| MARKET AMERICA, INC., | ) | I. INTRODUCTIONII. FACTUAL AND PROCEDURAL BACKGROUNDIII. STANDARD OF REVIEWIV. DISCUSSIONV. CONCLUSIONFOOTNOTES |
| Plaintiff, | ) | |
| v. | ) 1 :97CV0089 1 | |
| RAY ROSSI, et al., | ) | |
| Defendants. | ) |
BEATY, District Judge.
This matter is before the Court on Defendants Ray Rossi ("Rossi"), Tandy Brown ("Brown"), Craig Melton ("Melton"), Phil Lane, Julia Lane,¹ Sheri Frey Conners, and Mike Perrault’s² Motion for Summary Judgment [Document #89]³ and Plaintiff Market America, Inc.’s ("Market America"), Motion for Partial Summary Judgment [Document #92]. Market America has filed a memorandum in opposition to Defendants’ motion [Document #98] and Defendants have filed a memorandum in opposition to Market America’s motion [Document #101]. For the reasons stated herein, Defendants’ motion is granted in part and denied in part, and Market America’s motion is granted in part and denied in part.
Market America is a network marketing company that distributes consumer products. Based in Greensboro, North Carolina, it contracts with individuals who serve as "independent distributors" of its products. In addition to selling Market America products to consumers, these independent distributors are encouraged by Market America to recruit other individuals to join with Market America as independent distributors themselves. If these other individuals--who often consist of friends, family, or acquaintance of an independent distributor--contract with Market America, then they become a part of the "downline" of the independent distributor who recruited them. Independent distributors receive sales commissions on products they sell to consumers and also receive sales commissions on products sold by those independent distributors in their downlines.
Defendants are all Virginia residents who Market America asserts contracted with Market America to work as independent distributors.
Market America contends that each of the Defendants--individually or in their business entity name--entered into an Independent Distributor Application and Agreement ("Distributor Agreement"). Paragraphs 4, 6, and 21 of the Distributor Agreement document presented to the Court5 provide, in pertinent part, as follows:
4. I have carefully reviewed the Market America marketing plan, career manual and policies and procedures, and acknowledge that they are incorporated as part of this agreement in their present form and as modified from time to time by Market America..
6. …The term of the Market America Distributor Agreement is one year. Market America distributors, who wish to continue as Distributors, must apply to renew their Distributor Agreement annually, along with a non-refundable subscription fee of $37.50 per year....
21. I agree that the marketing plan, genealogy reports, Distributor list and official literature are proprietary information and are considered trade secrets of the company as construed and [sic] N.C.G.S. §66-152. I agree not to enter into competition with Market America by participating as a[n] Independent Contractor, consultant, officer, shareholder, director, employee or participant of another company or direct sales program using a similar matrix marketing structure or handling similar products to that of Market America or involving a Distributor of Market America in such a program for a period of six months from my written resignation or termination as an Independent Distributor of Market America....
(Defs.’ Notice of Filing, Ex. 1.)6 As indicated above by paragraph 4, the Distributor Agreement incorporates by reference the provisions of the Career Manual. Among other things, the Career Manual provides as follows: "Distributors are not restricted from selling other company’s [sic] products or services. However, promotion of competitive company Marketing Plans is strictly prohibited and cause for immediate termination as a Market America Independent Distributor." (Career Manual, Part II, §3.28.)
Market America further alleges that certain Defendants entered into additional agreements with Market America. It avers that (1) all Defendants entered into a Professional Service Package Agreement, (2) Rossi, Brown, and Melton each entered into a Certified Trainer Agreement, and (3) Rossi and Brown each entered into an Advisory Council Agreement. (Am. Compl. ¶13.) These agreements, as presented to the Court, contain various noncompetition or confidentiality provisions.
Market America alleges that in January 1997 Rossi and Brown began discussing with representatives of International Heritage, Inc. ("International Heritage"), the possibility of becoming independent distributors of that company. Although no longer in business, International Heritage at the time was a network marketing company based in Raleigh, North Carolina, which operated in a similar manner to Market America. Market America viewed International Heritage as a competitor to its business. It is alleged that Rossi and Brown became dissatisfied with their work with Market America and sought to distribute products for another entity.
On January 23, 1997, Rossi and Brown, accompanied by approximately 25 individuals, traveled by bus to Raleigh to meet with representatives of International Heritage. Market America contends that most of those accompanying Rossi and Brown were independent distributors of Market America and also members of Rossi’s and Brown’s downlines. Sometime after the bus trip, representatives of Market America expressed concern about Rossi’s and Brown’s involvement with International Heritage. On February 10, 1997, Rossi and Brown wrote a letter to Market America in an effort to ease Market America’s concerns. In addition to raising questions about certain Market America procedures, Rossi and Brown wrote the following:
We [have been] questioned by [Market America] distributors about ... other ventures and if they compared to the opportunity with Market America. We decided to investigate some of these in order to know the competition, if any, and [to] be able to answer questions accurately. We understand that the grass is always greener on the other side until you get to the other side and realize the grass you just left was greener all the time. Sometimes you have to look to understand what you have and to appreciate the people around you.
(Defs.’ Third Notice of Filing, Ex. 38.) No specific reference, however, was made to the bus trip or to their discussions with International Heritage.
Following the parties’ actions in January and February, Defendants’ involvement with International Heritage allegedly intensified. Subsequently, on August 7, 1997, Market America was provided with tape recordings of conversations made among certain Defendants. In Market America’s view, these recordings constituted evidence that Defendants had violated certain provisions of their agreements with Market America. As a result, on August 8, 1997, Market America immediately suspended Defendants from operating as independent distributors and stopped payment on checks that had been previously issued to Rossi, Melton, and Phil Lane. The suspension letter cited Paragraph 21 and, among other things, accused Defendants of "engaging in a competitive direct sales company and soliciting and otherwise interfering with Market America’s contractual relations with its’ [sic] [d]istributors." (Defs.’ Notice of Filing, Ex. 17.) Market America also informed Defendants that, pursuant to the provisions of the Market America Career Manual, they could appeal their suspensions. In response, each of the Defendants wrote to Market America challenging the adverse action. The internal appeal procedures set forth in Market America’s Career Manual, however, were not followed.7
Instead, on August 15, 1997, Market America filed suit against Defendants in state court.8 It also sought and received a state court temporary restraining order enjoining Defendants from, among other things, (1) soliciting customers or clients of Market America, (2) recruiting Market America distributors for International Heritage, (3) making disparaging or untrue statements about Market America, (4) participating in various business activities, and (5) competing with Market America. (T.R.O. at 4-5.) It also listed Defendants’ individual addresses. (Id. at 5-6.)
Also on August 15, 1997, Market America’s President and Chief Executive Officer, James H. Ridinger ("Ridinger"), sent a letter ("the Ridinger letter") to approximately 7,000 or 10% of Market America’s independent distributors informing them that Defendants had been suspended. According to Market America, each distributor that received the letter was connected in some way to Defendants’ downlines or resided in close proximity to Defendants. (Ridinger Aff. ¶ 8.) Some of these distributors were located and operated in North Carolina. Among other things, Ridinger wrote that
[d]espite repeated warnings and attempts to positively bring about harmony and even after we had considerable evidence of their breaches of contract and cross groups sponsoring and other violations of the policies and procedures; we have received hard proof that their unscrupulous activities and plans to undermine the company and business continue, and in fact, have intensified. This group of individuals have [sic] been (directly or indirectly) recruiting Market America Distributors in a company which uses a binary matrix structure, International Heritage.... [T]hey persist in participating in this program and undermining the Market America business....
[t]his is not a letter or action just about the individuals listed in the lawsuit or this letter. Their action threatens the very foundation of what Market America is about. Their intentions are to undermine Market America and Distributors’ businesses. We will pursue this with every legal remedy and with all of our resources. Their actions and threats against this company attack the very heart of what Market America is about and stands for....
Think about it.... What if these "undercover competitors who pose as Market America Distributors" can access our trade secrets, our lists, and go into ProPack and get Distributor lists to recruit them into competitive ventures? If nothing else, it is destructive and disruptive. How can we have open meetings... if these bandits can use the meeting list and go into our open meetings disguised as Market America Distributors only to proselytize the organization into something else and bad mouth the company and its leadership? And why should we arm anyone with our trade secrets in regard to our marketing plan, systems, lists, and products, only to help them compete with us and undermine everyone’s business?...
In closing, let me remind everyone that we make it abundantly clear UP FRONT that there are requirements under [our] system and that we do not tolerate these… tactics. No one is forced to join or handcuffed. They know the deal up front and commit to it in writing by signing. It is repeated and reinforced at every level in the business, in training, and in subsequent agreements they sign to participate. They didn’t have to join us. If they don’t like it, they don’t have to stay. They can get out. But they have to honor the no-compete for six months and they are not going to use their position in Market America to raid us. We are not letting the fox in the hen house. WE WILL NOT LET THEIR GREED AND AVARICE UNDERMINE OR DESTROY [OUR] SYSTEM.
(Defs.’ Notice of Filing, Ex. 20.) A copy of the temporary restraining order issued by the state court against the Defendants was attached.
In addition to this mailing, Ridinger taped a recorded message which included language almost identical to that above and included it in Market America’s monthly leadership audiotape ("the Ridinger audiotape") for August 1997. (Id. at Ex. 21.)
Defendants contend that the Ridinger audiotape was accessible by approximately 5,000-8,000 distributors.
On September 29, 1997, the Lanes filed for personal bankruptcy. In their petition, they estimated the value of their counterclaims against Market America in the instant action as $1 and estimated the value of Market America’s claims as $30,250. (PI.’s Mot. for Partial Summ. J. on Defs.’ Countercls., Ex. 2.)
On October 9, 14, and 20, 1997, United States Senior District Judge Richard C. Erwin held hearings on Market America's motion for a preliminary injunction. On October 9, Judge Erwin made the following statement with respect to the competition restriction contained in Paragraph 21 during an exchange with counsel for Market America:
Judge Erwin: [A]s a matter of fact I am going to tell you up front, I am going to declare that portion of the [Distributor Agreement], referred to as [P]aragraph 21, unenforceable in this case. Just that part of the contract described in [P]aragraph 21 as unenforceable. And I think you said this morning you weren’t relying on the noncompete part of the contract.
