Please brief the case Carolina Pride Carwash, Inc. v. Tim Kendrick Carolina Prid
ID: 431060 • Letter: P
Question
Please brief the case Carolina Pride Carwash, Inc. v. Tim Kendrick
Carolina Pride Carwash, Inc. v. Tim Kendrick
C0A04-451
Court of Appeals of North Carolina
September 20, 2005
inia, east of the Blue Ridge Parkway. In late 1999, Carolina Pride was negotiating for the purchase of PDQ Carolina (“PDQ”), a car wash equipment distributor, where defendant was em- ployed as a service technician earning approximately $15.00 per hour. On 20 December 1999, defendant met with the president of Carolina Pride and entered into an employment contract. The contract provided that Carolina Pride would pay defendant $500.00 after signing, employ him beginning in January 2000 as a service technician at $15.00 per hour, and pay him a $1,000.00 bonus after one year of employment. The sixth and seventh provisions of the contract contained a covenant not to compete and a provision for liqui- dated damages:
SIXTH: [Defendant] hereby agrees and guarantees to [Carolina Pride], that during the term of this contract and for three years after termination of this contract, [defendant] will not on his own ac- count or as agent, employee or servant of any other person, firm or corporation engage in or be- come financially interested in the same line of business or any other line of business which could reasonably be considered as being in competition with [Carolina Pride] within North Carolina, South Carolina, or Virginia to-wit: Carwash sales and ser- vice of equipment, supplies, parts and any and all related merchandise; and further, that during this period, [defendant] will not directly or indirectly or by aid to others, do anything which would tend to divert from [Carolina Pride] any trade or business with any customer with whom [defendant] has made contracts or associations during the period of time in which he is employed by [Carolina Pride].
SEVENTH: That in the event [defendant] vio- lates the provision of the preceding paragraphs, then [Carolina Pride] shall be entitled to
to be paid by [defendant] to [Carolina Pride].
In March 2000, defendant started employment as a technician with Carolina Pride and served customers predominantly in North Carolina and occasionally in South Carolina. The following year, in 2001, defendant left Carolina Pride’s employ and took a position with Water Works Management Company, L.L.C. (“Water Works”) as manager of repair, maintenance, and sup- ply for several of their car wash facilities in Green- sboro, Mt. Airy, Elkin, and Boone.
In January 2002, Carolina Pride filed suit alleging defendant interfered with its customer relationships in violation of the covenant not to compete. In the spring of 2002, Water Works discharged defendant due to Carolina Pride’s lawsuit. Defendant answered Carolina Pride’s complaint and included counterclaims for the following: (1) fraud; (2) negligent misrepresentation; (3) unfair and deceptive trade practices; and (4) wrongful or tortious interference with business relations.
Both defendant and Carolina Pride subsequently moved for summary judgment, and on 17 October 2003, the trial court granted Carolina Pride’s motion based on defendant’s alleged breach of the covenant not to compete. In addition, the trial court ordered that defendant pay $50,000.00 in liquidated damages.
Defendant assigns error to the trial court’s denial of his motion for summary judgment and grant of Car- olina Pride’s motion for summary judgment. Defendant argues the covenant not to compete was unenforceable as a matter of law because the time and territorial re- strictions of the covenant were unreasonable. We agree, under these facts, that the time and territorial restrictions were greater than reasonably necessary to protect Carolina Pride’s legitimate interests....
[A] covenant not to compete is valid and enforce- able if it is “(1) in writing; (2) reasonable as to terms, time, and territory; (3) made a part of the employ- ment contract; (4) based on valuable consideration; and (5) not against public policy.”... “Although ei- ther the time or the territory restriction, standing alone, may be reasonable, the combined effect of the two may be unreasonable. A longer period of time is acceptable where the geographic restriction is relatively small, and vice versa.”...
A central purpose of a covenant not to compete is the protection of an employer’s customer relationships.... Therefore, to prove that a covenant’s territorial restriction is reasonable, “an employer must ... show where its customers are located and that the geographic scope of the covenant is necessary to main- tain those customer relationships.”... “Furthermore, in determining the reasonableness of [a] territorial restric- tion, when the primary concern is the employee’s knowledge of customers, the territory should only be limited to areas in which the employee made contacts during the period of his employment.”... “If the terri- tory is too broad, ‘the entire covenant fails since equity will neither enforce nor reform an overreaching and unreasonable covenant.’ “...
In the instant case, the covenant not to compete applied to all areas of North Carolina, South Carolina, and Virginia for a term of three years. However, the president of Carolina Pride testified that Carolina Pride’s territory included North Carolina, South Caro- lina, and “the lower half of Virginia east of the Blue Ridge Parkway.” Therefore, by including all of Virginia, the territorial restriction of the covenant encompassed a greater region than necessary to protect Carolina
Pride’s legitimate interest in maintaining its customer relationships. Moreover, while employed by Carolina Pride, defendant only contacted customers in North and South Carolina but never in Virginia. Therefore, the covenant was unreasonable not only for encom- passing a greater region than necessary but also for encompassing any portion of Virginia because defen- dant never contacted customers in that state while employed by Carolina Pride.
Additionally, although the covenant’s three-year time period may be valid standing alone, it was unreasonable in this case when coupled with the unnecessarily broad territorial restriction.
Accordingly, we hold the covenant not to com- pete was unenforceable as a matter of law, and the trial court erred by entering summary judgment for Carolina Pride and failing to enter summary judgment for defendant with respect to Carolina Pride’s breach of contract claim. We likewise reverse that portion of the trial court’s order requiring defendant to pay liq- uidated damages and remand the case to the trial court for further proceedings not inconsistent with this opinion.
Reversed and remanded
Explanation / Answer
Caption: Carolina Pride Carwash Inc. v. Tim Kendrick
Cause of Action: The plaintiff’s organization had made the defendant sign a contract, which restricted the defendant that he cannot work with any of the company’s competitors. However, Kendrick left the organization and had joined another company, for which the plaintiff, Carolina Inc. sued him. In a reply for the same, defendant plead against the plaintiff on various grounds like deceptive trade practices, fraud, and unfair trade practices.
Legal Issues and Rules:
Ruling and Reason: The plaintiff’s appeal was granted initially by the trial court. But the higher courts went against the trial court’s ruling and stated that the territorial clause was unreasonable. This restriction could be considered applicable if the geographical location was small and limited.
Citation: