IN THE COURT OF APPEALS OF NORTH CAROLINA
No. COA17-342
Filed: 19 December 2017
Guilford County, No. 15 CVS 10300
MARKET AMERICA, INC., Plaintiff,
v.
PAMELA LEE and RUSTY ANCHOR GROUP, INC., Defendants.
Appeal by plaintiff from orders entered 17 August 2016 and 16 November 2016
by Judge Patrice A. Hinnant in Guilford County Superior Court. Heard in the Court
of Appeals 19 September 2017.
Womble Carlyle Sandridge & Rice, LLP, by Pressly M. Millen and Samuel B. Hartzell, for plaintiff-appellant.
Essex Richards, P.A., by Marc E. Gustafson, for defendants-appellees.
DAVIS, Judge.
There are two questions presented in this appeal. The first issue is whether a
plaintiff is permitted to voluntarily dismiss its claims pursuant to Rule 41(a)(1) of the
North Carolina Rules of Civil Procedure after the trial court has announced its ruling
against the plaintiff on the defendant’s dispositive motion but before the court’s
ruling is memorialized in a written order. The second issue concerns the
circumstances under which a covenant not to compete contained in an employment
contract can be held unenforceable as a matter of law under Rule 12 of the North
Carolina Rules of Civil Procedure. MARKET AMERICA, INC. V. LEE
Opinion of the Court
Market America, Inc. (“Market America”) appeals from the trial court’s 17
August 2016 order vacating its notice of voluntary dismissal and dismissing with
prejudice its claims against Pamela Lee1 and from the court’s 16 November 2016
order denying its motion for reconsideration. Because we conclude that Market
America’s voluntary dismissal was improperly taken, we affirm the portion of the
trial court’s order vacating the voluntary dismissal. However, in light of our
determination that the court’s dismissal of Market America’s claims under Rule 12
constituted error, we reverse that portion of the trial court’s order.
Factual and Procedural Background
We have summarized the pertinent facts below using Market America’s own
statements from its complaint, which we treat as true in reviewing a trial court’s
order granting a motion to dismiss. See, e.g., Stein v. Asheville City Bd. of Educ., 360
N.C. 321, 325, 626 S.E.2d 263, 266 (2006) (“When reviewing a complaint dismissed
under Rule 12(b)(6), we treat a plaintiff’s factual allegations as true.”).
Market America is a product brokerage company that is headquartered in
Greensboro, North Carolina and “sells its products through a network of independent
distributors.” Its employees have the opportunity to attain the status of “certified
trainers” in order to provide specialized training to Market America’s distributors.
1 While the body of the trial court’s 17 August 2016 order refers to Lee as Pamela Everett, the captions of both orders being appealed refer to her as Pamela Lee. For the sake of consistency, we refer to her herein as Pamela Lee.
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Certified trainers are required to sign a Certified Trainer Agreement, which requires
them to agree not to compete or solicit other distributors in a specified geographic
area for one year after ceasing their employment with Market America.
Market America’s employees can also become “approved speakers” who
“represent the company’s finest distributors and, as a result of their role, also attain
a high profile with the Market America field sales organization.” Approved speakers
must sign a Speakers Bureau Agreement, which also imposes “certain restrictions
concerning confidentiality and non-solicitation of Market America distributors.”
Lee was hired as an independent distributor in 1997. During her employment
with Market America, she became a certified trainer and later — through her
corporate entity, Rusty Anchor Group, Inc. — an approved speaker. On 14 March
2008, she signed the Certified Trainer Agreement. On 26 June 2015, she signed the
Speakers Bureau Agreement.
In 2015, while she was still employed with Market America, Lee began working
with a network marketing company called ARIIX, which used “person-to-person
and/or Internet sales of products or services directly to consumers in their homes or
at places other than fixed, permanent retail establishments, through independent
distributors or salespersons.” Market America learned of Lee’s involvement with
ARIIX and discovered that she had “actively solicited other Market America
distributors to become involved in ARIIX.” Based on this discovery, Lee’s
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employment with Market America was terminated. After her employment with
Market America ended, Lee continued to solicit Market America distributors to join
ARIIX.