(Defs.’ Notice of Filing, Ex. 2.) In addition, on October 14, the following colloquy occurred between Judge Erwin and counsel for Market America with respect to the competition restriction contained in Paragraph 21:
Counsel for Market America: We believe that Your Honor is bound by the interpretation of the state with regard to this agreement, and this agreement has been considered no less than four times by the state courts, and in particular [P]aragraph [21], which is the paragraph we’re talking about here, has been specifically found to be valid and binding by the state courts. And we believe Your Honor is bound by that.
Judge Erwin: To what extent?
Counsel for Market America: That [P]aragraph [21]... is valid and binding.
Judge Erwin: As far as geography?
Counsel for Market America: Period.
Judge Erwin: Counsel, I went over that, and I said that it was my opinion that this contract does not contain any restriction on geography. And by reason of that, the [United States Court of Appeals for the] Fourth Circuit has held that unless there is a restriction on the geography and the location of the parties involved, that it’s moot.
(Id.) On October 22, 1997, Judge Erwin issued a written opinion denying Market America’s preliminary injunction motion [Document #41]. However, he made no reference to Paragraph 21 in his ruling.
On August 27, 1998, Market America filed an Amended Complaint [Document #71] asserting the following four causes of action: (1) breach of contract, (2) misappropriation and misuse of trade secrets and proprietary information, (3) unfair and deceptive trade practices, and (4) tortious interference with contract. On September 8, 1998, Defendants filed their Answer [Document #72] which, among other things, included the following eight amended counterclaims: (1) libel, (2) slander, (3) unfair and deceptive trade practices, (4) tortious interference with business relations, (5) restraint of trade, (6) money had and received, (7) breach of contract and misappropriation, and (8) breach of contract. On November 30, 1998, Market America and Defendants filed the respective motions now before the Court. To date, Market America has not conducted a review of Defendants’ suspensions, despite Defendants’ written responses to the suspensions which purport to request appeals.
In addition, Defendants have not attempted to renew their 1997 contracts with Market America.
Summary judgment is appropriate when "there is no genuine issue as to any material fact and ... the moving party is entitled to a judgment as a matter of law." Fed. R. Civ. P. 56(c). In making this determination, the Court views the evidence in the light most favorable to the non-moving party, according that party the benefit of all reasonable inferences. Bailey v. Blue Cross & Blue Shield, 67 F.3d 53, 56 (4th Cir. 1995). cert. denied 516 U.S. 1159, 134 L. Ed. 2d 190 (1996). Judges are not "‘required to submit a question to a jury merely because some evidence has been introduced by the party having the burden of proof, unless the evidence be of such character that it would warrant the jury in finding a verdict in favor of that party."’ Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 251, 91 L. Ed. 2d 202,213 (1986) (quoting Schuylkill & Dauphin Improvement & R.R. Co. v. Munson, 81 U.S. (14 Wall.) 442, 448, 20 L. Ed. 867, 872 (1871)).
Before analyzing each cause of action in this case, the Court will discuss three initial issues raised by the parties.
A. The "Law of the Case" with Respect to Paragraph 21
Defendants contend that, for the purposes of ruling on the respective dispositive motions, this Court is bound by Judge Erwin’s comments during the preliminary injunction hearings, to the extent that he declared the competition restriction contained in Paragraph 21 unenforceable. (Br. in Supp. of Defs.’ Mot. for Summ. J. at 2.) Based on his comments, Defendants assert that it is the "law of the case" that the competition restriction contained in Paragraph 21 is unenforceable. (Id.) Market America argues that Judge Erwin’s statements are "insufficient" to support such a contention. (Mem. in Opp’n to Defs.’ Mot. for Summ. J. at 15 n.9.) This Court agrees with Market America.
"The rule of the law of the case is a rule of practice, based upon sound policy that when an issue is once litigated and decided, that should be the end of the matter." United States v. United States Smelting Refining & Mining Co., 339 U.S. 186, 198, 94 L. Ed. 750, 760-61 (1950) (citing cases). As the Fourth Circuit has noted,
whether rulings by one district judge become binding as "law of the case" upon subsequent district judges is not a matter of rigid legal rule, but more a matter of proper judicial administration which can vary with the circumstances. It may sometimes be proper for a district judge to treat earlier rulings as binding, sometimes not.
Hill v. BASF Wyandotte Corp., 696 F.2d 287 (4th Cir. 1982). Accordingly, it "is only a discretionary rule of practice." United States Smelting, 339 U.S. at 199, 94 L. Ed. at 761.
When the initial ruling is one made in connection with a motion for a preliminary injunction, it is less likely to be considered the law of the case. See Meineke Discount Muffler v. Jaynes, 999 F.2d 120, 123 n.3 (5th Cir. 1993) (findings and conclusions after abbreviated hearing on preliminary injunction not binding as law of case); William G. Wilcox, D.O., P.C. v. United States, 888 F.2d 1111, 1114 (6th Cir. 1989) (because lesser burden of proof required to support motion for preliminary injunction as contrasted with motion for summary judgment, decisions on preliminary injunctions do not constitute law of case); see also University of Texas v. Camenisch, 451 U.S. 390, 395, 68 L. Ed. 2d 175, 180 (1981) ("findings of fact and conclusions of law made by a court granting a preliminary injunction are not binding at trial on the merits").
Here, although Judge Erwin unequivocally stated that Paragraph 21 is unenforceable as a matter of law, this Court declines to adopt this conclusion as the "law of the case." As the Supreme Court has noted, "a preliminary injunction is customarily granted on the basis of procedures that are less formal and evidence that is less complete than in a trial on the merits." Id. Since the question of Paragraph 21’s operation and enforceability is central to this case, and in light of the decisions cited above, this Court will conduct an independent review of that provision of the Distributor Agreement.
B. The Lanes’ Bankruptcy Filing
The second issue raised initially by the parties concerns the Lanes’ bankruptcy filing on September 29, 1997. As noted previously, in that filing the Lanes asserted that the value of their counterclaims in this action was $1. They also represented that their potential exposure from Market America’s claims was $30,250. In light of these representations, and since the Lanes were successful in obtaining bankruptcy relief, Market America contends that the Lanes should be estopped from recovering more than $1 in this action. (Mem. in Supp. of PI.’s Mot. for Partial Summ. J. on Defs.’ Countercls. at 19.) In response, the Lanes assert that the $1 estimate set forth in their petition should not preclude recovery in this suit. (Defs.’ Br. in Resp. to Mem. in Supp. of Pl.’s Mot. for Partial Summ. J. on Defs.’ Countercls. at 18-20.) This Court agrees with the Lanes.
In support of its contention, Market America cites cases holding that a bankruptcy court order can serve to preclude a subsequent claim. See, e.g., In re Tippins, 221 B.R. 11 (Bankr. N.D. Ala. 1998). However, the document relied on by Market America in its argument is merely the Lanes’ bankruptcy petition, a document which may be amended by the debtor at any time prior to the close of the bankruptcy case. Fed. R. Bankr. P. 1009(a). In addition, the bankruptcy trustee of the Lanes’ case has asserted in an affidavit that $1 estimate does not preclude him from seeking amounts over-and-above $1 that may actually result from the this litigation: "[T]he… valuation of the Lanes’ litigation claim in the[ir] …[p]etition does not impose any limitation on the monies that I, as trustee, can collect from the Lanes for distribution to their creditors." (Defs.’ Second Notice of Filing, Ex. 32 at ¶8.) In light of these facts, this Court finds that judicial estoppel is not appropriate in this instance and, therefore, the Lanes’ representation about the valuation of their counterclaims in their bankruptcy petition does not limit the damages they may obtain with respect to such counterclaims.
C. Post-1997 Damages
Lastly, Market America asserts that, regardless of the outcome of Defendants’ counterclaims, to the extent that Defendants seek damages based on provisions of their Distributor Agreements, they would not be able to recover for damages incurred after December 31, 1997. (Mem. in Supp. of Pl.’s Mot. for Partial Summ. J. on Defs.’ Countercls. at 4-5.) Market America contends that the Distributor Agreements expired on that day, and it notes that Defendants neither filed nor applied for a renewal. (Id.) Defendants primarily argue that post-1997 damages should be recoverable because the Distributor Agreements do not specifically grant Market America discretion to reject a timely and proper renewal application. (Defs.’ Br. in Resp. to Mem. in Supp. of Pl.’s Mot. for Partial Summ. J. on Defs.’ Countercls. at 5.) In response to Market America’s statement that Defendants have never sought renewal, Defendants contend that doing so would have been "futile and unnecessary." (Defs.’ Br. in Resp. to Mem. in Supp. of Pl.’s Mot. for Partial Summ. J. on Defs.’ Countercls. at 6.) This Court finds Defendants’ arguments unpersuasive.
Each Distributor Agreement expressly states that its term is one year. This necessarily means that, unless renewed, the contract ceases to be in force once the one-year term has expired, which, in this case, was December 31, 1997. Regardless of whether Market America had discretion to reject a proper renewal application--a question this Court declines to address--Defendants did not even attempt such a renewal. This Court is unpersuaded by Defendants’ response--that to attempt a renewal would have been "futile and unnecessary"-since it is Defendants themselves who contend that Market America would have had no discretion to reject such an application. Accordingly, this Court finds that, to the extent that Defendants’ counterclaims are based on their Distributor Agreements, any post-1997 damages would not be recoverable.
To summarize, with respect to the three initial issues raised by the parties, this Court finds that (1) Judge Erwin’s comments during the preliminary injunction hearings did not create any "law of the case" precluding a subsequent independent review of Paragraph 21, (2) the Lanes’ valuation of their counterclaims against Market America in their bankruptcy petition does not limit their possible recovery as to those counterclaims, and (3) to the extent that Defendants’ counterclaims are based on their Distributor Agreements, any post-1997 damages would not be recoverable.
As noted earlier, Market America has asserted four claims and Defendants have set forth eight counterclaims. This Court will now analyze each cause of action in turn.
