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Supreme Court of Arkansas Refuses to Enforce Non-Compete Found In Lease Agreement

In Optical Partners, Inc. v. Dang, the Supreme Court of Arkansas recently refused to enforce a non-compete in a lease agreement — which clearly had been violated — because it did not arise out of a contract of employment or contract for the transfer of goodwill or property.

For several years, Kevin Dang, d/b/a Dang Eye Care & Associates, P.A., and Optical Partners, Inc. ran complementary businesses at virtually the same location. Dang performed eye exams and wrote prescriptions for glasses and contact lenses using office space leased in a location right next to his landlord Optical Partners, Inc., which (doing business as Pearle Vision) provided optician services, including filling eyeglass prescriptions and dispensing and fitting eyeglasses.

The lease agreement provided that for one year after its termination, Dang would not engage in the practice of optometry or the dispensing of optical products within a radius of three miles of the premises. On February 17, 2009, Dang stopped seeing patients at the Pearle Vision location and began practicing optometry at another location less than three miles away — an unequivocal breach of the non-compete provision of the lease agreement.

With regard to Optical Partners, Inc.’s effort to enforce the non-compete provision, the Arkansas Supreme Court affirmed the trial court’s holdings that despite the indisputable violation of the non-compete language, that covenant was not enforceable because Optical Partners, Inc. did not have a legitimate business interest to protect, particularly because the underlying contract did not involve an employment relationship or a transfer of goodwill or property. The covenant was held to be unreasonable because the litigants were not in direct competition with each other. Their businesses, while complementary, provided different services and served different functions. Dang had no obligation to refer patients to Optical Partners to get their eyeglass prescriptions filled, and in fact it would have been illegal to do so.

Thus, while Optical Partners, Inc. was on to a good thing in having its tenant provide services which, as a practical matter, resulted in more customers going to Optical Partners, Inc., it could not prevent that tenant from moving his practice to a different location within the restricted area because that tenant was not actually competing with Optical Partners, Inc.

In summary, the non-compete provision in the lease agreement was a nice try by Optical Partners, Inc. to safeguard its business, but in the end, there was no legally recognized legitimate business interest sufficient to support that covenant, rendering it effectively worthless.