North Carolina Courts Are Forbidden To “Blue Pencil” An Unenforceable Non-Compete

by Seyfarth Shaw LLP

Reversing a 2-1 decision of the North Carolina Court of Appeals, the state’s Supreme Court held unanimously that an assets purchase-and-sale contract containing an unreasonable territorial non-competition restriction is unenforceable.  Further, a court in that state must strike, and may not modify, the unreasonable provision. Beverage Systems of the Carolinas, LLC v. Associated Beverage Repair, LLC, No. 316A14 (N.C. Sup. Court, Mar. 18, 2016).  The Court of Appeals’ decision, now reversed, is published at 762 S.E.2d 316 (2014) and was the subject of a Trading Secrets blog dated August 27, 2014.

Status of the case The trial court entered summary judgment for the defendants as to all claims.  That ruling, which was reversed by the Court of Appeals, has been reinstated.

The purchase-and-sale transaction. Thomas Dotoli owned Imperial Unlimited Services which serviced soft drink dispensers in parts of North and South Carolina.  His wife and their son, Loudine, owned Elegant Beverage Products which sold premium coffee and tea in the same areas.  In 2009, the three Dotolis sold Imperial and Elegant to a new company, Beverage Systems of the Carolinas, which was owned by Loudine Dotoli’s wife, Cheryl.  In connection with the purchase-and-sale transaction, the sellers executed a five-year non-compete covenant, encompassing the entirety of North and South Carolina, for which they were paid $10,000.  The covenant provided that a court could revise the temporal and geographic limits if they were deemed unreasonable.

Competition, and a lawsuit, ensue. When Associated Beverage began installing and servicing beverage dispensing machines in North and South Carolina, Beverage Systems sued Cheryl, her company, and Loudine.  He was accused of breach of contract.  All of the defendants were charged with tortious interference and unfair and deceptive practices.  The defendants responded that the covenant was unenforceable because of its allegedly overbroad temporal and territorial restrictions.

Ruling of the trial court. Agreeing with the defendants that the covenant included geographic restrictions beyond those necessary to maintain the plaintiff’s customer relationships, the trial court entered summary judgment against Beverage Systems.

Reversal by the appellate court. The Court of Appeals reversed and remanded.  The appellate court’s majority okayed the five-year restriction but held that the trial court should have blue-penciled the unreasonable territorial limitation.  Further, the appeals court majority said disputed issues of material fact precluded summary judgment.  Dissenting, one appellate jurist stated that the contract only allowed blue-penciling as “permitted by law,” that North Carolina judges can strike — but are not authorized to rewrite — unreasonable restrictions, and that there were no contested factual disputes.  The dissenter would have affirmed.

The Supreme Court’s view. The Supreme Court emphasized that, in the instance of the sale of a business, a geographic restriction limited to the locations where the seller operates is permissible.  Here, however, the restricted territory encompassed what the Court called “large swaths” of both North and South Carolina in which Beverage Systems had no customers.  The Court held that territorial limitations are enforceable “as written or not at all.”  Since striking the unreasonable provision results in “no territory left within which to enforce the covenant not to compete, . . . blue-penciling cannot save the Agreement.”  Nor could the parties “contract to give a court power that it does not have.”

Rejecting Beverage Systems’ allegations of interference with contract, the Supreme Court stated there was no evidence of contracts between Beverage Systems and its customers. Rather, the jurists held that the evidence only showed general business relationships.  Thus, the defendants “were free to engage in routine business competition with Beverage Systems.”

Takeaways. The blue-pencil doctrine has significant variations in different states.

  • Judges in a few jurisdictions are not permitted to modify contracts under any circumstances.
  • In states that do permit blue-penciling, courts reason that the parties’ intent to have a contractual relationship sometimes is furthered by substituting reasonable terms for unreasonable ones (but judges sometimes decline to assist the drafters of contracts containing unduly onerous provisions).
  • In North Carolina and several other jurisdictions, blue-penciling can only be used to strike contractual provisions, not to alter them.  In Beverage Systems, striking the geographical limitations invalidated the non-compete.

Because of these significant variations, companies that have multi-state operations need to understand each relevant jurisdiction’s blue-penciling and other rules of contract interpretation. In order to enforce similar contracts in different jurisdictions, some terms may have to be tailored to fit the law of the places where litigation may ensue.

Further, in any given jurisdiction a particular restrictive covenant in contracts for the sale of a business may be enforceable whereas the same provision is unenforceable in employment contracts.

For all of these reasons, consultation with experienced legal counsel is advised.

Written by:

Seyfarth Shaw LLP

Seyfarth Shaw LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.


JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at:

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.