Summary
concluding employment agreement was "otherwise enforceable agreement" under section 15.50 because it provided that employer could only terminate employee "for cause" and "[t]hus, the employment relationship was not at will, and the promises were not illusory"
Summary of this case from Traina v. Hargrove and Associates Inc.Opinion
No. 09-06-217 CV
Submitted on March 22, 2007.
Opinion Delivered August 2, 2007.
On Appeal from the 172nd District Court Jefferson County, Texas Trial Cause No. A-174,569-A.
Before McKEITHEN, C.J., KREGER and HORTON, JJ.
MEMORANDUM OPINION
Bobby G. Wood, Jr. appeals the trial court's order granting summary judgment regarding the enforceability of a covenant not to compete in favor of appellee Reserve First Partners, Ltd. d/b/a First Fidelity Reserve and 1st Capital Reserve (hereinafter "1st Capital"). We affirm.
Background
On May 20, 2003, 1st Capital and Wood executed a Confidential Services, Trade Secret, and Employment Agreement. 1st Capital agreed to employ Wood on an "at-will" basis and to provide Wood with training and access to its proprietary information and trade secrets in exchange for Wood's covenant not to compete and his agreement to perform certain sales functions. Wood agreed that during the term of the agreement he would not engage in any business, calling, or enterprises that might be contrary to the interest or benefit of 1st Capital. The agreement also provided that 1st Capital would be entitled to damages if Wood disclosed any confidential information obtained from 1st Capital or competed with 1st Capital during or within three years after termination of his employment with 1st Capital. The agreement stated it takes approximately two years of training for an employee to become a qualified sales person, and that the training includes immediate disclosure and development of certain client records.
On May 11, 2004, 1st Capital and Wood executed an Amendment to Confidential Services, Trade Secret and Employment Agreement. The amendment incorporated the terms of the original agreement and stated the following:
WHEREAS, in addition to [1st Capital's] disclosure of trade secrets and other confidential information to [Wood], in exchange, and ancillary to, [Wood]'s willingness to keep said information confidential and not engage in certain conduct post-employment, [1st Capital] and [Wood] desire to amend and modify [Wood]'s "at-will" employment status with [1st Capital], and provide for this Amendment to be an enforceable agreement which is ancillary to the provisions contained in [the paragraphs entitled "Unauthorized Competition Prohibited" and "Enforcement of Restrictive Covenants"] of the Confidential Services, Trade Secrets, and Employment Agreement, and certain other provisions of the Agreement in the manner hereinafter set forth[.]
The amendment provided that 1st Capital could only terminate Wood "for cause," and that the term of their association would begin on the date the amendment was executed and would ultimately be automatically renewed for successive one-year periods unless one of the parties gave notice. We refer to the May 20, 2003, agreement and its May 11, 2004, amendment collectively as "the amended agreement."
On February 21, 2005, Wood resigned his position with 1st Capital. Wood shortly thereafter accepted a job with Pinnacle Coin Reserve. Based on information from 1st Capital's customers, 1st Capital filed a petition in intervention and an application for injunctive relief seeking damages, a temporary injunction, and a permanent injunction against Wood for violating the covenant not to compete with 1st Capital. The trial court granted 1st Capital's application for temporary injunction. 1st Capital filed a motion for partial summary judgment regarding the enforceability of the covenant not to compete and asserted Wood breached the agreement when he became associated with Pinnacle Coin Reserve and began directly competing with 1st Capital. Woods appealed the order granting 1st Capital's partial summary judgment motion. 1st Capital and Wood signed an agreed order to sever the partial summary judgment, making the order final and appealable.
The original lawsuit was styled "Reserve First Partners, Ltd., d/b/a First Fidelity Reserve v. Marcus Meehan and Pinnacle Coin Reserve."
Although the severed claim before this Court is cause no. A-174,569-A in the trial court, the agreed severance order refers to the severed claim as cause no. E-174,569-A.
Standard of Review
We review summary judgments de novo. Valence Operating Co. v. Dorsett, 164 S.W.3d 656, 661 (Tex. 2005). Traditional summary judgment is proper only when the movant establishes that there is no genuine issue of material fact and that the movant is entitled to judgment as a matter of law. Tex. R. Civ. P. 166a(c). The motion must state the specific grounds relied upon for summary judgment. Id. In reviewing a traditional summary judgment, we must indulge every reasonable inference in favor of the nonmovant, take all evidence favorable to the nonmovant as true, and resolve any doubts in favor of the nonmovant. Valence Operating Co., 164 S.W.3d at 661.
