1. Declaratory Judgments--actual controversy--restrictive non-competition provision
The trial court did not err in a declaratory judgment case by finding an actual controversy
exists involving an agreement containing a restrictive non-competition provision because the
parties were not asking the trial court to interpret the document in anticipation of future acts, but
in light of past and present action.
2. Declaratory Judgments--restrictive non-competition provision--validity and
enforceability of a contract
The trial court did not err in a declaratory judgment action by holding the agreement
containing a restrictive non-competition provision was void and unenforceable because although
the trial court may not nullify a duly probated will except upon appeal, it may determine the
validity and enforceability of a contract under the Declaratory Judgment Act. N.C.G.S. § 1-254.
3. Contracts--choice of law--exception to place where contract made--restrictive non-
competition provision
The trial court's order granting summary judgment for plaintiff-former employee in a
declaratory judgment action involving an agreement containing a restrictive non-competition
provision is reversed and remanded because it is unclear whether the agreement was construed
and interpreted under North Carolina or Massachusetts law. Massachusetts law governs in this
case because when a choice of law provision is included in a contract, the parties intend to make
an exception to the presumptive rule that the contract is governed by the law of the place where
it was made.
Appeal by defendant from judgment entered 1 April 1998 by
Judge J. Marlene Hyatt in Mecklenburg County Superior Court.
Heard in the Court of Appeals 1 April 1999.
Mitchell, Rallings, Singer, McGirt, & Tissue, PLLC, by Allan
W. Singer, for plaintiff-appellee.
Jackson, Lewis, Schnitzler & Krupman, by Edwin G. Foulke,
Jr. and Kristin E. Toussaint, for defendant-appellant.
HUNTER, Judge.
Briefly, the evidence presented to the trial court indicates
that in April 1994, plaintiff Steven Bueltel (Bueltel) was
hired as a sales associate by defendant Lumber Mutual Insurance
Company (Lumber Mutual), a company engaged in the business of
writing insurance policies to lumber and related industries. At
that time, Lumber Mutual asked Bueltel to execute an employment
contract which contained confidentiality and non-competition
restrictions, and he complied. Bueltel was promoted to sales
associate in November 1994 and to account representative in
February 1995. In 1996, Lumber Mutual requested that Bueltel
sign a second, amended employment contract (Agreement), which
he did on 25 February 1996. The Agreement was necessary because
Lumber Mutual was in the process of standardizing its employment
contract with its employees, who would thereafter be subject to
standard terms and conditions of employment. Bueltel was not
offered a promotion or additional compensation, commission,
bonuses or sales territory in exchange for his signature on the
Agreement. The Agreement contained a more restrictive non-
competition provision, a more expansive description of
policyholder, and a clause which stated that it was to be
construed and enforced under the laws of Massachusetts. On 1 April 1997, Bueltel was promoted to account executive;
however, he resigned from his position with Lumber Mutual on 24
June 1997. On 1 July 1997, Bueltel began a new job selling
insurance for Indiana Lumbermens Mutual, a competitor of Lumber
Mutual. Lumber Mutual corresponded with Bueltel several times
from June to August 1997, informing him that he had continuing
obligations to Lumber Mutual pursuant to the Agreement and
requesting that he discontinue violating confidentiality and non-
competition clauses found therein. Bueltel filed a declaratory
judgment action against Lumber Mutual on 26 November 1997, asking
the court to construe the rights and liabilities of the parties
and declare the Agreement unenforceable. Beultel moved for
summary judgment, which was granted on 1 April 1998. Lumber
Mutual appeals.
[1]/A HREF>Defendant Lumber Mutual first contends that the trial
court did not have jurisdiction under the North Carolina
Declaratory Judgment Act to hear Bueltel's action because no actual
controversy existed between the parties at the time his action
was filed. Although the North Carolina Declaratory Judgment
Act does not state specifically that an actual controversy
between the parties is a jurisdictional prerequisite to an action
thereunder, our case law does impose such a requirement. Sharpe
v. Park Newspapers of Lumberton, 317 N.C. 579, 583, 347 S.E.2d
25, 29 (1986). [T]he existence of an actual controversy is
necessary to the court's subject matter jurisdiction. Id. at
585, 347 S.E.2d at 30. For there to be an actual controversy,
there must be more than a mere disagreement between the parties
and litigation must appear unavoidable. Id. at 589, 347 S.E.2d
at 32 (quoting Gaston Bd. of Realtors v. Harrison, 311 N.C. 230,
234, 316 S.E.2d 59, 61 (1984)).
