Market America, Inc. v. Lee
Market America, Inc. v. Lee
Opinion of the Court
*99There 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. ("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 Lee
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 .,
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 *100training to Market America's distributors. 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 *35and 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 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 *101it 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 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 ,
"Generally, there is no right of immediate appeal from interlocutory orders and judgments." Paradigm Consultants, Ltd. v. Builders Mut. Ins. Co. ,
*102However, 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 underN.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 ,
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 ,
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. ,
II. Voluntary Dismissal
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 *103claim against Lee.
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 *37circumstances 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 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 ,
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. ----, ----,
*104In 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 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 ,
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 *105faith 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 ,
In Estrada , the plaintiff suffered complications during a surgery to repair his leg wound. Estrada ,
*38Over 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,
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 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,
In Eubank v. Van-Riel ,
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 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 would "make a mockery of" the court's *107ruling. *39Maurice v. Hatterasman Motel Corp. ,
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. ,
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,
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.
"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. ----, ----,
"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."
*40Okuma Am. Corp. v. Bowers ,
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.
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 *109subject 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. ,
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 ,
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.
... 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:
*110(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, *41they agree that they will not act in any capacity for another 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 ,
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 ,
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."
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 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.
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[,]"
*42and are "expos[ed] to [a] wide variety of Market America distributors...." For these reasons, the complaint *112asserts, 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 ,
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
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.
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.
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.
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.
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,.
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.
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 ,
The 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.
Case-law data current through December 31, 2025. Source: CourtListener bulk data.