Johnston v. Wilkins

Johnston v. Wilkins (2002-356); 175 Vt. 567; 830 A.2d 695

2003 VT 56

[Filed 13-Jun-2003]

                                 ENTRY ORDER

                                 2003 VT 56

                      SUPREME COURT DOCKET NO. 2002-356

                              MARCH TERM, 2003

  Craig Johnston	               }	APPEALED FROM:
                                       }
                                       }
       v.	                       }	Lamoille Superior Court
                                       }	
  Sheryl Wilkins, Thomas Dandurand     }
  and Catamount Veterinary Services    }	DOCKET NO. 66-3-01 Lecv

                                                Trial Judge: Howard E. Van 
                                                             Benthuysen

             In the above-entitled cause, the Clerk will enter:

       ¶  1.  This appeal concerns a dispute between sibling veterinarians. 
  Both plaintiff Craig Johnston and defendant Sheryl Wilkins appeal from the
  superior court's order reforming the parties' non-competition agreement,
  which was part of a stipulated settlement and court order in a prior
  lawsuit between the parties.  Because we conclude that the doctrine of res
  judicata precludes either party from collaterally attacking the
  non-competition agreement, at least without a demonstration that the
  criteria of V.R.C.P. 60(b) have been met, we reverse the superior court's
  reformation order without addressing the reasonableness of the agreement. 
  Further, because we conclude that Wilkins violated the agreement, and that
  Johnston was entitled to injunctive relief, we remand the matter for the
  superior court to award Johnston reasonable attorney's fees.

       ¶  2.  The parties' father was a veterinarian who began his practice
  in Jeffersonville, Vermont in 1956.  Johnston graduated from veterinary
  school in 1982 and took over his father's practice two years later. 
  Shortly thereafter, Wilkins joined the practice.  She and her brother
  formed a partnership and ran the practice together during the next fifteen
  years.  In 1998, the parties' relationship began to deteriorate, and
  dissolution discussions commenced.  Wilkins stopped working at the clinic
  in 1999 after she was diagnosed with cancer and began treatments for the
  disease.  Discussions regarding dissolution of the partnership stalled, and
  Wilkins filed suit against Johnston.
   
       ¶  3.  On August 10, 2000, during the trial in that action, the
  parties reached a settlement agreement.  The agreement provided that
  Johnston would buy out Wilkins' half-interest in the veterinary practice,
  including its good will, for $25,000 and would deed her his half-interest
  in their joint real estate, valued at $41,500.  In return, Wilkins agreed
  "not to conduct a small animal veterinarian practice within a 20 mile
  radius of the village of Jeffersonville VT for 5 years" from the date of
  the agreement.  The stipulated settlement, which was incorporated into the
  court's order resolving the litigation between the parties, required the
  parties to exchange documents within thirty days to effectuate the
  agreement.  On September 11, 2000, at the closing on the real estate, the
  parties signed a covenant not to compete in which Wilkins agreed not to
  "compete against Johnston, in the practice of small animal veterinary
  medicine, until after August 10, 2005, directly or indirectly (without the
  written consent of Johnston) within a twenty (20) mile radius from the
  Village of Jeffersonville, Vermont."

       ¶  4.  In February 2001, Wilkins began working for Thomas Dandurand,
  a veterinarian who operated a practice in Sheldon Junction, Vermont under
  the trade name of Catamount Veterinary Services (hereinafter Catamount). 
  The following month, Johnston's attorney wrote Wilkins' attorney a letter
  stating that Wilkins was violating the covenant not to compete by working
  at Catamount.  When Johnston did not receive an immediate response from
  Wilkins, he filed suit, seeking to enforce the non-competition agreement. 
  Wilkins answered the complaint by denying that Catamount was within the
  protected area established by the parties' agreement.  In September 2001,
  following an evidentiary  hearing, the superior court denied Johnston's
  request for a preliminary injunction, ruling that (1) there was a
  significant factual dispute as to whether Catamount was outside the
  protected area; (2) the covenant not to compete was so broad that it might
  not be enforceable; and (3) there appeared to be an adequate remedy at law
  for damages.  In January 2002, following another evidentiary hearing, the
  superior court found that Catamount's office was 18.8 miles from
  Jeffersonville on a direct line, and that, therefore, Wilkins would be in
  violation of the covenant if it were enforceable.  The court denied
  Johnston's motion for an attachment of Wilkins' property, however, stating
  that it was unclear whether the parties' agreement was enforceable and thus
  whether Johnston would be the prevailing party at the final hearing on the
  merits.  Wilkins, who had stopped working for Catamount in August 2001,
  began working there again in February 2002. 

