818 S.E.2d 724
S.C.2018Background
- Knight sold its mortuary transport business (including customer contracts) to Palmetto for $590,000 in 2007; the Agreement included a ten-year non-compete (150-mile radius from Lexington County) and a ten-year exclusivity provision requiring Palmetto to buy body bags from Knight.
- The non-compete did not restrict Knight’s continuing body-bag manufacturing business; the contract allocated $1,000 to the non-compete and both parties were represented and negotiated at arm’s length.
- Palmetto purchased roughly $45,000 of bags from Knight but also bought $884.97 of certain bag types from other manufacturers; Knight learned of some purchases years before objecting.
- In 2011 Richland County issued an RFP for transport services; Knight bid and, despite Palmetto submitting the lowest-price/highest-score proposal, Richland County awarded the contract to Knight. Palmetto sued for breach of the non-compete and exclusivity; Knight counterclaimed that Palmetto’s breach voided the non-compete and that the territorial/time restraints were unreasonable.
- A special referee found Knight breached the non-compete and refused to sell bags to Palmetto, awarded Palmetto damages and injunctive relief; the court of appeals reversed as to territorial reasonableness (150-mile restriction) and remanded. The South Carolina Supreme Court granted certiorari.
Issues
| Issue | Plaintiff's Argument (Palmetto) | Defendant's Argument (Knight) | Held |
|---|---|---|---|
| Enforceability of 150-mile territorial restriction | Restriction is ancillary to sale, reasonably tailored to protect purchased goodwill and foreseeable mobile nature of transport services | Restriction is unreasonable because Knight’s business then only served Richland/Lexington counties; a statewide/large-radius restraint is overbroad | Court held the 150-mile restriction reasonable and enforceable given the sale context, mobility of the service, parties’ sophistication, and the restriction’s role in the bargain |
| Public policy—restricting competition for public contracts | Covenant protects buyer’s purchased goodwill and does not impede public procurement | Covenant improperly restrains competition for public contracts and is against public policy | Court held no public-policy invalidation: no evidence of collusion or interference with public bidding; covenant permissible here |
| Whether Palmetto’s purchases of some bags voided the non-compete | Palmetto: any breach was minor and not material; exclusivity covers listed bag types only; damages limited | Knight: Palmetto’s breach of exclusivity was material and released Knight from non-compete under contract termination clause | Court held Palmetto’s breach was non‑material (small dollar amount relative to transaction); Knight not released from non-compete |
| Remedy / blue-pencil reduction of territorial scope | Palmetto: original covenant should be enforced as written | Knight: if overbroad, court of appeals should narrow or void; asks enforcement limits | Court rejected blue-pencil remedy only in earlier precedent but here found no need to redraw because 150-mile term was reasonable; reinstated special referee’s order |
Key Cases Cited
- Reeves v. Sargeant, 200 S.C. 494 (S.C. 1942) (reasonableness of restraint judged by protection of purchaser’s business and surrounding facts)
- Somerset v. Reyner, 233 S.C. 324 (S.C. 1958) (statewide restraint void where seller’s business drew almost exclusively from local area; covenant indivisible)
- Milliken & Co. v. Morin, 399 S.C. 23 (S.C. 2012) (questions of law—like whether a contract is against public policy—are reviewed de novo)
- Metts v. Wenberg, 158 S.C. 411 (S.C. 1930) (non‑compete reasonable if territory/time no greater than essential to protect purchaser)
- Brazell v. Windsor, 384 S.C. 512 (S.C. 2009) (materiality of breach depends on whether it defeats purpose of contract; caution in focusing only on dollar amount)
- Kiriakides v. United Artists Commc’ns, Inc., 312 S.C. 271 (S.C. 1993) (adopting Restatement (Second) § 241 factors for assessing materiality of breach)