On 22 December 2015, Market America filed a complaint against Lee and
Rusty Anchor Group, Inc. (collectively “Defendants”) in Guilford County Superior
Court, alleging that Lee had breached the Certified Trainer Agreement and the
Speakers Bureau Agreement. On or about 2 March 2016, Defendants filed an answer
along with a motion to dismiss based on Rule 12(b)(6) and a motion for judgment on
the pleadings pursuant to Rule 12(c).
On 6 July 2016, a hearing was held before the Honorable Patrice A. Hinnant
on the Rule 12 motions. At the close of the hearing, Judge Hinnant announced from
the bench that she was granting Defendants’ motions and directed Defendants’
counsel to draft a written order.
A few hours after Judge Hinnant announced her ruling in open court, Market
America filed a notice of voluntary dismissal stating that it was dismissing without
prejudice all of its claims against Defendants pursuant to Rule 41(a)(1). On 11 July
2016, Defendants filed a motion to vacate the notice of voluntary dismissal on the
ground that the dismissal was ineffective because it was not taken in good faith.
On 17 August 2016, Judge Hinnant entered a written order (1) granting
Defendants’ motion to vacate the voluntary dismissal; (2) dismissing Market
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America’s claims against Rusty Anchor Group without prejudice; and (3) dismissing
its claims against Lee with prejudice to the extent that those claims were based upon
a breach of paragraphs 18(b) and (c) and 19(b) and (c) of the Certified Trainer
Agreement.
Market America filed a motion for reconsideration on 31 August 2016. On 16
November 2016, Judge Hinnant entered an order denying this motion. Market
America subsequently filed a notice of appeal as to both of the trial court’s orders.
Analysis
I. Appellate Jurisdiction
As an initial matter, we must determine whether we have jurisdiction to hear
this appeal. “A final judgment is one which disposes of the cause as to all the parties,
leaving nothing to be judicially determined between them in the trial court.” Duval
v. OM Hospitality, LLC, 186 N.C. App. 390, 392, 651 S.E.2d 261, 263 (2007) (citation
omitted). Conversely, an order or judgment is interlocutory if it does not settle all of
the issues in the case but rather “directs some further proceeding preliminary to the
final decree.” Heavner v. Heavner, 73 N.C. App. 331, 332, 326 S.E.2d 78, 80, disc.
review denied, 313 N.C. 601, 330 S.E.2d 610 (1985). In the present case, Lee asserts
that Judge Hinnant’s rulings were interlocutory because “the trial court did not
dismiss those portions of Market America’s claim involving [Lee]’s alleged breach of
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the Speakers Bureau Agreement or [Lee]’s alleged breach of Paragraph 18(a) and
Paragraph 19(a) of the Certified Trainer Agreement.”
“Generally, there is no right of immediate appeal from interlocutory orders and
judgments.” Paradigm Consultants, Ltd. v. Builders Mut. Ins. Co., 228 N.C. App.
314, 317, 745 S.E.2d 69, 72 (2013) (citation and quotation marks omitted). The
prohibition against interlocutory appeals “prevents fragmentary, premature and
unnecessary appeals by permitting the trial court to bring the case to final judgment
before it is presented to the appellate courts.” Russell v. State Farm Ins. Co., 136
N.C. App. 798, 800, 526 S.E.2d 494, 496 (2000) (citation and brackets omitted).
However, there are two avenues by which a party may immediately appeal an interlocutory order or judgment. First, if the order or judgment is final as to some but not all of the claims or parties, and the trial court certifies the case for appeal pursuant to N.C. Gen. Stat. § 1A-1, Rule 54(b), an immediate appeal will lie. Second, an appeal is permitted under N.C. Gen. Stat. §§ 1-277(a) and 7A- 27(d)(1) if the trial court’s decision deprives the appellant of a substantial right which would be lost absent immediate review.
N.C. Dep’t of Transp. v. Page, 119 N.C. App. 730, 734, 460 S.E.2d 332, 334 (1995)
(internal citations omitted).
