Opinion
No. COA15–280.
01-05-2016
Lawrence J. HERTZBERG, Plaintiff, v. FUR SPECIALISTS, INC., Greg Albert, and Hertzberg Furs of Raleigh, Inc., Defendants.
Emanuel & Dunn, by Stephen A. Dunn and S. Michael Dunn, for Plaintiff–Appellee. Goodman, Carr, Laughrun, Levine, and Greene, PLLC, by Miles S. Levine for Defendants–Appellants.
Emanuel & Dunn, by Stephen A. Dunn and S. Michael Dunn, for Plaintiff–Appellee.
Goodman, Carr, Laughrun, Levine, and Greene, PLLC, by Miles S. Levine for Defendants–Appellants.
Opinion
Appeal by Defendants from order entered 17 December 2014 by Judge Lucy N. Inman in Wake County Superior Court. Heard in the Court of Appeals 10 September 2015. Wake County, No. 14 CVS 4498.
HUNTER, JR., ROBERT N., Judge.
Fur Specialists, Inc., Greg Albert, and Hertzberg Furs of Raleigh, Inc. (collectively “Defendants”) appeal from an order (1) declaring a non-compete agreement unenforceable against Lawrence J. Hertzberg (“Plaintiff”), (2) declaring Defendants did not have exclusive rights to the name “Hertzberg,” and (3) granting Plaintiff's Motion to Dismiss Defendants' Counterclaims. We affirm the trial court.
I. Facts and Procedural History
Plaintiff is part of a family fur business, Hertzberg Furs, first established in Rocky Mount, North Carolina, in 1946 by Plaintiff's father, Sol Hertzberg (“Sol”). North Carolina consumers began to associate the Hertzberg name with the fur market sometime in the 1950s to 1960s, when Sol advertised in Eastern North Carolina.
Plaintiff worked in the Rocky Mount store until 1981, when opened his own location in Raleigh, North Carolina. Plaintiff's Raleigh store did business under the name “Hertzberg Furs of Raleigh.” Plaintiff ran the business the same as the Rocky Mount store, advertising and attending selling retreats in Eastern North Carolina. Plaintiff sold the Raleigh location to Rik Kiszely (“Kiszely”) in July 2002, and Kiszely continued similar business operations. In December 2002, the original Rocky Mount store closed.
In March 2007, Plaintiff opened another store in Wilson, North Carolina, under the name “Hertzberg International.” Plaintiff operated the Wilson store in the same manner as the Rocky Mount and Raleigh locations, and competed with Kiszely.
In March 2010, Plaintiff sold the Wilson store to Fur Specialists, Inc. (“Specialists”), a North Carolina corporation owned by Greg Albert (“Albert”). To complete the sale, Plaintiff and Albert executed two documents: (1) an Asset Purchase Agreement (the “Agreement”) and (2) a Covenant Not to Compete and Non–Disclosure Agreement (“Non–Compete”). The Agreement stated the following clauses regarding the Wilson store's name:
[T]he name “Hertzberg International” and any variation thereof, including the goodwill associated with said name in connection with the retail fur business operated at and from 2801 Ward Boulevard, Wilson, NC, but expressly excluding any “good will,” [sic] contracts, accounts, agreements or business in connection with or arising out of Seller's [Plaintiff's] wholesale fur business, is hereby being sold to Purchaser [Fur Specialists, Inc.].
The Agreement required Plaintiff to change his business' name with the North Carolina Secretary of State “to any name that does not include the words “Hertzberg International.” Plaintiff changed his business' name to “L.J.H. Furs, Inc.”
As additional consideration, Plaintiff and Specialists executed a non-compete agreement. Plaintiff agreed to the following:
For a period of three (3) years from the date of this Agreement, he will not directly or indirectly, became [sic] an employee, sponsor, promoter, agent, consultant, advisor, manager, officer, director, stockholder, partner, franchisee, licensee, owner or in any other capacity associated with any other business in any way involved in the purchasing and retail selling of furs and leather goods within a sixty (60) mile radius of the business located at 2801 Ward Boulevard, Suite 3E, Wilson, North Carolina 27893.
