Allen Indus.

IN THE COURT OF APPEALS OF NORTH CAROLINA
No. COA15-521
Filed: 5 July 2016
Guilford County, No. 13 CVS 5637
ALLEN INDUSTRIES, INC., Plaintiff,
v.
JODY P. KLUTTZ, Defendant
Appeal by defendant from order entered 15 October 2014 by Judge Lindsay R.
Davis, Jr. in Superior Court, Guilford County. Heard in the Court of Appeals 21
October 2015.
Tuggle Duggins P.A., by Denis E. Jacobson and Brandy L. Mills, for plaintiff-
appellee.
Ferguson, Scarbrough, Hayes, Hawkins & DeMay, PLLC, by James R. DeMay,
for defendant-appellant.
STROUD, Judge.
Defendant appeals an order denying her motion for damages on a preliminary
injunction bond. Because the trial court correctly determined, in light of the facts
and legal arguments presented by the parties, that the preliminary injunction was
not wrongfully entered at the inception of the lawsuit, we affirm the trial court’s order
denying defendant’s motion for damages.
I. Background
ALLEN INDUS., INC. V. KLUTTZ
Opinion of the Court
Plaintiff is in the business of making commercial signs and awnings, and
defendant used to be plaintiff’s employee who managed “daily relationship[s] with
customers” for plaintiff. On 9 May 2013, plaintiff filed a complaint against defendant
alleging that defendant had begun working for a “direct competitor” and had
breached her employment contract by using customer information she had gained
from plaintiff. Plaintiff sought both an injunction and monetary relief. Plaintiff also
filed a separate motion for a preliminary injunction.
On 28 June 2013, the trial court granted plaintiff’s motion for a preliminary
injunction based on “the non-competition clause” of the employment contract. The
order enjoined defendant from working for Atlas Sign Industries of NC, LLC,
plaintiff’s competitor, through 14 March 2014. The order also required a $20,000
bond from plaintiff. On 3 June 2013, defendant appealed the preliminary injunction
order. In May of 2014, in an unpublished opinion, this Court dismissed defendant’s
appeal as moot and declined to address the merits of the case because the time period
of the covenant not to compete had already expired. See Allen Industries, Inc. v.
Kluttz, ___ N.C. App. ___, 759 S.E.2d 711 (2014) (unpublished).
After the case was remanded to the trial court, in July of 2014, plaintiff
voluntarily dismissed the case. The following month, defendant made a “MOTION
IN THE CAUSE FOR DAMAGES ON PRELIMINARY INJUNCTION BOND”
(“motion for damages”) requesting payment to her of the $20,000 bond for the
-2-
ALLEN INDUS., INC. V. KLUTTZ
Opinion of the Court
preliminary injunction she contended was wrongfully entered. On 15 October 2014,
the trial court denied defendant’s motion for damages based on its interpretation of
the employment contract. Defendant appeals the denial of her motion for damages.
II. Preliminary Injunction Bond
Defendant argues that “[t]he trial court erred in finding that [defendant] is not
entitled to recover damages on the preliminary injunction bond.” (Original in all
caps.) Defendant contends based upon Industries Innovators, Inc. that “[a] voluntary
dismissal of a complaint is equivalent to a finding that the defendant was wrongfully
enjoined.” 99 N.C. App. 42, 51, 392 S.E.2d 425, 431, disc. rev. denied, 327 N.C. 483,
397 S.E.2d 219 (citations and quotation marks omitted) (1990). We consider whether
the trial court’s findings of fact and conclusions of law are sufficient to support the
judgment. See generally id. at 42, 49, 392 S.E.2d at 430.
In order to recover the preliminary injunction bond, defendant needed to
demonstrate that she was “wrongfully enjoined[.]” N.C. Gen. Stat. § 1A-1, Rule 65(c)
(2013); see generally Indus. Innovators, Inc., 99 N.C. App. at 49, 392 S.E.2d at 430.
But Industries Innovators, Inc. explains “three possibilities” for concluding whether
a party has been wrongfully enjoined, not all of which require a final determination
on the merits. 99 N.C. App. at 49-51, 392 S.E.2d at 430-31. However, Industries
Innovators, Inc. acknowledges that there is no hard and fast rule for determining
whether an individual has been wrongfully enjoined:
-3-
ALLEN INDUS., INC. V. KLUTTZ
Opinion of the Court
North Carolina case law presents a somewhat confusing
picture of the standard for determining liability under an
injunction bond.
Any standard for determining whether the
defendant was wrongfully enjoined should be consistent
with the very purpose of the bond which is to require that
the plaintiff assume the risks of paying damages he causes
as the price he must pay to have the extraordinary
privilege of provisional relief. Consistent with that
purpose, and we believe consistent with present North
Carolina case law, Professor Dobbs observed:
The fact that the plaintiff’s position seemed
sound when it was presented on the ex parte
or preliminary hearing is no basis for
relieving him of liability, since the very risk
that requires a bond is the risk of error
because such hearings are attenuated and
inadequate. To say that proof of the
inadequate hearing, against which the bond is
intended to protect, relieves of liability on the
bond is merely to subvert the bond’s purpose.
Thus the few cases that seem to deal with this
situation seem correct in assessing liability to
the plaintiff who loses on the ultimate merits,
even when his proof warranted preliminary
relief at the time it was awarded.