Judge Hinnant’s order does not contain a certification under Rule 54(b).
Therefore, Market America’s appeal is proper only if it can demonstrate a substantial
right that would be lost absent an immediate appeal. See Embler v. Embler, 143 N.C.
App. 162, 166, 545 S.E.2d 259, 262 (2001) (“The burden is on the appellant to
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establish that a substantial right will be affected unless he is allowed immediate
appeal from an interlocutory order.” (citation omitted)).
Here, Lee concedes — and we agree — that a substantial right is affected with
respect to the trial court’s order vacating Market America’s voluntary dismissal.
However, Lee argues that Market America will not be deprived of a substantial right
in the event it is required to await a final judgment in this case before it is permitted
to appeal Judge Hinnant’s ruling on Lee’s Rule 12 motions.
Assuming, without deciding, that Market America has failed to make the
requisite showing of a substantial right with regard to the court’s ruling under Rule
12, based on considerations of judicial economy and pursuant to our discretion under
Rule 21 of the North Carolina Rules of Appellate Procedure, we elect to treat Market
America’s appeal as a petition for certiorari with regard to this issue. See Carolina
Bank v. Chatham Station, Inc., 186 N.C. App. 424, 428, 651 S.E.2d 386, 389 (2007)
(“[B]ecause the case sub judice is one of those exceptional cases where judicial
economy will be served by reviewing the interlocutory order, we will treat the appeal
as a petition for a writ of certiorari and consider the order on its merits.”). Thus, we
address below each of the arguments Market America has raised in its appeal.
II. Voluntary Dismissal
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We first consider Market America’s challenge to the portion of the trial court’s
order vacating its notice of voluntary dismissal as to its claim against Lee.2 Market
America does not specifically contest any of Judge Hinnant’s findings as to the
circumstances under which the notice of voluntary dismissal was filed. Instead, it
challenges only the conclusion that the voluntary dismissal was legally ineffective,
arguing that “[s]trategic dismissals are not bad faith.”
Rule 41(a)(1) of the North Carolina Rules of Civil Procedure states, in pertinent
part, as follows:
(1) By Plaintiff; by Stipulation. — Subject to the provisions of Rule 23(c) and of any statute of this State, an action or any claim therein may be dismissed by the plaintiff without order of court (i) by filing a notice of dismissal at any time before the plaintiff rests his case . . .
N.C. R. Civ. P. 41(a)(1).
Our Supreme Court has explained that
[t]he purpose of our long-standing rule allowing a plaintiff to take a voluntary dismissal . . . is to provide a one-time opportunity where the plaintiff, for whatever reason, does not want to continue the suit. The range of reasons clearly includes those circumstances in which the plaintiff fears dismissal of the case for rule violations, shortcomings in the pleadings, evidentiary failures, or any other of the myriad reasons for which the cause of action might fail. The only limitations are that the dismissal not be done in bad faith and that it be done prior to a trial court’s ruling
2 The parties do not challenge in this appeal the trial court’s dismissal without prejudice of Market America’s claim against Rusty Anchor Group. Therefore, we do not address that portion of the trial court’s ruling.
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dismissing plaintiff’s claim or otherwise ruling against plaintiff at any time prior to plaintiff resting his or her case at trial.
Brisson v. Santoriello, 351 N.C. 589, 597, 528 S.E.2d 568, 573 (2000) (emphasis
added).
Thus, two limitations exist on the general rule permitting voluntary
dismissals. First, voluntary dismissals may not be taken in bad faith. Second, a
voluntary dismissal cannot be taken after the plaintiff has rested its case. Boyd v.
Rekuc, __ N.C. App. __, __, 782 S.E.2d 916, 918, disc. review denied, __ N.C. __, 792
S.E.2d 517 (2016).
In the present case, the trial court relied on the bad faith exception in vacating
Market America’s voluntary dismissal. In so doing, the court made the following
pertinent findings:
1. At the time [Market America] filed its Notice of Voluntary Dismissal, [Market America] knew that the Court had ruled against [Market America] on the merits of Defendants’ Rule 12 Motions just hours before and that the Court was awaiting the submission by counsel for Defendants of a written order of dismissal.