D. Market America’s Claim for Breach of Contract
Market America first alleges that Defendants breached their contracts with Market America "by entering into various agreements to serve as distributors for competitors of Market America . . . including but not limited to International Heritage. . . ." (Am. Compl. ¶ 18.) In addition, it alleges that Defendants breached their contracts "by recruiting other Market America distributors to become distributors for . . . Market America ‘s competitors, including but not limited to International Heritage." (Id. ¶ 19.) With their motion, Defendants primarily contend that they are entitled to judgment as a matter of law because the only contractual provision that could support Market America’s claim--the competition restriction contained in Paragraph 21--is unenforceable. (Br. in Supp. of Defs.’ Mot. for Summ. J. at 9; Defs.’ Br. in Reply to Mem. in Opp’n to Defs.’ Mot. for Summ. J. at 6.) Market America asserts that whether the competition restriction is enforceable should be a question for the jury and, even if it is deemed unenforceable by this Court, its breach of contract claim should nonetheless go forward because it rests on other clauses of Paragraph 21 and other agreements entered into between the parties. (Mem. in Opp’n to Defs.’ Mot. for Summ. J. at 15-18.) Specifically, Market America cites the trade secrets clause of Paragraph 21 and the provisions of the Professional Service Package, Certified Trainer, and Advisory Council Agreements, which were attached to the pleadings. (Mem. in Opp’n to Defs.’ Mot. for Summ. J. at 4, 15-16.) In reply, Defendants argue the trade secrets clause does not prevent use of the information cited therein and that, to the extent they entered into other agreements, Market America cannot show any breach of those agreements’ provisions. (Defs.’ Br. in Reply to Mem. in Opp’n to Defs.’ Mot. for Summ. J. at 3-4.)
Since Market America contends that its breach of contract claim rests on the contents of multiple agreements, this Court will analyze separately whether its claim may proceed under Paragraph 21 and under the relevant provisions of the Professional Service Package, Certified Trainer, and Advisory Council Agreements.
1. Paragraph 21:9 the Competition Restriction and the Trade Secrets Clause
First, with respect to the competition restriction contained in Paragraph 21, Defendants’ primary argument, as noted above, is that Market America’s breach of contract claim fails because the competition restriction contained in Paragraph 21 is a covenant not to compete which lacks a geographic limitation and, therefore, is unenforceable. (Br. in Supp. of Defs.’ Mot. for Summ. J. at 9.) Defendants also contend that the competition restriction contained in Paragraph 21 never became operative because (1) they have never resigned nor been terminated and (2) they were not employees. (Id.) Market America asserts that the competition restriction contained in Paragraph 21 need not have a geographic limit because it is an "exclusive dealership agreement" and, even if it were considered a covenant not to compete, the lack of a geographic limitation does not necessarily render it unenforceable. (Mem. in Opp’n to Defs.’ Mot. for Summ. J. at 16-18.)10 Although this Court eventually concludes, in section IV.L. of this Memorandum Opinion, that the competition restriction contained in Paragraph 21 constitutes a restraint of trade, for the purposes of analyzing Market America’s breach of contract claim this Court need not address its enforceability. Rather, even if it were enforceable, this Court finds that Market America has failed to proffer sufficient evidence that Defendants breached the provision.
On this issue, and as noted above, Defendants assert that the competition restriction of Paragraph 21 was never triggered because "Defendants neither resigned[] and [Market America] never terminated... Defendants in writing." (Br. in Supp. of Defs.’ Mot. for Summ. J. at 10.) Although Market America does not address this contention in the Argument section of its response, it nevertheless provides the following suggested reading of the restriction in its Statement of Facts: "The terms of [P]aragraph 21 apply only while a distributor is working with Market America and for the six months after he or she ceases working with Market America." (Mem. in Opp’n to Defs.’ Mot. for Summ. J. at 3 (emphasis added).) This Court finds Market America’s interpretation at odds with the plain meaning of the provision.
As noted previously, Paragraph 21 provides, in pertinent part: "I agree not to enter into competition with Market America . . . for a period of six months from my written resignation or termination as an Independent Distributor of Market America." (Defs.’ Notice of Filing, Ex. 1 at ¶ 21 (emphasis added).) The plain language of this provision indicates that it only becomes operative after the contracting party has resigned by writing or has been terminated in writing. Contrary to Market America’s reading, the provision does not indicate that the restrictions apply "while the distributor is working" with Market America. In addition, the language does not indicate that the time period is triggered any time the contracting party "ceases working." Rather, only once there has been a written resignation or termination does the restriction begin to operate.11
Here, though Market America has set forth sufficient evidence indicating that Defendants were duly suspended from operating as independent distributors, it has failed to show either that Defendants resigned by writing or that Market America terminated them in writing.12 As such, according to the plain terms of Paragraph 21, Defendants were free to compete with Market America despite the fact that they were no longer permitted to sell for Market America. Moreover, as previously stated, Paragraph 21 contains no restriction on competition prior to written resignation, written termination, suspension, or any other formal cessation of the working relationship.
Second, with respect to the trade secrets clause contained in Paragraph 21, Defendants argue that the provision does not proscribe any conduct and, therefore, cannot support Market America’s breach of contract claim. (Defs.’ Br. in Reply to Mem. in Opp’n to Defs.’ Mot. for Summ. J. at 3-4.) Defendants make that argument in response to Market America’s assertion that its breach of contract claim "include[s] ... the provision of the ... Distributor Agreement[s] forbidding the use of ‘proprietary information’ and ‘trade secrets."’ (Mem. in Opp’n to Defs.’ Mot. for Summ. J. at 15.) Market America cites Paragraph 21 in support of that assertion. Here, too, this Court finds Market America’s interpretation at odds with the plain meaning of the provision.
As noted previously, Paragraph 21 provides, in pertinent part; "I agree that the marketing plan, genealogy reports, Distributor list and official literature are proprietary information and are considered trade secrets of the company . . . ." (Defs.’ Notice of Filing, Ex. 1 at ¶ 21.) The plain language of this provision indicates merely that Defendants "agree" that the information lists "are considered trade secrets." Contrary to Market America’s reading, the provision does not restrict Defendants in any way with respect to such trade secrets.13
Accordingly, to the extent that Market America’s breach of contract claim relies on alleged violations of either the competition restriction or the trade secrets clause of Paragraph 21, Defendants’ motion for summary judgment is granted.14 This Court has previously noted, however, that Market America asserts that its breach of contract claim does not rest entirely on Paragraph 21. Therefore, this Court will next analyze these other agreements separately below.
2. Provisions of the Professional Service Package, Certified Trainer, and Advisory Council Agreements
As discussed earlier, Market America also cites the Professional Service Package, Certified Trainer, and Advisory Council Agreements in support of its breach of contract claim. (Mem. in Opp’n to Defs.’ Mot. for Summ. J. at 4, 15-16.) With respect to the Professional Service Package Agreements, Market America directs this Court’s attention to the following sentence towards the top of the document:
I agree not to use the information or data provided through the professional service Package for any other purpose other than building my Market America Distributorship and will not use said information which I agree are considered trade secrets to enter into competition with Market America, Inc. or its Distributors.
(Am. Compl., Ex. B.)
With regard to the Certified Trainer Agreements, Market America identifies paragraphs 5, 25, and 26, which provide, in pertinent part:
5. The Trainer has a fiduciary responsibility to the Company under this agreement to accurately represent and to enforce the Company agreements, policies and procedures, rules and regulations, and programs with all Market America Distributors....
25. . . . [Various] materials and information are made available to the Trainer in trust creating a fiduciary responsibility under law for the Trainer, their agents, representatives [sic] to protect the Company’s interest in handling said information and materials....
26. The Trainer shall not enter into competition by dealing directly with Company’s suppliers or involving Company’s participants or Distributors in any other venture for a period of one year from the termination of their Distributor Agreement and other contract [sic] with Company, without Company’s prior consent....
(Id. at Ex. C.)
With respect to the Advisory Council Agreements, Market America cites paragraphs 2, 3, and 4. Paragraph 2 provides, in pertinent part, as follows: "Distributor agrees to keep all... Company trade secrets and proprietary information confidential and not to disclose it to any third party that could bring harm to Company or anyone entering into competition with Company." (Id. at Ex. E.) In addition, paragraph 2 also contains language essentially mirroring paragraphs 5 and 25 of the Certified Trainer Agreements cited above. (Id.) Paragraph 3 is practically identical to paragraph 26 of the Certified Trainer Agreements cited above. (Id.) Paragraph 4, entitled "Non-Circumvent," has two subparagraphs. Subparagraph A purports to limit a distributor’s right to enter into transactions with "any supplier, vendor or consultant" of Market America. (Id.) Subparagraph B provides, in pertinent part, as follows:
Distributor hereby agrees that for a period beginning upon execution of this Agreement and ending two years from the date of termination of this Agreement with Company, or two years from the date of conclusion of the last transaction between the parties, whichever date is later, neither Distributor, nor Distributor’s employees, agents, consultants, corporations, divisions, subsidiaries or partnerships . . . , whether directly or indirectly, will enter into any transaction with any Company Distributor, inside or outside of their line of sponsorship, unless authorized under pre-existing contracts or agreements, without written consent of the Company....
(Id.)
As noted previously, Market America avers that (1) all Defendants entered into a Professional Service Package Agreement, (2) Rossi, Brown, and Melton each entered into a Certified Trainer Agreement, and (3) Rossi and Brown each entered into an Advisory Council Agreement. (Am. Compl. ¶ 13.) Defendants argue that, to the extent that they entered into such agreements, Market America cannot show any breach of the agreements’ provisions. (Defs.’ Br. in Reply to Mem. in Opp’n to Defs.’ Mot. for Summ. J. at 3-4.) With the exception of paragraph 26 of the Certified Trainer Agreements, and paragraph 3 and subparagraph 4A of the Advisory Council Agreements, this Court finds that there exist genuine issues of material fact as to whether certain Defendants have breached provisions of their contracts with Market America.
