907 N.W.2d 795
S.D.2018Background
- Scott Hanna signed a written non‑compete with McKie Ford in 2009 prohibiting competition within 200 miles of Rapid City for one year after termination, "not to include any period of violation or period of time required for litigation to enforce the covenants."
- Hanna left McKie Ford in Feb 2013 and shortly thereafter co‑operated Gateway Autoplex in Rapid City; McKie Ford sued to enforce the covenant in April 2013.
- A jury on remand and subsequent appeals (Granite I and Granite II) resulted in findings that led the parties to litigate enforceability and waiver issues; McKie Ford did not obtain an order enforcing the covenant in that earlier litigation.
- In July 2015 Hanna became an owner of a different Gateway dealership in Pierre selling new Ford/Lincoln vehicles within 200 miles of Rapid City; McKie Ford sued again in August 2015 seeking to enforce the 2009 Agreement.
- The circuit court granted summary judgment for Hanna and Gateway, holding the one‑year covenant expired on Feb 4, 2014 and that McKie Ford could not invoke the Agreement’s tolling clause given McKie Ford’s lack of success in prior litigation.
- The Supreme Court of South Dakota affirmed, concluding the litigation‑tolling language applies only where the employer had a right to enforce the covenant during the earlier litigation; because McKie Ford failed to enforce the covenant previously, the one‑year period was not tolled.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the Agreement’s phrase "period of time required for litigation to enforce the covenants" tolled the one‑year non‑compete | Tolling provision pauses the one‑year clock during prior litigation, so remaining time ran after remittitur (ending Oct 2016) | Tolling applies only if prior litigation produced an enforceable right; no toll if employer was unsuccessful | Held for Hanna: tolling inapplicable because McKie Ford was unsuccessful in prior enforcement litigation; one‑year expired Feb 4, 2014 |
| Whether the contract tolling could extend the statutory two‑year limit in SDCL 53‑9‑11 | Tolling can suspend the contractual one‑year and thereby extend beyond two years overall | Tolling cannot be used to extend the statutorily permitted maximum period | Court did not decide—unnecessary after resolving the contractual tolling issue |
| Whether summary judgment was improper because factual issues remained about violation or tolling | McKie Ford: contractual language unambiguous entitles it to judgment as a matter of law | Hanna: undisputed facts show no violation during the one‑year period and prior litigation failed, so no tolling | Held: summary judgment for Hanna affirmed; no genuine issue of material fact on tolling |
| Whether prior appellate rulings (Granite I/II) changed enforceability of the Agreement | McKie Ford: argued covenant still enforceable and tolling should apply | Hanna: prior litigation outcome means McKie Ford cannot claim tolling benefit | Court found it unnecessary to reach waiver/enforceability issues because tolling determination disposed of the case |
Key Cases Cited
- Granite Buick GMC, Inc. v. Ray, 856 N.W.2d 799 (S.D. 2014) (prior appellate disposition concerning jury trial and equitable issues)
- Granite Buick GMC, Inc. v. Ray, 872 N.W.2d 810 (S.D. 2015) (affirming waiver as to enforcement of non‑compete)
- Am. Rim & Brake, Inc. v. Zoellner, 382 N.W.2d 421 (S.D. 1986) (statute permitting covenants not to compete construed narrowly)
- Manpower of Guilford County, Inc. v. Hedgecock, 257 S.E.2d 109 (N.C. Ct. App. 1979) (interpretation of identical litigation‑tolling language as contingent on successful enforcement)
- JAK Prods., Inc. v. Wiza, 986 F.2d 1080 (7th Cir. 1993) (tolling during litigation preserves employer’s contracted benefit)
- Overholt Crop Ins. Serv. Co. v. Travis, 941 F.2d 1361 (8th Cir. 1991) (same; tolling during enforcement litigation explained)