2. The timing of the filing of [Market America]’s Notice of Voluntary Dismissal permits no conclusion other than that [Market America] was attempting to prevent the Court from dismissing [Market America’s] claims as set forth above.
3. [Market America]’s attempt at voluntary dismissal, taken under these circumstances, cannot be said to
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have been made in good faith.
4. The Voluntary Dismissal is therefore void and should be vacated.
Market America does not challenge Finding Nos. 1 and 2 in which the trial
court found that it took a voluntary dismissal in order to prevent the court from
entering a written order memorializing its decision to grant Lee’s Rule 12 motions
after Judge Hinnant had informed the parties of her ruling. Indeed, in its appellate
brief Market America fails to offer any other reason for its decision to file the notice
of voluntary dismissal. Thus, Finding Nos. 1 and 2 are binding on appeal. See
Koufman v. Koufman, 330 N.C. 93, 97, 408 S.E.2d 729, 731 (1991) (“Where no
exception is taken to a finding of fact by the trial court, the finding is presumed to be
supported by competent evidence and is binding on appeal.”).3
Instead, Market America contests the trial court’s legal ruling that its
voluntary dismissal was taken in bad faith. Specifically, it argues that no published
opinion exists in which North Carolina’s appellate courts have invalidated an
attempted voluntary dismissal based on the bad faith exception under these
circumstances. Market America asserts that the scope of this exception is restricted
exclusively to the unique fact pattern existing in Estrada v. Burnham, 316 N.C. 318,
3 While Market America describes the trial court’s ruling on this issue as based purely on the “timing” of the notice of voluntary dismissal, this characterization is incomplete. The trial court’s findings were that Market America took the voluntary dismissal for the sole purpose of preventing the court from following through with the ruling it had announced to the parties hours earlier.
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341 S.E.2d 538 (1986), superseded by statute on other grounds as stated in Turner v.
Duke Univ., 325 N.C. 152, 381 S.E.2d 706 (1989) — the case in which our Supreme
Court first recognized the bad faith exception.
In Estrada, the plaintiff suffered complications during a surgery to repair his
leg wound. Estrada, 316 N.C. at 319, 341 S.E.2d at 539-40. One day before the
applicable three-year statute of limitations was set to expire, the plaintiff filed a bare-
bones medical malpractice complaint. Two minutes after the complaint was filed, the
plaintiff filed a notice of voluntary dismissal. No attempt was ever made to serve the
summons and complaint upon the defendant. Id.
Over eleven months later, he filed a new complaint arising out of the same
incident that provided more detail as to the basis for his claims. The defendant moved
to dismiss the second complaint as time-barred. In response, the plaintiff argued that
the second complaint was timely because Rule 41 had granted him an additional one-
year period from the date the voluntary dismissal was taken in which to refile the
action. Id. at 321, 341 S.E.2d at 540. Nevertheless, the trial court dismissed the
second complaint as untimely. Id.
The issue on appeal was whether the voluntary dismissal of the first appeal
was taken in good faith so as to be legally effective and thereby extend the limitations
period for an additional year as provided for in Rule 41. In rejecting the plaintiff’s
argument, our Supreme Court observed that the plaintiff made a “candid admission
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that the . . . lawsuit was filed with the sole intention of dismissing it in order to avoid
the lapse of the statute of limitations” and that such an admission was “tantamount
to a concession that his only purpose in certifying the complaint was to extend the
deadline by which he must draft and file a sufficient complaint.” Id. at 325, 341
S.E.2d at 543. For this reason, the Court held that the voluntary dismissal had been
taken in bad faith and was without legal effect. Id.
In Eubank v. Van-Riel, 221 N.C. App. 433, 727 S.E.2d 25, 2012 N.C. App.
LEXIS 727 (2012) (unpublished), disc. review denied, 366 N.C. 571, 738 S.E.2d 380
(2013), this Court addressed the applicability of the bad faith exception under Rule
41(a)(1) to the precise circumstances at issue in the present case. In Eubank, the
trial judge notified the parties that it was granting the defendants’ motion to dismiss
and directed the defendants’ counsel to prepare an order for the judge’s signature.
