Appeal by plaintiff from orders entered 3 September 1998 and
13 December 2002 by Judge Stephen J. Bryant in Haywood County
District Court. Heard in the Court of Appeals 19 April 2004.
Patrick U. Smathers, for plaintiff-appellant.
Brown, Ward & Haynes, P.A., by Frank G. Queen, for defendant-
appellee Knight.
MARTIN, Chief Judge.
Plaintiff James W. Webb, Jr. filed his complaint in this
action on 24 January 1997 seeking compensatory damages as well as
temporary and permanent injunctive relief upon allegations that
defendants had breached provisions of their employment agreements
with plaintiff. The trial court issued a temporary restraining
order on 24 January 1997 prohibiting defendants from preparing tax
returns for plaintiff's former customers. Defendants filed answers
denying the material allegations of the complaint. On 14 March1997, the trial court entered a consent order providing, inter
alia, “[d]efendants are prohibited and restrained from preparing or
filing any income tax return for any customer of plaintiff . . .
whose business defendants have directly solicited.” Neither the
record nor the order itself reflects the duration of the order's
effectiveness.
The matter came on for trial before the court sitting without
a jury on 2 July 1998. Briefly summarized, plaintiff's evidence
tended to show that he owns an H & R Block franchise located in
Waynesville, North Carolina, and has operated a tax return
preparation and bookkeeping business for 17 approximately years.
Defendants Roger D. Knight and Wayne Hawkins worked as employees of
that business during the 1996 “tax season”, which lasts from
January until April of each calendar year. Both defendants had
worked for plaintiff during at least five previous tax seasons, and
each had been required to sign a “Tax Return Preparer's Employment
Agreement” (Agreement) each calendar year before beginning their
employment. The 1996 Agreement contained the following provisions:
10. Noncompetition Covenant. Employee
covenants that during the two-year period
following termination of this Agreement
(such period to be extended by any
period(s) of violation), he or she will
not, in the city of employment hereunder
or within twenty-five (25) miles from the
corporate limits of such city, prepare an
income tax return or file a return
electronically for any of the Company's
customers (that is, persons whose last
filed state or federal income tax returns
were prepared by the Company or by
Employee in breach of this Agreement).
11. Antisolicitation Covenant. Employee
covenants that during the two-year period
following termination of this Agreement
(such period to be extended by any
period(s) of violation), he or she will
not solicit, divert or take away, or
attempt to solicit, divert or take away,
directly or indirectly, any of the
Company's customers or clients, including
without limitation, those who were
serviced by Employee or with whom
Employee became acquainted by reason of
access to or knowledge of information
gained while employed by the Company.
Each defendant signed a separate copy of the Agreement on 4 January
1996. Both defendants worked for plaintiff until approximately 15
April 1996, preparing income tax returns.
In the Fall of 1996, defendant Knight informed plaintiff that
he was opening his own tax preparation business. Knight's new
business was called “Computerized Bookkeeping and Tax Service,” and
was located within 25 miles of plaintiff's office. A number of
Knight's customers were former customers of plaintiff's business,
although the record is unclear as to how many former Block
customers actually sought Knight's services. Knight advertised his
new business on radio and television and personally handed out
business cards. Defendant Hawkins was employed part-time by Knight
as a tax return preparer, and worked “two afternoons a week” in
late January, late March and in April of 1997.
At the close of plaintiff's evidence, defendants moved to
dismiss pursuant to N.C. Gen. Stat. § 1A-1, Rule 41(b). The trial
court made findings of fact and concluded that the plaintiff had
failed to prove that the restrictions contained in the Agreements
were “reasonable both as to time and territory.” The trial courtallowed defendants' Rule 41(b) motion and dismissed plaintiff's
action.
In apt time, plaintiff moved for a new trial pursuant to N.C.
Gen. Stat. § 1A-1, Rule 59 on grounds that his counsel had been
incapacitated during the trial due to a prescription drug
interaction. By order entered 13 December 2002, the trial court
denied plaintiff's motion for a new trial, finding that plaintiff's
counsel was not incapacitated during the trial. Plaintiff gave
notice of appeal from both orders.
______________________
Plaintiff assigns error to the trial court's findings and
conclusion that he had failed to prove the reasonableness of the
restrictions as to time and territory contained in the agreement,
and to its dismissal of his complaint.
The terms of the agreements signed by defendants provide that
defendants were forbidden from preparing income tax returns for, or
soliciting business from, former H & R Block customers for a “two-
year period following termination of this Agreement” which, by its
terms, expired on 15 April of the year it was signed, i.e. 15 April
1996. Thus, according to its terms, the agreement which plaintiff
seeks to enforce ended on 15 April 1998. Although the agreement
further provided that the restricted period would “be extended by
any period(s) of violation,” plaintiff has made no assertion that
such provision applies here; nor does the record provide evidence
sufficient to support the application of such an extension.
Therefore, we hold that the restriction on competition, even ifeffective, would have expired on 15 April 1998, before the trial of
this matter took place. As a result, plaintiff's claims for
injunctive relief have been rendered moot by the passage of time
and are not properly before this Court on appeal.
See Corpening
Ins. Ctr., Inc. v. Haaff, 154 N.C. App. 190, 573 S.E.2d 164 (2002);
Rug Doctor, L.P. v. Prate, 143 N.C. App. 343, 545 S.E.2d 766
(2001).
