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2008-UP-173 - Professional Wiring Installers v. Sims

THIS OPINION HAS NO PRECEDENTIAL VALUE.  IT SHOULD NOT BE CITED OR RELIED ON AS PRECEDENT IN ANY PROCEEDING EXCEPT AS PROVIDED BY RULE 239(d)(2), SCACR.

THE STATE OF SOUTH CAROLINA
In The Court of Appeals

Professional Wiring Installers, Inc., Randy Cochran and Denise Cochran, Respondents,

v.

Thomas Sims, III, and Communication Components, Inc., Defendants,

of whom Thomas Sims, III is the Appellant.


Appeal From Richland County
 Joseph  M. Strickland, Master In Equity


Unpublished Opinion No. 2008-UP-173
Submitted March 3, 2008 – Filed March 12, 2008   


REVERSED and REMANDED


Tucker S. Player, Esquire; Debra C. Galloway, of Columbia, for Appellant.

S. Jahue Moore, of W. Columbia, for Respondents.

PER CURIAM:  Thomas Sims, III alleges the Master in Equity committed error in granting the Respondents (PWI) a preliminary injunction, which enjoined him from violating the terms of a non-compete agreement between him and PWI and in failing to require PWI to post a bond pursuant to Rule 65, SCRCP.  We reverse and remand.[1]

FACTS

PWI is in the communications business, and Sims worked for them.  In July of 2005, PWI presented a non-compete agreement to Sims, which Sims signed.  The agreement provided: “While I am employed by the Company, and for 3 years… afterward, I will not compete with the business of the Company . . ., within a radius of 600 miles from the present location of the Company.”  Sims continued to work for PWI until March 10, 2006.  After his employment with PWI ended, he began working for Computer Components, Inc. (CCI), one of PWI’s largest customers.  Sims performed similar services for CCI as those he previously provided CCI while employed by PWI.  As a result of Sims activities, PWI allegedly no longer received business from CCI.

On August 7, 2006, PWI and its owners, Randy and Denise Cochran, filed suit against Sims and CCI seeking monetary damages and both preliminary and permanent injunctive relief to enforce the terms of the agreement not to compete.  By order signed December 11, 2006, the Master granted a preliminary injunction against Sims, enjoining him “from violating the employee non-compete agreement to the extent that he shall not solicit or attempt to solicit any business or trade from [PWI’s] customers or clients until further Order of this Court.”  The Master also refused to set a bond as required by Rule 65(c), SCRCP.  This appeal follows.    

STANDARD OF REVIEW

“The granting of temporary injunctive relief is within the sound discretion of the trial court and will not be overturned absent an abuse of that discretion.” City of Columbia v. Pic-A-Flick Video, Inc., 340 S.C. 278, 282, 531 S.E.2d 518, 520-21 (2000). “An abuse of discretion occurs when a trial court’s decision is unsupported by the evidence or controlled by an error of law.” County of Richland v. Simpkins, 348 S.C. 664, 668, 560 S.E.2d 902, 904 (Ct. App. 2002).

LAW/ANALYSIS

The Supreme Court of South Carolina recently addressed injunctive relief:

The power of the court to grant an injunction is in equity. The court will reserve its equitable powers for situations when there is no adequate remedy at law. The party seeking an injunction has the burden of demonstrating facts and circumstances warranting an injunction. The remedy of an injunction is a drastic one and ought to be applied with caution. In deciding whether to grant an injunction, the court must balance the benefit of an injunction to the plaintiff against the inconvenience and damage to the defendant, and grant an injunction which seems most consistent with justice and equity under the circumstances of the case.

For a preliminary injunction to be granted, the plaintiff must establish that (1) it would suffer irreparable harm if the injunction is not granted; (2) the party seeking injunction will likely succeed in the litigation; and (3) there is an inadequate remedy at law.


