Hopper v. All Pet Animal Clinic
861 P.2d 531 (Wyo. 1993) (1993)
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Rule of Law:
A court may modify an unreasonable term within a covenant not to compete, such as an excessive duration, and enforce the covenant to the extent that it is reasonable, provided the covenant is ancillary to a valid employment relationship and supported by consideration.
Facts:
- Dr. Glenna Hopper, a veterinarian, began working for All Pet Animal Clinic, Inc. in July 1988.
- In February 1989, Dr. Robert Johnson, president of All Pet, offered Dr. Hopper full-time employment, conditioning the offer on her acceptance of a covenant not to compete.
- Dr. Hopper began full-time work in March 1989 under an oral agreement.
- On December 11, 1989, Dr. Hopper signed a written Employment Agreement which included a covenant restricting her from practicing small animal medicine for three years within five miles of Laramie, Wyoming, upon termination.
- On June 1, 1990, the parties executed an addendum in which Dr. Hopper received a salary increase and reaffirmed the terms of the original agreement, including the covenant not to compete.
- In June 1991, Dr. Johnson confronted Dr. Hopper about a rumor she was buying a competing practice. Dr. Hopper denied it, stated the employment agreement was worthless, and Dr. Johnson terminated her employment with 30-days notice.
- On July 15, 1991, Dr. Hopper purchased another veterinary practice, Gem City Veterinary Clinic, within Laramie and began practicing small animal medicine.
- After Dr. Hopper opened her new practice, 187 clients who had been served by All Pet or its associated clinic, Alpine, became clients of Dr. Hopper's new practice.
Procedural Posture:
- All Pet Animal Clinic, Inc. and Alpine Animal Hospital, Inc. filed a complaint against Dr. Hopper in the district court (trial court) for injunctive relief and damages.
- The district court, after a trial, found the covenant enforceable and issued an injunction prohibiting Dr. Hopper from practicing small animal medicine for three years within five miles of Laramie.
- The district court denied the employers' claim for damages, finding the amount to be speculative.
- Dr. Hopper, as appellant, appealed the injunction to the Supreme Court of Wyoming.
- The corporate employers, as appellees and cross-appellants, appealed the denial of damages to the Supreme Court of Wyoming.
- The Supreme Court of Wyoming consolidated the two appeals.
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Issue:
Is a covenant not to compete in an employment contract, which prohibits a veterinarian from practicing small animal medicine for a period of three years within a five-mile radius of the city, an enforceable restraint of trade?
Opinions:
Majority - Justice Taylor
No, a covenant not to compete is not fully enforceable as a restraint of trade when one of its terms, such as the three-year duration, is unreasonable; however, a court may modify the unreasonable term and enforce the remainder of the covenant. The court found that while the initial written covenant lacked separate consideration, a subsequent addendum that included a pay raise did provide valid consideration, making the covenant enforceable. Applying a rule of reason test, the court determined that the employer had legitimate business interests to protect, such as its client base and confidential business information. The geographic scope (five miles) and activity restriction (small animal medicine) were deemed reasonable because they protected the employer's interests without imposing an undue hardship on Dr. Hopper, who could still practice large animal medicine. However, the three-year duration was found to be unreasonable and not necessary to protect the employer's interests; the court concluded that one year was sufficient for a new veterinarian to establish relationships with the clinic's clients. The court adopted the position of the Restatement (Second) of Contracts § 184, which permits partial enforcement of an overly broad covenant by modifying the unreasonable term, and remanded the case to have the injunction modified to a one-year duration. The court also affirmed the denial of damages, finding the employer's proof of lost profits was too speculative.
Dissenting - Justice Cardine
Yes, the covenant should be enforced, and the court's remedy is insufficient. The dissent argued that Dr. Hopper knowingly and flagrantly violated her solemn promise. By reducing the term to one year and remanding, the majority's decision may result in no effective consequence, as more than a year may have already passed during the litigation. The dissent would require the one-year injunction to begin from the date of the new court order on remand, ensuring that Dr. Hopper is actually enjoined for the period the court now deems reasonable.
Analysis:
This case is significant for establishing the modern approach to covenants not to compete in Wyoming. By adopting the 'rule of reason' and, most importantly, the partial enforcement doctrine from the Restatement (Second) of Contracts § 184, the Wyoming Supreme Court moved away from the traditional, rigid 'all-or-nothing' rule. Under the old rule, a single unreasonable term would void the entire covenant. This decision allows courts to equitably modify overly broad terms, such as duration or geographic scope, to make them reasonable and then enforce them, providing employers a degree of protection even if their drafting is imperfect, while still protecting employees from truly oppressive restrictions.
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