North Carolina Business Litigation Report

Two Things You Should Know If You Are Appealing A Preliminary Injunction On A Covenant Not To Compete

If you are representing a client who has been subjected to an injunction enjoining him from violating a covenant not to compete, and you want to appeal, there are two things you ought to know.  One is good for you, the other probably is not so good.  They were pointed out in Judge McGuire's unpublished Order last Friday in Union Corrugating Co. v. Viechnicki.

Viechnicki, former Director of Sales for the Plaintiff,  had been enjoined from competing with his former employer in some respects via a TRO (granted in Cumberland County Superior Court), which was continued into a Preliminary Injunction (by the Business Court, by Judge Jolly). 

He filed a Notice of Appeal, and a Motion that the Court recognize a stay of the proceedings pending the appeal.

A Trial Judge Has No Authority To Dismiss An Appeal As Interlocutory

First, if you are in this situation, can you even appeal?  Or is your appeal interlocutory and subject to dismissal by the trial court?  Mixed news here, mostly good.  Even if your appeal is interlocutory, a trial court does not have the power to dismiss an appeal as interlocutory.  Order 9.  That part of Judge McGuire's Order was based on a Court of Appeals decision -- Estrada v. Jaques, 70 N.C. App. 627, 321 S.E.2d 240 (1984) -- which held that a trial judge "acted beyond his authority in dismissing [an] appeal . . . as interlocutory."  Id. at 639-40, 321 S.E.2d at 248.

The only authority that a trial judge has to dismiss  an appeal of his or her order is contained in NC Appellate Rule 25.  That power is limited to dismissing an appeal for a failure to take action to perfect an appeal.  Order 9.

Thus, Judge McGuire denied the Plaintiff's Motion to Dismiss Viechnicki's appeal.

A Stay Of Proceedings In The Trial Court Is Only Appropriate If The Ruling Appealed From Affects A "Substantial Right"

But let's say that the case in which the injunction was entered is ongoing, as was Viechnicki's.  You are facing a load of annoying written discovery and then a deposition of your client, and your adversary is angling towards making a motion for summary judgment, as Viechnicki's former employer was.  Are you entitled to a stay of proceedings per G.S. §1-294 until the Court of Appeals hears your appeal? 

Section 1-294 says that:

When an appeal is perfected as provided by this Article it stays all further proceedings in the court below upon the judgment appealed from, or upon the matter embraced therein; but the court below may proceed upon any other matter included in the action and not affected by the judgment appealed from.

You might think that because the Court did not have the power to dismiss the appeal, and that the appeal would therefore be proceeding, that the action would be stayed.  But that's not right: the COA has said that the trial court "has the authority . . . to determine whether or not its order affects a substantial right of the parties or is otherwise immediately appealable."  RPR & Assocs. v. University of North Carolina, 153 N.C. App. 342, 348, 570 S.E.2d 510, 514 (2002). So whether a stay is in effect depends on whether the injunction affects a "substantial right."  While you might think that an injunction enforcing a covenant not to compete, which impairs your client's ability to be employed, must affect a substantial right, you could be wrong.

Appellate cases that have found an injunction enforcing a covenant not to compete affected a substantial right have involved injunctions that "effectively prohibit[ed] defendant from earning a living and practicing his livelihood" (Precision Walls v. Servie, 152 N.C. App. 630, 635, 568 S.E.2d 267, 271 (2002) or caused an "inability to do business" in a seasonal occupation (Milner Airco, Inc. v. Morris, 111 N.C. App. 866, 869, 433 N.C. App. 811, 813 (1993)).

The injunction being appealed by Viechnicki barred him from disclosing confidential information obtained from the Plaintiff, and from soliciting business from "any customer with whom [he] had contact while employed by Plaintiff."  Order 4.  Significantly, the Injunction did not bar Viechnicki  from working for the competitor as its new President or performing sales related duties that did not involve customers with whom he had had contact during his past employment with the Plaintiff.  And Viechnicki's protestations that the injunction prohibited from calling on over 9,000 customers didn't earn him any sway with Judge McGuire.

Judge McGuire ruled that the injunction affecting Viechnicki did not bar him from:

earning a living and practicing his livelihood, [or] deprive [him] of a reasonable opportunity to use his skill and talents, or otherwise give rise to an inability to do business.

Order 17 citations omitted).

Judge McGuire rejected the argument that "a preliminary injunction that enforces a non-compete restriction necessarily affects a substantial right."  Order 15.  Whether a substantial right is affected has to be examined on a case by case basis.  After this analysis, Judge McGuire held that the preliminary injunction enjoining some of Viechnicki's activities did not affect a "substantial right."

So Judge McGuire therefore denied the motion to stay proceedings by the Plaintiff, ordered that the case would proceed, and that Viechnicki should respond to outstanding discovery.

 

 


 

 

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Mack Sperling
Brooks Pierce, LLP
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