Accordingly, a defendant is entitled to damages on
an injunction bond only when there has been a final
adjudication substantially favorable to the defendant on
the merits of the plaintiff’s claim. Such an adjudication is
equivalent to a determination that the defendant has been
wrongfully enjoined. A final judgment for the defendant
which does not address the merits of the claim, i.e.,
dismissal for lack of jurisdiction, gives rise to damages on
the injunction bond only if the trial court determines that
defendant was actually prohibited by the injunction from
doing what he was legally entitled to do.
99 N.C. App. at 50, 392 S.E.2d at 431 (citations and quotation marks omitted).
-4-
ALLEN INDUS., INC. V. KLUTTZ
Opinion of the Court
Furthermore, specifically as to the consideration of wrongful enjoinment after
a voluntary dismissal, our Supreme Court determined, in Blatt Co. v. Southwell, that
despite a voluntary dismissal by the plaintiff, the trial court must consider the
reasons for the dismissal in determining whether the defendant was entitled to
recovery:
In an action in which the plaintiff has obtained a
temporary restraining order or injunction by giving bond
such as that required by G.S. 1-496, (t)he voluntary and
unconditional dismissal of the proceedings by the plaintiff
is equivalent to a judicial determination that the
proceeding for an injunction was wrongful, since thereby
the plaintiff is held to have confessed that he was not
entitled to the equitable relief sought.
When, however, the dismissal of the action is by an
amicable and voluntary agreement of the parties, the same
is not a confession by the plaintiff that he had no right to
the injunction granted, and does not operate as a judgment
to that effect. As stated in American Gas Mach. Co. v.
Voorhees, supra: A judgment of voluntary dismissal by
agreement of the parties of an action in which a restraining
order has been issued is not an adjudication that the
restraining order was improvidently or erroneously issued.
259 N.C. 468, 472, 130 S.E.2d 859, 862 (1963) (citations and quotation marks
omitted).
This case presents a voluntary dismissal by plaintiff, but the dismissal was
taken only after there was no longer any need to maintain the case because the
covenant not to compete had expired by its own terms. As neither party has cited
-5-
ALLEN INDUS., INC. V. KLUTTZ
Opinion of the Court
North Carolina case law on this precise issue of mootness, we also look to general
principles of law on this issue which have been established in other jurisdictions:
[T[here is no reason for the court to presume that an
interlocutory injunction deprived the defendant of any
right. Courts have consistently concluded that a final
judgment that a claim has been mooted does not mandate
recovery by the defendant; they have held that they must
probe the merits of the original claim to determine whether
the plaintiff is liable for damages resulting from the
injunction. In examining the merits of the mooted claims,
however, some courts have held that the defendant can be
denied recovery if the plaintiff made a claim in good faith
or a claim that presented serious questions. These courts
may have deprived defendants of compensation for
damages resulting from being unjustly deprived of a right.
The defendant’s entitlement standard would eliminate the
possibility of that injustice, for it would require the court
to address the merits before absolving the plaintiff of
liability or allowing recovery.
Harvard Law Review Association, Recovery for Wrongful Interlocutory Injunctions
Under Rule 65(c), 99 Harv. L. Rev. 828, 839-40 (1986) (quotation marks and footnotes
omitted). Thus, other courts have also determined that no precise factors, rules, or
specific circumstances will be controlling; rather, we must consider the facts of this
specific case in determining whether the trial court properly concluded that
defendant had not been wrongfully enjoined. See generally id. This treatment of
mootness is also consistent with Industries Innovators, Inc., as the trial court must
“determine[] that defendant was actually prohibited by the injunction from doing
what he was legally entitled to do.” 99 N.C. App. at 50, 392 S.E.2d at 431.
-6-
ALLEN INDUS., INC. V. KLUTTZ
Opinion of the Court
Turning to the specifics of this case, based primarily upon the employment
contract, the trial court determined that the injunction was not wrongfully issued
since defendant’s actions were in violation of the covenant not to compete in spite of
defendant’s arguments that the language of the covenant was overbroad:
The undisputed record in this case establishes that the
defendant was employed in a sales-related position by the
plaintiff, in the course of which she was privy to and used
confidential and proprietary information, about the
plaintiff’s products and services relating to sales and
service. The plaintiff established a legitimate business
interest in the protection of that information from a direct
competitor, and considered with the fact that defendant
left her employment with the plaintiff and took essentially
the same position with a direct competitor, the language of
the covenant is no broader than necessary to protect that
interest.
On appeal, defendant has not challenged any of the findings of fact or conclusions of
law but has relied solely upon her argument that the voluntary dismissal by plaintiff
alone per se entitles her to recover the bond. As defendant misapprehends the law,
we reject this argument and conclude that the trial court properly determined that
defendant was not “wrongfully enjoined” based upon the employment contract as
applied to the facts of this case. Defendant’s argument is overruled.
III. Conclusion
The trial court properly denied defendant’s motion for recovery of the bond.
For the foregoing reasons, we affirm.
AFFIRMED.
-7-
ALLEN INDUS., INC. V. KLUTTZ
Opinion of the Court
Judges STEPHENS and DAVIS concur.
-8-