The parties agreed Plaintiff could continue selling furs as a wholesaler, provided he did not sell to specific retailers set out in the Non–Compete.
Albert purchased ownership interest in Kiszely's Raleigh store in November 2010, and Specialists closed the Wilson store shortly thereafter in 2011. Years later, Plaintiff attended three trade shows in Durham, Fayetteville, and Southern Pines, North Carolina. The Durham trade show, held on 27 January 2013 at a Hampton Inn, violated the sixty-mile radius protected by the Non–Compete. The Fayetteville trade show, held 20 January 2013, was located outside the sixty-mile radius, but Plaintiff advertised in a local paper circulated within the protected radius.
Starting 5 March 2013, Defendants sent Plaintiff numerous cease and desist letters demanding Plaintiff cease all fur business operations associated with the Hertzberg name in North and South Carolina. Plaintiff filed a complaint for declaratory judgment on 11 April 2014, seeking the following:
(1) To declare and determine the rights, status and legal relations between the parties with respect to the covenant not to compete;
(2) To declare that the covenant not to compete was not violated by [Plaintiff];
(3) To declare that neither Defendants, nor anyone claiming by, through or under Defendants, have a right to preclude [Plaintiff] from engaging in the fur business or utilizing his name in connection therewith in any State, territory or geographic area....
On 15 July 2014, Defendants answered Plaintiff's complaint and raised two counterclaims alleging: (1) Plaintiff violated the Non–Compete by selling within the protected area at the Durham and Fayetteville trade shows; and (2) Plaintiff committed common law trademark infringement by using the “Hertzberg” mark in connection with his fur business.
On 19 September 2014, Plaintiff replied to the counterclaims. Plaintiff attached “Exhibit 2” to his reply, which included the following: a 23 April 2007 complaint filed by Kiszely and Hertzberg Furs of Raleigh, Inc., against Plaintiff and Hertzberg International, Inc.; a 20 March 2008 mediated settlement agreement, which stipulated “[Plaintiff] may use any mark symbol, slogan, graphic designs, names including Hertzberg Furs, or other proprietary rights as owner/licensee of Hertzberg Furs, Inc. even though the same may be similar to those utilized by Hertzberg Furs of Raleigh, Inc.”; and a 7 April 2008 joint dismissal of the claims.
Pursuant to the Uniform Declaratory Judgment Act, N.C. Gen.Stat. § 1–253, Plaintiff filed a Rule 12(b)(6) motion to dismiss Defendants' counterclaims and a Rule 12(c) motion for judgment on the pleadings. Plaintiff filed the motions on 19 September 2014.
The trial court set the motions for hearing on 13 November 2014 and issued an order on 17 December 2014. The order began with the following language:
After reviewing the pleadings, including written agreements incorporated by reference in the pleadings, but excluding from consideration all other documents attached to and submitted with the plaintiff's motion and the parties' briefs, and after hearing the oral arguments of counsel, the Court concludes that all of the motions should be granted in their entirety.
The court found “[w]hen Fur Specialists closed the Business and ceased doing business under the name Hertzberg International, the purpose for the covenant [not to compete] no longer existed and it was no longer binding on [Plaintiff].” Accordingly, the court declared the Non–Compete unenforceable against Plaintiff “from and after the close of the Business in Wilson [in 2011].” Second, the court declared the Agreement did not grant Specialists an exclusive common law trademark right to the name “Hertzberg.” Third, the court granted Plaintiff's motion to dismiss Defendants' counterclaims. Defendants gave notice of appeal on 12 January 2015.
