DocketNumber： Appellate Case No. 2014-001828; Opinion No. 5471
Citation Numbers： 419 S.C. 622, 799 S.E.2d 318, 2017 WL 798496, 2017 S.C. App. LEXIS 25
Judges： Geathers, Thomas, Williams
Filed Date： 3/1/2017
Status： Precedential
Modified Date： 11/14/2024
This cross-appeal concerns the validity of an employment agreement entered into by Appellant-Respondent Joshua Fay and Respondent-Appellant Total Quality Logistics, LLC (TQL). Fay initiated this action by seeking a declaratory judgment that the employment agreement was invalid and unenforceable. The parties filed cross summary judgment motions, and the circuit court partially granted TQL’s motion finding the employment agreement was valid and enforceable. However, the circuit court denied TQL’s motion as to its counterclaims for breach of the employment agreement and misappropriation of trade secrets. Fay appeals the circuit
FACTS/PROCEDURAL HISTORY
TQL is based in Ohio and provides motor carrier transport and related services including logistics and brokerage services. TQL offered Fay employment as a Logistics Sales Account Executive in November 2012. The offer of employment informed Fay he was “required to complete, sign, and return a TQL non-compete/non-disclosure agreement on [his] first day of employment.” Fay accepted the offer of employment and began working in December 2012. Fay admitted he signed TQL’s Employee Non-Compete, Confidentiality, and Non-Solicitation Agreement (the Agreement) on his first day of employment.
The Agreement contained noncompete and nondisclosure provisions and claimed it was to be “interpreted and enforced under the laws of the State of Ohio.” The purported nondisclosure provisions were contained primarily in paragraph four. It prohibited Fay from disseminating or making use of “Confidential Information” without TQL’s permission. By signing the Agreement, Fay agreed “all information disclosed to [him] or to which [he had] access during the period of his ... employment shall be presumed to be Confidential Information hereunder if there is any reasonable basis to believe it to be Confidential Information or if TQL appears to treat it as confidential.” Additionally, the Agreement defined Confidential Information as
[TQL’s] operating policies and procedures; computer databases; computer software; methods of computer software development and utilization; computer source codes; financial records, including but not limited to, credit history and information about Customers, potential Customers, Motor Carriers, and suppliers; information about transactions,*626 pricing, the manner and mode of doing business, and the terms of business dealings and relationships with Customers and Motor Carriers, and financial and operating controls and procedures; contracts and agreements of all kinds, including those with Customers, Motor Carriers, and vendors; pricing, marketing and sales lists and strategies; Customer lists and Motor Carrier lists including contact names, addresses, telephone numbers, and other information about them; trade secrets; correspondence; accounts; business policies; purchasing information; functions and records; logistics management; and data, processes, and procedures.
The nondisclosure provisions did not include a time restriction and provided it was binding “at all times” following Fay’s employment with TQL. Additionally, the nondisclosure provisions provided its restrictions were “not intended and shall not be construed to prohibit [Fay] from disclosing or using the general skills and knowledge [he] acquired as an employee of TQL.” Paragraph six stated that if Fay engaged in an employment relationship with a Competing Business “in a position similar” to his position with TQL it would “necessarily and inevitably result in [Fay] revealing, basing judgments and decisions upon, or otherwise using TQL’s Confidential Information to unfairly compete with TQL.” A “Competing Business” included “any person, firm, corporation, or entity that is engaged in the Business anywhere in the Continental United States.” The Agreement defined the “Business” as “providing motor transport and related services, including third-party logistic[s] services, motor freight brokerage services and supply-chain management services,”
In June 2013, TQL terminated Fay, and he founded JF Progressions, LLC (JF) through which Fay allegedly worked as the “exclusive shipping agent” for The Brandt Companies, LLC (Brandt). According to Fay, in August 2013, TQL notified him it intended to pursue legal action if he failed to “cease working as a broker” for Brandt through JF. As a result, Fay acted proactively and filed this action against TQL in November 2013, seeking a declaratory judgment that the Agreement was invalid and unenforceable. The complaint asserted the Agreement lacked a geographical limitation and, if enforced, would prevent Fay “from working in the truck shipping industry in any capacity in the entire United States.” The complaint
In its answer, TQL asserted counterclaims alleging Fay misappropriated trade secrets and breached the Agreement, which it claimed was valid and enforceable. TQL also sought injunctive relief. In December 2013, Fay filed a motion for judgment on the pleadings or, alternatively, summary judgment. Fay asserted the Agreement was invalid and unenforceable and, as a result, he was entitled to summary judgment on his declaratory judgment action and TQL’s counterclaims for breach of contract and misappropriation of trade secrets. In January 2014, TQL filed a motion for summary judgment and argued the Agreement was reasonable and enforceable.
