Foreign Academic & Cultural Exchange Services, Inc. v. Tripon

715 S.E.2d 331, 394 S.C. 197, 2011 S.C. LEXIS 281

• Court: Supreme Court of South Carolina
• Decided: August 29, 2011
• Docket: 27036
• Status: Published

Opinions

PER CURIAM.

Appellant Foreign Academic & Cultural Exchange Services, Inc. (FACES) instituted this action against respondent for breach of contract, breach of the duty of loyalty, and injunctive relief. The circuit court granted summary judgment in favor of respondent as to all causes of action. FACES appeals.¹ We reverse.

FACTS

FACES, a for-profit company headquartered in South Carolina, recruits teachers from outside the United States and places them with schools within the state pursuant to the Mutual Educational and Cultural Exchange Program. See 22 U.S.C.A. § 2451 et seq. In 2003, respondent, a Romanian citizen, contracted with FACES to participate in its program, and entered the United States on a J-l visa. Pursuant to the “foreign residency requirement” of the J-l visa, respondent was required to return to her home country and remain there for at least two years following departure from the United States. See 8 U.S.C.A. § 1182(e).

After respondent had taught for two years, she and FACES entered into a revised agreement for the term of an additional school year. The agreement included a “covenant not to compete” stating respondent would not teach within the state for two years after leaving the FACES program, consonant with the foreign residency requirement. The new contract also increased respondent’s salary and contained an acknowledgement that respondent would return home for two years after the contract expired. Finally, the revised agreement contained a liquidated damages provision providing that, in the event of a breach of contract, FACES would be entitled to an award including, but not limited to, monetary damages in an amount not less than $36,000.

Shortly after executing the new contract, respondent married a former FACES teacher. Respondent applied for, and was granted, a waiver of the J-l foreign residency requirement, allowing her to remain in the United States. Subsequently, respondent accepted a full-time position with another school district and received an H-l B visa allowing her to remain in the United States after the expiration of her J-l visa.

Following respondent’s failure to return to Romania as contracted, FACES instituted this action for breach of contract, breach of duty of loyalty, and injunctive relief.

The circuit court granted summary judgment in favor of respondent as to all of FACES’ claims, finding: (1) the covenant not to compete was unenforceable; (2) respondent did not violate the covenant not to compete; (3) the grant of an injunction requiring respondent to return home would be pre-empted by federal immigration law; (4) the liquidated damages provision was unenforceable; and (5) respondent did not breach any duty of loyalty.

The circuit court also denied FACES’ motion for partial summary judgment, concluding a ruling that the acknowledgement and covenant not to compete were enforceable on foreign policy grounds would amount to an advisory opinion.²

ISSUES

I. Did the circuit court err in granting summary judgment in favor of respondent as to FACES’ breach of contract claim?

II. Did the circuit court err in granting summary judgment in favor of respondent as to FACES’ breach of duty of loyalty claim?

STANDARD OF REVIEW

When reviewing an order granting summary judgment, the appellate court applies the same standard as the trial court. Fleming v. Rose, 350 S.C. 488, 493, 567 S.E.2d 857, 860 (2002). Summary judgment is appropriate when there is no genuine issue of material fact such that the moving party must prevail as a matter of law. Rule 56(c), SCRCP. In determining whether any triable issues of material fact exist, the court must view the evidence and all reasonable inferences that may be drawn from the evidence in the light most favorable to the non-moving party. Fleming, 350 S.C. at 493-94, 567 S.E.2d at 860.

LAW/ANALYSIS

We reverse the circuit court’s order granting summary judgment, finding there are material questions of fact whether respondent breached the revised contract by not returning to her home country and accepting another job, whether FACES suffered any actual as opposed to liquidated damages, and whether respondent breached the duty of loyalty implied in every employment contract.

I. Breach of Contract

FACES argues the circuit court erred in granting summary judgment in favor of respondent as to FACES’ breach of contract claim. We agree.

A. Respondent’s failure to return home

The circuit court only addressed respondent’s failure to return home in terms of FACES’ claim for injunctive relief, finding an order requiring respondent to return home would be pre-empted by federal immigration law. The circuit court did not consider that respondent’s failure to return home could be considered a breach of contract. Rather, the circuit court granted summary judgment as to FACES’ breach of contract claim, focusing solely on the enforceability of the covenant not to compete and respondent’s continuing to teach within the state.

We find the circuit court erred by simply finding the covenant not to compete was unenforceable and failing to address that respondent’s failure to return home could itself be considered a breach of contract. The fact respondent was granted a waiver does not preclude FACES’ ability to enforce the contract because FACES’ claim for breach of contract is not pre-empted by federal immigration law. While the circuit court may have correctly found it did not have the power to order respondent to return home through injunctive relief, the separate breach of contract action does not involve respondent’s immigration status.