Strategic Resources Co. v. BCS Life Ins. Co., 367 S.C. 540, 544, 627 S.E.2d 687, 689 (2006) (internal citations omitted).  This court has also addressed injunctive relief, noting:

[i]t is well settled that, in determining whether a temporary injunction should issue, the merits of the case are not to be considered, except in so far as they may enable the court to determine whether a prima facie showing has been made. When a prima facie showing has been made entitling plaintiff to injunctive relief, a temporary injunction will be granted without regard to the ultimate termination of the case on the merits.


MailSource, LLC v. M.A. Bailey & Assocs., 356 S.C. 363, 368, 588 S.E.2d 635, 638 (Ct. App. 2003) (internal citations omitted).

We are aware that in determining whether a temporary injunction should be granted, the merits of the case should not be considered beyond determining whether a prima facie showing has been made.  However, as noted by the Supreme Court in Strategic Resources, the party seeking injunctive relief must establish it will likely succeed on the merits.  Accordingly, we review whether PWI has made a prima facie showing of the likelihood of succeeding on the merits.  Following our review, we have concluded that PWI failed to make this showing.    

This Court addressed the enforceability of covenants not to compete in Faces Boutique, Ltd. v. Gibbs, where we stated:

Covenants not to compete contained in employment contracts are generally disfavored and will be strictly construed against the employer.  A restriction against competition must be narrowly drawn to protect the legitimate interests of the employer.  A covenant not to compete will be upheld only if it is:

(1) necessary for the protection of the legitimate interest of the employer;

(2) reasonably limited in its operation with respect to time and place;

(3) not unduly harsh and oppressive in curtailing the legitimate efforts of the employee to earn a livelihood;

(4) reasonable from the standpoint of sound public policy; and

(5) supported by valuable consideration.

Moreover, each case concerned with the enforceability of covenants not to compete contained in employment contracts must be decided on its own facts. If a covenant not to compete is defective in one of the above referenced areas, the covenant is totally defective and cannot be saved.

318 S.C. 39, 41-42, 455 S.E.2d 707, 708-09 (Ct. App. 1995) (internal citations omitted).

In the case sub judice, we are troubled by the broad geographical scope and effective time period of the non-compete agreement.  The terms of the agreement restrict Sims’ business activities within a 600 mile radius of Lexington, South Carolina, for three years following the completion of his employment with PWI.  The agreement, if enforceable, would bar Sims’ business activities in thirteen states fully and in parts of nine other states.  While the agreement bars Sims activities in at least part of twenty-two states, PWI only conducted business in five states.  For these reasons, we are doubtful of the enforceability of this agreement.  See  Poole v. Incentives Unlimited, Inc., 345 S.C. 378, 548 S.E.2d 207 (2001) (holding that a covenant not to compete is enforceable if it is not detrimental to the public interest, is reasonably limited as to time and territory, and is supported by valuable consideration). 

To be entitled to injunctive relief, PWI must establish it would suffer irreparable harm without such relief.  We find no such showing.  Generally, pure economic loss is not sufficient to satisfy the requirement of showing an irreparable harm where an adequate remedy is available at law.  See MailSource, LLC, 356 S.C. at 370, 588 S.E.2d at 639 (stating the “general rule is that an injunction should be granted only where some irreparable injury is threatened for which there is no adequate remedy at law”).  However, this Court has recognized an irreparable harm where economic loss threatens the plaintiff’s business as a whole. See Peek v. Spartanburg Regional Healthcare System, 367 S.C. 450, 455-56, 626 S.E.2d 34, 37 (Ct. App. 2005) (holding “the complete loss of a professional practice can be an irreparable harm”). 

PWI failed to allege any irreparable harm arising from Sims’ business activities.  Randy Cochran, one of PWI’s owners and its president, testified PWI no longer conducted business with CCI, one of its largest customers, as a result of Sims’ activities.  Cochran alleged the lost business represented approximately thirty percent of PWI’s overall business.  However, PWI failed to allege or present any evidence that Sims’ activities could cause the complete loss of business for PWI. 

