Hooper v. All Pet Animal Clinic

TAYLOR, Justice. These consolidated appeals test the enforceability of a covenant not to compete which was included in an employment contract. The district court found that the covenant imposed reasonable geographic and durational limits necessary to protect the employers' businesses and enjoined a veterinarian from practicing small animal medicine for three years within a five mile radius of the city limits of Laramie, Wyoming. . . The veterinarian appeals from the decision to enforce the terms of the covenant. . .

We hold that the covenant's three year duration imposed an unreasonable restraint of trade permitting only partial enforcement of a portion of that term of the covenant. We affirm the district court's conclusions of law that the remaining terms of the covenant were reasonable. . .

Following her graduation from Colorado State University, Dr. Glenna Hopper (Dr. Hopper) began working part-time as a veterinarian at the All Pet Animal Clinic, Inc. (All Pet) in July of 1988. All Pet specialized in the care of small animals; mostly domesticated dogs and cats, and those exotic animals maintained as household pets. Dr. Hopper practiced under the guidance and direction of the President of All Pet, Dr. Robert Bruce Johnson (Dr. Johnson).

Dr. Johnson, on behalf of All Pet, offered Dr. Hopper full-time employment in February of 1989. The oral offer included a specified salary and potential for bonus earnings as well as other terms of employment. According to Dr. Johnson, he conditioned the offer on Dr. Hopper's acceptance of a covenant not to compete . . .

A written Employment Agreement . . . was finally executed by the parties on December 11, 1989. Ancillary to the provisions for employment, the agreement detailed the terms of a covenant not to compete:

This agreement may be terminated by either party upon 30 days' notice to the other party. Upon termination, Dr. Hopper agrees that she will not practice small animal medicine for a period of three years from the date of termination within 5 miles of the corporate limits of the City of Laramie, Wyoming. Dr. Hopper agrees that the duration and geographic scope of that limitation is reasonable. . .

One year later, reacting to a rumor that Dr. Hopper was investigating the purchase of a veterinary practice in Laramie, Dr. Johnson asked his attorney to prepare a letter which was presented to Dr. Hopper. The letter, dated June 17, 1991, [ reminded Dr. Hopper of the covenant not to compete and offered a buy-out to Dr. Hopper. Dr. Hopper refused the buy-out, responding that she was not restricted by the covenant. Dr. Johnson terminated Dr. Hopper. Dr. Hopper purchased the competing veterinary clinic and began practicing. All Pet brought this suit to enforce the covenant not to compete and enjoin Dr. Hopper from practicing.]

A. The Enforceability of a Covenant Not to Compete


The common law policy against contracts in restraint of trade is one of the oldest and most firmly established. Restatement (Second) of Contracts §§ 185-188 (1981) (Introductory Note at 35). See Dutch Maid Bakeries v. Schleicher, 58 Wyo. 374, 131 P.2d 630, 634 (1942). The traditional disfavor of such restraints means covenants not to compete are construed against the party seeking to enforce them. . . The initial burden is on the employer to prove the covenant is reasonable and has a fair relation to, and is necessary for, the business interests for which protection is sought. Tench v. Weaver, 374 P.2d 27, 29 (Wyo. 1962).

Two principles, the freedom to contract and the freedom to work, conflict when courts test the enforceability of covenants not to compete. Ridley v. Krout, 63 Wyo. 252, 180 P.2d 124, 128 (1947). There is general recognition that while an employer may seek protection from improper and unfair competition of a former employee, the employer is not entitled to protection against ordinary competition. . . The enforceability of a covenant not to compete depends upon a finding that the proper balance exists between the competing interests of the employer and the employee. See Restatement (Second) of Agency § 393 cmt. e (1958) (noting that without a covenant not to compete, an agent, employee, can compete with a principal despite past employment and can begin preparations for future competition, such as purchasing a competitive business, before leaving present employment).

Wyoming adopted a rule of reason inquiry from the Restatement of Contracts testing the validity of a covenant not to compete. Dutch Maid Bakeries, 131 P.2d at 634 (citing Restatement of Contracts §§ 513-515 (1932)); Ridley, 180 P.2d at 127. The present formulation of the rule of reason is contained in Restatement (Second) of Contracts, supra, § 188 . . . See also Restatement (Second) of Contracts, supra, §§ 186-187. An often quoted reformulation of the rule of reason inquiry states that "[a] restraint is reasonable only if it (1) is no greater than is required for the protection of the employer, (2) does not impose undue hardship on the employee, and (3) is not injurious to the public." . . .

