Landpoint Surveys, Inc. v. Phillip Stockwell and Christopher Long

ARKANSAS COURT OF APPEALS

K. MAX KOONCE, II, JUDGE

NOT DESIGNATED FOR PUBLICATION

DIVISION III

LANDPOINT SURVEYS, INC.

APPELLANT

V.

PHILLIP STOCKWELL and CHRISTOPHER LONG

APPELLEES

CA99-1022

October 25, 2000

APPEAL FROM THE COLUMBIA COUNTY CHANCERY COURT

E99-2-3

HON. LARRY CHANDLER,

JUDGE

AFFIRMED

This is an appeal from the trial court's dismissal of appellant's complaint to enforce a covenant not to compete contained in the employment contracts of appellees. The trial court's order of dismissal found that the appellant did not have a valid interest to be protected and that the geographical restriction was overly broad. We affirm.

On January 10, 1997, appellee Phillip Stockwell (Stockwell) and appellant Landpoint Surveys, Inc. (appellant) entered into an employment contract that contained a covenant not to compete. The clause provided:

COVENANT NOT TO COMPETE: Because of potential harm and unfair competition to employer's business and employee's confidential business information, employee agrees not to offer, work, advise, or provide professional services or other services that may or do conflict with the services offered or provided by employer within a radius of seventy (70) miles of employer's present business location centered at 220 South Pine Street, City of Magnolia, County of Colombia, State of Arkansas for a three (3) year period commencing when employee's present employment

terminates provided, however, that this covenant shall be void and have no force and effect if employer at any time within this period discontinues, sells, transfers, ceases offering professional services, or in any manner ceases to have control of the business or any similar business within the designated radius centered at the location previously designated.

Appellee Christopher Long (Long) entered into an employment contract with appellant on September 19, 1997, containing a virtually identical covenant not to compete. The only difference was that Long's covenant not to compete contained a sixty-mile geographical restriction as opposed to a seventy-mile restriction provided for in Stockwell's contract.

In October of 1997, Long quit his employment with appellant and went to work for Crisp Surveying, Inc. (Crisp Surveying), appellant's main competitor. Stockwell left appellant in February 1998, and also went to work for Crisp Surveying. Appellant wrote appellees and Crisp Surveying requesting that all parties honor the covenant not to compete. Appellant then filed suit in Columbia County Chancery Court against both appellees and Crisp Surveying to enforce the covenant not to compete. On December 28, 1998, the trial court entered an order stating that appellees were severed from the cause of action filed by appellant and that appellant's complaint as it related to appellees was transferred to the Columbia County Chancery Court, Third Division.

The trial of plaintiff's cause against appellees was held on January 25, 1998. The trial judge took the case under advisement and accepted trial briefs from the parties. On April 29, 1999, the trial court issued a letter opinion, which was filed of record on April 30, 1999, finding by a preponderance of the evidence that appellant did not prove it had a valid legal interest to protect and that the geographical restriction was too broad. The trial court then entered an order of dismissal on May 11, 1999, which incorporated by reference the April 29, 1999, letter opinion, dismissing appellant's cause with prejudice on the basis that the covenant not to compete failed to protect a valid legal interest and that the geographical restriction was overly broad. Appellant filed a notice of appeal on June 3, 1999, appealing the order of dismissal filed May 11, 1999.

A chancery court's cases are reviewed de novo on appeal, and the appellate court will not reverse unless the chancellor's findings are clearly erroneous or clearly against the preponderance of the evidence. Dillard v. Pickler, 68 Ark. App. 256, 6 S.W.3d 128 (1999). A chancery court's finding of fact is clearly erroneous when after reviewing all the evidence, the court is left with a definite and firm conviction that a mistake has been committed even though there is evidence to support the chancery court's decision. Id. Because the question of the preponderance of the evidence turns largely on the credibility of the witnesses, the appellate court defers to the chancellor's superior position to assess the credibility of witnesses and the weight to be accorded to their testimony. Moon v. Moon Enters. Inc., 65 Ark. App. 246, 986 S.W.2d 134 (1999).

Covenants not to compete are not looked upon with favor by the law. Federated Mut. Ins. Co. v. Bennett, 36 Ark. App. 99, 818 S.W.2d 596 (1991). In order for such a covenant to be enforceable, three requirements must be met: (1) the covenantee must have a valid interest to protect; (2) the geographical restriction must not be overly broad; and (3) a reasonable time limit must be imposed. Id. The Arkansas Supreme Court has recently discussed covenants not to compete:

Arkansas has followed the trend in this area by requiring a party challenging the validity of a covenant to show that it is unreasonable and contrary to public policy. Dawson v. Temps Plus, Inc., 337 Ark. 247, 987 S.W.2d 722 (1999). Without statutory authorization or, some dominant policy justification, a contract in restraint of trade is unreasonable if it is based on a promise to refrain from competition that is not ancillary to a contract of employment or to a contract for the transfer of goodwill or other property. However, the law will not protect parties against ordinary competition. Id. This court has recognized that covenants not to compete in employment contracts are subject to stricter scrutiny than those connected with a sale of a business. We review cases involving covenants not to compete on a case-by-case basis. Id.