Paragraph 26 of the Certified Trainer Agreements, as noted above, provides, in pertinent part: "The Trainer shall not enter into competition by dealing directly with Company’s suppliers or involving Company’s participants or Distributors in any other venture for a period of one year from the termination of their Distributor Agreement and other contract [sic] with Company, without Company’s prior consent . . . ." (Id. at Ex. C, ¶ 26 (emphasis added).) The plain language of this provision indicates that it only covers a period after the Distributor Agreement and any other contracts have terminated. Here, though Market America has set forth sufficient evidence indicating that Defendants were duly suspended from operating as independent distributors, it has failed to set forth sufficient evidence from which a reasonable jury could conclude that Defendants competed with Market America during the one-year period following the termination of their Distributor Agreements and any other contracts that may have terminated.15 As such, according to the plain terms of paragraph 26 of the Certified Trainer Agreements, Defendants were free to compete with Market America despite the fact that they were no longer permitted to sell for Market America. Moreover, the provision contains no restriction on competition prior to the termination of the said contracts.
Paragraph 3 of the Advisory Council Agreements, as noted previously, is practically identical to paragraph 26 of the Certified Trainer Agreements cited above. Therefore, for the reasons cited above, this Court finds that, to the extent that Market America’s breach of contract claim relies on alleged violations of either paragraph 26 of the Certified Trainer Agreements or paragraph 3 of the Advisory Council Agreements, Defendants’ motion for summary judgment is granted. This Court further finds, however, that Market America has set forth sufficient evidence to establish that genuine material issues of material fact exist as to the other provisions cited above.
Paragraph 4 of the Advisory Council Agreements, as noted previously, contains two subparagraphs. As to subparagraph A, this Court finds that Market America has not proffered sufficient evidence from which a reasonable jury could find that Defendants entered into transactions with Market America’s suppliers, vendors, or consultants.
Accordingly, to the extent that Market America’s breach of contract claim relies on alleged violations of the excerpt identified in the Professional Service Agreements, paragraphs 5 or 25 of the Certified Trainer Agreements, paragraph 2 of the Advisory Council Agreements, or subparagraph 4B of the Advisory Council Agreements, Defendants’ motion for summary judgment is denied.
E. Market America’s Claim for Misappropriation and Misuse of Trade Secrets and Proprietary Information
Market America also alleges that Defendants "used Market America’s [d]istributor lists in order to contact loyal Market America distributors and attempt to recruit them as distributors for International Heritage . . . ." (Am. Compl. ¶ 23.) It asserts that such conduct is in violation of the North Carolina Trade Secrets Protection Act ("the TSPA"), N.C. Gen. Stat. §§ 66-152 et seq. (Id.) Defendants have moved for summary judgment on this claim, contending that the distributor lists cited by Market America in the Amended Complaint do not constitute "trade secrets" ‘under the TSPA. (Br. in Supp. of Defs.’ Mot. for Summ. J. at 11-12.)16
The TSPA establishes a private right of action on the part of an owner of a trade secret against a party alleged to have misappropriated such. N.C. Gen. Stat. § 66-153. "The existence of a trade secret is a conclusion of law based upon the applicable facts." Trandes Corp. v. Guy F. Atkinson Co., 996 F.2d 655, 661 (4th Cir. 1993) (construing Maryland law).17 A "trade secret" is defined as business or technical information, including but not limited to a formula, pattern, program, device, compilation of information, method, technique, or process that:
a. Derives independent actual or potential commercial value from not being generally known or readily ascertainable through independent development or reverse engineering by persons who can obtain economic value from its disclosure or use; and
b. Is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.
Id. § 66-152(3). In other words, a trade secret is "valuable business or technical information that a) is neither ‘generally known nor readily asccestainable through independent development or reverse engineering,’ and b) has been subject to ‘efforts that are reasonable under the circumstances to maintain its secrecy."’ Bank Travel Bank v. McCoy, 802 F. Supp. 1358, 1360 (E.D.N.C. 1992), aff'd sub nom. Amariglio-Dunn v. McCoy, 4 F.3d 984 (4th Cir. 1993). "In order to resist [a] defendant’s motion for summary judgment, a plaintiff must allege facts sufficient to allow a reasonable finder of fact to conclude that [the material at issue] satisfies these two requirements." Id.
At the outset, this Court notes that a Market America distributor list, at a minimum, is a "compilation of information" and, thus, is capable of being classified as a trade secret, so long as the two additional enumerated requirements of section 66-152(3) are met. Defendants contend that the first requirement is not met because the distributor lists--which consist of a distributor’s family, friends, or acquaintances--are readily ascertainable through independent development. (Br. in Supp. of Defs.’ Mot. for Summ. J. at 12.) However, viewing the facts in the light most favorable to Market America, the nonmovant, this Court concludes that there are genuine issues of material fact concerning the nature of the distributor lists which preclude a summary judgment finding. For instance, although a particular distributor list would likely include a distributor’s family, friends, or acquaintances, Market America has proffered sufficient evidence from which a reasonable jury could find that such lists include other information not readily ascertainable by independent development, such as names and addresses of distributors who are not in a distributor’s immediate downline, and information such as historical sales performance. Based upon the foregoing, Defendants’ motion for summary judgment as to Market America's misappropriation and misuse of trade secrets claim is denied.
F. Market America’s Claim for Unfair and Deceptive Trade Practices
Market America further alleges that Defendants violated North Carolina’s Unfair Trade Practices Act ("the UTPA"), N.C. Gen. Stat. § 75-1.1, by (1) deceiving Market America after they had become distributors for International Heritage, (2) making representations and taking actions that would indicate that "they were still loyal and faithful" to Market America, and (3) secretly conducting solicitation activities for International Heritage while overtly acting as distributors of Market America. (Am. Compl. § 26.) Defendants have moved for summary judgment as to this claim, primarily contending that their alleged actions, if true, do not rise to the level of conduct required to show unfair or deceptive acts. (Br. in Supp. of Defs.’ Mot. for Summ. J. at 13-14.)18 This Court agrees with Defendants.
In North Carolina, "[u]nfair methods of competition in or affecting commerce, and unfair or deceptive acts or practices in or affecting commerce, are... unlawful." N.C. Gen. Stat. § 75-1.1 (emphasis added). Whether an act is unfair or deceptive is a question of law for the court. Bernard v. Central Carolina Truck Sales, Inc., 68 N.C. App. 228, 230, 314 S.E. 2d 582, 584, rev. denied, 311 N.C. 751, 321 S.E. 2d 126 (1984). When, as here, the crux of the dispute is contractual, an unfair and deceptive trade practices claim is generally not appropriate:
North Carolina courts have repeatedly held that "a mere breach of contract, even if intentional, is not sufficiently unfair or deceptive to sustain an action under [the UTPA,] N.C.G.S. § 75-1.1." Even though "[i]n a sense, unfairness inheres in every breach of contract when one of the contracting parties is denied the advantage for which he contracted," North Carolina law requires a showing of "substantial aggravating circumstances" to support a claim under the UTPA.
Broussard v. Meineke Discount Muffler Shops, Inc., 155 F.3d 331, 347 (4th Cir. 1998) (citations omitted) (alterations in original). As noted above, Defendants contend that their alleged conduct does not rise to the level of "substantial aggravating circumstances" to warrant an unfair trade practices claim. Again, this Court agrees with Defendants.
As stated in Broussard, district courts considering tort and breach of contract claims arising out of the same dispute should be guided by the following observation: "‘We think it unlikely that an independent tort could arise in the course of contractual performance, since those sorts of claims are most appropriately addressed by asking simply whether a party adequately fulfilled its contractual obligations."’ Id. at 347 (quoting Strum v. Exxon Co., 15 F.3d 327, 333 (4th Cir. 1994). Thus, if the alleged acts constitute substantial wrongdoing over-and-above a party’s failure to adequately fulfill its contractual obligations, then an unfair trade practices claim in addition to the underlying breach of contract cause of action may be appropriate. For example, in Garlock v. Henson, 112 N.C. App. 243, 435 S.E. 2d 114 (1993), the Court of Appeals of North Carolina ruled that plaintiff’s evidence supported an action under the UTPA despite the fact that the defendant contended that he merely breached the underlying contract. In upholding the trial court’s ruling that the defendant violated the UTPA, the court noted that the defendant--who was required by his contract to pay money to the plaintiff upon the sale of certain equipment--repeatedly denied the sale after it had occurred, forged a bill of sale to avoid discovery of his payment obligation, and deprived the plaintiff of his money due under the contract for a period of three years. Id. at 246, 435 S.E. 2d at 115. Significantly, the defendant’s repeated denials of the third party sale, his forgery, and the defendant’s three-year deprivation of funds constituted evidence of substantial wrongdoing over-and-above that necessary to establish the plaintiff’s simple breach of contract claim. See also Foley v. L&L Int’l, Inc., 88 N.C. App. 710, 364 S.E. 2d 733 (1988). Here, however, the evidence proffered in support of its unfair trade practices claim is in all material respects identical to the evidence Market America has set forth in support of its breach of contract claim. Thus, this Court finds that such evidence does not rise to the requisite level of "substantial aggravating circumstances."19 Thus, to allow Market America to assert an unfair trade practices claim based on the evidence presented would be contrary to the Fourth Circuit’s admonition that a district court should not allow an unfair trade practices claim to "piggyback" on a breach of contract action. Id.20 Accordingly, Defendants’ motion for summary judgment as to Market America’s claim under the UTPA is granted.
G. Market America’s Claim for Tortious Interference with Contract
With its fourth and final claim, Market America alleges that "Defendants, without justification, intentionally induced Market America distributors to breach their contracts with Market America." (Am. Compl. ¶ 31.) It also alleges that "[a]t the time . . . Defendants contacted Market America's... distributors for the purposes of recruiting them to join International Heritage, they had knowledge of the valid contractual relationship between those distributors and Market America." (Id.) With their present motion, Defendants contend that Market America’s claim for tortious interference with contract fails as a matter of law because the underlying contractual provision allegedly breached by these other distributors is the competition restriction contained in Paragraph 21, an unenforceable covenant not to compete. (Br. in Supp. of Defs.’ Mot. for Summ. J. at 10-1 1.)