After the court’s ruling was announced but before the order was signed, the plaintiff
filed a voluntary dismissal of his claim against the defendants. Id. at *32. The trial
court ruled that the voluntary dismissal under these circumstances was ineffective.
Id. at *28.
Writing for a panel of this Court, Judge (now Justice) Ervin stated as follows:
The record in this case clearly shows that, on 30 March 2011, the trial court notified the parties that it had granted Defendants’ dismissal motion and directed Defendants’ counsel to prepare an order to that effect for the court’s signature. Plaintiff’s “voluntary dismissal” was filed on the following day, a point in time after Plaintiff
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knew that the trial court had ruled against him on the merits of Defendants’ motion and prior to the entry of a formal dismissal order. The timing of Plaintiff’s motion permits no conclusion other than that he was attempting to prevent the trial court from dismissing his complaint. A voluntary dismissal taken under these circumstances cannot possibly be said to have been taken in good faith, so that the purported voluntary dismissal by plaintiffs is void and is hereby vacated.
Id. at *32-33 (internal citation, quotation marks, and brackets omitted).
Unpublished opinions of this Court lack precedential authority. See N.C. R.
App. P. 30(e)(3) (providing that “an unpublished decision . . . does not constitute
controlling legal authority”). Nevertheless, we deem Eubank to be instructive on this
issue and reach a similar conclusion in the present case.
While Rule 41(a)(1) clearly permits plaintiffs to voluntarily dismiss their
claims for a multitude of reasons, such a dismissal must be taken in good faith.
Taking a voluntary dismissal based on concerns about the potential for a future
adverse ruling by the Court is permissible. Dismissing an action after such a ruling
has actually been announced by the court is not. Once the trial court has informed
the parties of its ruling against the plaintiff on the defendant’s dispositive motion,
Rule 41 does not permit the proceeding to devolve into a footrace between counsel to
see whether a notice of voluntary dismissal can be filed before the court’s ruling is
memorialized in a written order and filed with the clerk of court. To hold otherwise
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would “make a mockery of” the court’s ruling. Maurice v. Hatterasman Motel Corp.,
38 N.C. App. 588, 592, 248 S.E.2d 430, 433 (1978).4
We are unable to agree with Market America’s argument that the bad faith
exception under Rule 41 should be limited to the specific type of bad faith at issue in
Estrada because it has failed to offer any persuasive argument as to why that should
be the case. Bad faith can exist in a variety of forms, and we are satisfied that it
occurred in connection with Market America’s attempted voluntary dismissal here.
Market America also contends that application of the bad faith exception on
the facts of this case would be inconsistent with this Court’s decisions in Schnitzlein
v. Hardee’s Food Sys., Inc., 134 N.C. App. 153, 516 S.E.2d 891, disc. review denied,
351 N.C. 109, 540 S.E.2d 365 (1999); Carlisle v. CSX Transp., Inc., 193 N.C. App. 509,
668 S.E.2d 98 (2008), cert. denied and disc. review denied, 363 N.C. 123, 675 S.E.2d
40 (2009); and Whitehurst v. Va. Dare Transp. Co., 19 N.C. App. 352, 198 S.E.2d 741
(1973). However, this assertion is incorrect. In none of those cases was the issue of
bad faith actually addressed by this Court. Thus, while Market America states that
Eubank is the only North Carolina appellate decision finding bad faith in this context,
4 While Market America notes that a footnote in Eubank raised the possibility that scenarios may exist where the taking of a voluntary dismissal after the trial court has announced its ruling does not constitute bad faith, we need not address the possible existence of such scenarios given that — as noted above — Market America has not attempted to challenge Judge Hinnant’s findings as to its motive for filing its notice of voluntary dismissal. We observe that in the same footnote this Court stated that under the circumstances at issue in Eubank — which are identical to the circumstances at issue here — the voluntary dismissal was “clearly [taken] in bad faith . . . .” Eubank, at *32 n.3.