       ¶  5.  The final hearing took place in May 2002.  Johnston produced
  expert witnesses who testified that both the twenty-mile radius and the
  five-year time limit set forth in the parties' agreement were reasonable. 
  Following the hearing, the court first rejected Wilkins' argument that the
  twenty-mile distance should be measured by highway miles rather than a
  straight line.  The court determined that the term "radius" chosen by the
  parties unambiguously referred to a straight line drawn, in any direction,
  from the Jeffersonville center point.  Nevertheless, relying on the
  evidence presented by Johnston's experts, the court ruled that the
  twenty-mile radius was not commercially reasonable and thus was
  unenforceable.  In the court's view, Johnston's own exhibits demonstrated
  that his core area of trade, wherein he derived eighty percent of his
  business, was a smaller area that did not include Catamount.  Accordingly,
  the court reformed the parties' agreement by establishing the protected
  area as the irregular line denoting Johnston's core area of trade.
        
       ¶  6.  Although Wilkins was working at a veterinary clinic outside
  Johnston's core trade area, the court determined that the parties'
  agreement prevented Wilkins not only from practicing in that area but also
  from actively seeking customers who resided within that area.  The court
  concluded that any violation of the agreement by Wilkins thus far had been
  de minimis, and that Johnston had "utterly and completely" failed to
  establish any actual damage to his practice.  Nonetheless, the court
  granted Johnston's request for a permanent injunction to prevent potential
  harm to his practice by prohibiting Wilkins from seeing customers who
  resided within Johnston's core area of trade and were not already
  established Catamount customers.  Finally, the court denied Johnston's
  request for attorney's fees, ruling that any violation of the agreement
  thus far had been de minimis, and that Johnston was in a far better
  position than Wilkins to pay for his attorney's fees.

       ¶  7.  On appeal to this Court, Johnston argues that (1) certain
  findings made by the superior court are clearly erroneous; (2) the court
  erred in reforming the parties' agreement because the doctrine of res
  judicata precluded the court from reviewing the agreement for
  reasonableness, and, in any event, the terms of the agreement were
  reasonable; (3) the court erred by failing to award him attorney's fees;
  (4) the court should have extended the duration of the non-competition
  agreement for an additional two years; and (5) the court erred by not
  awarding him at least nominal damages and attorney's fees for Catamount's
  intentional interference with the parties' agreement.  In her cross-appeal,
  Wilkins argues that the superior court erred by ruling that the parties'
  non-competition agreement prohibited her from soliciting customers who
  reside within Johnston's core trade area, even if she was practicing
  outside that area.

       ¶  8.  We conclude that the doctrine of res judicata precluded the
  superior court from reforming the parties' non-competition agreement, and
  thus we need not review the court's determination that the agreement is
  commercially unreasonable.  The parties' previous lawsuit ended in a
  stipulated settlement that was incorporated in the court's final judgment
  disposing of the matter.  Therefore, the stipulated settlement has the
  preclusive effect of a final judgment.  See Lamb v. Geovjian, 165 Vt. 375,
  381-82, 683 A.2d 731, 736 (1996) (rejecting argument that stipulated
  settlement cannot be given preclusive effect of final judgment); Schlaeppi
  v. Del. Trust Co., 525 A.2d 562, 565 (Del. Ch. 1986) (holding that
  court-approved settlement "has the same res judicata effect as a final
  judgment on the merits").  Unappealed final judgments may be disturbed only
  pursuant to the criteria set forth in V.R.C.P. 60(b).

       ¶  9.  Wilkins contends, however, that we should not apply res
  judicata here because (1) Johnston failed to preserve his res judicata
  argument; (2) the final covenant not to compete was not incorporated into
  the court's order resolving the parties' initial litigation; and (3)
  neither the subject matter nor the causes of action in the two proceedings
  was identical.  None of these arguments is availing.  First, in the hearing
  on Johnston's request for a preliminary injunction, Johnston plainly argued
  before the superior court that the parties' agreement had been incorporated
  into a final court order that was entitled to preclusive effect under the
  doctrine of res judicata.  Second, the parties' agreement was incorporated
  into a court order.  The August 10 stipulation signed by the court provided
  that "Wilkins and her affiliates covenant not to conduct a small animal
  veterinarian practice within a 20 mile radius of the village of
  Jeffersonville VT for 5 years from this date."  Another provision of the 
  August 10 stipulation required the parties, within thirty days, to exchange
  documents to "effectuate this agreement including . . . [the] covenant not
  to compete."  (Emphasis added.)  Thus, notwithstanding the different
  terminology in the August 10 stipulation and the September 11
  non-competition agreement, the parties' plain intent was for the September
  11 covenant to put into effect the August 10 settlement agreement entered
  into by the parties and incorporated into the court's final order.
   
