BRR’s 50 State Noncompete Chart Updated – South Carolina

The BRR 50 State Noncompete Chart has been updated today (April 12, 2011) to reflect an update to South Carolina’s handling of overly broad restrictions. Specifically, the South Carolina Supreme Court has expressly rejected “rewriting or ‘blue-penciling’ . . . territorial restriction[s].” Poynter Inves., Inc. v. Century Builders of Piedmont, Inc., 387 S.C. 583, 587 (2010).

The case involved a lower court that had rewritten language in the parties’ agreement. Specifically, the lower court had removed language in the agreement that it deemed to be too broad, and then inserted its own language for that of the parties. Such judicial rewriting of a restrictive covenant is called “reformation” (or “modification”) – not “blue penciling.” (Blue penciling is where a court simply strikes the offending language and then reads the contract with such omitted; nothing else in the contract changes.) The SC Supreme Court, however, erroneously referred to the lower court’s modification as “blue penciling.”

Appellation aside, the the SC Supreme Court’s decision provided as follows: “[I]n South Carolina, the restrictions in a non-compete clause cannot be rewritten by a court or limited by the parties’ [subsequent] agreement, but must stand or fall on their own terms. We hold, therefore, that the trial judge erred in rewriting the territorial restriction in the parties’ contract.” Poynter Inves., 387 S.C. at 588. Under the circumstances of the case, this holding indicates that South Carolina rejected reformation. It does not speak to blue penciling.

Nevertheless, I am informed by Josh Smith of Roe Cassidy Coates & Price – who, with Randy Moody, successfully represented the appellant in the case – that South Carolina practitioners interpret the court’s decision as rejecting both reformation and blue penciling. Instructively, in this regard, Josh Smith also informed me that the appellee did not argue the distinction between blue penciling and reformation – and did not argue that the court could apply the contractual “step down” provisions. (The step down provisions would have allowed the court to blue pencil the contract and then enforce it based on the more narrow portion of the agreement.)

Accordingly, I have updated the chart to reflect the apparently prevailing view of a more expansive reading of the holding (i.e., applying the “red pencil” or “all or nothing” approach) – though I believe that such an interpretation is still up for debate.

The chart is available for download here.

  1. The South Carolina Supreme Court has recently addressed the blue pencil doctrine in a non-compete case. In Poynter Investmnts, Inc., v. Century Builders of Piedmont, Inc., 387 S.C. 583, 694 S.E.2d 15 (2010) the S.C. Supreme Court expressly held that the judge below impermissibly blue penciled the non-compete at issue (narrowed the territorial restriction). Therefore the courts of SC will not likely allow blue penciling, as the Supreme Court has expressly held that it is not allowed for non-competes.

    1. Josh, thank you for your comment. I didn’t read Poynter Investments that way. The contract used a step-down clause. (For those who did not read the case or who are unfamiliar with a step-down clause, they are clauses that say the restriction is x; if x is too broad, then it’s y; if y is too broad, then it’s z. That allows the court to strike language and leave in tact the original language of the noncompete.) The trial court did not blue pencil the language. Rather, the trial court reformed it. Specifically, the court did not select one of the options, but instead made its own hybrid. Thus, the specific issue in the case was whether the court could reform the contract to provide for a geographic reach that was not set forth in the contract at all. Although the court used the term “blue pencil,” its use of the term is mistaken, as that’s not what happened. Indeed, the court correctly describes what happened as “rewriting” of the contract.

      Nothing in the court’s discussion limits actual blue penciling. Indeed, the cases discussed by the court all talk about increasing or rewriting terms (by the court or the parties), which is what happened here. None of the cases discuss blue penciling – which arguably is not changing the terms, particularly when a step-down provision is used.

      All of that to say that it’s unclear what would happen if blue penciling were actually the method applied by the trial court. For what it’s worth, although I have not redone my research, my recollection is that there was some lower court authority for blue penciling (not reformation).

      Please let me know if you disagree.

      Thanks.

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