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a more accurate statement would be that Eubank is the only case in which this issue
has ever been expressly addressed by our appellate courts, and it expressly rejected
the argument being advanced here by Market America.
Finally, Market America’s contention that Judge Hinnant’s ruling
impermissibly infringed upon its “unfettered ability to dismiss its claims” is equally
unavailing. (Quotation marks omitted.) As our case law makes abundantly clear, a
plaintiff’s right to take a voluntary dismissal is, in fact, “fettered” by the requirements
that such a dismissal not be taken in bad faith or after a party has rested its case.
See, e.g., Brisson, 351 N.C. at 597, 528 S.E.2d at 573. Thus, our holding today simply
applies an exception that our Supreme Court has expressly recognized. Accordingly,
we affirm the portion of the trial court’s 17 August 2016 order vacating Market
America’s voluntary dismissal.5
III. Lee’s Rule 12 Motions
Market America’s final argument on appeal is that the trial court erred by
granting Lee’s motions under Rule 12. We agree.
5 Market America argues in the alternative that even assuming Judge Hinnant’s interpretation of Rule 41(a)(1) on these facts was correct, her order vacating its notice of voluntary dismissal should not have encompassed its dismissal of those claims unaffected by her ruling on the Rule 12 motions — that is, those claims alleging a breach of provisions of the agreements at issue other than paragraphs 18(b) and (c) and 19(b) and (c) of the Certified Trainer Agreement. While Market America is technically correct on this point, the issue is moot in light of our holding below reversing the court’s ruling on Lee’s Rule 12 motions.
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“It is well settled that both a motion for judgment on the pleadings and a
motion to dismiss for failure to state a claim upon which relief can be granted should
be granted when a complaint fails to allege facts sufficient to state a cause of action
or pleads facts which deny the right to any relief.” Bank of Am., N.A. v. Rice, __ N.C.
App. __, __, 780 S.E.2d 873, 882 (2015). “This Court will review de novo the grant of
a motion to dismiss under Rule 12(b)(6) and for judgment on the pleadings under Rule
12(c).” Freedman v. Payne, __ N.C. App. __, __, 800 S.E.2d 686, 689, disc. review
denied, __ N.C. __, 803 S.E.2d 387 (2017).
“Under North Carolina law, a covenant not to compete is valid and enforceable
if it is (1) in writing; (2) made a part of the employment contract; (3) based on valuable
consideration; (4) reasonable as to time and territory; and, (5) designed to protect a
legitimate business interest of the employer.” Okuma Am. Corp. v. Bowers, 181 N.C.
App. 85, 88, 638 S.E.2d 617, 620 (2007) (citations omitted).
In its 17 August 2016 order, the trial court granted Lee’s Rule 12 motions based
on its ruling that the territorial restrictions contained in Paragraphs 18(b) and (c)
and 19(b) and (c) of the Certified Trainer Agreement were “unreasonable and
overbroad as a matter of law.” Market America argues that the trial court’s order
was erroneous at the Rule 12 stage because the enforceability of the provisions at
issue could not be determined absent evidence to be obtained through discovery
showing the precise scope of the restrictions placed on Lee.
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In determining whether the geographic scope of a covenant not to compete is
reasonable, this Court has looked to the following factors: “(1) the area, or scope, of
the restriction; (2) the area assigned to the employee; (3) the area where the employee
actually worked or was subject to work; (4) the area in which the employer operated;
(5) the nature of the business involved; and (6) the nature of the employee’s duty and
his knowledge of the employer’s business operation.” Hartman v. W.H. Odell &
Assocs., 117 N.C. App. 307, 312, 450 S.E.2d 912, 917 (1994), disc. review denied, 339
N.C. 612, 454 S.E.2d 251 (1995). Moreover, we have held that
the time and geographic limitations of a covenant not to compete must be considered in tandem, such that a longer period of time is acceptable where the geographic restriction is relatively small, and vice versa. Although either the time or the territory restriction, standing alone, may be reasonable, the combined effect of the two may be unreasonable. Nevertheless, the scope of the geographic restriction must not be any wider than is necessary to protect the employer’s reasonable business interests.