       ¶  10.  Third, we reject Wilkins' argument that the subject matter
  and causes of action of the two proceedings were not substantially
  identical insofar as the first one concerned the parties' dissolution of
  their partnership and the second concerned the reasonableness of the
  non-competition agreement.  See In re Cent. Vt. Pub. Serv. Corp., 172 Vt.
  14, 39, 769 A.2d 668, 687 (2001) (res judicata is broader than issue
  preclusion in that it applies both to those issues that were litigated and
  those that should have been litigated in prior proceeding; it requires,
  however, substantially identical parties, subject matter, and causes of
  action).  The parties' non-competition agreement was an integral part of
  their dispute over how to dissolve the partnership.  The settlement
  agreement resolving the litigation reflected that fact.  Hence, absent a
  showing that the order incorporating the agreement should be set aside
  based on criteria contained in Rule 60(b), Wilkins was precluded from
  collaterally attacking the agreement, and the superior court erred in
  reforming it.

       ¶  11.  Having determined that the superior court erred in reforming
  the parties' agreement, we must address Wilkins' argument that the parties'
  use of the term "radius" should be construed to mean highway miles rather
  than a straight line.  The argument is unavailing.  We need not resort to
  rules of construction to resolve the question because the terms of the
  non-competition agreement - "within a 20 (twenty) mile radius" -
  unambiguously express the parties' intent to establish the protected area
  by way of a straight line extending from the clinic to the circumference of
  a circle rather than by way of traveled highways.  See BJ of Leesburg, Inc.
  v. Coffman, 642 So. 2d 83, 84 (Fla. Dist. Ct. App. 1994) (use of term
  "radius" in agreement precluding former employee from engaging in same
  business as employer "within a ten (10) mile radius" of former employment
  "is plain and unambiguous, and has nothing to do with road mileage");
  Thompson v. Allain, 377 S.W.2d 465, 468 (Mo. Ct. App. 1964) (because it is
  common knowledge that roads do not extend from given place in straight line
  to every point on compass, term "radius of fifty (50) miles" in
  non-competition agreement "could not mean road miles"); Scuitier v. Barile,
  70 A.2d 894, 895 (N.J. Super. Ct. Ch. Div. 1950) (if area in restrictive
  covenant is expressed by use of word "radius," prescribed distance should
  be measured along direct line because radius means straight line extending
  from center of circle to its circumference); Johnson v. McIntyre, 163 A. 290, 291 (Pa. 1932) (court may not construe phrase "a radius of fifteen
  miles" in non-competition agreement as meaning within fifteen miles by way
  of traveled highway).  The cases cited by Wilkins do not directly address
  this issue, and thus are not persuasive.

       ¶  12.  Given the plain and unambiguous terms of the parties'
  non-competition agreement, Wilkins violated the agreement when she began
  working for Catamount, regardless of where her customers resided. 
  Therefore, we need not consider Wilkins' cross-appeal argument that the
  court erred by construing the agreement to preclude her from soliciting new
  customers who reside within Johnston's core trade area, even if she is
  practicing outside that area.
        
       ¶  13.  The parties' agreement provides that if either party violates
  the agreement, the prevailing party shall be entitled to reasonable
  attorney's fees.  Here, the superior court declined to award Johnston
  attorney's fees because it found the violation by Wilkins to be de minimis. 
  This conclusion was based on the court's determination that Catamount was
  outside Johnston's core trade area, and Wilkins had seen only three or four
  customers that resided within that area.  But in light of our conclusion
  that Catamount is within the area restricted by the parties' agreement,
  Wilkins' violation of the agreement invited the enforcement action. 
  Notwithstanding his failure to prove actual damages, Johnston was entitled
  to injunctive relief.  Accordingly, the matter must be remanded for the
  court to award Johnston reasonable attorney's fees.

       ¶  14.  Finally, we find no merit to Johnston's arguments that (1)
  the superior court abused its discretion by failing to extend the
  non-competition agreement for an additional year or two, and (2) the court
  erred by not awarding him at least nominal damages or attorney's fees for
  Catamount's intentional interference with the parties' agreement. 
  Regarding the first argument, there is evidentiary support for the court's
  finding that Johnston's practice has suffered no negative impact as the
  result of Wilkins' employment at Catamount.  Hence, there was no need to
  extend the duration of the agreement.  Regarding the second issue, in
  addition to the court's finding of no actual damages, there was ample
  support for the court's finding that Catamount hired Wilkins believing in
  good faith that its practice was outside the area protected by the parties'
  agreement.  Further, Catamount rehired Wilkins only after the superior
  court strongly suggested that Johnston was unlikely to prevail in his
  lawsuit.  Under these circumstances, the court did not err in refusing to
  award damages or attorney's fees with respect to Johnston's claim that
  Catamount intentionally interfered with the parties' non-competition
  agreement.

       Reversed and remanded.
      

                                       BY THE COURT:


                                       _______________________________________
                                       Jeffrey L. Amestoy, Chief Justice

                                       _______________________________________
                                       John A. Dooley, Associate Justice

                                       _______________________________________
                                       Denise R. Johnson, Associate Justice

                                       _______________________________________
                                       Marilyn S. Skoglund, Associate Justice

                                       _______________________________________
                                       Frederic W. Allen, Chief Justice (Ret.) 
                                       Specially Assigned