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Document Type

Article

Abstract

South Dakota law governing restrictive covenants establishes a statutory framework with a simple structure: a general prohibition against restraints on trade, subject to four narrow exceptions. In theory, courts need only determine whether a challenged covenant falls within a statutory exception. In practice, however, courts exercise far broader discretion, applying elaborate analyses that extend well beyond statutory boundaries. In this Article, I critique the current doctrine of restrictive covenant law in South Dakota and contend that the judiciary has provided itself with too many options in deciding how these types of contractual agreements will be assessed and played too active a role in shaping the substantive law and the underlying doctrine. I show how increases in judicial optionality undercut the Legislature’s underlying public policy disfavoring restrictive covenants. Judicial optionality also creates doctrinal confusion. One line of cases invalidates overbroad restrictions under a rationale of strict statutory construction and a rhetoric of judicial restraint. But in another line of cases, a contractual provision that might be unenforceable as written becomes enforceable as modified by the Court. This authority to modify contracts to “save” them—called “partial enforcement” in South Dakota and the “blue pencil doctrine” in other jurisdictions—expands the role of trial judges without setting clear limits on how such authority should be exercised. What’s more, the South Dakota Supreme Court has not identified the source of this nebulous authority in the first place. The current state of non-compete doctrine is conceptually schizophrenic and increases uncertainty among litigants. This Article seeks to understand how judicial optionality expanded over time and measures the consequences on the substantive law of restrictive covenants in South Dakota. I argue that partial enforcement is contrary to the text, structure, and purpose of the statutory framework codified at South Dakota Codified Law section 53-9-8 through 12 and to fundamental principles of contract law. When judges assume the power to decide that contested restrictive covenants are unenforceable under one doctrinal wing and salvageable under another, South Dakota’s statutory regime—consisting of a general prohibition and strictly enforced statutory exceptions—is transformed back into a common-law reasonableness test that the statutes were intended to supplant. This expansion of judicial optionality has significant consequences. It prevents predictable resolution of restrictive covenant disputes, tilts outcomes toward enforcement of agreements that statutory text prohibits, and undermines the Legislature’s pro-competition policy objectives.

DOI

https://www.doi.org/10.70657/SDLR.V71.I2.309

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