BFS Retail & Commercial Operations v. Charles Smith

IN THE COURT OF APPEALS OF TENNESSEE
AT NASHVILLE
November 16, 2006 Session
BFS RETAIL AND COMMERCIAL OPERATIONS, LLC v. CHARLES
SMITH
Appeal from the Chancery Court for Davidson County
No. 05-636-II Carol McCoy, Chancellor
No. M2006-00163-COA-R3-CV - Filed on February 12, 2007
National retail tire and automotive service corporation filed action against district manager for
violation of corporation’s covenant not to compete after manager resigned and accepted new position
with corporation’s competitor. Trial court granted manager’s motion for summary judgment, finding
that manager had not violated the non-compete agreement since manager’s new position was located
outside the geographic location in which he was previously employed by corporation. Corporation
appealed. Finding that the provisions of the contract are not, as a matter of law, limited to a
geographic component, we reverse.
Tenn. R. App. P. 3 Appeal as of Right; Judgment of the Chancery Court Reversed and
Remanded
WILLIAM B. CAIN , J., delivered the opinion of the court, in which PATRICIA J. COTTRELL, J., joined.
WILLIAM C. KOCH , JR., P.J., M.S., filed a separate concurring opinion.
Robert E. Boston, Andrew S. Naylor, Rebekah J. Stephens, Nashville, Tennessee, for the appellant,
BFS Retail and Commercial Operations, LLC.
Charles W. McElroy, Dudley M. West, Nashville, Tennessee, for the appellee, Charles Smith.
OPINION
Mr. Charles Smith began working for Bridgestone Firestone Retail & Commercial Operations
(“BFRC”), a corporation owning and operating over 2,000 retail tire and automotive service stores
nationwide, in October 1989 as a retail associate in Maryland. Mr. Smith thereafter relocated to
Pittsburgh, Pennsylvania in 1990, where he spent the remainder of his career with BFRC. While in
Pittsburgh, Mr. Smith first worked as a service manager then as an assistant manager, before being
promoted to store manager in 1991. Mr. Smith became BFRC’s assistant district manager of the
Pittsburgh district in 2001 and district manager in 2003. As district manager of the Pittsburgh
district, Mr. Smith was responsible only for the performance of the stores located within his district.
As a condition of promotion, BFRC required that Mr. Smith sign an employment agreement
containing a covenant not to compete which prohibited Mr. Smith, for a period of eighteen months
after termination, from competing with BFRC with respect to its “Company Business” in any “area
where [he] worked or had responsibilities”. On March 7, 2005, Mr. Smith gave two weeks notice
of his resignation and of his intent to accept a new position with BFRC’s competitor, Tire Kingdom,
as the regional director of sales in South Carolina. Mr. Smith’s new position required direct
responsibility for twenty-six stores in South Carolina and one store in Georgia, as well as indirect
supervisory responsibility for twenty-four stores in Charlotte, North Carolina and four stores in
Tallahassee, Florida.
On March 9, 2005, BFRC filed an action against Mr. Smith, seeking to enjoin Mr. Smith
from working for Tire Kingdom. BFRC obtained an ex parte restraining order preventing Mr. Smith
from commencing his new job but after a preliminary injunction hearing on April 8, 2005, the trial
court denied BFRC’s motion for a preliminary injunction. Mr. Smith filed a motion for summary
judgment on September 15, 2005, arguing that he had not breached his non-compete agreement with
BFRC since he was not working for a competitor in the same geographic location as he was
employed by BFRC. The trial court granted Mr. Smith’s motion on November 22, 2005, finding that
(1) Mr. Smith did not breach his non-compete agreement by working for Tire Kingdom in a
geographic location outside the Pittsburgh district; and (2) even if the non-compete agreement
protected against Mr. Smith’s infringement of BFRC’s substantive rights, the non-compete provision
was overly broad as a matter of Tennessee law. BFRC appealed.
I.