On appeal, Defendants make four arguments: (1) the trial court erred in finding it had subject matter jurisdiction to issue a declaratory order because there was no justiciable controversy under the Declaratory Judgement Act; (2) the trial court erred in finding the purpose of the Non–Compete no longer existed after the Wilson store closed in 2011; (3) the trial court erred in declaring the Agreement did not grant exclusive common law trademark rights for the “Hertzberg” name; and (4) the trial court erred by considering Exhibit 2 attached to Plaintiff's reply to the counterclaims. We disagree with the Defendants and affirm the trial court.
II. Standard of Review
“Whether a trial court has subject-matter jurisdiction is a question of law, reviewed de novo on appeal.” McKoy v. McKoy, 202 N.C.App. 509, 511, 689 S.E.2d 590, 592 (2010). “[I]n a declaratory judgment action where the trial court decides questions of fact, we review the challenged findings of fact and determine whether they are supported by competent evidence. If we determine that the challenged findings are supported by competent evidence, they are conclusive on appeal.” Calhoun v. WHA Med. Clinic, PLLC, 178 N.C.App. 585, 596–97, 632 S.E.2d 563, 571 (2006) (citations omitted), disc. review denied, 361 N.C. 350, 644 S.E.2d 5 (2007). “This Court reviews a trial court's grant of a motion for judgment on the pleadings de novo.” Bigelow v. Town of Chapel Hill, 227 N.C.App. 1, 2, 745 S.E.2d 316, 319 (2013) (citation and quotation marks omitted). “A motion for judgment on the pleadings should not be granted unless the movant clearly establishes that no material issue of fact remains to be resolved and that he is entitled to judgment as a matter of law.” Id. (citation and quotation marks omitted).
To review the dismissal of Defendants' counterclaims, “[t]his Court must conduct a de novo review of the pleadings to determine their legal sufficiency and to determine whether the trial court's ruling on the motion to dismiss was correct.” Leary v. N .C. Forest Prods., Inc., 157 N.C.App. 396, 400, 580 S.E.2d 1, 4, aff'd per curiam, 357 N.C. 567, 597 S.E.2d 673 (2003).
III. Analysis
A. Declaratory Judgment
“The authority of our courts to render a declaratory judgment in a case such as the one now before us is set forth in the provisions of the Uniform Declaratory Judgment Act, N.C. Gen.Stat. § 1–253, et. seq.” Stevenson v. Parsons, 96 N.C.App. 93, 95, 384 S .E.2d 291, 292 (1989), disc. review denied, 326 N.C. 366, 389 S.E .2d 819 (1990). The Uniform Declaratory Act (“the Act”) is “remedial, its purpose is to settle and to afford relief from uncertainty and insecurity with respect to rights, status, and other legal relations, and it is to be liberally construed and administered.” N.C. Gen.Stat. § 1–264.
Courts “shall have power to declare rights, status, and other legal relations, whether or not further relief is or could be claimed.” N.C. Gen.Stat. § 1–253.
Any person interested under a ... written contract or other writings constituting a contract, or whose rights, status or other legal relations are affected by a statute ... contract or franchise, may have determined any question of construction or validity arising under the instrument ... contract, or franchise, and obtain a declaration of rights, status, or other legal relations thereunder. A contract may be construed either before or after there has been a breach thereof.
N.C. Gen.Stat. § 1–254.
“Courts have jurisdiction to render declaratory judgments only when the pleadings and evidence disclose the existence of an actual controversy between parties having adverse interests in the matter in dispute.” Sharpe v. Park Newspapers of Lumberton, Inc., 78 N .C.App. 275, 279–80, 337 S.E.2d 174, 176–77 (1985) rev'd on other grounds, 317 N.C. 579, 347 S.E.2d 25 (1986) (quoting Gaston Bd. of Realtors, Inc. v. Harrison, 311 N.C. 230, 234, 316 S.E.2d 59, 61 (1984)). Therefore, an actual controversy is “a jurisdictional prerequisite” under the Act. Id. (citation and quotation marks omitted).