TQL offered several affidavits from one of its managers, Hillary Kotlarz. Kotlarz’s third affidavit attempted to define the contours of the Agreement. Kotlarz asserted the Agreement did not prevent Fay from working in all capacities in the transportation industry. Kotlarz contended the nondisclosure provision does not prohibit Fay from utilizing all information he learned while working for TQL. The affidavit listed several positions Fay could have held in the transportation industry and many examples of nonconfidential information he learned while working for TQL.
During the circuit court’s hearing, Fay argued the court must invalidate the Agreement if it was contrary to South Carolina public policy even if Ohio law applied. He asserted the Agreement violated public policy because it was “over-broad when considering TQL’s interest.” Fay contended the nondisclosure provisions were in effect noncompete provisions because the Agreement defined “confidential information as every piece of information given to the employee.” Because the nondisclosure provision was actually a noncompete provision, according to Fay, it had to comport with the public policy of South Carolina regarding noncompete agreements.
In April 2014, the circuit court found the Agreement was valid under Ohio law and did not offend the public policy of South Carolina. Applying Ohio law, the circuit court explained the Agreement’s restrictions were no greater than required for TQL’s protection, did not impose undue hardship on Fay, and were not injurious to the public. Thus, the circuit court
STANDARD OF REVIEW
The circuit court should grant a motion for summary judgment when the evidence shows “there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.” Rule 56(c), SCRCP. An appellate court “reviews the grant of a summary judgment motion under the same standard as the [circuit] court.” Montgomery v. CSX Transp., Inc., 376 S.C. 37, 47, 656 S.E.2d 20, 25 (2008). “When determining if any triable issues of fact exist, the evidence and all inferences which can be reasonably drawn from the evidence must be viewed in the light most favorable to the non-moving party.” Id. To defeat a motion for summary judgment, a plaintiff must show “a genuine issue of material fact exists for each essential element of the plaintiffs claim.” Hansson v. Scalise Builders of S.C., 374 S.C. 352, 358, 650 S.E.2d 68, 71 (2007).
FAY’S APPEAL
Fay argues the circuit court erred by finding the Agreement was valid and enforceable because it violated the public policy of South Carolina. Fay argues the nondisclosure provisions located in paragraphs four, six, and seven were essentially noncompete provisions because they restricted competition, rather than protected confidential information. Fay asserts the circuit court should have held the nondisclosure provisions to the same standard as the noncompete provisions, which included requiring a reasonable time restriction. According to Fay, because the nondisclosure provisions failed to include a reasonable time restriction, the Agreement was unenforceable.
In response, TQL argues the circuit court correctly ruled the Agreement was enforceable because it was valid under Ohio law and did not offend the public policy of South Carolina. TQL argues provisions for nondisclosure of trade secrets do not require time or geographical limitations. TQL
We agree with Fay and reverse the circuit court’s grant of summary judgment to TQL because the nondisclosure provisions operated as noncompete provisions and did not contain a reasonable time restriction, which violated the public policy of South Carolina. “Whether a contract is against public policy or is otherwise illegal or unenforceable is generally a question of law for the court.” Milliken & Co. v. Morin, 399 S.C. 23, 30, 731 S.E.2d 288, 291 (2012). “We review questions of law de novo.” Id. “South Carolina does not follow the ‘blue pencil’ rule and, thus, ‘restrictions in a [noncompete] clause cannot be rewritten by a court or limited by the parties’ agreement, but must stand or fall on their own terms.’ ” Palmetto Mortuary Transport, Inc. v. Knight Sys., Inc., 416 S.C. 427, 434, 786 S.E.2d 588, 591 (Ct. App. 2016) (quoting Poynter Invs., Inc. v. Century Builders of Piedmont, Inc., 387 S.C. 583, 588, 694 S.E.2d 15, 18 (2010)).
