Real Rights of Noncompetition: Louisiana Public Policy and the Civil Tradition

• Author: Alex Hotard
• Position: J.D./D.C.L., 2017, Paul M. Hebert Law Center, Louisiana State University.
• Pages: 1209-1248

Real Rights of Noncompetition: Louisiana Public

Policy and the Civil Tradition

INTRODUCTION

In 1985, James and Catherine Olinde, co-owners of a ten-acre tract of

land, decided to open a restaurant.1 They set aside four acres for their new

enterprise, Ralph & Kacoo’s Restaurant, and planned to sell the

remainder.2 The Olindes understood, however, that when any business

sells land there is a risk that it will fall into a competitor’s hands.3 The

couple protected themselves from this risk by including a noncompetition

clause in their act of sale: the land was sold to Anthony Diez on the

condition that it could not be used for the operation of a seafood restaurant

until 60 months after the sale.4 Shortly after the sale, Mr. Diez leased his

new land to a third party who promptly opened a seafood restaurant, and

the Olindes brought suit.5 This seemingly simple contract dispute belies a

labyrinth of jurisprudence, doctrine, and law, all surrounding Louisiana’s

real rights of noncompetition.

States universally recognize and regulate noncompetition agreements

to balance the needs of business with the needs of the public.6 The

arrangements can take a direct approach by restraining a person from

participating in commerce7 or an indirect approach by restraining the

commercial use of a particular property.8 The latter approach often arises

in lease agreements or sales of land.9 In many states, the breach of these

land-restricting agreements will give rise to action against not only the

owner who made the agreement, but also any lessees or subsequent

Copyright 2017, by ALEX HOTARD.

1. R & K Bluebonnet, Inc. v. Patout’s of Baton Rouge, Inc., 521 So. 2d 634,

635 (La. Ct. App. 1988).

2. Id.

3. Id.

4. Id.

5. Id.

6. E.g., LA. REV. STAT. § 23:921 (2017); MONT. CODE ANN. § 28-2-703

(2017); TEX. BUS. & COM. CODE ANN. § 15.50 (West 2015).

7. LA. REV. STAT. § 23:921 (permitting such agreements within certain

constraints).

8. Mark S. Dennison, Lessee’s Enforcement of Covenant Prohibiting Lessor’s

Use or Lease of Other Premises for Use in Competition With Lessee's Business, in

95 AM. JUR. PROOF OF FACTS 467, 476 (2007).

9. Id.

1210 LOUISIANA LAW REVIEW [Vol. 77

purchasers of the affected property.10 In Louisiana, however, it is not so

easy to enforce these land-restricting noncompetition agreements against

third parties.11

This difference is due to Louisiana’s division of rights and their

corresponding obligations into two categories: real and personal.12 Only real

rights, such as the right of ownership,13 follow property and can be enforced

against all third parties.14 Personal rights, such as the right to collect

payment, follow persons and can only be enforced against third parties who

have explicitly agreed to assume the obligation.15 The distinction between

real and personal rights is important for businesses seeking to limit the use

of property because it is far more effective to bind everyone who might ever

be associated with the property than to bind only the current owner of the

property.16 Savvy businesses, such as Ralph & Kacoo’s Restaurant,17 will

therefore attempt to create “real rights of noncompetition”18 in their land-

use-restricting contracts.

10. See Winn-Dixie Stores, Inc. v. Dolgencorp, LLC, 746 F.3d 1008, 1026

(11th Cir. 2014) (finding lease agreements bet ween the plaintiff and various

lessors in Florida that limited the space other tenants could use for the sale of

groceries created rights that were enforceable against co-tenants).

11. See, e.g., id. Winn Dixie sued to enforce lease agreements prohibiting

competition ac ross several states. Id. Winn Dixie’s contracts were enforceable

against its fellow lessors in Florida, but they were not enforceable against third

parties in Louisiana because of Louisiana’s distinction between real and personal

obligations. Id. at 1031.