Issues on Appeal
Wood raises fourteen issues on appeal. The first twelve issues address the trial court's order granting 1st Capital's partial summary judgment motion on the enforceability of the covenant not to compete; the last two issues address a prior order granting 1st Capital's application for temporary injunction against Wood.
Order Granting 1st Capital Partial Summary Judgment
We first address Wood's issues that challenge the trial court's order granting 1st Capital partial summary judgment on the enforceability of the covenant not to compete. Wood's first issue states the trial court erred in granting 1st Capital's motion for partial summary judgment. In his second issue, he asserts the trial court abused its discretion in deciding that no fact issues existed. In issues three, four, six, eight, ten, eleven, and twelve, Wood argues the original and amended agreements lack consideration. Specifically, these issues assert that there was no evidence of consideration to consummate the non-compete contract between the parties; the consideration given by 1st Capital did not give rise to 1st Capital's interests in restraining Wood from competing; no consideration passed to Wood for signing the amended agreement, the consideration offered by 1st Capital was illusory and did not satisfy the requirements of new consideration for the covenant not to compete; 1st Capital offered no consideration in exchange for the covenant not to compete, there was no performance by 1st Capital that constituted a fulfillment of its illusory promise, and 1st Capital obtained Wood's covenant not to compete without any new consideration. Wood contends in issues five and seven that the covenant not to compete was unenforceable under section 15.50(a) of the Texas Business and Commerce Code. See Tex. Bus. Com. Code Ann. § 15.50(a) (Vernon 2002). Wood maintains in issue nine that the dealings between Wood and 1st Capital did not rise to the level of a unilateral contract because the dealings between the parties remained executory.
Whether a covenant not to compete is enforceable is a question of law. Light v. Centel Cellular Co. of Tex., 883 S.W.2d 642, 644 (Tex. 1994). The Covenants Not to Compete Act states:
[A] covenant not to compete is enforceable if it is ancillary to or part of an otherwise enforceable agreement at the time the agreement is made to the extent that it contains limitations as to time, geographical area, and scope of activity to be restrained that are reasonable and do not impose a greater restraint than is necessary to protect the goodwill or other business interest of the promisee.
Tex. Bus. Com. Code Ann. § 15.50(a) (Vernon 2002).
We must first determine whether the parties entered into an "otherwise enforceable agreement" when the non-compete agreement was made. See id. Wood asserts the amended employment agreement contained illusory promises as consideration for Wood's execution of the amended agreement not to compete. It is true that an "otherwise enforceable" agreement "`can emanate from at-will employment so long as the consideration for any promise is not illusory.'" Alex Sheshunoff Mgmt. Servs., L.P. v. Johnson, 209 S.W.3d 644, 648 (Tex. 2006) (quoting Light, 883 S.W.2d at 645). However, the amended agreement provided that 1st Capital could only terminate Wood "for cause."
In Texas, employment is presumed to be at will, that is, it is terminable by either party for good cause, bad cause or no cause at all. Montgomery County Hosp. Dist. v. Brown, 965 S.W.2d 501, 502 (Tex. 1998). To alter this presumption, a writing must, " in a meaningful and special way," limit the employer's right to terminate the employment at will. Lee-Wright, Inc. v. Hall, 840 S.W.2d 572, 577 (Tex.App.-Houston [1st Dist.] 1992, no writ) (citing Benoit v. Polysar Gulf Coast, Inc., 728 S.W.2d 403, 406 (Tex.App.-Beaumont 1987, writ ref'd n.r.e.)). In such an employment contract, the employer must unequivocally indicate a definite intent to be bound not to terminate the employee except under clearly specified circumstances. Brown, 965 S.W.2d at 502. The amended agreement here stated that "the association formed by this Agreement may be canceled and terminated at any time by [1st Capital] for Cause" and then specifically defined the circumstances in which 1st Capital could terminate Wood.
Thus, the employment relationship was not at will, and the promises were not illusory because 1st Capital contracted to only terminate Wood "for cause." See C.S.C.S., Inc. v. Carter, 129 S.W.3d 584, 592 n. 3 (Tex.App.-Dallas 2003, no pet.) (citing Light, 883 S.W.2d at 644-45 n. 5).