The special interests of All Pet and Alpine identified by the district court as findings of fact are not clearly erroneous. Dr. Hopper moved to Laramie upon completion of her degree prior to any significant professional contract with the community. Her introduction to All Pet's and Alpine's clients, client files, pricing policies, and practice development techniques provided information which exceeded the skills she brought to her employment. While she was a licensed and trained veterinarian when she accepted employment, the additional exposure to clients and knowledge of clinic operations her employers shared with her had a monetary value for which the employers are entitled to reasonable protection from irreparable harm. . . Discussing the economic analysis applied to restrictive covenants). The proven loss of 187 of All Pet's and Alpine's clients to Dr. Hopper's new practice sufficiently demonstrated actual harm from unfair competition.

The reasonableness, in a given fact situation, of the limitations placed on a former employee by a covenant not to compete are determinations made by the court as a matter of law. . . Therefore, the district court's conclusions of law about the reasonableness of the type of activity, geographic, and durational limits contained in the covenant are subject to de novo review.

. . .[I]n Cukjati, 772 S.W.2d at 216, 218, the Court of Appeals of Texas held a covenant not to compete was unreasonable because it limited a veterinarian from practicing within twelve miles of his former employer's clinic in North Irving, a community within the Dallas-Fort Worth metropolitan area. Because evidence from that proceeding disclosed that Dallas area residents are unlikely to travel more than a few miles for pet care, the court found the restriction unreasonable. Id. at 218. The number of veterinarians and the demands upon their services obviously varies between Laramie, Wyoming and metropolitan Dallas, Texas, creating a different usage pattern. We believe the reasonableness of individual limitations contained in a specific covenant not to compete must be assessed based upon the facts of that proceeding. Ridley, 180 P.2d at 131.

. . .Enforcement of the practice restrictions Dr. Hopper accepted as part of her covenant not to compete does not create an unreasonable restraint of trade. While the specific terms of the covenant failed to define the practice of small animal medicine, the parties' trade usage provided a conforming standard of domesticated dogs and cats along with exotic animals maintained as household pets. As a veterinarian licensed to practice in Wyoming, Dr. Hopper was therefore permitted to earn a living in her chosen profession without relocating by practicing large animal medicine, a significant area of practice in this state. The restriction on the type of activity contained in the covenant was sufficiently limited to avoid undue hardship to Dr. Hopper while protecting the special interests of All Pet and Alpine . . .

The public will not suffer injury from enforcement of the covenant . . .

The geographical limit contained in the covenant not to compete restricts Dr. Hopper from practicing within a five mile radius of the corporate limits of Laramie. As a matter of law, this limit is reasonable in this circumstance. The evidence presented at trial indicated that the clients of All Pet and Alpine were located throughout the county. Despite Wyoming's rural character, the five mile restriction effectively limited unfair competition without presenting an undue hardship. Dr. Hopper could, for example, have opened a practice at other locations within the county.

A durational limitation should be reasonably related to the legitimate interest which the employer is seeking to protect. Restatement (Second) of Contracts, supra, § 188 cmt. b. . .

. . . A one year durational limit sufficiently secures All Pet's and Alpine's interests in pricing policies and practice development information. Pricing policies at All Pet and Alpine were changed yearly, according to Dr. Johnson, to reflect changes in material and service costs provided by the clinics as well as new procedures. Practice development information, especially in a learned profession, loses its value quickly as technological change occurs and new reference material become available. We hold, as a matter of law, that enforcement of a one year durational limit is reasonable and sufficiently protects the interests of All Pet and Alpine without violating public policy. . . . Because we hold that the covenant's three year durational term imposed a partially unreasonable restraint of trade, we remand for a modification of the judgment to enjoin Dr. Hopper from unfair competition for a duration of one year from the date of termination.

B. Damages for Violation of a Covenant Not to Compete

The finding of the district court that the amount of damages suffered was speculative and unproven by a preponderance of the evidence is not clearly erroneous . . .

Cardine, Justice, dissenting.

Glenna Hopper has beaten the system. Just prior to being terminated, Dr. Hopper informed Dr. Johnson that "the [covenant] isn't worth the paper it's written on." And she was right. . .
The court has now decided as a matter of law that a one-year non-competition restriction is reasonable, and a longer period is unreasonable. This pronouncement establishes for the future the period during which competition can be restricted. . .

. . . I would require that appellant be enjoined from that part of the practice of veterinary medicine specified in the covenant not to compete from the date the trial court, on remand, enters its modified judgment for at least the one year period which this court now finds reasonable.