TEAM IA, INC. v. Lucas
717 S.E.2d 103, 395 S.C. 237, 2011 S.C. App. LEXIS 309 (2011)
Rule of Law:
When an employment agreement contains a choice-of-law provision, courts must honor it, and summary judgment is inappropriate for restrictive covenants with alternative, less expansive geographic limitations if material facts regarding an employee's customer contact within those alternative territories remain in dispute.
Facts:
- Team IA conducts business in various industries, including microfilm, data entry, software, and consulting, and markets its services on a nationwide basis.
- In April 2001, Team IA hired Cicero Lucas as a sales representative.
- Lucas and Team IA signed an employment agreement containing non-solicitation and non-competition clauses, and a provision stating that South Carolina law would govern the agreement.
- The non-competition clause defined the primary "RESTRICTED TERRITORY" as the entire continental United States, but alternatively defined it as the states of South Carolina, North Carolina, Georgia, and Alabama if the nationwide restriction was deemed unreasonable.
- Lucas resigned from Team IA in February 2009.
- Subsequent to his resignation, Lucas contacted at least eight Team IA customers with whom he had worked extensively.
- Within one week of his resignation, Lucas established and became part owner and operator of 5 Point Solutions, LLC, a company that performed services similar to those provided by Team IA.
- Fulton County, Georgia, and Fayette County, Georgia, pulled projects from Team IA (which Lucas had been actively involved in securing) and awarded them to 5 Point Solutions.
Procedural Posture:
- Team IA filed a lawsuit against Lucas for breach of contract, breach of duty of loyalty, tortious interference with contractual relations, and other causes of action in circuit court.
- Lucas filed a motion for partial summary judgment on the breach of contract action with respect to the non-solicitation and non-competition provisions.
- Team IA filed the Supplemental Affidavit of Brent Yarborough after the summary judgment hearing.
- Lucas filed a Motion to Strike the Supplemental Affidavit as untimely.
- The circuit court granted partial summary judgment to Lucas, finding the non-competition clause overly broad and the non-solicitation provision unenforceable, applying Georgia law to the non-solicitation provision and South Carolina law to the non-competition clause, and neglecting to expressly rule on the motion to strike.
- Team IA filed a motion to alter or amend the judgment pursuant to Rule 59(e), SCRCP, arguing the court erred in failing to consider the facts and evidence set forth in Yarborough’s affidavits.
- The circuit court denied Team IA’s motion to alter or amend, without specifically mentioning the supplemental affidavit.
- Team IA appealed the circuit court's decision.
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Issue:
Did the circuit court err by (1) granting partial summary judgment on the enforceability of a non-competition clause despite conflicting evidence regarding the reasonableness of its alternative, more limited geographic restriction, and (2) failing to apply the contract's express South Carolina choice-of-law provision to evaluate the validity of a non-solicitation clause?
Opinions:
Majority - Geathers, J.
Yes, the circuit court erred by disregarding conflicting affidavits, granting summary judgment on a non-competition clause with a valid alternative territorial restriction, and failing to apply the contract's designated choice-of-law provision to the non-solicitation clause. The court found a genuine issue of material fact existed regarding Lucas's interaction with Team IA customers in South Carolina, North Carolina, Georgia, and Alabama, which precluded summary judgment on the alternative territorial restriction within the non-competition clause. While the primary nationwide restriction was overly broad, the court distinguished this case from Poynter Invs., Inc. v. Century Builders of Piedmont, Inc. by noting that the alternative, more limited territory was already stipulated within the original agreement, not a subsequent judicial modification or agreement. The court clarified that judicial 'blue-penciling' is prohibited, but enforcing a contract's own built-in alternative is permissible. Further factual inquiry was needed to determine the reasonableness of this alternative restriction. Additionally, the circuit court incorrectly applied traditional South Carolina common law choice-of-law rules (e.g., Witt v. American Trucking Ass’ns, Livingston v. Atlantic Coast Line Railroad) to the non-solicitation clause. These rules apply only in the absence of an express choice-of-law provision. Since the employment agreement explicitly designated South Carolina law, and no strong public policy exception was present, South Carolina law should have been applied to the non-solicitation provision. The court reversed and remanded, directing the circuit court to rule on Lucas’s Motion to Strike the Supplemental Affidavit and to apply South Carolina law in evaluating the non-solicitation provision.
Analysis:
This case significantly clarifies the application of choice-of-law provisions in employment contracts and the judicial treatment of restrictive covenants containing alternative geographic limitations under South Carolina law. It reinforces the principle that courts must honor parties' express choice-of-law clauses, correcting the circuit court's application of default choice-of-law rules in the presence of such a provision. Furthermore, the decision distinguishes between an impermissible judicial 'blue-penciling' of a restrictive covenant and the enforcement of an alternative, narrower restriction already stipulated by the parties within the original agreement, indicating a willingness to enforce such tiered provisions when supported by factual evidence. This ruling compels trial courts to meticulously assess factual disputes, particularly concerning an employee's actual customer contacts, before granting summary judgment on restrictive covenants with built-in alternatives.
