QSP, INC.,
Plaintiff,
v
.
A. WAYNE HAIR,
Defendant.
Brooks, Pierce, McLendon, Humphrey & Leonard, L.L.P., by James
T. Williams, Jr. and John W. Ormand, III, for plaintiff-
appellant.
The Yarborough Law Firm, by Garris Neil Yarborough, for
defendant-appellee.
EAGLES, Chief Judge.
On 24 May 2001, QSP filed an action against defendant for
breach of a “Confidentiality, No-Solicitation, and Non-Competition
Agreement.” QSP also filed a motion seeking a temporary
restraining order against defendant. The trial court granted QSP's
motion for a temporary restraining order that same day. On 30 May
2001, QSP served defendant with a motion for preliminary
injunction. After a hearing on 25 June 2001, the Honorable Wiley
F. Bowen took the matter under advisement. On 28 June 2001, QSP
filed a motion pursuant to N.C. R. Civ. P. 52(a)(2) requesting the
trial court to include in its order findings of fact and
conclusions of law. On 29 June 2001, the trial court entered its
order denying QSP's motion for preliminary injunction withoutmaking appropriate findings of fact and conclusions of law as
requested by QSP in its Rule 52 motion. QSP appeals.
Appeal of a trial court's ruling on a motion for preliminary
injunction is interlocutory. For appellate review to be
appropriate, the trial court's ruling must have deprived the
appellant of a substantial right that will be lost absent review
before final disposition of the case. N.C.G.S. §§ 1-277, 7A-27.
In cases involving an alleged breach of a non-competition agreement
and an agreement prohibiting disclosure of confidential
information, North Carolina appellate courts have routinely
reviewed interlocutory court orders both granting and denying
preliminary injunctions, holding that substantial rights have been
affected. See, e.g., A.E.P. Industries, Inc. v. McClure, 308 N.C.
393, 302 S.E.2d 754 (1983); Iredell Digestive Disease Clinic, P.A.
v. Petrozza, 92 N.C. App. 21, 373 S.E.2d 449 (1988), aff'd, 324
N.C. 327, 377 S.E.2d 750 (1989); Cox v. Dine-A-Mate, Inc., 129 N.C.
App. 773, 501 S.E.2d 353 (1998); Masterclean of North Carolina,
Inc. v. Guy, 82 N.C. App. 45, 345 S.E.2d 692 (1986).
Here, QSP asserts that defendant has certain confidential
information and trade secrets and was competing in violation of the
agreement. Thus, QSP moved the trial court to enter a preliminary
injunction (1) prohibiting defendant from using or disclosing QSP's
confidential information and trade secrets and (2) prohibiting
defendant from soliciting for one year the same customers defendant
solicited while working for QSP. At the outset, based on our
review of the evidence in the record, we hold that plaintiff wouldbe deprived of a substantial right absent a review prior to a final
determination. Accordingly, appellate review is appropriate.
The scope of appellate review of a trial court's grant or
denial of a preliminary injunction is essentially de novo. Robins
& Weill, Inc. v. Mason, 70 N.C. App. 537, 540, 320 S.E.2d 693, 696
(1984). “[A]n appellate court is not bound by the [trial court's]
findings, but may review and weigh the evidence and find facts for
itself.” A.E.P. Indus., 308 N.C. at 402, 302 S.E.2d at 760. “[I]n
North Carolina, restrictive covenants between an employer and
employee are valid and enforceable if they are (1) in writing; (2)
made part of a contract of employment; (3) based on valuable
consideration; (4) reasonable both as to time and territory; and
(5) not against public policy.” United Laboratories, Inc. v.
Kuykendall, 322 N.C. 643, 649-50, 370 S.E.2d 375, 380 (1988).
In considering the propriety of a preliminary injunction, this
Court does not determine whether a confidentiality, no-
solicitation, and non-competition agreement is in fact enforceable,
but reviews the evidence and determines (1) whether plaintiff has
met its burden of showing a likelihood of success on the merits and
(2) whether plaintiff is likely to sustain irreparable loss unless
the injunction is issued. A.E.P. Indus., 308 N.C. at 401, 302
S.E.2d at 759.
I. Findings of Fact.
Based upon our de novo review of the evidence contained in the
record, we find the following facts: Wayne Hair worked as an
independent sales representative for World's Finest Chocolate, Inc.(WFC) for 17 years. WFC organized fund-raising programs and
supplied goods (primarily chocolates) for resale by non-profit
organizations, primarily schools and churches.
In February 2000, plaintiff QSP purchased from WFC the
exclusive rights to distribute WFC's products. QSP also purchased
goodwill which consisted of customer relationships, confidential
information about contact persons, preferences and requirements of
customers, and sales methods that WFC taught its distributors to
use in the course of their sales efforts. As part of its agreement
with WFC, QSP agreed to offer WFC distributors employment with QSP,
contingent upon WFC employees' agreement to QSP's employment
conditions.
