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State Capital Title & Abstract Company v. Charles Jones, Inc.

A-1065-98T2 (N.J. Super. App. Div. 2000) (Unpublished)

NON-COMPETITION—Substantial changes in the business relationship between parties can make it unreasonable to enforce a once enforceable restrictive covenant even if was to be of indefinite duration.

Two companies entered into an agreement to work in a cooperative and coordinated manner to provide certified search services required by the title industry. The parties also agreed not to engage in any business conducted by the other within New Jersey for “a period of 10 years ... and for such longer period as shall be legally enforceable.” One company was in the business of providing certified judgments to those conducting title searches. One of its affiliates offered on-line uncertified searches of bankruptcies, federal and state tax liens, judgments, law suits commenced, foreclosures, corporate records, and UCC filings in various states, including New Jersey. The other provided certified reports of New Jersey corporate status, Uniform Commercial Code, and other public company records. The second company brought an action in the Chancery Division seeking enforcement of the covenants to cooperate and not to compete for so long as it remained in business. It contended it was entitled to an affirmative injunction requiring the first company to place it on its on-line menu on an exclusive basis and also a prohibitory injunction preventing the first company, through its affiliated companies, from offering its customers New Jersey corporate and UCC information obtained from the Secretary of State. The lower court found “that continued enforcement of the restrictive covenant would be unreasonable and unfair.” It further found that the second company had “no legitimate business interest in preventing [the first company’s subsidiary] from selling uncertified searches on-line to customers of its New Jersey corporate status and UCC data bases since this was not the business [of the second company] back in 1967 when the agreement was executed nor [was] it now.” The lower court, however, did find that “over the years, a cooperative and coordinated effort developed to offer complimentary and comprehensive services to the New Jersey title industry in the form of certified information,” which arrangement was “after a reasonable period of time, terminable at will by either party upon reasonable notice.” Accordingly, it required the first company to maintain the second company as an exclusive option in its on-line service for a one-year period and as a non-exclusive option for two years. The Appellate Division described the lower court’s ruling as a “well-reasoned written opinion.” While the Court viewed the restrictive covenant as being of indefinite duration, it agreed with the lower court’s conclusion that the non-competition restriction was no longer reasonable because of the substantial changes in the parties’ businesses subsequent to the 1967 arrangement.

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