In order to establish a cause of action for tortious interference with contract, a plaintiff must establish that (1) a valid contract existed between the plaintiff and a third party which confers a contractual right against that third party, (2) the defendant knew of such contract, (3) the defendant intentionally induced the third party not to perform pursuant to the contract, (4) in doing so the defendant acted without justification, and (5) the defendant’s actions resulted in actual damage to the plaintiff. Embree Constr. Group, Inc. v. Rafcor, Inc., 330 N.C. 487, 498, 411 S.E. 2d 916, 924 (1992) (citing United Lab., Inc. v. Kuykendall, 322 N.C. 643, 661, 370 S.E. 2d 375, 387 (1988)).
Here, Market America argues that, as a result of Defendants’ activities, "numerous Market America distributors were led to [International Heritage] in violation of their agreements with Market America." (Mem. in Opp’n to Defs.’ Mot. for Summ. J. at 18 (emphasis in original).) As Defendants note and as Market America fails to challenge, the only provision of the Distributor Agreement that these other distributors could have violated by joining International Heritage is the competition restriction contained in Paragraph 21.21 However, Market America has failed to set forth sufficient evidence that these other distributors failed to perform according to, or comply with, Paragraph 21. As explained in section IV.D. of this Memorandum Opinion, according to the plain language of the competition restriction, Market America must prove that an independent distributor competed with Market America within six months after the independent distributor’s written resignation or termination. Market America has failed to adequately proffer evidence that these other distributors resigned by writing or were terminated in writing. Therefore, Market America has set forth insufficient evidence in support of the second element of its claim cited above. Thus, this Court finds that Market America’s tortious interference with contract claim fails as a matter of law. Accordingly, Defendants’ motion for summary judgment as to this claim is granted.
H. Defendants’ Counterclaim for Libel22
Defendants’ first counterclaim alleges that "Market America has made false and defamatory statements of and concerning... Defendants and has published them to third persons." (Answer ¶ 31.) Moreover, they allege that such publication damaged Defendants’ reputations, caused Defendants pecuniary harm, was made with malice, and was done without justification. (Id. ¶¶ 32-35.) Although Defendants’ Answer indicates that the "false and defamatory statements" were made "[t]hrough [Market America’s] President and Vice President," the summary judgment briefs reveal that this claim is based on the Ridinger letter which, as noted previously, was mailed on August 15, 1997, by Market America to approximately 7,000 or 10% of Market America’s independent distributors informing them that Defendants had been suspended. Defendants argue that they are entitled to summary judgment because the letter constitutes libel per se. (Br. in Supp. of Defs.’ Mot. for Summ. J. at 14-15.) Market America contends that there are no genuine issues of material fact and that it is entitled to judgment as a matter of law because it was privileged in issuing the letter and, in any case, name calling is not actionable. (Mem. in Supp. of Pl.’s Mot. for Partial Summ. J. on Defs.’ Countercls. at 6-11.) This Court need not now undertake a full examination of the parties’ motions with respect to this counterclaim because this Court finds that there exist genuine issues of material fact related to the circumstances and events giving rise to the Ridinger letter. According, the parties’ respective motions are denied.
I. Defendants’ Counterclaim for Slander
Defendants’ next counterclaim alleges that "Market America’s President, Vice President and agents have uttered false, base and defamatory words concerning each of Defendants to third persons, and the words have tended to prejudice each Defendant’s reputation, trade, business and means of livelihood." (Answer ¶ 38.) Moreover, they allege that statements caused Defendants pecuniary harm, were made with malice, and were made without justification. (Id. ¶¶ 39-41.) Despite the fact that Defendants’ Answer indicates that the alleged slander was uttered by "Market America’s President, Vice President and agents," the summary judgment briefs reveal that this claim is based primarily on the Ridinger audiotape that was almost identical in content to the Ridinger letter and which was accessible by approximately 5,000-8,000 distributors. Defendants argue that they are entitled to summary judgment because the Ridinger audiotape constitutes slander per se. (Br. in Supp. of Defs.’ Mot. for Summ. J. at 16.) Similar to their arguments with respect to the libel claim, Market America contends that there are no genuine issues of material fact and that it is entitled to judgment as a matter of law because it was privileged in publishing the Ridinger audiotape and, in any case, name calling is not actionable. (Mem. in Supp. of PI.’s Mot. for Partial Summ. J. on Defs.’ Countercls. at 6-11.) Since the statements made on the Ridinger audiotape are practically identical to the contents of the Ridinger letter, this Court reaches the same conclusion as to Defendants’ slander counterclaim as this Court did with respect to Defendants’ libel counterclaim, to wit, that there exist genuine issues of material fact related to the circumstances and events giving rise to the Ridinger audiotapes. Therefore, for the reasons set forth in section IV.H. of this Memorandum Opinion, the parties’ respective motions are denied.
J. Defendants’ Counterclaim for Unfair and Deceptive Trade Practices
Defendants further allege that Market America’s conduct constitutes a violation of the UTPA, (Answer ¶¶ 43-46), cited and discussed previously in section IV.F. of this Memorandum Opinion. Specifically, Defendants contend that Market America inequitably asserted its power in position. [Market America] stopped payment on Defendants’ commission checks, ignored Defendants’ appeals in violation of its own career manual, obtained an ex parte [temporary restraining order] prohibiting Defendants from communicating with their downlines, and sent a libelous letter to [members of] Defendants’ downlines--all in an effort to enforce a void non-competition provision [Paragraph 21].
(Br. in Supp. of Defs.’ Mot. for Summ. J. at 17.) Based upon these allegations, Defendants have moved for summary judgment as to their UTPA claim. Market America, with its motion for partial summary judgment, contends that there are no genuine issues of material fact and that it is entitled to judgment as a matter of law because "when reduced to its essentials, Defendants’ unfair trade practices claim amounts to nothing more than a restatement of its breach of contract [counter]claims." (Reply Mem. in Supp. of PI.’s Mot. for Partial Summ. J. on Defs.’ Countercls. at 7.) In addition, Market America argues that "Defendants have failed to plead and... cannot... show an essential nexus with North Carolina" to sustain their claim. (Mem. in Supp. of Pl.’s Mot. for Partial Summ. J. on Defs.’ Countercls. at 12.) This Court disagrees.
At the outset, this Court notes that Market America’s argument, that Defendants have failed to establish a sufficient connection to North Carolina to bring an unfair trade practices claim, is without merit.
Under North Carolina law, in order for [the UTPA] to apply, North Carolina must have a substantial relationship to the particular conduct giving rise to the unfair and deceptive trade practices claim. In a multi-state unfair trade practices case, the North Carolina Supreme Court would likely apply the "most significant relationship test." The "most significant relationship" test is the most appropriate for a deceptive trade practice claim involving multistate interests.
Deceptive trade practice causes of action vary among the states. Under the significant relationship test, [a] court considers where the relationship between the parties was created and where it was centered.
Jacobs v. Central Trans., Inc., 891 F. Supp. 1088, 1111 (E.D.N.C. 1995), rev'd in part on other grounds, 83 F.3d 415 (4th Cir. 1996) (citations omitted). Applying the test to the case at hand, this Court concludes that the alleged facts of this case bear a sufficient connection to North Carolina so as to allow for a cause of action pursuant to the UTPA. Market America is a North Carolina corporation headquartered in Greensboro. The Distributor Agreements were issued from North Carolina and, most notably, some of Market America's alleged unfair and deceptive conduct, to wit, the publication of the Ridinger letter and the Ridinger audiotape, occurred in North Carolina. Contrary to Market America’s contentions, the evidence indicates a sufficient nexus for Defendants to bring their claim pursuant to North Carolina law. See id at 1111 (relationship "substantial" when defendants were headquartered in North Carolina and much of the decisions of which plaintiffs complained were made in North Carolina).23
As noted above, Market America also argues the Defendants’ unfair trade practices counterclaim is barred because it is essentially the same as Defendants’ breach of contract counterclaims. This Court disagrees. As this Court reasoned in section IV.F. of this Memorandum Opinion, if the alleged acts constitute substantial wrongdoing over-and-above a party’s failure to adequately fulfill its contractual obligations, then an unfair trade practices claim in addition to the underlying breach of contract cause of action may be appropriate. Here, although some of Defendants’ unfair trade practices allegations are also cited in support of their breach of contract counterclaims, Defendants’ have proffered evidence that constitutes substantial aggravating circumstances over-and-above Market America’s alleged failure to abide by the terms of its contracts. For example, Defendants
have alleged that the Ridinger letter, which they contend constitutes libel per se, constitutes wrongdoing which can, as a matter of law, support a cause of action under the UTPA. Ellis v. Northern Star Co., 326 N.C. 219, 226, 388 S.E. 2d 127, 131 (1990) ("[A] libel per se of a type impeaching a party in its business activities is an unfair or deceptive act in or affecting commerce in violation of [the UTPA]...."). Thus, this Court finds that Defendants’ counterclaim for unfair trade practices is appropriate and, therefore, Market America's motion for partial summary judgment is denied. However, Defendants’ motion for summary judgment as to its unfair trade practices counterclaim is also denied to the extent that this Court has previously ruled that there are genuine issues of material fact which preclude entering judgment as a matter of law as to Defendants’ libel counterclaim.
K. Defendants’ Counterclaim for Interference with Business Relations
With their fourth counterclaim, Defendants charge Market America with interference with business relations. (Answer ¶¶ 47-5 1.) Specifically, they allege that "Market America has prevented people from trading with Defendants by threats and intimidation," (id. ¶ 48), and "has interfered with ... Defendant[s’] free exercise of his or her means of livelihood," (id. ¶ 49). With their motion for summary judgment, Defendants cite the Ridinger letter and the temporary restraining order as supporting evidence of their claim and contend that they are entitled to judgment as a matter of law. (Br. in Supp. of Defs.’ Mot. for Summ. J. at 17-18.) However, Market America asserts with its motion for partial summary judgment that Defendants’ counterclaim fails because they have not alleged or proffered evidence to show that Defendants would have entered into contracts "but for Market America’s alleged interference." (Mem. in Supp. of Pl.’s Mot. for Partial Summ. J. on Defs.’ Countercis. at 14.)