To introduce WFC's distributors to QSP and to explain the
employment opportunity, QSP invited WFC's 200 sales
representatives, including defendant, to Atlanta, Georgia, to
participate in a three-day informational event from 11 February
2000 to 14 February 2000. During the event, defendant received
extensive information about QSP and the terms of QSP's employment
offer. On 12 February 2000, QSP formally presented defendant with
the opportunity to join QSP's sales force. Defendant received a
written employment offer that included a “Confidentiality, No-
Solicitation, and Non-Competition Agreement.” On 13 February 2000,
defendant signed QSP's employment contract and the confidentiality
and non-competition agreement. Defendant began working as a
representative for QSP on 23 May 2000. On 3 April 2001, after working for QSP for approximately
eleven months, defendant resigned. During the eleven months that
defendant was employed with QSP, defendant sold fund-raising
products and programs to at least 50 schools or other organizations
located in Cumberland, Robeson, Wake, Durham, and Granville
counties and generated in excess of $700,000 in gross sales.
Shortly after resigning from QSP, defendant became an
independent sales representative for William R. Mink & Co., Inc.
(Mink), a competitor of plaintiff. In May 2001, QSP discovered
that defendant, on behalf of Mink, had visited and contracted with
several schools that defendant had serviced while working for QSP.
II. Conclusions of Law.
In light of these findings of fact and defendant's concessions
at oral argument that the issues of territory and duration are not
disputed, we first consider whether QSP has met its burden of
showing a likelihood of success on the merits. The
“Confidentiality, No-Solicitation, and Non-Competition Agreement”
was part of a written employment agreement and was voluntarily
signed by defendant. The agreement prohibits defendant from
competing with QSP for twelve months in five North Carolina
counties -- Robeson, Wake, Durham, Cumberland, and Granville -- and
includes a tolling provision that protects QSP's right to the
benefit of the twelve month non-competition period. This provision
states:
[Employee] agree[s] in light of the special
nature of QSP's fund-raising business that if
[employee] violate[s] this Agreement,
appropriate relief by a court requires thatthe terms of paragraphs 1(a-f) and 3(b) will
be extended for a period of twelve (12) months
commencing on the date of [employee's] last
violation of this Agreement . . . .
These time and territory provisions appear to be reasonable
and not unduly oppressive. In February 2000, QSP purchased the
exclusive rights to distribute WFC products. QSP's buyout, once
effective, would have left defendant unemployed but for QSP's offer
of employment to defendant and defendant's subsequent acceptance.
This offer, made by QSP on 12 February 2000, was an offer of new
employment and therefore constituted valuable consideration.
Pursuant to the employment agreement, defendant expressly
agreed that information concerning QSP's accounts, business
practices, and know-how was confidential and that defendant would
not disclose any of this information to any business in competition
with QSP. Defendant resigned from his employment as a QSP sales
representative on 3 April 2001. Shortly thereafter, defendant
began working as a sales representative for Mink, a QSP competitor.
In the court below, QSP introduced evidence which showed that
defendant used proprietary information in his role as a salesman
for Mink and that defendant had solicited and contracted with
several schools that defendant had serviced while working for QSP.
Defendant adduced no contradictory evidence. After careful review
of the record and the contentions of the parties, we hold that
plaintiff has met its burden of showing a likelihood of success on
the merits.
We next turn to the issue of whether QSP is likely to sustain
irreparable loss unless the injunction is issued. “[I]ntimateknowledge of the business operations or personal association with
customers provides an opportunity to [a] . . . former employee . .
. to injure the business of the covenantee.” Kuykendall, 322 N.C.
at 649, 370 S.E.2d at 380. In A.E.P. Industries, our Supreme Court
emphasized that this potential harm warrants injunctive relief:
“It is clear that if the nature of the
employment is such as will bring the employee
in personal contact with patrons or customers
of the employer, or enable him to acquire
valuable information as to the nature and
character of the business and the names and
requirements of the patrons or customers,
enabling him by engaging in a competing
business in his own behalf, or for another, to
take advantage of such knowledge of or
acquaintance with the patrons and customers of
his former employer, and thereby gain an
unfair advantage, equity will interpose in
behalf of the employer and restrain the breach
. . . .”
A.E.P. Industries, 308 N.C. at 408, 302 S.E.2d at 763 (citation
omitted).
Here, the evidence shows that (1) defendant is engaged in the
solicitation of QSP's clients and customers as a sales
representative for Mink in violation of the Non-Competition
Agreement; (2) defendant has misappropriated QSP's confidential
information while working for Mink; and (3) as a result of
defendant's actions, QSP will suffer irreparable injury if
defendant is not restrained from further violating the
“Confidentiality, No-Solicitation, and Non-Competition Agreement.”
Accordingly, we hold that QSP is likely to sustain irreparable loss
unless an injunction is issued. From our review, it is clear that QSP has shown a likelihood
of success on the merits and that QSP is likely to sustain
irreparable loss unless the injunction is issued. Accordingly, the
order of the trial court denying QSP's motion for preliminary
injunction is reversed and the case is remanded to the trial court
for entry of a preliminary injunction enjoining defendant from
further breach of the “Confidentiality, No-Solicitation, and Non-
Competition Agreement.”
Reversed and remanded.
Judges WALKER and BIGGS concur.
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