Having concluded there was an otherwise enforceable agreement between Wood and 1st Capital, we must next address whether the covenant not to compete was ancillary to or part of the otherwise enforceable agreement. See Alex Sheshunoff Mgmt. Servs., 209 S.W.3d at 649. For a covenant not to compete to be "ancillary to or part of" an enforceable agreement, "`(1) the consideration given by the employer in the otherwise enforceable agreement must give rise to the employer's interest in restraining the employee from competing; and (2) the covenant must be designed to enforce the employee's consideration or return promise in the otherwise enforceable agreement.'" Id. (quoting Light, 883 S.W.2d at 647).
Wood contends the promises made by 1st Capital did not give rise to the employer's interest in restraining him from competing, and that the record does not disclose that he received confidential information or specialized training under the agreement. The record shows that 1st Capital provided specialized training and confidential information to Wood both before and after he signed the amended agreement. Therefore, Light's two-pronged test is met. See Light, 883 S.W.2d at 647. The consideration given by 1st Capital to Woods consisted of customer information and trade secrets, giving rise to 1st Capital's interest in restraining Wood from competing. The covenant was designed to enforce Wood's return promise not to disclose such information or to compete with 1st Capital. See, e.g., Curtis v. Ziff Energy Group, Ltd., 12 S.W.3d 114, 118 (Tex.App.-Houston [14th Dist.] 1999, no pet.) (finding employer's consideration gave rise to its interest in restraining employee from competing, and non-compete covenant was designed to enforce employee's consideration not to disclose or use the confidential information or trade secrets after employment); Evan's World Travel, Inc. v. Adams, 978 S.W.2d 225, 232 (Tex.App.-Texarkana 1998, no pet.) (finding consideration given by employer to employee in the form of customer information gave rise to employer's interest in restraining employee from competing and covenant was designed to enforce employee's return promise to not disclose such information or to compete with employer; thus, covenant not to compete was ancillary to an otherwise enforceable agreement); Ireland v. Franklin, 950 S.W.2d 155, 158 (Tex.App.-San Antonio 1997, no writ) (holding consideration supported a covenant not to compete when employer promised to share certain trade secrets with employee, who, in turn, promised not to disclose or use trade secrets during or after termination of employment). Here, the covenant not to compete was ancillary to or part of the otherwise enforceable agreement. See Tex. Bus. Com. Code Ann. § 15.50(a).
As for section 15.50(a)'s requirement that the non-compete covenant contain reasonable limitations as to time, geographical area, and scope of activity to be restrained, Wood does not argue on appeal that the non-compete covenant's limitations are unreasonable. He did not assert such an argument in his response to 1st Capital's motion for partial summary judgment. Wood stipulated to the reasonableness of the limitations when he signed the amended agreement that included the covenant not to compete, and he testified that he agreed to the restrictions when 1st Capital employed him. Wood and 1st Capital entered into a bilateral agreement supported by consideration, and the covenant not to compete included as part of the amended agreement is enforceable under section 15.50(a). See id.
In Wood's second issue, he claims the trial court abused its discretion in deciding that no fact issues existed and that 1st Capital was entitled to a partial summary judgment as a matter of law. Wood's affidavit attached to his response to 1st Capital's partial summary judgment motion merely concludes that 1st Capital would have terminated his employment had he refused to sign the amended agreement, and that he was not given confidential information other than what he had already been given by 1st Capital. Wood's summary judgment evidence, however, provides no facts supporting his contention that he signed the amended agreement under duress. He also testified that after he signed the amended agreement, he continued to have access to 1st Capital's customer databases while he worked there, and he recorded specific information regarding other 1st Capital salesmen's customers on a daily basis. 1st Capital established that there were no genuine issues of material fact and it was entitled to summary judgment as a matter of law. We overrule Wood's first twelve issues.
Order Granting 1st Capital's Application for Temporary Injunction
In issues thirteen and fourteen, Wood contends the trial court abused its discretion by granting the temporary injunction because of the lack of evidence that any damages that might be awarded were uncollectible from him as well as the lack of proof of the common law prerequisites for issuance of a temporary injunction. The issuance of the permanent injunction, as part of the trial court' s order granting 1st Capital's motion for partial summary judgment, rendered the issuance of the temporary injunction moot. See Isuani v. Manske-Sheffield Radiology Group, P.A., 802 S.W.2d 235, 236 (Tex. 1991). Wood may not challenge the propriety of the temporary injunction order in this appeal. See id. We overrule issues thirteen and fourteen.
Conclusion
Having overruled all of Wood's issues, we affirm the trial court's judgment granting 1st Capital's motion for partial summary judgment regarding the enforceability of the covenant not to compete.
AFFIRMED.