing the contract according to this tenet, we interpret the word \u2018or\u2019 in its conjunctive sense and do not determine whether the contract has a divisible provision which may be enforceable. A court can \u201cenforce the restrictions in the territorial divisions deemed reasonable and refuse to enforce them in the divisions deemed unreasonable.\u201d Welcome Wagon, Inc. v. Pender, 255 N.C. 244, 248, 120 S.E.2d 739, 742 (1961); Schultz and Assoc. of the Southeast, Inc. v. Ingram, 38 N.C. App. 422, 429, 248 S.E.2d 345, 351 (1978) (divisible \u201careas of activity\u201d).\nAdditionally, the Company argues that the language of the contract requires that we read \u2018or\u2019 in the covenant to mean \u2018and.\u2019 Consistent with contract interpretation rules and the Company\u2019s argument, the covenant is not divisible and the Company has no right to enforcement of the indivisible contract as it is written.\nThe Company contends that even if the covenant refers to only one business \u2018concern,\u2019 it is not overly restrictive because the covenant only bars Employee from competing for or soliciting the Company\u2019s customers inside the 200-mile radius. Presuming this point, the Company introduced and directed all of its evidence at the preliminary injunction hearing to illustrate its need to protect its existing customers from Employee\u2019s competition inside the 200-mile radius. However, the Company misperceives the plain language of the covenant, which addresses Employee\u2019s association with Company\u2019s competitors \u2018wherever located.\u2019 The focus of the restraint was not on Employee\u2019s competition for the Company\u2019s customers in the 200-mile circle around Greensboro, but on Employee\u2019s association with another company, wherever located, which may be linked with the Company\u2019s competitors within the 200-mile circle by any slender thread; for instance, a company which creates advertising for a Company competitor.\nThe restriction prohibits Employee\u2019s association with an employer anywhere in the world if the new employer indirectly competes with the Company in the Greensboro locale. Its practical effect is to limit Employee\u2019s employment within the solid state electronic equipment industry only to companies that do not compete with the Greensboro branch office and surrounds in any manner, regardless of how far away Employee moves to obtain work, regardless of the position Employee accepts and regardless of the current protection of the Company\u2019s interests by the trial court\u2019s injunction on Employee prohibiting disclosure of information acquired while he worked with the Company. Furthermore, the prohibition against Employee\u2019s \u201cconnectfion] in any manner with\u201d the \u2018concerns\u2019 could arguably result in a breach of the covenant if any of Employee\u2019s family worked with a Company competitor. The \u201cshotgun\u201d approach to drafting this provision produces oppressive results, which violate both the public\u2019s and Employee\u2019s interest in his earning a living.\nWe conclude that the Company has failed to carry its burden of showing a likelihood of success on the merits as to the compliance of the Covenant Not to Compete with public policy or the reasonableness of its territorial restriction.\nThe trial judge correctly denied the Company\u2019s request for a preliminary injunction enforcing the noncompetition clause of this Contract.\nAffirmed.\nJudges Johnson and ORR concur.",
        "type": "majority",
        "author": "GREENE, Judge."
      }
    ],
    "attorneys": [
      "Adams Kleemeier Hagan Hannah & Fouts, by Joseph W. Moss, for plaintiff-appellant.",
      "Turner, Rollins, Rollins & Clark, by Clyde T. Rollins, for defendant-appellee."
    ],
    "corrections": "",
    "head_matter": "ELECTRICAL SOUTH, INC. v. J. GREGORY LEWIS\nNo. 8918SC19\n(Filed 7 November 1989)\n1. Appeal and Error \u00a7 6.2 (NCI3d)\u2014 covenant not to compete\u2014 denial of preliminary injunction \u2014appealable\nThe Court of Appeals elected to address whether a covenant not to compete was enforceable in an appeal from the denial of a preliminary injunction where plaintiff would lose a substantial right prior to final determination on the merits and the case presented an important question affecting the rights of employers and employees who choose to execute agreements involving covenants not to compete.\nAm Jur 2d, Appeal and Error \u00a7 388.\n2. Master and Servant \u00a7 11.1 (NCI3d) \u2014 covenant not to compete\u2014 not enforceable\nA covenant not to compete was not enforceable where the covenant stated that the employee could not own, manage, operate, be employed by, participate in, or be connected in any manner with the ownership, management, operation or control of any concern which manufactures or designs industrial solid state electronic equipment or which repairs or services industrial solid state electronic equipment or which competes directly or indirectly with the company in such endeavors within a radius of two hundred miles of Greensboro. The focus of the restraint was not on the employee\u2019s competition for the company\u2019s customers in a 200-mile circle, but on employee\u2019s association with another company, wherever located, which may be linked with plaintiff company\u2019s competitors within the 200-mile circle by any slender thread.\nAm Jur 2d, Master and Servant \u00a7 106; Monopolies, Restraints of Trade, and Unfair Trade Practices \u00a7\u00a7 543, 544, 566-568.\nAPPEAL by plaintiff from Long (James MJ, Judge. Order entered 6 October 1988 in Superior Court, GUILFORD County. Heard in the Court of Appeals 25 August 1989.\nAdams Kleemeier Hagan Hannah & Fouts, by Joseph W. Moss, for plaintiff-appellant.\nTurner, Rollins, Rollins & Clark, by Clyde T. Rollins, for defendant-appellee."
  },
  "file_name": "0160-01",
  "first_page_order": 192,
  "last_page_order": 201
}