North Carolina recognizes the tort of interference with business relations. See e.g., McDonald v. Scarboro, 91 N.C. App. 13, 370 S.E. 2d 680, rev. denied, 323 N.C. 476, 373 S.E. 2d 864 (1988). The elements of the tort of interference with business relations are as follows:
(1) the existence of a business relationship or expectancy, (2) knowledge of such relationship or expectancy on the part of the interferer, (3) an intentional and unjustified act of interference on the part of the interferer, and (4) damage to the party whose relationship or expectancy has been disrupted as a result of the interference. Lee 45 Am. Jur. 2d Interference § 48 (1999); see also Ethan Allen, Inc. v. Georgetown Manor, Inc., 647 So.2d 812, 814 (Fla. 1995). Furthermore, "to maintain an action for interference with business relations in North Carolina, [a complainant] must show that [an interferer] "acted with malice and for a reason not reasonably related to the protection of a legitimate business interest of . . . ."" Cameron v. New Hanover Mem’l Hosp., Inc., 58 N.C. App. 414, 437, 293 S.E. 2d 901, 915 (1982) (quoting Smith v. Ford Motor Co., 289 N.C. 71, 94, 221 S.E. 2d 282, 296 (1976)). Here, both parties have raised genuine issues of fact to preclude a summary judgment finding. Specifically, Defendants have proffered sufficient evidence from which a reasonable jury could conclude that Market America acted with malice and Market America has raised sufficient questions as to whether there existed a business relationship or expectancy capable of being interfered with. Accordingly, the parties’ respective motions are denied.
L. Defendants’ Counterclaim for Restraint of Trade
Defendants next allege that "Paragraph 21 constitutes a restraint of trade" in violation of North Carolina "and/or" Virginia law. (Answer ¶ 56.) They have moved for summary judgment as to this claim, asserting ‘that the competition restriction contained in Paragraph 21 "restrains independent distributors . . . from participating or being involved with an organization with a similar ‘matrix marketing system,’ that is, a similar payment system." (Br. in Supp. of Defs.’ Mot. for Summ. J. at 18.) They assert that they are entitled to judgment as a matter of law because "[t]here is no legitimate business purpose for restraining independent distributors from working for other organizations with.., similar compensation plan[s]. (Id.) In response, Market America has moved for partial summary judgment as to Defendant’s counterclaim, arguing that, even if Defendants could bring their claim under the North Carolina restraint of trade provision, "Defendants do not allege that Market America has market power, do not allege the amount of business allegedly foreclosed by such conduct[,] and do not allege that such conduct violates any rule of reason." (Mem. in Supp. of PI.’s Mot. for Partial Summ. on Defs.’ Countercls. at 13.)
At the outset, this Court notes that Defendants’ counterclaim is properly brought under North Carolina law and improperly brought pursuant to Virginia law.24 First, Paragraph 21 is a component of the Distributor Agreement which specifically provides that "[t]his agreement shall be governed by the laws of the State of North Carolina...." (Defs.’ Notice of Filing, Ex. 1 at ¶ 23.) Such clauses are valid in North Carolina. See Perkins v. CCH Computax, Inc., 333 N.C. 140, 145 n.1, 423 S.E. 2d 780, 783 n.1 (1992) (citing Johnston County v. R.N. Rouse & Co., 331 N.C. 88, 414 S.E. 2d 30 (1992)). Second, for the reasons set forth in section IV.J. of this Memorandum Opinion for the purposes of concluding that the parties have a "sufficient connection" to North Carolina so as to allow Defendants to bring a claim pursuant to the UTPA, this Court further finds that Defendants may maintain a claim under North Carolina’s restraint of trade statute.
In addition, the Court notes that Market America has asserted that Paragraph 21 is an "exclusive dealership agreement." (Mem.. in Opp’n to Defs.’ Mot. for Summ. J. at 16-17.) This Court disagrees. Rather, the Court finds that Paragraph 21 is more properly labeled a "covenant not to compete." As discussed in section IV.D. of this Memorandum Opinion, Paragraph 21, by its terms, restricted competition "for a period of six months from" resignation or termination. Such a provision, therefore, covers the period after the business relationship has ceased. Accordingly, it more closely resembles, and is more accurately described as, a traditional covenant not to compete. By contrast, exclusive dealing arrangements restrict the promisee during the period of the business relationship.25
North Carolina’s restraint of trade statute provides as follows: "Every contract, combination in the form of trust or otherwise, or conspiracy in restraint of trade or commerce in the State of North Carolina is hereby declared to be illegal . . . ." N.C. Gen. Stat. § 75-1.26 A covenant not to compete is "basically an agreement in restraint of trade." Wilmar, Inc. v. Liles, 13 N.C. App. 71, 74, 185 S.E. 2d 278, 280 (1971), cert. denied, 280 N.C. 305, 186 S.E. 2d 178 (1972) (quoting Purchasing Assocs., Inc. v. Weitz, 196 N.E. 2d 245 (N.Y. 1963)). "However, [North Carolina] courts have recognized the rule that a covenant not to compete is enforceable in equity" in some circumstances. Starkings Court Reporting Svcs., Inc. v. Collins, 67 N.C. App. 540, 541, 313 S.E. 2d 614, 615 (1984). Generally, a covenant not to compete is enforceable and not in restraint of trade only if it is "(1) in writing, (2) made part of a contract of employment, (3) based on valuable consideration, (4) reasonable both as to time and territory, and (5) not against public policy." Whittaker Gen. Med. Corp. v. Daniel, 324 N.C. 523, 525, 379 S.E. 2d 824, 826 (1989) (citing United Lab., Inc. v. Kuykendall, 322 N.C. 643, 370 S.E. 2d 375 (1988). "The reasonableness of a restrictive covenant is a question of law for the court...." Keith v. Day, 81 N.C. App. 185, 193, 343 S.E. 2d 562, 567 (1986). As a matter of law, Market America cannot make such a showing.
According to the terms of the Distributor Agreement, each of the Defendants in this case were "independent contractors" of Market America. (Defs.’ Notice of Filing, Ex. 1 at ¶ 9.) At least one North Carolina court has applied the above criteria to determine whether provisions purporting to restrict an independent contractor from competing with the other contracting party after the termination of the working relationship were not in restraint of trade pursuant to section 75-1. See Starkings, 67 N.C. App. 540, 313 S.E. 2d 614 (provision restricting defendant independent contractor from competing with plaintiff following termination found unenforceable in light of criteria for valid covenant not to compete).
In American Hot Rod Association, Inc. v. Carrier, 500 F.2d 1269 (4th Cir. 1974), the Fourth Circuit was faced with a similar covenant not to compete. The covenant in American Hot Rod purported to prevent an operator of a dragway from competing with a hot rod association for a period of five years following termination from the hot rod association. Id. at 1272. The covenant contained no geographical limitation. Id. A jury trial resulted in a verdict in favor of the hot rod association on its breach of contract claim. Id. at 1276. On appeal the operator claimed that the restrictive covenant was void as matter of law. Id. Construing North Carolina law, the Fourth Circuit agreed with the operator and ruled that the covenant not to compete was unenforceable: "there is no basis on which the court could properly determine whether the restrictive covenant in question is reasonably necessary for the protection of [the hot rod association]’s business." Id. at 1279. After noting that the hot rod association has actively engaged in its promotion business in only one state, the court observed that "the ‘restriction in the covenant applies not only throughout the Southeast, it covers the entire country, even the world." Id. Concluding, the Fourth Circuit wrote that "[b]ecause the covenant is drawn broader than necessary for the protection of the plaintiff, and is therefore unreasonable, it is in restraint of trade and void." Id. (emphasis added).
Applying these principles to the instant case, this Court concludes that the competition restriction contained in Paragraph 21 is not enforceable in equity and, therefore, is in restraint of trade. As noted previously, Paragraph 21 provides, in pertinent part: "I agree not to enter into competition with Market America . . . for a period of six months from my written resignation or termination as an Independent Distributor of Market America." (Defs.’ Notice of Filing, Ex. 1.) As Defendants correctly contend and as Market America concedes, this language contains no geographical limitation. Like the plaintiff in American Hot Rod, Market America has failed to set forth sufficient evidence that would enable this Court to properly determine whether the competition restriction contained in Paragraph 21 "is reasonably necessary for the protection of [its] business." Thus, this Court concludes, as a matter of law, that the competition restriction contained in Paragraph 21 is unenforceable and therefore in restraint of trade because it is not "reasonable both as to time and territory."27 Accordingly, Market America’s motion for partial summary judgment as to this claim is denied and Defendants’ motion for summary judgment is granted subject to a determination during trial of damages to be awarded, if any.
M. Defendants’ Counterclaim for Money Had and Received
Defendants also allege that "Market America owes Defendants . . . for earned commissions withheld and/or subject to stop payment orders by Market America." (Answer ¶ 58.) With their motion for summary judgment, Defendants contend that they "are clearly entitled to be paid all commissions that accrued through Friday, August 8, 1997, the date of the[] suspension[s]." (Br. in Supp. of Defs.’ Mot. for Summ. J. at 19.) This Court agrees.
The Supreme Court of North Carolina has provided the following description of an action for money had and received:
An action for money had and received may be maintained as a general rule "whenever the defendant has money in his hands which belongs to the plaintiff, and which in equity and good conscience he ought to pay to the plaintiff. . . . The plaintiff is entitled to recover when it appears that the money in question belonged to the plaintiff and was secured by the defendant without the consent of the plaintiff, or if with his consent, without consideration." Recovery is allowed upon the equitable principle that a person should not be permitted to enrich himself unjustly at the expense of another. Therefore, the crucial question in an action of this kind is, to which party does the money, in equity and good conscience, belong? The right of recovery does not presuppose a wrong by the person who received the money, and the presence of actual fraud is not essential to the right of recovery. The test is not whether the defendant acquired the money honestly and in good faith, but rather, has he the right to retain it.
Allgood v. Wilmington Say. & Trust Co., 242 N.C. 506, 512, 88 S.E. 2d 825, 829 (1955) (omission in original) (citations omitted) (emphasis added).
