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“Blue-Pencil” Clauses in Virginia

Virginia Courts will not re-write or strike out, or “blue-pencil” restrictive covenants.

Traditionally an editor would use a blue pencil to make corrections to written copy since the corrections would not show up in a number of older lithographic or photographic reproduction processes.  The courts adopted the phrase “blue-pencil” test to describe a court striking a portion of an agreement and enforcing the balance of an agreement.

Generally, Virginia courts have declined to re-write contracts to remove invalid provisions or provisions against public policy, but invalidate the entire agreements.

There is some case law that could be interpreted (probably misinterpreted) to make the entire agreement invalid due to the use of “blue penciling” provisions.  Such an interpretation would is likely erroneous.   Virginia, simply declines to accept the authorization of the parties to re-write their agreement.

In BB&T Ins. Servs. v. Thomas Rutherfoord, Inc., 80 Va. Cir. 174, 181 (Va. Cir. Ct. 2010), Richmond Circuit Court Judge Richard D. Taylor, Jr., stated “The Supreme Court of Virginia has not directly ruled on “blue penciling” restrictive covenants.  However, such provisions have been deemed invalid and render the agreement unenforceable.  Although the cases he cites do not actually hold that inclusion of such a provision renders the agreement unenforceable, he cites Pace, v. Ret. Plan Admin. Serv., Ltd., 74 Va Cir. 201 (Richmond 2007) and Lasership, Inc. v. Watson, 79 Va. Cir. 205 (2009).  Lasership stated as follows:

  •  The “blue pencil rule” permits a court to modify an otherwise unenforceable restrictive covenant to make its restriction reasonable. See 61 A.L.R. 3d 397. Courts will only modify a contract where it is clear from the express terms of the agreement that the restriction is severable from the agreement as a whole. Id. It is clear from the Watson Employment Agreement that the parties specifically intended each of the restrictive covenants contained therein to be severable. (Compl. Ex. A. P 15.)
  • The Virginia Supreme Court has not directly ruled on “blue penciling” restrictive covenants. However, as detailed by the Honorable Judge Thacher of this Court in Strategic Enterprise Solutions. Inc. v. Akira Ikuma, 2008 Va. Cir. Lexis 144, 77 Va. Cir. 179 (Fairfax Cir. Ct. 2008):  Circuit courts throughout the Commonwealth have refused to “blue pencil” noncompete clauses. See, e.g. Pais v. Automation Products, Inc., 36 Va. Cir. 230, 239 (Newport News Cir. Ct. 1995); Northern Va. Psychiatric Grp. V. Halpern, 19 Va. Cir. 279 (Fairfax Cir. Ct. 1990). The U.S. District Courts for both the Eastern and Western Districts of Virginia have also concluded that Virginia does not follow the “blue pencil” doctrine. See Lanmark Tech., Inc. v. Canales, 454 F. Supp. 2d 524, 529 (E.D. Va. 2006); Roto-Die, Inc. v. Lesser, 899 F.Supp. 1515, 1523 (W.D. Va. 19995).Strategic Enterprise, 2008 Va. Cir. Lexis 144 at *13, 77 Va. Cir. 179.
  • The parties in this particular case, however, not only contracted regarding the severability of the clauses in question, but specifically granted the court authority to modify the terms of any unenforceable provision. Paragraph 15 of the contract specifically addresses the effect of partial invalidity and grants the Court the authority to “reduce” the terms of an invalid restriction to render it enforceable. (Compl. Ex. A. P 15.)
  • It is clear from the restrictive covenant jurisprudence in Virginia that judicial reformation of such agreements is discouraged. The underlying rationale prohibiting the “blue pencil” doctrine in Virginia is to prevent an “in terrorem effect” whereby an employee must try to interpret the legal enforceability of an ambiguous provision in order to decide whether it is  prudent to accept a particular job, See Lanmark, 454 F. Supp.2d at 529.  A contractual clause specifically granting the Court permissive authority to “reduce” or “modify” the invalid terms of a contract to render those terms enforceable does nothing to alleviate the in terrorem effect or overall clarity of the contract. While it could be argued that such a clause clarifies the intentions of the parties to have a restrictive covenant enforced, it does nothing to clarify whether a court will choose to exercise this permissive authority. Such a clause adds to the in terrorem effect and ambiguity of these disfavored covenants because the extent a court may subsequently “reduce” a provisions terms will never be clear to the parties upon entering into the agreement.
  • For these reasons, this Court declines to exercise the permissive authority granted by the parties in Paragraph 15 of the Employment Agreement to effectively “blue-pencil” the restrictive covenants. As a result, each of the restrictive covenants contained in the employment agreement are overbroad and unenforceable as a matter of law.

Lasership, Inc. v. Watson, 79 Va. Cir. 205, 216 (Va. Cir. Ct. 2009)

Richmond Circuit Judge Margaret Spencer in Pace, stated of “blue-pencil” provisions, as follows:

Such provisions have been deemed invalid and render the agreement unenforceable. Better Living Components, Inc. v. Willard Coleman & Blue Ridge Truss & Supply, 67 Va. Cir. 221, 226 (Albemarle County 2005); Cliff Simmons Roofing, Inc. v. Cash, 49 Va. Cir. 156, 158 (Rockingham County 1999).”

While the Better Living Components, Inc. case states “Courts in some other jurisdictions have also determined that a “blue pencil” power would be against public policy” the case does not invalidate the agreement due to the inclusion of a “blue pencil” provision. Better Living Components, Inc. v. Willard Coleman & Blue Ridge Truss & Supply, 67 Va. Cir. 221, 227 (Va. Cir. Ct. 2005)

Similarly the Cliff Simmons Roofing case does not support this argument.   There the court stated “As Judge Frank said in Pais v. Automation Products, Inc., “[T]his court has not been granted the authority to ‘blue pencil’ or otherwise rewrite the contract; the covenants therefore fail.” Similarly in this case, the Court declines to edit by selective enforcement what is otherwise an invalid restriction on competition. Cliff Simmons Roofing, Inc. v. Cash, 49 Va. Cir. 156, 158 (Va. Cir. Ct. 1999).

 

Disclaimer

The materials are prepared for information purposes only.  The materials are not legal advice and you should not act upon the information without seeking the advice of an attorney.  Nothing herein creates an attorney-client relationship.

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