The early common law of England held any agreement restricting a man’s right to exercise his trade was void as against public policy because it required him to violate the law. Milliken, 399 S.C. at 30-31, 731 S.E.2d at 292. However, there has been some amelioration of this disfavor as the law has developed. Id. at 31, 731 S.E.2d at 292. Despite this amelioration, South Carolina courts have maintained that noncompete provisions “are generally disfavored and will be strictly construed against the employer.” Id. Although we recognize “the legitimate interest of a business in protecting its clientele and goodwill, we are equally concerned with the right of a person to use his talents to earn a living.” Baugh v. Columbia Heart Clinic, P.A., 402 S.C. 1, 12, 738 S.E.2d 480, 486 (Ct. App. 2013).
In South Carolina, “contracts against competition are held to be unenforceable unless they meet certain criteria ... [because] they constitute a restraint upon trade[,] which is against public policy.” Standard Register Co. v. Kerrigan, 238 S.C. 54, 71, 119 S.E.2d 533, 542 (1961).
An agreement’s enforceability depends on whether it is necessary for the protection of the legitimate interest of the employer, is reasonably limited in its operation with respect to time and place, is not unduly harsh and oppressive in curtailing the legitimate efforts of the employee to earn a livelihood, is reasonable from the standpoint of sound public policy, and is supported by a valuable consideration.
Rental Unif. Serv. of Florence, Inc. v. Dudley, 278 S.C. 674, 675-76, 301 S.E.2d 142, 143 (1983). Time restrictions of multiple years have been approved as reasonable. See id. (finding a time restriction of three years was reasonable); Delmar Studios of Carolinas v. Kinsey, 233 S.C. 313, 319, 104 S.E.2d 338, 341 (1958) (noting a time restriction of two years was reasonable). However, contractual provisions limiting the disclosure of trade secrets “must not be considered void or unenforceable or against public policy for lack of a durational or geographical limitation. S.C. Code Ann. § 39-8-30(D) (Supp. 2016).
In this case, the circuit court erred by finding the Agreement comported with South Carolina public policy because its nondisclosure provisions effectively prevented Fay from ever working in a similar capacity for one of TQL’s competitors. The nondisclosure provisions in paragraphs four and six operated as noncompete provisions with no reasonable time restriction, which violated the public policy of South Carolina. Paragraph four of the Agreement prevented Fay from revealing or using TQL’s Confidential Information “at
Reading paragraphs four and six in conjunction, Fay could never hold a position similar to his position at TQL with any competitor of TQL without violating the Agreement. Holding such a position would “necessarily and inevitably” result in him revealing and using TQL’s Confidential Information, which the Agreement prohibited Fay from doing “at all times” after his employment with TQL. Thus, these paragraphs restricted Fay’s right to use his talents to earn a living for an indefinite time period, if not forever. The paragraphs were not reasonably limited with respect to time. See Baugh, 402 S.C. at 12, 738 S.E.2d at 486 (explaining the court recognizes a business’s legitimate interest in protecting its clientele and goodwill but is “equally concerned with the right of a person to use his talents to earn a living”); id. (requiring a noncom-pete agreement to be reasonably limited “with respect to time”).
