Rent-A-Center, Inc. v. Canyon Television & Appliance Rental, Inc.

944 F.2d 597, 91 Daily Journal DAR 11274, 91 Cal. Daily Op. Serv. 7382, 1991 U.S. App. LEXIS 21344, 1991 WL 176331
CourtCourt of Appeals for the Ninth Circuit
DecidedSeptember 13, 1991
DocketNos. 91-15150, 91-15416
StatusPublished
Cited by117 cases

This text of 944 F.2d 597 (Rent-A-Center, Inc. v. Canyon Television & Appliance Rental, Inc.) is published on Counsel Stack Legal Research, covering Court of Appeals for the Ninth Circuit primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Rent-A-Center, Inc. v. Canyon Television & Appliance Rental, Inc., 944 F.2d 597, 91 Daily Journal DAR 11274, 91 Cal. Daily Op. Serv. 7382, 1991 U.S. App. LEXIS 21344, 1991 WL 176331 (9th Cir. 1991).

Opinion

SNEED, Circuit Judge:

Defendant Canyon Television and Appliance Rental, Inc. (Canyon) appeals from a district court grant of a preliminary injunction in favor of the plaintiff, Rent-A-Center, Inc. (RAC), in a diversity action to enforce a covenant not to compete associated with RAC’s purchase of a Canyon location. We affirm.

I.

FACTS

RAC rents durable household goods, such as televisions, stereos, appliances, and furniture, to consumers nationwide. Defendant Canyon also rents durable goods, from locations in Nevada, Hawaii, and Arizona.

On March 7, 1990, RAC purchased the assets of a Canyon location in Phoenix, Arizona. The purchase agreement contained a noncompetition covenant, in which Canyon agreed not to engage in the rental or sale of durable goods for a period of three years within a region described as the Phoenix Area of Dominant Influence (ADI). ADI is a term used by the Arbitron Company, a television research service, to define advertising markets. Within a given ADI, over fifty per cent of all households with televisions watch programs from stations originating within that particular area. The Phoenix ADI covers much of central and western Arizona, encompassing approximately 69,000 square miles.

In August, 1990, RAC learned of Canyon’s plans to open a new location in Bullhead City, Arizona, which is included in the Phoenix ADI. Despite RAC’s protests, Canyon opened the Bullhead City location on August 15, 1990.

On September 11,1990, RAC filed a complaint in the United States District Court for the District of Arizona, seeking to enjoin Canyon’s breach and recover damages. Canyon counterclaimed for rescission and reformation of the contract based on mistake and misrepresentation.

[600]*600On December 18, 1990, the district court issued a preliminary injunction enjoining Canyon from operating the Bullhead City store, or opening any store within the Phoenix ADI, after February 25, 1991. Canyon appeals, claiming primarily that the scope of the restrictive covenant was unreasonably large, given the local nature of the Phoenix store’s operations, and should not be enforced.

II.

JURISDICTION AND CHOICE OF LAW

The district court had diversity jurisdiction under 28 U.S.C. § 1332(a) (1988). This court has appellate jurisdiction over the district court’s grant of a preliminary injunction under 28 U.S.C. § 1292(a)(1).

As set forth in the purchase agreement, Kansas contract law governs the substantive issues of law in this diversity action. The parties also agree that, for purposes of this case, Arizona law is equally acceptable.

III.

STANDARD OF REVIEW

The district court’s grant of preliminary injunctive relief is reviewed for abuse of discretion. Religious Technology Center, Church of Scientology Int'l, Inc. v. Scott, 869 F.2d 1306, 1309 (9th Cir.1989). The related factual findings are reviewed under the clearly erroneous standard. Id. Issues of law underlying a district court grant of a preliminary injunction are reviewed de novo. See Guam Fresh, Inc. v. Ada, 849 F.2d 436, 437 (9th Cir.1988).

In this case, both parties agree to de novo review of the restrictive covenant’s reasonableness. Generally, the classification of this issue as legal or factual depends upon state law. See In re Talmage, 758 F.2d 162, 165 (6th Cir.1985) (reasonableness of noncompetition covenant is legal issue under Illinois law); see also NCH Cory. v. Share Corp., 757 F.2d 1540, 1542 n. 2 (5th Cir.1985).

Under Kansas law, the reasonableness of a noncompetition covenant is apparently a question of fact. See Eastern Distributing Co. v. Flynn, 222 Kan. 666, 670, 673, 567 P.2d 1371, 1376, 1378 (1977) (stating that the “test is ... whether the restraint is reasonable under the facts and circumstances of the particular case”). However, under Arizona law, reasonableness is a question of law. See Gann v. Morris, 122 Ariz. 517, 518, 596 P.2d 43, 44 (Ct.App.1979). Without addressing the merits of this dispute, we conclude, after de novo review, that the district court’s order was appropriate. Our holding implicitly recognizes that the judge’s decision would have also survived scrutiny under the less rigorous, clearly erroneous standard.

IV.

DISCUSSION

A. The Reasonableness of the Restrictive Covenant’s Scoye

Canyon first argues that the noncompetition covenant should not be enforced because the geographic area covered — that is, the Phoenix ADI — greatly exceeds the customer base of the store sold, which Canyon asserts is no more than a thirty-mile radius, and thus represents an unreasonable restraint of trade.

Under Kansas law, when a contract is freely entered into with full knowledge, there is a presumption favoring legality. Eastern Distributing Co., 222 Kan. at 671, 567 P.2d at 1376 (evaluating a noncom-petition clause in an employment agreement). In determining whether a noncom-petition covenant is enforceable, the rights of the promisee, the promisor, and the general public must be taken into account; and “area and time limitations must be reasonable under the facts and circumstances of the particular case.” H & R Block, Inc. v. Lovelace, 208 Kan. 538, 544, 493 P.2d 205, 210 (1972). When deciding what is reasonable, courts give greater deference to restrictions that are part of the sale of a business than to restrictive covenants between employers and employees. See id. at 544-45, 493 P.2d at 211; see also Gann, 122 Ariz. at 518, 596 P.2d at 44 (“Where [601]*601limited as to time and space, [such a] covenant is ordinarily valid unless it is to refrain from all business whatsoever.”). This is because the seller of a business is more likely to have equal bargaining power in negotiating such covenants, and is presumably compensated by an increase in the selling price, while an employee merely receives the opportunity for continued employment. See H & R Block, 208 Kan. at 545, 493 P.2d at 211.

We have examined the facts and circumstances of this case, and we conclude that the geographic restriction passes the reasonableness test of H & R Block. Canyon freely entered into a clear and unambiguous covenant. Television advertising is a significant means of attracting customers in the rent-to-own industry. Advertising by Canyon’s Phoenix location, extending throughout the Phoenix ADI, created an asset by enhancing Canyon’s potential for expansion in that region, and by reducing the effectiveness of other voices, including RAC’s, in the advertising market. Canyon sold that asset to RAC as part of the sale of the Phoenix location.

Free access — add to your briefcase to read the full text and ask questions with AI

Related

Cite This Page — Counsel Stack

Bluebook (online)
944 F.2d 597, 91 Daily Journal DAR 11274, 91 Cal. Daily Op. Serv. 7382, 1991 U.S. App. LEXIS 21344, 1991 WL 176331, Counsel Stack Legal Research, https://law.counselstack.com/opinion/rent-a-center-inc-v-canyon-television-appliance-rental-inc-ca9-1991.