Our Supreme Court held an actual controversy exists in a contested non-compete agreement in Stevenson v. Parsons. Stevenson, 96 N.C.App. 93, 384 S.E.2d 291. In Stevenson, a veterinarian entered into a non-compete agreement with his employer, barring him from practicing veterinary medicine within ten miles of the facility for five years after his employment ended. Id. at 96, 384 S.E.2d at 292. When the veterinarian sought to open his own practice within the protected area, the employer notified him that it would take legal action if he violated the non-compete agreement. Id. The veterinarian sought declaratory relief to determine whether the non-compete agreement was void for lack of consideration. Id. at 94, 384 S.E.2d at 291. Our Supreme Court held there was an actual controversy between the parties and litigation was unavoidable, thus giving the trial court jurisdiction to issue declaratory judgment. Id. at 96, 384 S.E.2d at 292.
In the case sub judice, Plaintiff qualifies as a party who may seek declaratory judgment under N.C. Gen.Stat. §§ 1–254, 1–255. The relations and statuses between Plaintiff and Defendants are proper fodder for a court's declaratory judgment. In light of Plaintiff's complaint, Defendants' cease and desist letters, and Defendants' counterclaims, “litigation was not only unavoidable but ha[s] actually begun” in this case. See Stevenson, 96 N.C.App. at 96, 384 S.E.2d at 292. Therefore, the trial court had proper subject matter jurisdiction to issue declaratory relief.
i. Non–Compete Agreement
Generally, non-compete agreements are “disfavored by the law.” Phelps Staffing, LLC v. S.C. Phelps, Inc., 217 N.C.App. 403, 412, 720 S.E.2d 785, 792 (2011) (citations and quotation marks omitted). Nevertheless, a non-compete agreement is valid and enforceable (1) if it is reasonably necessary to protect the legitimate interest of the purchaser; (2) if it is reasonable with respect to both time and territory; and (3) if it does not interfere with the interest of the public.” Bicycle Transit Auth., Inc. v. Bell, 314 N.C. 219, 226, 333 S.E.2d 299, 304 (1985). A non-compete agreement is a contract, and we determine the parties' intent “by examining the plain language” of the document. Inland American Winston Hotels, Inc. v. Crockett, 212 N.C.App. 349, 354, 712 S.E.2d 366, 369 (2011). In our review, “the intent of the parties is our polar star.” Bicycle Transit Auth., Inc., 314 N.C. at 226, 333 S.E.2d at 304.
“If a non-compete covenant ‘is too broad to be a reasonable protection to the employer's business it will not be enforced. The courts will not rewrite a contract if it is too broad but will simply not enforce it.’ “ VisionAIR, Inc. v. James, 167 N.C.App. 504, 508, 606 S.E.2d 359, 362 (2004) (citing Whittaker Gen. Med. Corp. v. Daniel, 324 N.C. 523, 528, 379 S.E.2d 824, 828 (1989)). The Non–Compete prohibited Plaintiff from directly or indirectly associating “with any other business in any way involved in the purchasing and retail selling of furs and leather goods within [sixty miles of the Wilson store].” This review of the Non–Compete's plain language indicates the parties intended to protect the Wilson store from competition with Plaintiff.
When the Wilson store closed and discontinued business under Defendants' ownership, it was no longer exposed to the risk of competition with Plaintiff. If the Non–Compete were construed to protect the discontinued Wilson store, the Non–Compete would exist beyond its original purpose and be too broad to be enforceable. Therefore, we affirm the trial court's declaration that the Non–Compete clause is unenforceable.
ii. Hertzberg Name
Defendants contend Specialists acquired exclusive rights to the Hertzberg name under the Agreement. We disagree.