Pursuant to Rule 56 of the Tennessee Rules of Civil Procedure, summary judgment is
appropriate when “there is no genuine issue as to any material fact and ... the moving party is entitled
to a judgment as a matter of law.” The court must take the strongest legitimate view of the evidence
in favor of the non-moving party, resolve all reasonable inferences in favor of that party, discard all
countervailing evidence, and if there is a dispute as to any material fact, summary judgment cannot
be granted. Byrd v. Hall, 847 S.W.2d 208, 210-11 (Tenn.1993). Because summary judgment
involves only questions of law and no factual disputes, no presumption of correctness attaches to the
lower court’s decision and the judgment is reviewed using a pure de novo standard. Cowden v.
Sovran Bank/Central South, 816 S.W.2d 741, 744 (Tenn.1991).
II.
The interpretation and construction of a plain and unambiguous written contract is a question
of law for determination by the court. Williamson Co. Broad. Co., Inc. v. Intermedia Partners, 987
S.W.2d 550, 552 (Tenn.Ct.App.1998). It is the duty of the court to enforce the contract according
to its plain terms, Eleogrammenos v. Standard Life Ins. Co., 149 S.W.2d 69 (Tenn.1941), and the
language used in the contract must be taken and understood in its plain, ordinary and popular sense.
Guardian Life Ins. Co. of Am. v. Richardson, 129 S.W.2d 1107, 1116-17 (Tenn.Ct.App.1939).
However, “the cardinal rule for interpretation of contracts is to ascertain the intention of the parties
and to give effect to that intention as best can be done consistent with legal principles.” Petty v.
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Sloan, 277 S.W.2d 355, 360 (Tenn.1955). Courts may determine the intention of the parties “by a
fair construction of the terms and provisions of the contract, by the subject matter to which it has
reference, by the circumstances of the particular transaction giving rise to the question, and by the
construction placed on the agreement by the parties in carrying out its terms.” Penske Truck Leasing
Co., L.P. v. Huddleston, 795 S.W.2d 669, 671 (Tenn.1990).
In the present case, the trial court determined that the covenant not to compete in Mr. Smith’s
employment agreement was plain and unambiguous and that the contract did not prohibit Mr. Smith
from working for Tire Kingdom as the regional director of sales in South Carolina. The covenant
not to compete specifically provided in pertinent part:
12. POST-EMPLOYMENT:
NO COMPETITION WITH THE COMPANY’S BUSINESS
For a period of eighteen (18) months following your departure from the Company,
unless your termination is due to an involuntary reduction of force you agree not to:
(a) enter into or engage in any business which competes with the Company’s
Business;
...
(e) For purposes of subparagraphs (a) through (d) only, the Company’s Business
includes only those areas where you worked or had responsibilities at the
time of your separation from the Company or at any time during the five (5)
year period prior to your separation. (Emphasis added).
The trial court found that the language of the non-compete agreement, when given its plain and
ordinary meaning, limited the geographic or territorial area in which Mr. Smith could work after
his separation from BFRC. Since Mr. Smith limited his employment with BFRC to the Pittsburgh
district and his position with Tire Kingdom included responsibilities primarily in South Carolina,
the trial court found that Mr. Smith did not breach his non-compete agreement by working for Tire
Kingdom in a geographic location outside the Pittsburgh district.
However, BFRC argued that the non-compete agreement was not intended to geographically
limit Mr. Smith’s post-employment opportunities but rather, limit the substantive field of
responsibilities encompassed in Mr. Smith’s work for BFRC. According to BFRC, the BFRC
districts do not operate in a vacuum and thus, business information and trade knowledge is shared
nationally. BFRC alleged that it allowed Mr. Smith access to confidential business information via
BFRC’s intranet system, including core operation principles, management strategies, economic
forecasts, marketing initiatives, and economic performance data, on a nationwide scale during his
employment at BFRC. Therefore, simply limiting Mr. Smith’s post-employment initiatives to
geographical regions would fail to fully protect BFRC’s proprietary rights. Instead, BFRC claims
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that the non-compete agreement prohibited Mr. Smith from entering into or engaging in the
“research, development, manufacture, marketing, sale and distribution of tires” for a period of
eighteen months following his departure from BFRC since those were the functional areas for which
he was employed by BFRC.
