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Home / Opinion Digests / Civil Practice / Civil Practice – Voluntary Dismissal – After Bench Announcement – Labor & Employment – Contract – Covenant Not to Compete – Territory

Civil Practice – Voluntary Dismissal – After Bench Announcement – Labor & Employment – Contract – Covenant Not to Compete – Territory

Market America, Inc. v. Lee (Lawyers Weekly No. 011-389-17, 23 pp.) (Mark Davis, J.) Appealed from Guilford County Superior Court (Patrice Hinnant, J.) N.C. App.

Holding: Plaintiff acted in bad faith when it took a voluntary dismissal in the interval between (1) the trial judge’s announcement from the bench that it would grant defendant’s Rule 12 motion and (2) the filing of the order that the judge asked defendant to draft.

We affirm the trial court’s vacatur of plaintiff’s notice of voluntary dismissal; however, we reverse the trial court’s dismissal of plaintiff’s claims.

Voluntary Dismissal

Two limitations exist on the general rule permitting voluntary dismissals. First, voluntary dismissals may not be taken in bad faith. Second, a voluntary dismissal cannot be taken after the plaintiff has rested its case.

Plaintiff seeks to limit this rule to the facts in Estrada v. Burnham, 316 N.C. 318, 341 S.E.2d 538 (1986), in which our Supreme Court found bad faith when a plaintiff waited until near the end of the applicable statute of limitations, filed a bare-bones complaint, made no attempt to serve the defendants, took a voluntary dismissal two minutes after filing the complaint, and filed a new complaint more than 11 months later.

We find instructive our unpublished case of Eubank v. Van-Riel, 221 N.C. App. 433, 727 S.E.2d 25 (2012) (Lawyers Weekly No. 12-16-0673), in which we applied the bad faith exception under N.C. R. Civ. P. 41(a)(1) to the precise circumstances at issue here.

Taking a voluntary dismissal based on concerns about the potential for a future adverse ruling by the court is permissible. Dismissing an action after such a ruling has actually been announced by the court is not.

Once the trial court has informed the parties of its ruling against the plaintiff on the defendant’s dispositive motion, Rule 41 does not permit the proceeding to devolve into a footrace between counsel to see whether a notice of voluntary dismissal can be filed before the court’s ruling is memorialized in a written order and filed with the clerk of court. To hold otherwise would make a mockery of the court’s ruling.

Rule 12 Motion

The trial court found that the territory restrictions in the parties’ covenant not to compete were overbroad as a matter of law. However, a ruling on the enforceability of a non-compete agreement cannot be made at the pleadings stage in cases where evidence is needed to show the reasonableness of the restrictions contained therein.

In this case, it is impossible to determine based solely on the four corners of the complaint whether the territorial restrictions in the “Certified Trainer Agreement” are appropriately tailored to protect legitimate business interests of plaintiff, which sells its products through a network of independent distributors. Defendant was a high profile distributor for plaintiff.

Because of the way the non-compete provisions are worded, we presently have no way of knowing the actual effect of the geographic restrictions on defendant. The complaint does not specify the number of independent distributors defendant personally sponsored or the locations of the residences of the independent distributors in defendant’s “downline” who achieved the level of “executive coordinator” or above during the time period specified in the agreement.

Without this and other additional relevant information, the potential overbreadth of the Certified Trainer Agreement’s restrictions on defendant cannot be meaningfully assessed.

Affirmed in part; reversed in part.


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