12. See LA. CIV. CODE art. 1763 cmt. b (201 7) (stating that a real right is a

right enforceable against the whole world rather than against a single person); id.

art. 1763 (defining real obligations as those incidental to real rights). The terms

“personal right” and “personal obligation” are not d efined explicitly in the Code,

but they refer to those civil rights and obligations that are not “real rights” or “real

obligations.” See, e.g., id. art. 734 cmt. b; id. art. 1764 (establishing that personal

obligations are transferred only by explicit assumption of the personal obligation

by an obligor’s successor).

13. Id. art. 476 cmt. b.

14. Id. art. 1763 cmt. b (stating that a real right is a right enforceable against

the whole world rather than against a single person); id. art. 1764 (establishing

that real rights are transferred by transfer of an associated property).

15. See id. arts. 1764, 18211823; id. art. 1764 cmt. d.

16. This Louisiana quirk has already caused problems for at least one unwary

business. See Winn-Dixie, 746 F.3d at 1031.

17. R & K Bluebonnet, Inc. v. Patout’s of Baton Rouge, Inc., 521 So. 2d 634,

635 (La. Ct. App. 1988). See also Meadowcrest Ctr. v. Tenet Health Sys. Hosps.,

Inc., 902 So. 2d 512, 514 (La. Ct. App. 2005).

18. Because Louisiana calls any rights that run with property and affect third

parties “real rights,” see LA. CIV. CODE art. 1763 cmt. b; id. art. 1764, the term

2017] COMMENT 1211

The Louisiana Supreme Court has affirmed that land-restricting

noncompetition agreements can create personal rights and obligations,19 but

the Court has yet to address whether parties can create real rights of

noncompetition.20 Other Louisiana courts have generally upheld real rights

of noncompetition in the form of predial servitudes,21 but these decisions

rest on cursory legal analyses that gloss over the essential elements of

predial servitudes.22

Predial servitudes that restrict trade can provide protection to businesses

and encourage the sale of property, but there are two major obstacles to court

enforcement of these servitudes. First, most predial servitudes of

noncompetition are theoretically unsound under the Louisiana Civil Code

and civil law doctrine.23 Second, these arrangements can permanently

remove property from trade,24 even to the point that businesses might

purchase their own regional monopolies given enough wealth.25 If the

Louisiana legislature approves of real rights of noncompetition, there must

be legislation to authorize and regulate them.26

“real right of noncompetition” is a fitting description for the rights and obligations

discussed in this Comment. For reasons established in Part I of this Comment, this

term is interchangeable with “predial servitude of noncompetition.” See infra Part I.

19. See, e.g., Leonard v. Lavigne, 162 So. 2d 341, 343 (La. 1964).

20. A. N. YIANNOPOULOS, PREDIAL SERVITUDES § 6:5, in 4 LOUISIANA CIVIL

LAW TREATISE 357 (4th ed. 2013).

21. E.g., Richard v. Broussard, 378 So. 2d 959, 968 (La. Ct. App. 1979); R &

K Bluebonnet, 521 So. 2d at 635.

22. See infra Parts II.B.1., III.B.

23. See infra Part III.A.

24. See infra Part III.B; see a lso Meadowcrest Ctr. v. T enet Health Sys.

Hosps., Inc., 902 So. 2d 512, 514 (La. Ct. App. 2005).

25. See LA. CIV. CODE art. 697 (2017) (establishing that parties can contract

to create predial servitudes upon the ir land or to benefit their land). Unless

specifically excluded, things, including incorporeal property rights, ma y be

bought and sold in Louisiana through contracts of sale. Id. art. 2448. Money,

sometimes cal led wealth, can be used to purchase things in a contract of sale.

Money, BLACK’S LAW DICTIONARY 1096 (9th ed. 2009); LA. CIV. CODE arts.

2448, 2464. No language in article 697 or an y other code article prohibits parties

from gra nting pr edial servitudes on their property in exc hange for money in a

contract of sale. It follows that persons with sufficient wealth could purchase a

large number of servitudes that restrict competition. A glut of servitudes

precluding trade, all located within an area and benefitting the same estate, would

make the owner of the dominant estate the only person who could operate a

particular business in that area.

26. See infra Part IV.