iI don't think that it was worth it for TSG to appeal Judge Murphy's Order denying its Motion for a Preliminary Injunction on a covenant not to compete. That's true even though an injunction (though not on the covenant) was ultimately granted by Judge Bledsoe in an unpublished Order on December 14th.
From Business Court To Court Of Appeals To NC Supreme Court And Back
Here's a quick procedural history of the case: In January of last year TSG filed in the Business Court a Motion for Preliminary Injunction enforcing a covenant not to compete. Judge Murphy denied the Motion via an unpublished Order in February 2014. TSG appealed and obtained a decision from the NC Court of Appeals reversing Judge Murphy in December 2014., 566 S.E.2d 561 (2014). The COA remanded the case to the Business Court and directed it to enter the previously denied Preliminary Injunction. But then, the Defendant filed a Petition for Discretionary Review with the NC Supreme Court. The Supreme Court denied that Petition (like it does with almost all of them) eight months later, in August 2015.
The Term Of The Covenant Not To Compete Ran Down During The Appeals
All throughout this appeal, the clock on TSG's two year -compete was winding down, Its former employee, Defendant Bollinger, had quit his job at TSG on November 21, 2013 and began employment with a competitor, Defendant American Custom Finishing, LLC, four days later. The non-compete agreement which he had signed was in place for two years. (It said as to its term thatthe employee could be enjoined "[d]uring the period of two (2) years following the date of Employee's termination of employment with TSG. . . ." Murphy Order ¶9).
By the time of Judge Bledsoe's Order last week, the two-year period of the non-compete had expired, and Judge Bledsoe ruled that the covenant not to compete could not be enforced. Op. ¶23.
The Court Couldn't Extend The Term Of The Covenant Not To Compete
Covenant not to compete experts will think of those NC cases that extend the term of the non-compete for the period that it was being violated. But those cases involve covenants that contain an explicit provision regarding their extension, like: "[t]he periods of protection shall not be reduced by any period of time during which [the employee is] not in compliance therewith." Phillips Elecs. N. Am. v. Hope, 631 F.Supp.2d 705, 718 (M.D.N.C. 2009)
The NC COA enforced such language in QSP, Inc. v. Hair, 152 N.C.App. 174, 177-78, 566 S.E.2d 851, 853 (2002), where the non-compete said that:
[Employee] agree[s] in light of the special nature of QSP's fund-raising business that if [employee] violate[s] this Agreement, appropriate relief by a court requires that the terms of paragraphs 1(a-f) and 3(b) will be extended for a period of twelve (12) months commencing on the date of [employee's] last violation of this Agreement....
But in this case, the covenant contained no provision regarding an extension, so Judge Bledsoe could not extend it beyond its two year term.
The Appeal Presented No Basis For An Extension
How about that failed Petition for Discretionary Review? Was that a basis for extending the covenant's duration? The passage of time caused by that unsuccessful Petition by the Defendants had caused the non-compete to expire. The competitive restriction was governed by Pennsylvania law, which allows for an extension of a covenant's restriction if "fraud or unnecessary delay caused by the [enjoined party] . . . unjustly permitted the . . . time restraint to expire." Op. ¶22 (quoting Hayes v. Altman, 266 A.2d 269, 272 (Pa. 1970)).
Judge Bledsoe said that there was no evidence:
to suggest that Bollinger has engaged in fraud or unnecessary delay to cause the restrictive period to expire. To the contrary, Judge Murphy declined to enter a preliminary injunction in February 2014, and Plaintiff elected to appeal. When the Court of Appeals overturned Judge Murphy's decision, Bollinger timely exercised his legal right to file a petition for discretionary review with the North Carolina Supreme Court. Upon learning of the Supreme Court's denial of Bollinger's petition for discretionary review and the certification of that decision to [the Clerk of Superior Court for the County in which the case had been filed], this Court has acted promptly to issue this Preliminary Injunction Order as directed by the Court of Appeals. Accordingly, the timing of this Order is the result of the normal processes of the North Carolina court system and not due to any 'fraud or unnecessary delay' by Bollinger. Thus, an extension of the restrictive period . . . is not available. . . .
Op. ¶26 (emphasis). Read "normal processes of the North Carolina court system" to read that the judicial system is not built for speed. (I'm not picking on the North Carolina courts, that's true of all court systems). If you are chasing after an injunction on a non-compete in the appellate courts after it was denied in the trial court, your non-compete is likely to expire during the appeals. So, pursuing the "normal processes" of an appeal may be a waste of time (and your client's money).
Can You Really Appeal An Order Denying (Or Granting) An Injunction Or Is It Interlocutory And Not Appealable?
The opinion from the NC COA in the TSG case gives a brief discussion of the appealability of an Order granting or denying an injunction.
The Court said that:
North Carolina appellate courts have routinely reviewed interlocutory court orders both granting and denying preliminary injunctions, holding that substantial rights have been affected. See, e.g., A.E.P. Industries, Inc. v. McClure, 308 N.C. 393, 302 S.E.2d 754 (1983); Iredell Digestive Disease Clinic, P.A. v. Petrozza, 92 N.C.App. 21, 373 S.E.2d 449 (1988) aff'd, 324 N.C. 327, 377 S.E.2d 750 (1989); Cox v. Dine-A-Mate, Inc., 129 N.C.App. 773, 501 S.E.2d 353 (1998); Masterclean of North Carolina, Inc. v. Guy, 82 N.C.App. 45, 345 S.E.2d 692 (1986).
566 S.E.2d at 853.
An Argument Based On The Inevitable Disclosure Doctrine Didn't Work
Plaintiff took a run at enjoining Bollinger from working in its industry of textile finishing based on the inevitable disclosure doctrine. That seemed like a good idea given that Pennsylvania recognizes the doctrine. Op. ¶28. But Judge Bledsoe said that NC law, not Pennsylvania law, governed Plaintiff's claim for misappropriation of trade secrets. Order ¶28. He cited three previous Business Court opinions in which the Business Court said that it was "uncertain" and "unclear" whether North Carolina's appellate courts had recognized the doctrine. Op. ¶28.
But the Plaintiff got an injunction enjoining Bollinger from misappropriating its trade secrets or any "confidential or other proprietary information as opposed to an injunction based on the non-compete, which would have prevented Bollinger from working for his neww employer. The bond required was quite small -- only $250 -- since "the potential risk for damages" to Bollinger was deemed to be minimal. Order ¶31.
All Is Not Lost: Plaintiff Can Still Get Damages
It's worth noting that the expiration of the non-compete doesn't preclude the Plaintiff from recovering damages "that arose as a result of Bollinger's alleged violation of the Non--Compete Provision during the restrictive period." Op. ¶27 & n.8.