Okuma, 181 N.C. App. at 89, 638 S.E.2d at 620 (internal citations, quotation marks,
and brackets omitted). “In deciding what is reasonable, the court looks to the facts
and circumstances of the particular case.” Clyde Rudd & Assocs., Inc. v. Taylor, 29
N.C. App. 679, 684, 225 S.E.2d 602, 605 (internal citation and quotation marks
omitted), disc. review denied, 290 N.C. 659, 228 S.E.2d 451 (1976).
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In their respective briefs, the parties’ arguments on this issue are based on the
portion of Market America’s complaint that discusses — and quotes from — the
Certified Trainer Agreement.6 The complaint alleges, in relevant part, as follows:
. . . Certified Trainers . . . based on their high profile and positive reputation with the field network of Market America distributors, agree that for a period of one year after they cease to be Market America distributors they will not solicit any current or former Market America distributors within the following geographical territory:
(a) within 100 miles of Distributor’s residence during the time he/she was a Market America independent distributor; or (b) within 100 miles of the residences of any of Distributor’s personally sponsored Market America independent distributors, or (c) within 100 miles of the residence of any Market America independent distributor in distributor’s downline who achieved the level of Executive Coordinator or above during the time that Distributor was a Market America independent distributor.
. . . Certified Trainers also agree to a limited non-compete in that same geographical territory. Specifically, for a period of one year after ceasing to act in that role, they agree that they will not act in any capacity for another
6 We note that the trial court’s order makes clear that it reviewed not only Market America’s complaint but also “the documents specifically referred to therein.” Presumably, this means that the trial court reviewed the Certified Trainer Agreement itself even though this document was not attached to Market America’s complaint. In so doing, the trial court was not required to convert Lee’s motions into a motion for summary judgment. “[A] trial court’s consideration of a contract which is the subject matter of an action does not expand the scope of a Rule 12(b)(6) hearing and does not create justifiable surprise in the nonmoving party.” Oberlin Capital, L.P. v. Slavin, 147 N.C. App. 52, 60, 554 S.E.2d 840, 847 (2001) (citation omitted). Here, the Certified Trainer Agreement was a subject of Market America’s complaint and was quoted from therein.
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network marketing company.7
Our appellate courts have made clear that non-compete agreements are
unenforceable where the time and territorial restrictions contained therein are
overbroad. See, e.g., Henley Paper Co. v. McAllister, 253 N.C. 529, 535, 117 S.E.2d
431, 434 (1960) (three-year restriction on manufacture, sale, or distribution of paper
or paper products within 300-mile radius of any office or branch of defendant
company that had offices in 13 states was void); CopyPro, Inc. v. Musgrove, 232 N.C.
App. 194, 204, 754 S.E.2d 188, 195 (2014) (three-year restriction on working for
similar business within geographical area consisting of over twenty counties in North
Carolina or within a 60-mile radius of Greenville and Wilmington was void);
Hartman, 117 N.C. App. at 315, 450 S.E.2d at 919 (five-year restriction on working
for “competitors” in eight states was void).
However, this Court has previously held that a ruling on the enforceability of
such an agreement cannot be made at the pleadings stage in cases where evidence is
needed to show the reasonableness of the restrictions contained therein. In Okuma,
the plaintiff brought an action against its former employee for violation of a non-
compete agreement. Okuma, 181 N.C. App. at 87-88, 638 S.E.2d at 619. The
agreement stated that the defendant could not work for a direct competitor of the
7The complaint states that the Speakers Bureau Agreement also contained a non-solicitation agreement. However, because the Speakers Bureau Agreement was not a basis for the trial court’s 17 August 2016 order, we do not address the enforceability of the restrictions contained in that document.
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plaintiff for six months following the cessation of his employment in “areas in which
[the plaintiff] does business[.]” Id. at 87, 638 S.E.2d at 619. It also prohibited the
defendant “from soliciting business from [the plaintiff]’s customers” during this six-
month time period. Id. at 89, 638 S.E.2d at 620. The defendant filed a motion to
dismiss, asserting that the non-compete language was overly broad and therefore
unenforceable as a matter of law. Id. at 86, 638 S.E.2d at 618. The trial court granted
the motion, and the plaintiff appealed. Id.