Our review indicates that future or anticipated action of a
litigant does not give subject matter jurisdiction to our courts
under the Declaratory Judgment Act. Like the present case, non-
competition provisions were at issue in Sharpe, where plaintiffs
sought a declaration that such provisions were an unfair
restraint on trade. However, our Supreme Court held that because
there was no evidence of a practical certainty that the
plaintiffs would compete with the defendant or that they had the
intention of doing so if the provisions in the note were declaredinvalid, no justiciable controversy existed between the parties
at the time the action was filed. Sharpe, 317 N.C. at 590, 347
S.E.2d at 32.
In Wendell v. Long, 107 N.C. App. 80, 418 S.E.2d 825 (1992),
plaintiffs were property owners in a residential subdivision and
asked the court, under the Declaratory Judgment Act, to declare
the restrictive covenants in their neighbors' deeds valid. This
action would prohibit the defendants' proposed construction
project. This Court held that no actual controversy existed
between the parties that would satisfy the jurisdictional
requirement, because the plaintiff's complaint did not allege
that defendants have acted in violation of these covenants, but
[rather] that they anticipate some future action to be taken by
defendants which would result in a violation. Id. at 83, 418
S.E.2d at 826.
Unlike Wendell and Sharpe, the present case was not
instituted because action in violation of the Agreement was
anticipated or likely. Lumber Mutual communicated to Bueltel in
the months prior to suit that he was actually in the process of
violating the Agreement and that legal action may be taken
against him. We have examined the pleadings and record in the
present case to determine whether there is an actual controversy
sufficient to confer jurisdiction under the Declaratory JudgmentAct. Plaintiff seeks a judgment as to whether or not his past
and present actions violate the contract. Lumber Mutual, in its
answer, asks the Court to find the contract valid and grant it
injunctive relief by prohibiting the plaintiff from further
action in violation thereof. The parties were not asking the
court to interpret the document in anticipation of future acts,
but in light of past and present action. Therefore, an actual
controversy exists and we find no error by the trial court on
this issue.
[2]Secondly, defendant relies on Farthing v. Farthing for
its contention that the trial court erred because it did not have
the power to declare the Agreement void and unenforceable under
the North Carolina Declaratory Judgment Act.
The Declaratory Judgment Act provides:
Any person interested under a deed,
will, written contract or other writings
constituting a contract, or whose rights,
status or other legal relations are affected
by a statute, municipal ordinance, contract
or franchise, may have determined any
question of construction or validity arising
under the instrument, statute, ordinance,
contract, or franchise, and obtain a
declaration of rights, status, or other legal
relations thereunder. A contract may be
construed either before or after there has
been a breach thereof.
N.C. Gen. Stat. § 1-254 (1996). The Declaratory Judgment Act
. . . is designed to provide an expeditious method of procuring ajudicial decree construing wills, contracts, and other written
instruments and declaring the rights and liabilities of parties
thereunder. It is not a vehicle for the nullification of such
instruments. Farthing v. Farthing, 235 N.C. 634, 635, 70 S.E.2d
664, 665 (1952). In Farthing, the North Carolina Supreme Court
ruled that the trial court could construe a duly probated will,
but it did not have the power to nullify it. Although not
explored in detail in Farthing, this holding apparently relied on
the rule that an executor named in a will may apply to the clerk
of the superior court to have the will admitted to probate, N.C.
Gen. Stat. § 31-12 (1984), and [s]uch record and probate is
conclusive in evidence of the validity of the will, until it is
vacated on appeal or declared void by a competent tribunal.