It is well established that in interpreting a contract, the court should consider the entire
contract, Cocke Co. Bd. of Highway Comm’rs v. Newport Util. Bd., 690 S.W.2d 231, 237
(Tenn.1985), and the “situation involving the parties, the nature of the business in which they are
engaged and the subject matter to which the contract relates.” Stovall v. Dattel, 619 S.W.2d 125, 127
(Tenn.Ct.App.1981). “No single clause in a contract is to be viewed in isolation; rather, the contract
is to be ‘viewed from beginning to end and all its terms must pass in review, for one clause may
modify, limit or illuminate another.’” Frizzell Constr. Co., Inc. v. Gatlinburg, L.L.C., 9 S.W.3d 79,
85 (Tenn.1999) (quoting Cocke County Bd. of Highway Comm'rs v. Newport Utils. Bd., 690 S.W.2d
231, 237 (Tenn.1985)).
In rejecting the argument of BFRC that the restriction of competitive employment by Mr.
Smith during the eighteen months following his resignation was not limited as a matter of law to a
geographical limitation, the trial court held:
The Court rejects the arguments made by BFRC that paragraph 12(e) of the
Employment Agreement does not constitute a geographical limitation, and that the
non-compete provisions apply without regard to territory, limited only by the
substantive fields of responsibilities encompassed in Mr. Smith’s work for BFRC.
In rejecting these arguments, the Court relies primarily on the plain and ordinary
meaning of the words used, and the plain geographic connotations conveyed by the
phrase “areas where [he] worked or had responsibilities.” In addition, the Court finds
that accepting BFRC’s argument that the limitation means something other than the
geographic area where Mr. Smith worked, would inject an unreasonable ambiguity
into the contract, where no ambiguity otherwise exists. The Court will not inject an
ambiguity where none exists, and accordingly, rejects BFRC’s argument.
Furthermore, even if the Court were to accept BFRC’s argument that its non-
compete provisions contain no territorial or geographic limitations (which it does
not) the result would be a covenant not to compete that, in the Court’s opinion, would
be overly broad. Under Tennessee law, covenants not to compete must be reasonable
in scope, and with respect to time and territorial limits, must be no broader than
necessary to protect the employer’s legitimate business interests. See, e.g., Vantage
Technology, LLC v. Cross, 17 S.W.3d 637, 647 (Tenn. App. 1999), perm. to app.
denied (Tenn. 2000). In the case at bar, the contract construction urged by the
plaintiff would create a contract that is overbroad, and which could not be enforced
based on the facts in this record.
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In conclusion, the contract at issue in this case is clear and unambiguous in
the limitation of the territorial scope of the covenant not to compete to those
geographic areas where Mr. Smith worked or had responsibilities for BFRC. Mr.
Smith worked and had responsibilities only within BFRC’s Pittsburgh District, which
does not include any of the areas where he now works or has responsibilities for Tire
Kingdom, Inc.
While this reasoning of the trial court might well be unimpeachable following a trial on the
merits, we are not dealing at this stage with appellate review following a trial on the merits but rather
appellate review of a trial court grant of summary judgment. A review of paragraphs 11 and 12 in
isolation from all other provisions of the contract might yield to a logical conclusion that paragraph
12, like paragraph 11, was a geographical limitation since any other interpretation would evidence
no contrast between paragraph 11 and 12 and as conceded by counsel for BFRC, render paragraph
12 unnecessary. We are not at liberty to construe paragraphs 11 and 12 in isolation from all the other
provisions of the contract. Frizzell Constr. Co., Inc., 9 S.W.3d at 85.
Pertinent provisions of the contract are:
Employment agreements are very common in business, and certainly in our industry.
