4th Circuit reverses business noncompete damage award

Last year, VLW reported a Richmond federal court decision that highlighted the difference between a noncompete in the sale of a business, versus an employment contract noncompete.

In Western Insulation LP v. Moore, U.S. District Judge James R. Spencer awarded nearly $1 million in damages to a Henrico County insulation company that alleged the business sellers, a married couple, breached the sales contract’s restrictive covenant.

The buyers alleged the sellers leased office and warehouse space and two pickup trucks to their former COO to set up a competing business, and helped the COO with bank financing.

Spencer enforced the sales contract’s seven-year noncompete that covered California and the metropolitan Phoenix area, where the sellers had been operating their business.

In its per curiam unpublished opinion released last month, the 4th Circuit upheld the enforceability of the covenant. The panel also agreed the wife committed a breach by entering into the guaranties and related agreements, and the husband by hiring two former employees.

But the appellate court vacated the damage award, saying neither the valuation of the noncompete promises at $250,000, nor the buyer's evidence of lost profits, supported the damage award.

In addition to vacating the damage award, the 4th Circuit also reversed the district court’s denial of injunctive relief to the disappointed buyer.