N.C. Gen. Stat. § 31-19 (1984). While exclusive original
jurisdiction in probate matters is vested in the superior court
division, the clerk of court
is given exclusive original jurisdiction in
the administration of decedents' estates
except in cases where the clerk is
disqualified to act. In most instances,
therefore, the Superior Court Judge's probate
jurisdiction is, in effect, that of an
appellate court because his jurisdiction is
derivative and not concurrent.
In re Estate of Longest, 74 N.C. App. 386, 390, 328 S.E.2d 804,
807, disc. review denied, 314 N.C. 330, 333 S.E.2d 488 (1985)(citations omitted). Therefore, the validity of a will is a
probate matter and cannot be challenged except by appeal of an
order of the clerk of court to the superior court. The validity
of a contract, however, is a different matter.
In Townsend v. Harris, 102 N.C. App. 131, 401 S.E.2d 132,
disc. review denied, 328 N.C. 734, 404 S.E.2d 878, cert. denied,
502 U.S. 919, 116 L. Ed. 2d 270 (1991), this Court affirmed the
trial court's ruling in favor of defendant on her counterclaim
that the contingency fee contract at issue was void as being
against public policy pursuant to the Declaratory Judgment Act.
Thus, it is clear that while the superior court may not nullify a
duly probated will except upon appeal, it certainly may determine
the validity and enforceability of a contract under the
Declaratory Judgment Act. To interpret this Act otherwise would
render it useless. We conclude the trial court did not err on
this issue.
[3]Next, defendant contends that the restrictive covenant
in the Agreement is valid and enforceable under Massachusetts
law. Plaintiff contends that the Agreement should be interpreted
under North Carolina law and, therefore, it is invalid and
unenforceable because contrary to North Carolina law, (1) the
forum selection clause resulted from unequal bargaining power;
(2) there is failure of consideration; and (3) the non-competition restriction is unenforceable.
Plaintiff mistakenly refers to the choice of law provision
in the Agreement as a forum selection clause. The Agreement does
not mention where suit must be brought, but unambiguously states
that it is a Massachusetts contract and shall be construed and
enforced under and be governed in all respects by the laws of the
Commonwealth of Massachusetts, without regard to the conflict of
laws principles thereof. Plaintiff contends that a contract is
governed and interpreted by the law of the state in which it is
executed; therefore, the Agreement is governed by North Carolina
law. Our Supreme Court has held that the interpretation of a
contract is governed by the law of the place where the contract
was made. Land Co. v. Byrd, 299 N.C. 260, 262, 261 S.E.2d 655,
656 (1980). However, in the same case, the Court also stated
that where parties to a contract have agreed that a given
jurisdiction's substantive law shall govern the interpretation of
the contract, such a contractual provision will be given effect.
Id. In Land Co. these two rules coincided for the contract was
executed in Virginia and the contract had a choice of law
provision in favor of Virginia.
The court is to interpret a contract according to the intent
of the parties to the contract, unless such intent is contrary to
law. Duke Power v. Blue Ridge Elec. Membership Corp., 253 N.C.596, 117 S.E.2d 812 (1961). If the plain language of a contract
is clear, the intention of the parties is inferred from the words
of the contract. Walton v. City of Raleigh, 342 N.C. 879, 881,
467 S.E.2d 410, 411 (1996). Based on the foregoing, and
following the logic of Land Co., it is apparent that when a
choice of law provision is included in a contract, the parties
intend to make an exception to the presumptive rule that the
contract is governed by the law of the place where it was made.
The Agreement here states that the law of Massachusetts is to
apply to its construction and enforcement in all respects.
Choice of law provisions are not contrary to the laws of this
state. The parties' intent must rule and we therefore hold that
Massachusetts law applies to the construction and enforcement of
the Agreement in all respects. Plaintiff's arguments that the
Agreement is invalid under North Carolina law are therefore
without merit.
We are unable to determine from the order of the trial
court whether it construed and interpreted the Agreement under
North Carolina or Massachusetts law. Therefore, we hold that
order of the trial court granting summary judgment for plaintiff
is reversed and remanded for proceedings in accordance with this
opinion.
Reversed and remanded. Judges WYNN and WALKER concur.
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