Palmetto Mortuary Transp., Inc. v. Knight Sys., Inc.

818 S.E.2d 724, 424 S.C. 444
CourtSupreme Court of South Carolina
DecidedAugust 29, 2018
DocketAppellate Case No. 2016-001531; Opinion No. 27833
StatusPublished
Cited by8 cases

This text of 818 S.E.2d 724 (Palmetto Mortuary Transp., Inc. v. Knight Sys., Inc.) is published on Counsel Stack Legal Research, covering Supreme Court of South Carolina primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Palmetto Mortuary Transp., Inc. v. Knight Sys., Inc., 818 S.E.2d 724, 424 S.C. 444 (S.C. 2018).

Opinion

JUSTICE JAMES :

**447Palmetto Mortuary Transport, Inc. (Palmetto) sued Knight Systems, Inc. and Robert Knight (collectively, Knight) for breach of an asset purchase agreement executed in connection with the sale of Knight's mortuary transport business to Palmetto. A special referee found Knight breached the agreement by violating both a non-compete covenant and an exclusive sales provision contained in the agreement. Knight appealed, and the court of appeals reversed and remanded, holding the 150-mile territorial restriction in the non-compete **448covenant was unreasonable and unenforceable. Palmetto Mortuary Transp., Inc. v. Knight Sys., Inc. , 416 S.C. 427, 786 S.E.2d 588 (Ct. App. 2016). We reverse the court of appeals and hold that under the facts of this case, the territorial restriction in the non-compete covenant was reasonable and enforceable. We also find Knight's additional sustaining grounds to be without merit and therefore reinstate the special referee's order.

FACTUAL AND PROCEDURAL HISTORY

Founded in the 1980s, Knight began its operations as a mortuary transport business;

*727however, it eventually expanded to include the manufacturing and sale of body bags. In 2006, Knight decided to sell the mortuary transport portion of its business and approached a broker for assistance. In October 2006, Donald and Ellen Lintal (the CEO and CFO of Palmetto) met with a broker to discuss the purchase of Knight's mortuary transport business. From November 2006 to January 5, 2007, the parties and their agents-including brokers, accountants, and attorneys-negotiated the terms of an asset purchase agreement (the Agreement). During negotiations, Mr. Knight expressed to Mr. Lintal his desire to "get out of the business."

On January 5, 2007, Knight and Palmetto executed the Agreement. Pursuant to the Agreement, Knight sold various tangible assets, goodwill, and customer accounts-including body removal service contracts with Richland County, Lexington County, and the University of South Carolina-to Palmetto in exchange for $590,000.1 The Agreement included a provision (Exclusivity Provision) requiring Palmetto to purchase body bags from Knight for ten years and requiring Knight to sell body bags to Palmetto for ten years. The Exclusivity Provision became a central issue in the dispute between the parties.

A ten-year, 150-mile non-compete covenant was also executed and was included as an exhibit to the Agreement. Although the non-compete covenant restricted Knight from providing **449mortuary transport services within a 150-mile radius of Lexington County, it placed no restrictions on Knight's ability to continue its body bag manufacturing business. The non-compete covenant also provided that "a breach by [Palmetto] of [the Agreement] or such other documents ancillary thereto, shall constitute a breach of [the non-compete covenant] and shall release [Knight] from any and all restrictions hereunder."

Mr. Lintal testified the 150-mile territorial restriction extending from Lexington County was included to ensure Knight would not compete with Palmetto in South Carolina for ten years. Mr. Lintal acknowledged that at the time Palmetto purchased the transport business, Knight provided services primarily in Richland and Lexington County. Mr. Lintal testified that at the time the Agreement was executed, "We didn't know where the business was actually going to-what we were going to-if we were going to try to expand it at different locations. We wanted to keep our options open if it was doable."

In 2011, Palmetto still held the mortuary transport services contract with Richland County pursuant to the Agreement. Since the original five-year term between Palmetto and Richland County was expiring, Richland County issued a Request for Proposal (RFP) seeking mortuary transport service for the succeeding five years. Palmetto timely submitted its response to the RFP.

As noted above, the Exclusivity Provision required Palmetto to purchase body bags exclusively from Knight for ten years. From 2007 through 2011, Palmetto purchased over $45,000 worth of body bags from Knight. Palmetto had also purchased body bags from manufacturers other than Knight in the amount of $884.97. These purchases consisted of thirty-one infant bags ($192.75), four extra-large body bags ($213.72), six heavy duty body bags ($208.50), and six water-retrieval bags ($270.00). Knight became aware of the purchase of infant bags in 2009 or 2010 and immediately considered the purchase to be a breach of the Agreement, but did not confront Palmetto about the supposed breach for almost two years. Mr. Knight testified he did not become aware of the other purchases until discovery was exchanged after litigation began.

**450Palmetto believed the Exclusivity Provision did not require Palmetto to purchase either infant or extra-large bags from Knight. Palmetto agreed it had breached the Exclusivity Provision in purchasing heavy *728duty and water-retrieval bags from other manufacturers but argued this breach was not material. It argued the remedy for this breach was not cancellation of the Agreement, but rather money damages in the amount of $478.50, the sum it paid other manufacturers for heavy duty and water-retrieval bags. Knight argued the Exclusivity Provision required Palmetto to purchase all of its body bags from Knight and claimed the breach was material and nullified all terms and conditions of the Agreement, including the non-compete covenant.

On June 16, 2011, one day prior to the deadline for responses to the RFP, Mr. Knight recorded a conversation he had with Mr. Lintal. During the conversation, Mr. Knight accused Palmetto of purchasing infant body bags from other manufacturers. Mr. Lintal replied he did not believe his purchase of these body bags from other manufacturers was "significant," and he noted he did not believe "it was anything to break [the Agreement]." As noted above, Mr. Knight was aware of Palmetto's supposedly illicit purchase of infant body bags for almost two years before he confronted Mr. Lintal.

Following his conversation with Mr. Knight, Mr. Lintal suspected Knight was going to bid against Palmetto on the Richland County contract. Mr. Lintal's suspicion was correct-Mr. Knight submitted his own RFP the very next day. Even though Knight had received $590,000 for the sale of the business and an extra $45,000 in body bag purchases from Palmetto, Mr. Knight testified, "I didn't want to get back in the business. I was forced to. ... I felt like if I didn't take action at that time, I was going to be left out in the cold." After the RFP deadline passed, Mr.

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818 S.E.2d 724, 424 S.C. 444, Counsel Stack Legal Research, https://law.counselstack.com/opinion/palmetto-mortuary-transp-inc-v-knight-sys-inc-sc-2018.