Here, Market America has failed to cite any evidence that it was or is entitled to retain commissions earned by Defendants prior to the date of their suspension. In fact, Market America has not even addressed Defendants’ motion as to this counterclaim in its summary judgment brief. This Court finds, therefore, that there are no genuine issues of material fact as to Defendants’ money had and received counterclaim and, therefore, they are entitled to judgment as a matter of law with the actual amount of damages to be determined at trial. Accordingly, Defendants’ motion for summary judgment as to this counterclaim is granted subject to a determination during trial of damages to be awarded, if any.
N. Defendants’ Counterclaim for Breach of Contract and Misappropriation
With their seventh counterclaim, Defendants allege that Market America breached the Distributor Agreements by not timely remitting tax amounts collected from Defendants and owed to state taxing authorities. (Answer ¶¶ 59-62.) To establish a breach of contract, the complaining party must prove that (1) a valid contract was made, (2) obligations were assumed under the contract, and (3) the opposing party failed to fulfill--or breached--those obligations. See Beachboard v. Southern Ry. Co., 16 N.C. App. 671, 681, 193 S.E. 2d 577, 584 (1972). Defendants argue that Market America breached its obligations with respect to its processing of sales tax collected from Defendants and owed to state authorities. (Br. in Supp. of Defs’ Mot. for Summ. J. at 19-20.) This Court disagrees.
In December 1997, Market America remitted to certain states sales tax amounts that had been previously collected from Defendants but not timely turned over to state authorities. The relevant sales tax provision of the Career Manual which, again, is incorporated into Defendants’ Distributor Agreements, provide as follows: "Market America. . . will collect and remit sales tax to the respective state[s]. . . ." (Career Manual, Part II, 6.3.1.) Despite their breach of contract counterclaim, Defendants have all but conceded that Market America "collect[ed] and remit[ted]" the state sales tax amounts at issue. When examined more closely, Defendants counterclaim is actually based on Market America’s failure to timely "collect and remit" the taxes. Such compliance on the part of Market America is not required by the sections of the Career Manual cited by Defendants. As noted in section IV.D. of this Memorandum Opinion, this Court is not at liberty to insert words into an unambiguous contract. See Martin v. Martin, 26 N.C. App. 506, 508, 216 S.E. 2d 456, 457-58 (1975). Consequently, this Court finds that Defendants’ counterclaim for breach of contract and misappropriation fails as a matter of law and that their motion for summary judgment is denied. Furthermore, Market America’s motion for partial summary judgment as to this claim is granted.
O. Defendants’ Counterclaim for Breach of Contract
Lastly, Defendants allege that "[a]fter Defendants appealed their suspensions within the time set out in the Career Manual, Market America failed to comply with.. . the Career Manual, which required it to provide written notice of [Market America]’s decision regarding their appeals and allow a hearing if requested." (Answer ¶ 64.) They further allege that "Market America’s failure to comply with . . . the Career Manual constitutes a breach of contract." (Id.) With their motion for summary judgment, Defendants argue that, as to this claim there are no genuine issues of material fact and that they are entitled to judgment as a matter of law. This Court agrees.
As noted above, to establish a breach of contract, the complaining party must prove that (1) a valid contract was made, (2) obligations were assumed under the contract, and (3) the opposing party failed to fulfill--or breached--those obligations. See Beachboard v. Southern Ry. Co., 16 N.C. App. 671, 681, 193 S.E. 2d 577, 584 (1972). Here, Market America does not contest that the Distributor Agreements were valid and that they incorporated by reference the provisions of the Career Manual. Pursuant to the relevant terms of the Career Manual, it assumed an obligation to "review [an] appeal and decide on actions to be implemented" when an independent distributor files a written request within "15 business days from the postmarked certified [suspension] letter. . . ." (Career Manual, Part II, §§ 4.2.4, 4.2.6.) Defendants have set forth sufficient evidence indicating that they filed such written requests in a timely fashion. Market America has neither challenged the validity of Defendants’ written appeals, nor the fact that it assumed the obligations cited above. Most importantly, it has failed to rebut Defendants’ allegation that they have never received a hearing. As such, Defendants’ motion for summary judgment as to this counterclaim is granted subject to a determination during trial of damages to be awarded, if any.
For the foregoing reasons, this Court concludes that Defendants’ Motion for Summary Judgment filed with respect to Market America’s claim for breach of contract is granted in part and denied in part. To the extent that Market America’s claim for breach of contract relies on alleged violations of (1) the competition restriction or trade secrets clause contained in paragraph 21 of each Independent Distributor Application and Agreement ("Distributor Agreement"), (2) paragraph 26 of the Certified Trainer Agreements, or (3) paragraph 3 or subparagraph 4A of the Advisory Council Agreements, Defendants’ Motion for Summary Judgment is granted and that portion of the claim is dismissed with prejudice. However, to the extent that Market America’s claim for breach of contract relies on alleged violations of (1) the excerpt from the Professional Service Package Agreements cited by Market America in its summary judgment briefs and identified by this Court in the Memorandum Opinion to be filed forthwith, (2) paragraphs 5 or 25 of the Certified Trainer Agreements, or (3) paragraph 2 or subparagraph 4B of the Advisory Council Agreements, Defendants’ Motion for Summary Judgment is denied.
This Court further concludes that Defendants’ Motion for Summary Judgment filed with respect to Market America's claim for misappropriation and misuse of trade secrets and proprietary information is denied.
This Court further concludes that Defendants’ Motion for Summary Judgment filed with respect to Market America’s claim for unfair and deceptive trade practices is granted and the claim is dismissed with prejudice.
This Court further concludes that Defendants’ Motion for Summary Judgment filed with respect to Market America’s claim for tortious interference with contract is granted and the claim is dismissed with prejudice.
This Court further concludes that both Defendants’ Motion for Summary Judgment and Market America’s Motion for Partial Summary Judgment filed with respect to Defendants’ counterclaim for libel are denied.
This Court further concludes that both Defendants’ Motion for Summary Judgment and Market America’s Motion for Partial Summary Judgment filed with respect to Defendants’ counterclaim for slander are denied.
This Court further concludes that both Defendants’ Motion for Summary Judgment and Market America’s Motion for Partial Summary Judgment filed with respect to Defendants’ counterclaim for unfair and deceptive trade practices are denied.
This Court further concludes that both Defendants’ Motion for Summary Judgment and Market America’s Motion for Partial Summary Judgment filed with respect to Defendants’ counterclaim for interference with business relations are denied.
This Court further concludes that Defendants’ Motion for Summary Judgment filed with respect to Defendants’ counterclaim for restraint of trade is granted subject to a determination during trial of damages to be awarded, if any. Accordingly, Market America’s Motion for Partial Summary Judgment filed with respect to this counterclaim is denied.
This Court further concludes that Defendants’ Motion for Summary Judgment filed with respect to Defendants’ counterclaim for money had and received is granted subject to a determination during trial of damages to be awarded, if any. Accordingly, Market America’s Motion for Partial Summary Judgment filed with respect to this counterclaim is denied.
This Court further concludes that Market America’s Motion for Partial Summary Judgment filed with respect to Defendants’ counterclaim for breach of contract and misappropriation (relating to the payment of state sales taxes) is granted and the counterclaim is dismissed with prejudice. Accordingly, Defendants’ Motion for Summary Judgment filed with respect to this counterclaim is denied.
This Court further concludes that Defendants’ Motion for Summary Judgment filed with respect to Defendants’ counterclaim for breach of contract (relating to Market America’s appeal procedures) is granted subject to a determination during trial of damages to be awarded, if any. Accordingly, Market America’s Motion for Partial Summary Judgment filed with respect to this counterclaim is denied.
This Court further concludes that Market America’s Motion for Partial Summary Judgment filed with respect to Defendants’ counterclaims is granted to the extent as follows: Insofar as Defendants’ counterclaims are based on alleged violations of the Distributor Agreements, to wit, Defendants’ counterclaims for restraint of trade, money had and received, and breach of contract,28 damages incurred by Defendants after those Distributor Agreements expired on December 31, 1997, are not recoverable.
This Court further concludes that Market America’s Motion for Partial Summary Judgment filed with respect to Defendants’ counterclaims is denied to the extent that the Lanes’ representations about the valuation of their counterclaims in their bankruptcy petition does not limit the damages they may recover against Market America with respect to such counterclaims.
This Court further concludes that Defendants’ Motion for Summary Judgment filed with respect to Market America’s claims is denied to the extent Defendants seek summary judgment based upon comments made by United States Senior District Judge Richard C. Erwin in reference to the enforceability of the competition restriction contained in paragraph 21 of the Distributor Agreements during prior preliminary injunction hearings held in this case."
An Order and Judgment in accordance with this Memorandum Opinion has been previously filed.
This the 15th day of April, 1999.
_______________________
United States District Judge
¹Phil and Julia Lane are married. For the purposes of this Memorandum Opinion, they may also be referred to as "the Lanes."
² Claims against several other defendants--Dick Cuthrel, Kathleen Frame, Pete Tortolini, George Smith, and Rich Moccia--have been dismissed pursuant to their respective settlement agreements. Rossi Enterprises, Inc., and Melton Marketing, Inc., are additional counterclaimants in this action. For the purposes of this Memorandum Opinion, these two entities are deemed included in any reference to "Defendants" in the context of the counterclaims.
³Court notes that, although Defendants’ motion is entitled "Defendants’ Motion for Summary Judgment," they have--in addition to requesting summary judgment as to all of Market America’s claims--moved for "partial" summary judgment as to Defendants’ counterclaims. For the purposes of this Memorandum Opinion, Defendants’ summary judgment motion will be hereinafter referred to without any "partial" designation. Similarly, all references to Market America’s motion, entitled "Plaintiff’s Motion for Partial Summary Judgment on Defendants’ Counterclaims," will, for the purposes of this Memorandum Opinion, be hereinafter referred to with the "partial" designation.
4The development of the factual and procedural background is based exclusively on the pre-trial record filed with the Court.
5All references to the agreements cited in this Memorandum Opinion are to the documents which were attached to the various pre-trial pleadings and motions to the Court.
6For the purposes of this Memorandum Opinion, paragraph 21 of the Distributor Agreement will hereinafter be referred to simply as "Paragraph 21."