The only allegation of irreparable harm in this case is contained in the non-compete agreement itself.  The agreement states:

3.  Injunctive Relief.  I acknowledge and agree that in the event of a violation or threatened violation of any provisions of this agreement, the Company will sustain irreparable harm and will have the full right to seek injunctive relief, in addition to any other legal remedy available, without the requirement of posting bond.

We are not satisfied that language in the challenged agreement alone constitutes a sufficient showing of irreparable harm, particularly when considering the overly broad scope of the agreement.  See Faces Boutique, Ltd. 318 S.C. at 42, 455 S.E.2d at 709 (holding: “If a covenant not to compete is defective in one . . . area[], the covenant is totally defective and cannot be saved.”).  Accordingly, we find the Master erred in finding PWI had satisfied the requirement of showing irreparable harm, and therefore, the preliminary injunction should not have been granted.

Sims also claims the Master committed error in failing to require PWI to pay a bond pursuant to Rule 65(c), SCRCP.  We agree. 

Rule 65(c), SCRCP, provides:

no restraining order or temporary injunction shall issue except upon the giving of security by the applicant, in such sum as the court deems proper, for the payment of such costs and damages as may be incurred or suffered by any party who is found to have been wrongfully enjoined or restrained.

PWI argues the “deems proper” language of Rule 65, SCRCP, provides the Master with discretion to set no bond at all.  PWI also argues the language of the non-compete argument, which states PWI has a right to seek injunctive relief “without the requirement of posting bond,” justifies the Master’s refusal to set bond.  We are not persuaded by either argument.   

In Atwood Agency v. Black, 374 SC 68, 646 S.E.2d 882, (2007), the Supreme Court of South Carolina recently addressed the issue of the discretion provided to trial courts by Rule 65, SCRCP.  Atwood Agency is a vacation rental business on Edisto Island, South Carolina.  Elaine Shaw was employed by Atwood Agency for fifteen years.  When Shaw’s employment with Atwood Agency ended, she went to work for another vacation rental business, Edisto Sales and Rental Realty, Inc.  Atwood Agency filed suit against Shaw and her new employer.  The circuit court granted Atwood Agency a temporary injunction, restraining Shaw and her employer from contacting or contracting with Atwood’s clients.  The court set bond in the amount of $250. 

Shaw and her employer challenged the underlying temporary injunction and argued the amount of bond was inadequate.  The Supreme Court reversed and remanded, explaining: “[t]he circuit court’s order requiring only a nominal security bond does not satisfy Rule 65(c) because it erroneously assumes the injunction is proper instead of providing an amount sufficient to protect appellants in the event the injunction is ultimately deemed improper.”  374 SC 68, 78, 646 S.E.2d 882, 884.  The Supreme Court ruled Shaw and her employer had been improperly enjoined and remanded the matter back “to the circuit court to award the appropriate amount of costs and damages incurred as a result of the temporary injunction.” Id.

We find that if setting nominal bond is not within the discretion of the trial court, setting no bond is likewise beyond the trial court’s discretion.  Furthermore, to allow the language of the non-compete argument to control whether a bond is required would impose the same flawed reasoning upon Sims as that rejected in Atwood: to “erroneously assume[] the injunction is proper instead of providing an amount sufficient to protect appellants in the event the injunction is ultimately deemed improper.”  Id.

CONCLUSION

For the reasons stated above, we reverse the Master’s grant of a preliminary injunction and remand the matter back to the Master for further proceedings to determine if Sims has incurred any cost or suffered any damages as a result of the improper injunction and to award appropriate relief.  Accordingly, the order of the Master is

REVERSED and REMANDED.

ANDERSON, SHORT, and THOMAS JJ., concur.


[1] We decide this case without oral argument pursuant to Rule 215, SCACR.