B. Covenant not to compete

We are also persuaded by FACES’ argument that the non-compete provision, although inartfully named, is not actually a covenant not to compete, but rather an agreed upon contract term, the purpose of which was to ensure respondent complied with the foreign residency requirement. Accordingly, we find the circuit court erred in applying the common law governing covenants not to compete and in granting summary-judgment for this reason.

C. Damages

FACES argues the circuit court erred in finding the liquidated damages provision in the revised agreement was unenforceable. FACES maintains that, in the alternative, it has also suffered actual damages as a result of respondent’s failure to return home. Specifically, FACES contends it lost its significant investment in respondent because she diverted the funds provided for her own personal use. FACES further claims its sponsorship designation is at risk because of the large numbers of teachers who, like respondent, do not complete the foreign residency requirement.

“Parties to a contract may stipulate as to the amount of liquidated damages owed in the event of nonperformance.” Lewis v. Premium Inv. Corp., 351 S.C. 167, 172, 568 S.E.2d 361, 363 (2002). “Where, however, the sum stipulated is plainly disproportionate to any probable damage resulting from breach of contract, the stipulation is an unenforceable penalty.” Id. If a clause is held to be a penalty, the plaintiff may still recover any actual damages that can be proved to have resulted from the breach. Tate v. Le Master, 231 S.C. 429, 99 S.E.2d 39 (1957).

The circuit court found the liquidated damages provision contained in the parties’ agreement constituted an unenforceable penalty because it had no relationship to any actual damages FACES might sustain as a result of respondent’s alleged breach.

We find the circuit court properly concluded the liquidated damages provision is unenforceable because $36,000 is plainly disproportionate to any probable damage resulting from respondent’s failure to return home. FACES’ purported “lost investment” in respondent, totaling $29,400, accounts for the majority of that stipulated amount. We agree with respondent that the money FACES invested in respondent is a “sunk cost” over which respondent’s failure to return home had no effect. In other words, FACES would have invested that money regardless whether respondent returned home. Accordingly, we hold the circuit court properly found the amount of liquidated damages constituted an unenforceable penalty.

Regarding actual damages, initially, FACES’ argument that respondent’s failure to return home somehow financially harmed FACES appears largely speculative. Other than the threat of losing its sponsor designation and its lost investment in respondent, FACES claims to have lost the future net income it would have received by placing a new teacher in the place occupied by respondent for three to six years while in her new position, in addition to less readily quantifiable damages such as FACES’ lost goodwill. It is questionable whether FACES’ lost income and goodwill would constitute an appropriate award of actual damages. We nonetheless find the circuit court erred in only addressing the liquidated damages provision to support its grant of summary judgment as to FACES’ breach of contract claim. Assuming the circuit court correctly found the liquidated damages provision was unenforceable, it is possible FACES is alternatively entitled to actual damages, and more factual development is necessary to make that determination. Tate, supra.

II. Breach of Duty of Loyalty

FACES also argues the circuit court erred in granting summary judgment in favor of respondent as to FACES’ tort action for breach of the duty of loyalty. We agree.

“It is implicit in any contract for employment that the employee shall remain faithful to the employer’s interest throughout the term of employment. An employee has a duty of fidelity to his employer.” Berry v. Goodyear Tire & Rubber Co., 270 S.C. 489, 491, 242 S.E.2d 551, 552 (1978). This Court has recognized a tort action for breach of the duty of loyalty. See Lowndes Products, Inc. v. Brower, 259 S.C. 322, 335-39, 191 S.E.2d 761, 767-70 (1972) (key employees who contacted and met with investors and a customer of current employer to lay plans to start a competing textile company, who left their employer without notice, and who leased space and ordered materials to build manufacturing equipment were guilty of disloyalty, and owed damages to employer).

While we express no opinion as to the viability of the breach of the duty of loyalty claim as one independent of the breach of contract action, we find the circuit court erred in granting summary judgment because respondent did not seek summary judgment as to this claim.

CONCLUSION

The circuit court erred in granting summary judgment as to FACES’ claims for breach of contract and breach of the duty of loyalty. Accordingly, the order of the circuit court is

REVERSED.

PLEICONES, Acting Chief Justice, BEATTY, J., and Acting Justice JAMES E. MOORE, concur. HEARN, J., concurring in part and dissenting in part in a separate opinion in which KITTREDGE, J., concurs.

1 . FACES does not appeal the grant of summary judgment as to the action for injunctive relief.

2 . While FACES purports to appeal this denial of partial summary judgment, we decline to address this issue as the denial of the motion for summary judgment was not a final determination of the merits of the case, and therefore it is not immediately appealable. See Ballanger v. Bowen, 313 S.C. 476, 443 S.E.2d 379 (1994) (denial of summary judgment motion that decides nothing about the merits of the case is not immediately appealable).