7The Market America Career Manual sets forth the suspension appeal process as follows:
4.2.4 The Distributor(s) have 15 business days from the postmarked certified [suspension] letter in which to submit a written appeal.
4.2.5 The written appeal must be received by Market America’s Legal Counsel within 20 days of the postmarked suspension letter..
4.2.6 The Sanctions/Enforcement Review Board will review the appeal and decide on actions to be implemented.
4.2.7 Market America Legal Counsel issues decision letter within 15 business days of receipt of appeal.
(Career Manual, Part II, § 4.)
8The case was properly removed to this Court on August 20, 1997.
9As noted above, Defendants assert that Paragraph 21 is the only contractual provision that could conceivably support Market America’s breach of contract claim. Though Market America has directed this Court’s attention to other contracts that may have been breached, it has not cited to any other paragraph of the Distributor Agreement in support of its claim.
10As noted previously, although Judge Erwin unequivocally stated that Paragraph 21 is unenforceable as a matter of law, this Court declines to adopt this conclusion as the "law of the case".
11While this interpretation may be counterintuitive, this Court is not at liberty to rewrite the terms of, nor insert words into, an unambiguous contract. See Martin v. Martin, 26 N.C. App. 506, 508, 216 S.E. 2d 456, 457-58 (1975). Moreover, even if the restriction was somehow ambiguous, this Court must construe any ambiguity against the drafter, see Silvers v. Horace Mann Insurance Company, 324 N.C. 289, 295, 378 S.E. 2d 21, 25 (1989), which, in this case, was Market America.
12Even if this Court were to be somehow persuaded that Defendants were "constructively" terminated, and that such constructive termination was by writing, this Court would still find that Market America has failed to set forth sufficient evidence from which a reasonable jury could conclude that Defendants competed with Market America during the six-month period following such constructive termination.
13Again, even if the provision was somehow ambiguous, this Court must construe any ambiguity against the drafter. See Silvers v. Horace Mann Ins. Co., 324 N.C. 289, 295, 378 S.E. 2d 21, 25 (1989).
14Although this Court eventually concludes, in section IV.E. of this Memorandum Opinion, that Market America’s claim for misappropriation and misuse of trade secrets is not to be disposed of by summary judgment, such a finding does not affect the Court’s conclusion here, to wit, that Market America has failed to set forth sufficient evidence that Defendants breached their contracts by violating the trade secrets clause contained in Paragraph 21.
15 The Court notes that, at a minimum, this particular competition restriction could not have become operative prior to December 31, 1997, the date on which the Distributor Agreements at issue expired. As discussed previously, Defendants were merely suspended on August 8, 1997. Their Distributor Agreements remained in effect.
16This Court notes that Market America’s claim is styled as one which alleges misappropriation and misuse of trade secrets and proprietary information. Market America has failed, however, to adequately identify in its Amended Complaint any specific "proprietary information" that it contends Defendants have misappropriated and misused. As such, this Court will analyze Market America’s claim as one simply for misappropriation and misuse of tradesecrets.
17The Court notes that, according to the unambiguous terms of the Distributor Agreement, Defendants "agree[d] that the marketing plan, genealogy reports, [d]istributor lists and official literature . . . are considered trade secrets... (Defs.’ Notice of Filing, Ex. 1 at ¶ 21 (emphasis added).) Despite this contractual clause, "[t]he first issue to be determined in every trade secret case is not whether there was a confidential relationship or a breach of contract or some other kind of misappropriation, but whether, in fact, there was a trade secret to be misappropriated." Lowndes Prods., Inc. v. Brower, 191 S.E. 2d 761, 764 (S.C. 1972); see also Walker v. Louisiana Health Management Co., 666 So. 2d 415, 421 (La. Ct. App. 1996) ("The threshold inquiry in every trade secrecy case is whether a legally protectable trade secret exists in fact."). Thus, whether the parties agree to label certain information a "trade secret" does not control. See American Potato Dryers, Inc. v. Peters, 184 F.2d 165, 172 (4th Cir. 1950) ("[I]t would be absurd to designate as a confidential disclosure that which is publicly known."); see also Lansing Overhaul & Repair. Inc. v. Fross Indus., Inc., 1988 WL 12582, 1 (W.D.N.Y. 1988) ("[A]n asset’s contractual label is not necessarily dispositive of its nature."); Rototron Corp. v. Lake Shore Burial Vault Co., 553 F. Supp. 691, 698 (E.D. Wis. 1982) ("[I]t is the function of the Court, not the bargaining parties, to determine whether the information disclosed is a trade secret."); Sarkes Tarzian, Inc. v. Audio Devices. Inc., 166 F. Supp. 250, 265 (S.D. Cal. 1958) ("[M]atters which are generally known in the trade or readily ascertainable by those in the trade cannot be made secret by being so labelled [sic] in an agreement."); Millet v. Loyd Crump, 687 So. 2d 132 (La. Ct. App. 1997) (certain information found not to be trade secrets despite existence of contract in which party "agree[d]" that the information is "to be regarded as" trade secrets).
18Defendants also argue that, to the extent that Market America’s allegations of wrongdoing are based on the limitations set forth in Paragraph 21, such limitations are unenforceable as a matter of law and, thus, cannot support an unfair or deceptive trade practices claim. (Id. at 14.) Since this Court finds that the claim should be dismissed because the evidence does not rise to the level of "substantial aggravating circumstances," this Court need not address Defendants’ second argument.
19To the extent that Market America suggests that Defendants’ alleged deception in this matter constituted aggravating circumstances over-and-above any breach, this Court finds that such alleged conduct does not rise to the level of "substantial" aggravating circumstances.
20 Market America is correct when it asserts that, in some circumstances, an unfair trade practices claim may rest on a breach of a fiduciary duty, see, e.g., Kron Medical Corporation v. Collier Cobb & Associates, Inc., 107 N.C. App. 331, 420 S.E. 2d 192 (1992), or a violation of the TSPA, see, e.g., Drouillard v. Keister Williams Newspaper Services, 108 N.C. App. 169, 423 S.E. 2d 324 (1992). Here, however, the alleged breaches of fiduciary duty and violations of the TSPA constitute a significant part of Market America’s breach of contract cause of action. Moreover, as noted previously, the circumstances surrounding the alleged breaches of fiduciary duty and violations of the TSPA do not rise to the level of "substantial aggravating circumstances."
21In fact, Market America has neither made allegations nor proffered evidence that these other distributors entered into any contract with Market America other than the standard Distributor Agreement.
22The Court notes that the parties have merged their arguments with respect to Defendants’ libel and slander counterclaims. This Court further notes, however, that the analyses of the two claims are not identical. As such, this Court will address each counterclaim separately.
23 The Court notes that this result does not implicate the due process concerns raised by the Fourth Circuit in New England Leather Company v. Feuer Leather Corporation, 942 F.2d 253 (4th Cir. 1991). There, the court ruled that New York’s--not North Carolina’s--unfair trade practices law should apply. In making that conclusion, the Fourth Circuit noted that
[a]pplying North Carolina law would have due process implications here because no North Carolina resident is involved in this litigation and because the elements of a deceptive trade practice claim vary among the states. Consequently, a party could lack notice that conduct committed in one state and not considered a deceptive trade practice there could be the basis for a treble damage award in North Carolina.
Id. at 257 (emphasis added). Here, such due process concerns are not implicated since the party alleged to have engaged in unfair trade practices--Market America--is based in North Carolina.
24Even if this Court were to examine Defendants’ restraint of trade counterclaim under Virginia law, the result this Court reaches would likely be the same since the text of the Virginia statute mirrors that of the North Carolina provision. Compare Va. Code § 5 9.1-9.5 ("Every contract, combination or conspiracy in restraint of trade or commerce of this Commonwealth is unlawful."), with N.C. Gen. Stat. § 75-1 ("Every contract, combination in the form of trust or otherwise, or conspiracy in restraint of trade or commerce in the State of North Carolina is hereby declared to be illegal...").
25As Defendants have rightly indicated, (Defs.’ Br. in Reply to Mem. in Opp’n to Defs.’ Mot. for Summ. J. at 5), Market America's own agreements and filings have on occasion described Paragraph 21 as a covenant to compete. For example, in its Advisory Council Agreements, it states that Paragraph 21 "is a limited non-compete covenant." (Am. Compl., Ex. E at ¶ 1.) In addition, in a prior filing with this Court, Market America labeled Paragraph 21 a "[n]on-[c]ompete [c]ovenant." (Supplemental Br. in Supp. of Mot. for Prelim. Inj. [Document #30] at 2.)
26Civil actions and remedies are established by the following provision:
If any person shall be injured or the business of any person, firm or corporation shall be broken up, destroyed or injured by reason of any act or thing done by any other person, firm or corporation in violation of the provisions of. . . Chapter [75], such person, firm or corporation so injured shall have a right of action on account of such injury done, and if damages are assessed in such case judgment shall be rendered in favor of the plaintiff and against the defendant for treble the amount fixed by the verdict.
N.C. Gen. Stat. § 75-16.
27This Court notes that the contract containing Paragraph 21--the Distributor Agreement-is not a "contract of employment" to the extent that it is not a contract between an employer and an employee. As Market America notes in its brief, "Defendants are quite correct that they were not employees...." (Mem. in Opp’n to Defs.’ Mot. for Summ. J. at 16.) Thus, it would appear that Paragraph 21 could not be enforced in equity because that ground could not be shown either. The Court of Appeals of North Carolina, however, in Starkings Court Reporting Services. Inc. v. Collins, 67 N.C. App. 540, 313 S.E. 2d 614 (1984), relied on other elements of the enforceability criteria (e.g., public policy) to support its conclusion that the restrictive covenant was in restraint of trade even though the court recognized that the defendant "was truly an independent contractor and not an employee of plaintiff." Id. at 542, S.E. 2d at 6 15-16. Nonetheless, Market America cannot show that Paragraph 21 is reasonable as to both time and territory, so this Court need not fully discuss the "contract of employment" prong.
28Although Defendants’ counterclaim for breach of contract and misappropriation (relating to the payment of state sales taxes) is also based on alleged violations of the Distributor Agreements, that counterclaim is dismissed pursuant to this Memorandum Opinion and, therefore, need not be discussed here.