Prym Consumer USA, Incorporate v. Rhode Island Textile Company, No. 09-1599 (4th Cir. 2010)

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UNPUBLISHED UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT No. 09-1599 PRYM CONSUMER INCORPORATED, USA, INCORPORATED; WILLIAM PRYM, Plaintiffs - Appellees, v. RHODE ISLAND TEXTILE COMPANY, Defendant - Appellant. Appeal from the United States District Court for the District of South Carolina, at Spartanburg. G. Ross Anderson, Jr., Senior District Judge. (7:08-cv-03518-GRA) Argued: May 11, 2010 Decided: July 21, 2010 Before KEENAN, Circuit Judge, HAMILTON, Senior Circuit Judge, and Samuel G. WILSON, United States District Judge for the Western District of Virginia, sitting by designation. Affirmed by unpublished per curiam opinion. ARGUED: John W. Matthews, III, HAYNSWORTH, SINKLER & BOYD, PA, Greenville, South Carolina, for Appellant. Natalma Morison McKnew, SMITH MOORE LEATHERWOOD, LLP, Greenville, South Carolina, for Appellees. ON BRIEF: H. Donald Sellers, Joel M. Bondurant, Jr., HAYNSWORTH, SINKLER & BOYD, PA, Greenville, South Carolina, for Appellant. Peter A. Rutledge, SMITH MOORE LEATHERWOOD, LLP, Greenville, South Carolina, for Appellees. Unpublished opinions are not binding precedent in this circuit. 2 PER CURIAM: Rhode Island Textile Company (RITCO) appeals from the district court s award of summary judgment to Prym Consumer USA, Inc. (Prym). parties In its complaint, Prym sought a declaration of the rights under a non-competition agreement that restricted Prym s business in the consumer elastics market. The district court held that RITCO was not entitled to enforce the non-competition agreement. Finding no error, we affirm. I. A. The following facts are undisputed. Prym manufactures and distributes sewing and other craft-related notions. Prym s predecessor, Prym-Dritz Corporation its consumer elastics business to RITCO. In 1991, (Prym-Dritz), sold Prym-Dritz transferred to RITCO all the fixed assets and certain intangible assets, including good will, associated with that business. To achieve this transfer of good will to RITCO, Prym-Dritz agreed that it would not manufacture or sell elastic fabrics in competition with RITCO for a period of twenty-five years (Prym Non-Compete). 1 As relevant to this appeal, the parties purchase 1 Prym-Dritz s parent company, William Prym, Inc., executed a non-competition agreement that is virtually identical to the Prym Non-Compete. William Prym, Inc. was a party in the (Continued) 3 agreement contained express language stating that neither party could assign obtaining the any of prior its written assignment clause). elastics business, rights in consent the of agreement the other without (the no- After the sale of Prym-Dritz s consumer Prym succeeded to the interests of Prym- Dritz. In 2006, RITCO sold Stretchrite, to Dyno, LLC. its consumer elastics line, As part of this transaction, RITCO purported to transfer to Dyno all the rights accruing to RITCO under certain contractual provisions, including RITCO s rights in the Prym Non-Compete. However, contrary to the no-assignment clause, RITCO did not obtain Prym s consent to assign to Dyno Prym s obligations under the Prym Non-Compete. Instead, RITCO and Dyno executed a separate agreement stating that if any of the assignments were ineffective, RITCO would reasonably cooperate . . . to provide for Dyno the benefits that Dyno otherwise would have acquired. RITCO also executed J.A. 413. a non-competition agreement to facilitate the transfer to Dyno of any good will associated with the Stretchrite brand. RITCO agreed that until 2013, it would refrain from selling, manufacturing . . . or marketing proceeding in the district court but is not a party to this appeal. 4 any goods similar to or competitive with Products in the consumer elastics market. the Stretchrite However, RITCO has continued to conduct business in the broader market for sewing notions that, apart from elastics, includes sewing and needlecraft accessories such as buttons, needles, and thread. B. In 2008, RITCO executed a settlement resolved certain disputes with Dyno. agreement that Under the terms of this settlement, RITCO agreed to take action to enforce the Prym NonCompete against Prym on Dyno s behalf, if requested to do so by Dyno. 2 After receiving such a request from Dyno, RITCO sent a letter to Prym stating that RITCO was prepared to initiate litigation to stop Prym from conducting business in the consumer elastics market. On receipt of this letter, Prym filed a complaint declaratory judgment against RITCO in the district court. sought declaratory authority to relief enforce the on the Prym 2 basis that Non-Compete for Prym RITCO lacked because, having The agreement further provided that RITCO would permit Dyno to assume control of the prosecution or defense of such enforcement actions or claims. J.A. 456-57. On appeal in this case, Prym argues that Dyno is using RITCO to re-litigate issues conclusively decided by a South Carolina court in an earlier litigation between Prym and Dyno. We need not reach that argument to decide the issues raised by RITCO on appeal. 5 removed itself from the consumer elastics market in 2006, RITCO no longer had a legitimate interest that would justify restraining Prym from selling consumer elastics products. The district court agreed with Prym s argument, and entered summary judgment for Prym. II. On appeal, RITCO asserts that it has legitimate interests that justify enforcement of the Prym Non-Compete. RITCO observes that it is required by its settlement agreement with Dyno to argues enforce that interest the this that Prym Non-Compete independent permits RITCO on Dyno s contractual to behalf, obligation enforce and an restraint the is on competition imposed by the Prym Non-Compete. Alternatively, RITCO contends that irrespective of any rights acquired by Dyno, RITCO has separate, legal interests in enforcing the Prym Non-Compete. According to RITCO, although it stopped selling consumer elastics in 2006, the Prym Non-Compete protects notions market resuming RITCO s RITCO RITCO s the remaining until 2016, manufacture non-competition explains that interests and and sale agreement