217 N.C. App. 403
N.C. Ct. App.2011Background
- asset purchase of SCP by Phelps Staffing in 2007 included a five-year non-compete; Ms. Phelps signed on behalf of SCP and herself, but Mr. Phelps did not sign the non-compete.
- non-compete covers direct/indirect competition within defined territories for five years and includes confidentiality provisions; plaintiff asserts breach against Ms. Phelps and SCP.
- after sale, Mr. Phelps engaged with CTP and allegedly aided competition; SCP paid some of his personal expenses and transferred funds to him, and Powell transferred SCP data to CTP.
- SCP continued to operate and pay rent/expenses related to former SCP offices; old SCP data were integrated into CTP’s systems
- suit filed in April 2009 asserting breach of non-compete/confidentiality, plus related claims; partial summary judgments were entered in 2010; the trial court later addressed whether Mr. Phelps was bound and whether Ms. Phelps breached the non-compete; appellate review follows.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Did Ms. Phelps breach the non-compete? | Phelps had a pecuniary interest in CTP and provided support, breaching not only direct competition but also assistance. | Ms. Phelps held no stock/managerial role in CTP and the payments were not a direct/indirect competing interest; benefits were not tying her to CTP’s competitive success. | No breach; Phelps’ interest or payments did not constitute prohibited competition under the agreement. |
| Was Mr. Phelps bound by the non-compete as the true owner/alter ego? | Mr. Phelps, as true owner, was bound and breached by entering competition with Plaintiff. | Bolz v. Myers is distinguishable; El-Kaissi assumed risk by proceeding with sale and Mr. Phelps did not sign; no binding non-compete on him. | Not bound; no evidence Mr. Phelps was owner/alter ego bound by the non-compete; Bolz distinguished; no breach by Mr. Phelps. |
Key Cases Cited
- Bolz v. Myers, 651 P.2d 606 (Mont. 1982) (true owner not bound where no assurance of noncompetition; distinguishable facts)
- Sineath v. Katzis, 218 N.C. 740 (N.C. 1941) (pecuniary interest must be direct/indirect stake in competing entity to breach)
- Kramer v. Old, 25 S.E. 813 (N.C. 1896) (holding stock in competing entity violated non-compete)
- Stephenson v. Bartlett, 177 N.C. App. 239 (N.C. App. 2006) (liberalized handling of Rule 3(d) notice defects; intent inferred)
- Abeis v. Renfro Corp., 486 S.E.2d 735 (N.C. App. 1997) (jurisdictional rules for appeals; designating judgment essential but liberalized)
- Town of Green Level v. Alamance County, 646 S.E.2d 854 (N.C. App. 2007) (standard of review for bench judgments; findings of fact vs conclusions of law)
- Med. Staffing Network, Inc. v. Ridgway, 670 S.E.2d 321 (N.C. App. 2009) (covenants not to compete scrutinized but enforceable with reasonable scope)
- Kennedy v. Kennedy, 584 S.E.2d 328 (N.C. App. 2003) (strict scrutiny of non-compete agreements)