The purpose of this Employment Agreement is to protect our Company and its
employees. Information is our competitive advantage. When information about our
Company’s products, services, or intelligence of any kind, is inappropriately
disclosed, our Company and our employees are in peril. Therefore, this Agreement
is important for the security of Bridgestone/Firestone and its future, as well as the
future of our employees and their families.
We take great pride in our employees at Bridgestone/Firestone. We have worked
hard to identify the best talent available. We want to keep our talented people with
us. When BFS is no longer the best fit for a person, however, we must make sure
that our information remains with the Company even after the person has taken other
employment opportunities.
Your signature on this Agreement is a condition of your transfer or promotion
into/within an exempt salary level position.
...
1. DEFINITIONS
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For the purposes of this Employment Agreement, the following definitions apply:
...
(b) COMPANY’S BUSINESS. The Company’s Business is the research,
development, manufacture, marketing, sale and distribution of tires, tire
components, polymers used in tires or elsewhere, roofing materials, air
springs, or any other products or services of the Company or contemplated
by the Company.
(c) CONFIDENTIAL AND PROPRIETARY TRADE SECRET
INFORMATION. Confidential and proprietary trade secret information
includes, without any limitation, the Company’s research and development
information, unique selling, manufacturing and servicing methods and
business techniques, manufacturing, training, service and business manuals,
training courses and other training and instructional materials, vendor and
product information, customer and prospective customer lists, other
customer and prospective customer information and other business
information, as well as any other information that constitutes a “trade
secret” as that term is defined under the Uniform Trade Secret Act.
...
8. ACCESS TO CONFIDENTIAL AND PROPRIETARY INFORMATION
Confidential and proprietary trade secret information is developed by the
Company through substantial expenditures of time, effort and money. It is valuable
and unique property of the Company. In order to protect the business of the
Company, you agree that any confidential and proprietary trade secret information
that you receive during your employment with the Company must be kept
confidential both during and after your employment. You also understand and agree
that because of this, it is necessary for the protection of the business of the Company
that you not compete with the Company during your employment and not compete
with the Company’s Business for a reasonable period of time after your employment,
as described in Sections 11 and 12 of this Agreement.
9. NO DISCLOSURE
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You agree to keep in strict confidence any confidential and proprietary trade
secret information that you learn during your employment regarding the Company,
the Company’s Business, its customers, vendors, or any other third parties. You will
not, directly or indirectly, at any time during or after your employment with the
Company, disclose or use any confidential and proprietary trade secret information
owned by the Company or any third party which you learn of as a result of your
activities on behalf of the Company no matter when or how the information was
acquired. You agree that this information, no matter whether written, spoken, or
remembered, cannot be disclosed for any unauthorized reason.
...
11. DURING EMPLOYMENT:
NO COMPETITION WITH THE COMPANY
During your employment, you agree not to compete with the Company anywhere in
the world. This includes, but is not limited to an agreement not to:
(a) enter into or engage in any business which competes with the Company’s
Business;
(b) solicit customers, business, patronage or orders for or the sale of any products or
services in competition with the Company’s Business;
(c) divert, entice, or take away any customers, business, patronage or orders of the
Company’s Business or attempt to do so; or
(d) promote or assist, financially or otherwise, any person, firm, association,
partnership, corporation or other entity engaged in any business which competes
with the Company’s Business.
12. POST-EMPLOYMENT:
NO COMPETITION WITH THE COMPANY’S BUSINESS
For a period of eighteen (18) months following your departure from the Company,
unless your termination is due to an involuntary reduction of force you agree not to:
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(a) enter into or engage in any business which competes with the Company’s
Business;
(b) solicit customers, business, patronage or orders for or sale of any products and
services in competition with the Company’s Business;
(c) divert, entice or otherwise take away any customers, business, patronage or
orders of the Company’s Business or attempt to do so; or
(d) promote or assist, financially or otherwise, any person, firm, association,
partnership, corporation or other engaged in any business which competes with
the Company’s Business.