The Agreement is a contract, and we review the plain language within its four corners. Lynn v. Lynn, 202 N.C.App. 423, 431, 689 S.E.2d 198, 205 (2010) (citation omitted). When a contract is clear and unambiguous, “construction of the agreement is a matter of law for the court ... and the court cannot look beyond the terms of the contract to determine the intentions of the parties.” Id. (citation and quotation marks omitted). The question of whether contractual language is ambiguous is a question for the court to determine. Id. 202 N.C.App. at 432, 689 S.E.2d at 205 (citation and quotation marks omitted). “The court must not, however, ‘under the guise of construing an ambiguous term, rewrite the contract or impose liabilities on the parties not bargained for and found therein.’ “ Id. (citing Woods v. Nationwide Mut. Ins. Co., 295 N.C. 500, 506, 246 S.E.2d 773, 777 (1978)).
The plain language of the Agreement does not grant exclusive naming rights to Specialists. The Agreement section entitled, “Purchase of the name ‘Hertzberg International’ “ does not contain the term “exclusive.” The section conveys the “retail fur business the Wilson store,” the Wilson store's name “Hertzberg International,” and goodwill associated with the Wilson store. Plaintiff agreed to change his retail fur business' name to “L.J.H. Furs, Inc.” The section “expressly exclud[es] any ‘good will’, [sic] contracts, accounts, agreements or business in connection with [Plaintiff's] wholesale fur business.” Additionally, the Agreement allows Plaintiff to “continue to operate [his] wholesale fur business under the name of ‘Hertzberg International, Inc.’ “ provided that he distinguish it from the name “Hertzberg International.” Thus, the Agreement expressly prohibits Plaintiff from using “Hertzberg International” in his retail fur business, yet allows him to use it in his wholesale fur business.
“A man has the right to use his own name in connection with his business, provided he does so honestly and does not resort to unfair methods by which he wrongfully encroaches upon another's rights or commits a fraud upon the public.” Zagier v. Zagier, 167 N.C. 616, 617, 83 S.E. 913, 913 (1914) (citing Bingham Sch. v. Gray, 122 N.C. 699, 30 S.E. 304 (1898)). Therefore, “[a]s a rule, a trade-mark [sic] cannot be taken in a surname” and anyone named “Hertzberg” could start a fur business with that name, absent proof of the “intent to injure or fraudulently attract the benefit of the good name and reputation acquired by” Hertzberg International. Bingham Sch., 122 N.C. 699, 30 S.E. at 305.
We note that a person may “sell or part with the right to use his own name ... and confer this right upon another.” Zagier, 167 N.C. at 616, 83 S.E. at 913 (citation omitted). However, under the Agreement's plain language, Plaintiff did not contract away the right to use his name. Rather, Plaintiff sold the “Hertzberg International” name in connection with the Wilson store, and agreed to change his retail business name to “L.J.H. Furs, Inc.” Plaintiff retained “Hertzberg International, Inc.” for his wholesale fur business, and agreed to distinguish it from “Hertzberg International.”
Defendants' verified answer and counterclaims state, “[s]o as not to confuse the public, [Plaintiff] agreed to change the corporation he owned under the name Hertzberg International to L.J.H. Furs, Inc....” In addition, we can identify no evidence in the record to suggest Plaintiff intended to injure or defraud Defendants by using the agreed upon “L.J.H. Furs Inc.” name. We therefore affirm the trial court's order declaring Specialists did not have exclusive rights to the Hertzberg name.
Because both of the declaratory issues in the contract are resolved in Plaintiff's favor, there is no legal basis for Defendants' counterclaims. Therefore, the trial court properly dismissed the counterclaims for breach of the Non–Compete clause and common law trademark infringement. See Farr Associates, Inc. v. Baskin, 138 N.C.App. 276, 283, 530 S.E.2d 878, 883 (2000) (affirming the dismissal of a claim for breach of a non-compete agreement); see also Charcoal Steak House of Charlotte, Inc. v. Staley, 263 N.C. 199, 203–04, 139 S.E.2d 185, 188–89 (1964) (affirming judgment of nonsuit in an action to enjoin defendant from using “charcoal steak house” in a business name).