Bendinger v. Marshalltown Trowell Co., 338 Ark. 410, 417, 994 S.W.2d 468, 472 (1999).

Appellant first contends that the trial court erred in finding that appellant did not have a validinterest to protect between it and Stockwell.

Where a covenant not to compete grows out of an employment relationship, the courts have found an interest sufficient to warrant enforcement of the covenant only in those cases where the covenantee provided special training, or made available trade secrets, confidential business information or customer lists, and then only if it is found that the associate was able to use information so obtained to gain an unfair competitive advantage.

Federated Mut. Ins. Co., 36 Ark. App. at 102, 818 S.W.2d at 598. Appellant argues that Federated Mut. Ins. does not require that the employee actually use such information to gain an unfair advantage, but rather that the employee only has to have the ability to use such information.

Stockwell began to work for appellant in 1990 when he was seventeen years old. He started out as a rod man and worked his way up to crew chief, field manger, and then general manager. A rod man is a person who carries the poles and uses a machete to chop out lines and assist the surveyor; the crew chief is the person operating the surveying instruments. In January 1997, Stockwell signed an employment contract with appellant that contained the previously mentioned covenant not to compete. Although the employment contract provides that Stockwell accepted the position of general manager, he was forced to accept a lower position at the same rate of pay upon returning from medical leave in August 1997. Stockwell gave appellant a thirty-day written notice in February 1998 that he was looking for another job, and was fired within the thirty days for insubordination. Stockwell then went to work for Crisp Surveying, appellant's main competitor.

James Souter ("Souter"), president of Landpoint Surveys, Inc., testified that he sent Stockwell to two or three seminars that cost between $200 and $300. Souter stated that Stockwell knew the "ins and outs" of his company, including procedures for submitting proposals and bidding, the methodology of surveying, the company's client base, and the billing process. Souter further stated that Stockwell was privy to all information at the company, and therefore possessedknowledge to do harm to it. Souter did not present any evidence that Stockwell solicited any of appellant's clients or that he denigrated appellant's work. Souter only testified that Stockwell possessed information that could harm his company.

Stockwell testified that he did not take any trade secrets with him to Crisp Surveying, nor did he disclose business information that would have been considered confidential or information about appellant's fee schedule or business operations. Stockwell stated that he did not provide Crisp Surveying with a list of appellant's customers. In addition, Stockwell did not take any records, file notes, plats of surveys, or computer information belonging to appellant. Stockwell stated that he did not solicit appellant's customers or denigrate the work of appellant.

In the summer of 1996, Long began to work part-time for appellant while he attended college, and eventually began to work full time in January 1997. He started as a rod man and later became a crew chief. Appellant decided to start a Global Positioning System (GPS) crew and trained Long to become a GPS technician. Long signed the covenant not to compete on September 19,1997. Appellant was offered a job paying $8.00 per hour at Crisp Surveying. In October 1997, Long informed Souter he was planning on taking another job, and Souter told Long to "hit the road" and said that he would not pay him $8.00 per hour.

Souter testified that he provided Long with GPS training, which included sending Long to a two-day seminar in Houston. Souter further stated that Long was familiar with the methodology of how the company provides work and how to "skirt-tail" things and still provide the same quality service at a lower cost than the competition, which he claims is a trade secret. Although Long talked to customers, he was not responsible for soliciting business for appellant. Souter did not present any evidence that Long either solicited any of appellant's clients or that he denigrated appellant's work. As with Stockwell, Souter only testified that Long possessed information that could harm hiscompany.

Long testified that Crisp Surveying does not use the GPS. He stated that he did not take any information from appellant, such as customer lists, file notes, plats of surveys, or computer software. He further testified that he has not provided Crisp Surveying with information about how appellant operates. Long has neither solicited appellant's customers nor had conversations with appellant's customers that would have denigrated the quality of its work.

When Stockwell first started at Crisp Surveying, he was a rod man and later became a draftsman. He is not a salesman who solicits business, nor is he the general manager. Likewise, Long was a GPS technician with appellant and uses a different method of surveying in his position with Crisp Surveying. Appellant did not prove by a preponderance of the evidence that it provided special training to Stockwell or Long, or that it made available to Stockwell or Long trade secrets, confidential business information or customer lists that Stockwell or Long were able to use to gain an unfair competitive advantage. Therefore, we cannot say that the chancery court's findings that appellant did not have a valid interest to protect with respect to Stockwell or Long are clearly erroneous.

Appellant next contends that the trial court clearly erred in ruling that the geographical restriction in the covenant not to compete is overly broad. Because we affirm the trial court's findings that appellant did not have a valid interest to protect, we need not address this argument.

Affirm.

Stroud and Griffen, JJ., agree.