if the in RITCO s of with district the general future consumer Dyno interest elastics expires court s sewing in in when 2013. decision is permitted to stand, Prym will use its consumer elastics business 6 to increase its share thereby harming RITCO. of the broader sewing notions market, RITCO also argues that if Prym currently is permitted to compete in the consumer elastics market, this competition will affect any future consumer elastics business that RITCO may decide to develop in 2013. RITCO s contention that these are We disagree with legitimate interests protected by the Prym Non-Compete. III. A. We review the district court s entry of summary judgment de novo. Universal Concrete Prods. Corp. v. Turner Constr. Co., 595 F.3d 527, 529 (4th Cir. 2010). Like the district court, we apply the law of Rhode Island because the parties agreed in the Prym Non-Compete that Rhode Island law would resolution of any contract disputes between them. govern the Under Rhode Island law, we consider the plain and ordinary meaning of the language used in the parties contract. Cathay Cathay, Inc. v. Vindalu, LLC, 962 A.2d 740, 746 (R.I. 2009). RITCO s first argument, that RITCO can enforce the Prym Non-Compete to satisfy its independent contractual obligation to transfer good will to Dyno, is foreclosed by the unambiguous language of the no-assignment clause. purchase] agreement shall not be 7 That clause states: Th[e assignable by either party without the prior written consent of the other party hereto. J.A. 50. Because the Prym Non-Compete is part of RITCO s purchase agreement with Prym, the Prym Non-Compete is subject to the noassignment clause, which does not provide any exception that would permit RITCO to assign rights acquired under the Prym NonCompete without Prym s consent. It is undisputed that in 2006, when RITCO sold Stretchrite to Dyno, RITCO did not obtain Prym s consent to assign Prym s obligation to refrain from competition in the consumer elastics market. Thus, RITCO lacked the authority to transfer to Dyno the benefits of the Prym NonCompete, and RITCO cannot avoid application of the plain language of the no-assignment clause by executing a separate contract with Dyno. B. RITCO argues, nevertheless, that it can enforce the Prym Non-Compete on its own behalf. As explained above, RITCO maintains that such enforcement is necessary to protect RITCO s present interest in limiting competition relating to sewing notions other than consumer elastics, and to protect RITCO s future interest in any consumer elastics business that RITCO may develop in 2013. In considering this issue, our interpretation of the Prym Non-Compete is controlled generally by the clear and unambiguous 8 language chosen by the parties. See Durapin, Prods., Inc., 559 A.2d 1051, 1056 (R.I. 1989). Inc. v. Am. However, because restraints on competition are disfavored, these restraints, even when plainly expressed judicial scrutiny. Courts competition in a contract, still are subject to Id. at 1053. applying agreements Rhode Island by employing law generally set forth in the Restatement of Contracts. non- reasonableness the assess test See Dial Media¸Inc. v. Schiff, 612 F. Supp. 1483, 1488-89 (D.R.I. 1985). This test provides, in relevant part: A promise to refrain from competition that imposes a restraint that is ancillary to an otherwise valid transaction or relationship is unreasonably in restraint of trade if (a) the restraint is greater than is needed to protect the promisee s legitimate interest, or (b) the promisee s need is outweighed by the hardship to the promisor and the likely injury to the public. Restatement (Second) Contracts § 188(1). Thus, in Rhode Island, covenants that limit competition by businesses are enforced to the extent necessary to protect a legitimate interest in the promissee. 3 See Home Gas Corp. of Mass. v. DeBlois Oil Co., 691 F. Supp. 567, 573 (D.R.I. 1987) (applying Rhode Island law). 3 Although RITCO contends that the district court imposed an inappropriately high burden by treating the Prym Non-Compete like a restriction on individual employment, we find no indication in the record that the district court applied an incorrect standard. 9 The determination whether a legitimate interest exists to enforce a non-competition clause depends on the particular facts surrounding the agreement. Durapin, 559 A.2d at 1053. In conjunction with the sale of a business, the successful transfer of a business good will from seller to buyer constitutes a legitimate interest that can justify imposing a restraint on competition. However, a mere general interest in remaining Id. free from competition is not a sufficient basis to enforce a non-competition agreement. See Dial Media, 612 F. Supp. at 1489. Applying these principles, we disagree with RITCO that it can enforce the Prym Non-Compete on its own behalf, to protect its present interests outside the consumer elastics market, and to protect any future business in consumer elastics that RITCO may have in 2013. so broadly. The Prym Non-Compete cannot be interpreted The Prym Non-Compete had the limited purpose of protecting RITCO s investment in the good will associated with Prym s consumer ownership. elastics Between business 1991 and during 2006, the the time Prym of Prym s Non-Compete fulfilled this purpose by restraining Prym and its predecessor corporation from marketing or selling elastics fabrics of any kind in competition with RITCO. However, when RITCO sold its consumer withdrew elastics business and from the consumer elastics market in 2006, RITCO abandoned the very interest that 10 justified the restraint on competition. attempt to use the Prym Non-Compete Thus, RITCO s present to protect the other interests now asserted by RITCO would require a revision to, rather than an enforcement of, the Prym Non-Compete. Accordingly, we conclude that RITCO has not asserted legitimate interests that would justify a continuing restraint on Prym s ability to market consumer elastics. IV. For these reasons, we hold that RITCO lacks any basis to enforce the terms of the Prym Non-Compete. We affirm the judgment of the district court. AFFIRMED 11

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