B. Plaintiff's Exhibit 2
At issue is the court's consideration of Plaintiff's Exhibit 2, an attachment to Plaintiff's reply. Plaintiff's reply did not include a Rule 12(c) motion for judgment on the pleadings. Rather, Plaintiff raised his Rule 12(c) and 12(b)(6) motions, pursuant to the Uniform Declaratory Judgment Act, in a separate motion.
Exhibit 2 included the following: a 2007 complaint filed by Kiszely and Hertzberg Furs of Raleigh against Plaintiff and Hertzberg International, Inc.; a mediated settlement agreement; and a joint dismissal by the parties pursuant to the settlement agreement. Defendants argue the court erred by considering Exhibit 2 in reaching its declaratory judgment, and Plaintiff's Rule 12(c) motion should have been treated as a motion for summary judgment. We disagree.
“A Rule 12(c) motion for judgment on the pleadings is not favored by the law, and requires the trial court to view all facts and permissible inferences in the light most favorable to the nonmoving party.” Governors Club, Inc. v. Governs Club Ltd. Partnership, 152 N.C.App. 240, 247, 567 S.E.2d 781, 786 (2002) (citations omitted). However, “judgment on the pleadings may be appropriate in an action for declaratory relief” when the record demonstrates a claim has no basis for relief. Groves v. Community Housing Corp. of Haywood County, 144 N.C.App. 79, 87, 548 S.E.2d 535, 540–41 (2001) (citing Kirkman v. Kirkman, 42 N.C.App. 173, 256 S.E.2d 264, disc. review denied, 298 N.C. 297, 259 S.E.2d 300 (1979); N.C. Gen.Stat. § 1–253).
“All factual allegations in the non-movant's pleadings are deemed admitted except those that are legally impossible or not admissible in evidence.” Governors Club, Inc., 152 N.C.App. at 247, 567 S.E.2d at 786. “When matters outside the pleadings have been considered by the trial court in reaching its decision on the judgment on the pleadings,” our Court will treat the motion as if it is a motion for summary judgment. Carolina Bank v. Chatham Station, Inc., 186 N.C.App. 424, 427, 651 S.E.2d 386, 388 (2007) (citation and quotation marks omitted). The purpose of this conversion is “to preclude any unfairness resulting from surprise when an adversary introduces extraneous material on a dispositive [Rule 12(c) ] motion ... and to allow a party a reasonable time in which to produce materials to rebut an opponent's evidence....” Erie Ins. Exchange v. Builders Mut. Ins. Co., 227 N.C.App. 238, 242, 742 S.E.2d 803, 808 (2013) (citation and quotation marks omitted).
“When ruling on a [Rule 12(c) ] motion ... the trial court ‘is to consider only the pleadings and any attached exhibits, which become part of the pleadings.’ “ Terrell v. Lawyers Mut. Liability Ins. Co. of North Carolina, 131 N.C.App. 655, 660, 507 S.E.2d 923, 926 (1998) (citing Minor v. Minor, 70 N.C.App. 76, 78, 318 S.E.2d 865, 867, disc. review denied, 312 N.C. 495, 322 S.E.2d 558 (1984)). A reply to a counterclaim is a pleading under Rule 7(a), and any exhibits attached to it become part of the pleading under Rule 10(c).
Defendants concede “[i]t is unclear” whether the trial court considered Exhibit 2. “Merely receiving evidence, without considering or relying on it, does not convert a motion for judgment on the pleadings into a motion for summary judgment.” Davis v. Durham Mental Health/Development Disabilities/Substance Abuse Area Authority, 165 N.C.App. 100, 105, 598 S.E.2d 237, 241 (2004) (citing Privette v. University of North Carolina, 96 N.C.App. 124, 132, 385 S.E.2d 185, 189 (1989)). The court's order does not mention Exhibit 2 or the previous lawsuit brought by Kiszely and Hertzberg Furs of Raleigh. Therefore, we affirm the trial court.
IV. Conclusion
For the foregoing reasons we affirm the trial court.
AFFIRMED.
Judges DILLON and DIETZ concur.
Report per Rule 30(e).