(e) For purposes of subparagraphs (a) through (d) only, the Company’s Business
includes only those areas where you worked or had responsibilities at the time of
your separation from the Company or at any time during the five (5) year period
prior to your separation.
...
14. POSTPONEMENT OF FUTURE EMPLOYMENT
Before accepting post-employment with any person, firm, association, partnership,
or other entity that is in competition with the Company’s Business, as described in
Section 12, you agree to provide to the Company verifiable evidence of a written
offer of employment and written proof of your intent to accept the offer. The
Company then may elect to permit you to pursue the employment opportunity.
Alternatively, the Company may elect, due to your knowledge of confidential and
proprietary trade secret information, to require you to postpone the employment for
eighteen (18) months.
If postponement of employment is required, the Company will provide you with post-
employment payments. A post-employment payment is a monthly payment made to
you that is equal to your final monthly pay plus 25% of that same monthly base pay.
Pension and/or other retirement benefits and any state unemployment benefits you
receive during this period will be deducted from these payments. Additionally, to the
extent that you are eligible to receive any pension income or payments, and you elect
or choose to defer your receipt of such pension income or payments, the post-
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employment payment will be reduced by the pension income or payments that you
would have received if you had not chosen to defer your receipt of pension income
or payments.
The Company expects you to make a good faith effort to obtain employment with a
non-competing business while you are receiving post-employment payments. If such
a job is found, your post-employment payments will be reduced by any earning from
your new position. Also, during the eighteen (18) month period, you must provide
the Company with quarterly written documentation, which demonstrates your good
faith efforts to find other employment.
If at any time during the eighteen (18) month period you request outplacement
assistance, the Company will provide it to you, at the Company’s expense.
When these provisions are considered together, and not in isolation, paragraph 12(e) does
not, as a matter of law, require a construction limited to geographic areas, but may reasonably be
interpreted to include products areas. Indeed, one might seriously assert that paragraph 14, standing
alone, can justify postponement of future employment for an eighteen-month period following the
resignation of Mr. Smith. It is supported by an independent consideration requiring BFRC to pay
Mr. Smith 125% of his base salary during the eighteen-month period. While this income may pale
in comparison to his overall income with BFRC, when base pay is added to commission income, no
rule of law requires that the substantial consideration necessary to support the bilateral obligation
of a contract must be of equal dignity between the parties or is subject to a comparative value
analysis. Farrell v. Third Nat’l Bank in Nashville, 101 S.W.2d 158, 163 (Tenn.Ct.App.1936).
The postponement of employment under paragraph 14 of the Agreement has nothing to do
with geography, but is “due to your knowledge of confidential and proprietary trade secret
information.”
Whether paragraph 14 could stand alone is not determinative of the issue in this case, but
when paragraph 14 is considered in conjunction with paragraph 12(e), the phrase “those areas where
you worked or had responsibilities at the time of your separation” is subject to a reasonable
construction that is other than geographic. Summary judgment is thus improper.
The Supreme Court of Tennessee long ago held that a contract must be considered as a whole
and:
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in the light of the circumstances surrounding its making, with the primary purpose
of ascertaining just what was within the contemplation of the parties. As expressed
by Edward Beal, English author and scholar, in his Cardinal Rules of Interpretation
(2d Ed.) page 71, “The purpose of interpreting an instrument is to see what is the
intention expressed by the words used. If from the imperfection of language it is
impossible to know what the intention is without inquiring further, then see what the
circumstances were with reference to which the words were used, and what was the
object, appearing from those circumstances, which the persons using them had in
view.”
Holmes v. Elder, 94 S.W.2d 390, 391-92 (Tenn.1936).
Whether the competitive restrictions of the Agreement are geographical or include products
areas involves material questions of fact as to the intentions of the parties. The judgment of the trial
court granting summary judgment to Defendant is reversed and the case remanded for further
proceedings. Costs of the cause are assessed to Appellee.
___________________________________
WILLIAM B. CAIN, JUDGE
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