This Court held that “the covenant’s enforceability in this case rests on
questions of fact and cannot be determined as a matter of law.” Id. We held that the
six-month period was “well within the established parameters for covenants not to
compete in this State” and that although “the geographic effect of the restriction is
quite broad . . . taken in conjunction with the six-month duration, it is not per se
unreasonable in light of our courts’ past rulings.” Id. at 90, 638 S.E.2d at 620. Upon
consideration of the legitimate business interest alleged in the plaintiff’s complaint,
we determined that because the non-compete agreement took into account the
defendant’s senior position in the company and only barred his employment with
direct competitors the restrictions were not necessarily unreasonable. Id. at 91-92,
638 S.E.2d at 621-22. We concluded that
when examining the time and geographic restrictions of a covenant not to compete, we are unable to conclude that a covenant restricting employment for six months with a direct competitor in a related capacity, even with a
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geographic scope potentially extending throughout North and South America due to the client-based restrictions, is overly broad and unenforceable as a matter of law. In this case, the enforceability of the covenant not to compete rests on factual questions such as whether the geographic effect of the client-based restriction is excessive in light of [the defendant’s] actual contacts with customers, the nature of his duties, the level of his responsibilities, the scope of his knowledge, and other issues relating to how closely the geographic limits fit with [defendant’s] work for [the plaintiff]. Accordingly, we hold that, when taken as true, [plaintiff’s] complaint stated a claim for which relief might be granted.
Id. at 92, 638 S.E.2d at 622.
Here, Market America has alleged in its complaint that certified trainers
maintain a “high profile[,]” hold a “sensitive position . . . in the hierarchy of the
company[,]” and are “expos[ed] to [a] wide variety of Market America
distributors . . . .” For these reasons, the complaint asserts, the restrictions contained
in the Certified Trainer Agreement are necessary to protect Market America’s
confidentiality concerns.
The provisions at issue in the Certified Trainer Agreement contain a time
restriction of one year. As an initial matter, we recognize that this Court has
previously held that a “one year time restriction is well within the established
parameters for covenants not to compete.” Precision Walls v. Servie, 152 N.C. App.
630, 638, 568 S.E.2d 267, 273 (2002). Nevertheless, as noted above, the duration of
the time restriction in a covenant not to compete cannot be evaluated in a vacuum.
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Rather, the time restriction must be analyzed in conjunction with the geographic
restrictions imposed on Lee.
In this case, it is impossible to determine based solely on the four corners of
the complaint whether the territorial restrictions in the Certified Trainer Agreement
are appropriately tailored to protect Market America’s legitimate business interests.
Indeed, because of the way the provisions are worded, we presently have no way of
knowing the actual effect of the geographic restrictions on Lee. The complaint does
not specify the number of independent distributors Lee personally sponsored or the
locations of the residences of the independent distributors in Lee’s “downline” who
achieved the level of executive coordinator or above during the time period specified
in the agreement. Without this and other additional relevant information, the
potential overbreadth of the Certified Trainer Agreement’s restrictions on Lee cannot
be meaningfully assessed.
Taking Market America’s allegations in the complaint as true, as we must, we
hold that the trial court lacked a sufficient basis to rule as a matter of law that the
provisions of paragraphs 18(b) and (c) and 19(b) and (c) of the Certified Trainer
Agreement are overbroad and unreasonable. Accordingly, we reverse the portion of
the trial court’s 17 August 2016 order granting Lee’s Rule 12 motions.
Conclusion
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For the reasons stated above, we (1) affirm the portion of the trial court’s 17
August 2016 order vacating Market America’s notice of voluntary dismissal; and (2)
reverse the portion of the court’s order granting Lee’s Rule 12 motions.
AFFIRMED IN PART; REVERSED IN PART.
Judges BRYANT and INMAN concur.
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