Although these paragraphs related ostensibly to nondisclosure of TQL’s Confidential Information and, thus, may not have required a reasonable time restriction under Milliken and section 39-8-30(D), the paragraphs were so broad they effectively became a noncompete provision and required a reasonable time restriction. See Milliken, 399 S.C. at 38-39, 731 S.E.2d at 296 (noting confidentiality agreements do not necessarily require reasonable time restrictions); Muckenfuss, 322 S.C. at 293-94, 471 S.E.2d at 723 (“Despite its designation as a ‘Covenent Not to Divulge Trade Secrets,’ this section would substantially restrict Muckenfuss’s competitive employment activities. Because it basically has the effect of a covenant not to compete, we must subject it to the same scrutiny as a covenant not to compete.”). As described above, paragraphs four and six conspired to restrict Fay’s employment
As to TQL’s argument that section 39-8-30 extinguished any requirement found in Muckenfuss for a reasonable time restriction, our supreme court recently reaffirmed this Court’s finding in Muckenfuss that nondisclosure provisions having the same effect as a noncompete provision are subject to the same scrutiny as noncompete provisions. See Milliken, 399 S.C. at 33 n.4, 731 S.E.2d at 293 n.4 (“If upon review, [nondisclosure agreements] are so broad as to effectively become [noncompete] agreements, then they are subject to the higher burden.”). Thus, we reject TQL’s argument the Agreement’s nondisclosure provisions did not require a reasonable time restriction based on section 39-8-30.
With regard to TQL’s claim the nondisclosure provisions did not act to restrict Fay’s employment opportunities because paragraph four expressly allowed Fay to use “the general skills and knowledge” he acquired while working for TQL, we disagree. Although this provision allowed Fay to use general skills and knowledge, paragraphs four and six nonetheless prohibited Fay from ever holding a similar position with a competitor of TQL without breaching the Agreement. Such a prohibition was a restriction on Fay’s ability to earn a living and was subject to the same level of scrutiny as other noncom-pete provisions despite the possibility of allowing him to use the general skills and knowledge he acquired from TQL.
We acknowledge other sections of the Agreement contained a time restriction of one year, which otherwise may have been reasonable. However, we cannot infer this one-year restriction into paragraphs four and six because paragraph four expressly contains a time limit of “at all times.” Thus, the one-year restriction from paragraph nine cannot replace the express time restriction in paragraph four. Furthermore, under our case law, it would violate public policy for this Court or the circuit court to accept the invitation of paragraph twelve and rewrite portions of the Agreement or insert a reasonable time restriction for paragraphs four and six because it would add a term to the Agreement to which the
TQL’S APPEAL
TQL argues the circuit court erred by refusing to grant summary judgment on its counterclaims alleging Fay
CONCLUSION
Based on the foregoing, we reverse the circuit court’s partial grant of summary judgment to TQL because the Agreement violated the public policy of South Carolina. We dismiss TQL’s cross-appeal because a party may not appeal the denial of summary judgment.
REVERSED IN PART AND DISMISSED IN PART.
. Carolina Chem. Equip. Co. v. Muckenfuss, 322 S.C. 289, 471 S.E.2d 721 (Ct. App. 1996).
. Although the concurrence is well-reasoned and we agree with the general position that a noncompete agreement may be interpreted and modified under the laws of another state pursuant to a valid choice of laws provision, we find it unnecessary to assess the enforceability of the Agreement under Ohio law in this case. We acknowledge our supreme court in Stonhard analyzed whether the agreement could be reformed under New Jersey law to add a previously nonexistent geographical term. See id. at 159-60, 621 S.E.2d at 353-54. However, the Stonhard court subsequently concluded that, even if the agreement could be reformed under New Jersey law to add a geographical term, the agreement would still be unenforceable in South Carolina because adding such a term violates our public policy. See id. at 161, 621 S.E.2d at 354 (“Even if the agreement could be reformed in this manner under New Jersey law, the agreement would be unenforceable in South Carolina because the very act of adding a term not negotiated and agreed upon by the parties violates public policy.”). Likewise, we find the very act of adding a time restriction to paragraphs four and six of the Agreement, even if such a term could be added under Ohio law, would be unenforceable in South Carolina because adding a time restriction not negotiated by the parties would violate our public policy. See Poynter Invs., 387 S.C. at 587-88, 694 S.E.2d at 17 ("[T]his Court has held that it would violate public policy to allow a court to insert a geographical limitation where none existed.”); Lowcountry Open Land Tr. v. Charleston S. Univ., 376 S.C. 399, 410, 656 S.E.2d 775, 781 (Ct. App. 2008) (“Courts only have the authority to specifically enforce contracts that the parties themselves have made; they do not have the authority to alter contracts or to make new contracts for the parties.”).