With respect to plaintiff's claim for compensatory damages,
our review of the evidence reveals no basis upon which damages
could have been awarded even if the Agreement was enforceable.
Other than testimony that a number of plaintiff's former customers
had sought defendant Knight's services, there was no evidence
regarding the economic loss, if any, sustained by reason of
defendants' alleged breach of the Agreement. Therefore, plaintiff
failed to provide any proof from which the trial court could assess
damages, and dismissal of plaintiff's claim for damages was proper.
The trial court could have awarded nominal damages for a
breach of the covenant not to compete even if no evidence was
available to support an award of compensatory damages. However,
the trial court must first find that a valid and reasonable
covenant existed before it may find that the covenant was breached.
“The party who seeks the enforcement of the covenant not to compete
has the burden of proving that the covenant is reasonable.”
Hartman v. Odell and Assoc., Inc., 117 N.C. App. 307, 311, 450
S.E.2d 912, 916 (1994)(citations omitted),
disc. rev. denied, 339N.C. 612, 454 S.E.2d 251 (1995). The party seeking enforcement
must show that the covenant is:
(1) in writing; (2) reasonable as to time and
territory; (3) made a part of the employment
contract; (4) based on valuable consideration;
and (5) designed to protect a legitimate
business interest of the employer.
Hartman, 117 N.C. App. at 311, 450 S.E.2d at 916 (quoting
Young v.
Mastrom, Inc., 99 N.C. App. 120, 122-123, 392 S.E.2d 446, 448,
disc. rev. denied, 327 N.C. 488, 397 S.E.2d 239 (1990)). “[T]o
prove that a geographic restriction in a covenant not to compete is
reasonable, an employer must first show where its customers are
located and that the geographic scope of the covenant is necessary
to maintain those customer relationships.”
Hartman, 117 N.C. App.
at 312, 450 S.E.2d at 917. Plaintiff did not present any evidence
to show that the time and territory restrictions were reasonable.
As a result, the trial court could not make conclusions regarding
the alleged breach of the covenant, nor could it award nominal
damages. This assignment of error is overruled.
Plaintiff also assigns error to the denial of his motion for
a new trial. Plaintiff argues that his trial counsel did not
function appropriately at trial because he was incapacitated due to
a reaction to prescription medication, resulting in the denial of
a fair trial.
N.C. Gen. Stat. § 1A-1, Rule 59 provides, as pertinent here:
(a)
Grounds. - A new trial may be granted to
all or any of the parties and on all or part
of the issues for any of the following causes
or grounds:
(1) Any irregularity by which any
party was prevented from having a
fair trial[.]
G.S. § 1A-1, Rule 59(a)(1)(2003). “A motion under Rule 59(a) is
addressed to the sound discretion of the trial judge, whose ruling,
in the absence of abuse of discretion, is not reviewable on
appeal.”
Hamlin v. Austin, 49 N.C. App. 196, 197, 270 S.E.2d 558,
558 (1980)(citation omitted). “[A]n appellate court's review of a
trial judge's discretionary ruling either granting or denying a
motion to set aside a verdict and order a new trial is strictly
limited to the determination of whether the record affirmatively
demonstrates a manifest abuse of discretion by the judge.”
Worthington v. Bynum and Cogdell v. Bynum, 305 N.C. 478, 482, 290
S.E.2d 599, 602 (1982).
Plaintiff presented evidence at the motion hearing that tended
to show that his trial counsel suffered from atrial fibrillation
and had undergone several surgeries for the implantation of
pacemakers at the time of the original trial in 1998. Counsel's
physician had prescribed the use of Solatol as part of his
treatment program. In some patients, Solatol causes side effects
of fatigue and cognitive impairment, as well as lethargy and
malaise. Plaintiff's trial counsel testified that on the day of
the trial he felt woozy, light-headed, and had difficulty
remembering questions that he wanted to ask the witnesses. He
believed that the medication he was taking for his heart condition
caused his disorientation on the day of trial. The treating
physician opined that the combination of the prescription drugstaken along with Solatol could have affected counsel's ability to
function and think clearly.
However, the trial court made several findings of fact based
on testimony by plaintiff, his counsel, and the physician that
supported the trial court's conclusion that counsel had not been
incapacitated. The trial court found that although plaintiff's
counsel had complained to his physician about fatigue and malaise
before the 2 July 1998 trial, he had not complained of cognitive
impairment symptoms before that time. On the same date, counsel
had participated in another trial before a jury, before plaintiff's
case was called for trial, and had been successful in that trial.
Despite his alleged illness during trial, counsel did not request
a recess or move for a continuance because he was unable to
proceed. He did not report to his physician immediately after the
trial concluded, but waited until his next scheduled appointment on
20 July 1998. The trial court also found that counsel appeared to
be lucid throughout the 2 July 1998 trial, responding to objections
and posing questions to the witnesses. The trial court found that
counsel's opening argument and argument against the involuntary
dismissal motion indicated that his failure to ask plaintiff about
the time and geographical restrictions in the Agreement covenant
was the result of his belief that the law presumed provisions such
as those contained in the agreements at issue to be reasonable.
Based upon these findings, the trial court concluded that counsel
had not been rendered incompetent or incapacitated by his heart
disease medication during trial. The trial court's findingssupported its conclusion of law. We cannot say that the trial
court's conclusion was an abuse of its discretion.
Affirmed.
Judges HUNTER and THORNBURG concur.
Report per Rule 30(e).
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