Opinion Issued June 25, 2009.
On Appeal from the 215th District Court Harris County, Texas, Trial Court Cause No. 2008-69578.
Panel consists of Judges KEYES, HANKS, and BLAND.
Mallory York, Benetta Reynolds, Hamilton Daniels, and Alna Holdings appeal the trial court's temporary injunction of December 19, 2008. Appellants contend that the trial court abused its discretion (1) in finding that the agreements between Hair Club for Men (Hair Club) and York and Reynolds contain consideration sufficient to support the covenants not to solicit Hair Club's customers; (2) in finding that the roster of Hair Club customers constitutes confidential information; and (3) in failing to balance the equities and find that more harm would be suffered by appellants if the temporary injunction was granted than by Hair Club if it were not granted. After reviewing the record, we affirm the trial court's order granting temporary injunction.
Hair Club is a hair-replacement company that employs about one thousand people and operates ninety locations throughout the United States, Puerto Rico, and Canada. Each year, Hair Club sells about two hundred million dollars' worth of hair replacement products. Hair Club has operated a Houston location for over twenty-five years. Alna Holdings, doing business as Folicure, competes with Hair Club. In 2008, Alna opened a Folicure location approximately one mile from Hair Club's Houston location.
Hair Club serves clients by replacing their hair using hair "systems" that stylists apply to clients' skin with glue in weekly or monthly appointments. Hair Club's CEO, Darryl Porter, testified that, due to the sensitive nature of hair loss, Hair Club goes to great lengths to protect client information. Hair Club keeps clients' files in a locked file cabinet, and stylists receive limited personal information about their clients in separate files that describe the clients' hair system specifications. Hair Club password-protects computerized files of client information, and only certain people within the office, not stylists, may access them. Stylists are also not allowed to have cellular phones or personal computers at work. Porter testified that Hair Club invests a significant amount of money in recruiting clients to use its hair systems; he estimated that Hair Club spends approximately two thousand dollars for each new client and spent over one million dollars for marketing and advertising in Houston in 2008. Once a client joins Hair Club, he pays a yearly membership and a fee for services. The membership automatically renews unless the client notifies Hair Club of termination thirty days before the renewal date.
York and Reynolds both worked as stylists at Hair Club's Houston office. Upon beginning employment with Hair Club, York and Reynolds each signed an agreement entitled "Confidentiality, Non-Solicitation, and Non-Compete Agreement." In the agreements, York and Reynolds promised that in the event of termination of employment with Hair Club (1) they would not, for a period of two years, engage in the hair replacement business within ten miles of a Hair Club location; (2) they would not, for a period of two years, solicit any business relating to hair replacement from any Hair Club customer and would not provide hair replacement services to any Hair Club customers; and (3) they would not use or disclose Hair Club's customer lists, price lists, lists of employees, and requirements for present and prospective customers, acquired during the course of their employment. At the end of September 2008, York quit his employment with Hair Club. Reynolds quit on October 1. York claimed that he was moving to Dallas, and Reynolds told her supervisor that she was going to work for a general purpose salon. The managing director of the Houston Hair Club location, Derrick Tomlin, testified that when York and Reynolds left Hair Club, he met with each of them separately, reminding them of their obligations under the non-compete, non-solicitation, and non-disclosure agreements that they had signed at the beginning of their employment. Shortly thereafter, Hair Club also mailed letters to York and Reynolds restating their obligations under the agreement. York and Reynolds both testified in their depositions that they did not recall receiving these letters. Nevertheless, both York and Reynolds acknowledged that they had signed the employment agreements and were able to paraphrase the meaning of the agreements during their depositions.
York's agreement stated a twenty-mile geographic limitation, but the trial court reformed the geographic limitation to ten miles, as in Reynolds's agreement.
Tomlin also testified that he had meetings with Hair Club employees during the course of employment reminding them of the importance of confidentiality.
In October 2008, both York and Reynolds went to work for Folicure in Houston. After York and Reynolds left Hair Club, Hair Club began losing clients. York and Reynolds admitted that they had contacted their clients from Hair Club and others had contacted them. York and Reynolds told their clients that they were now at Folicure, and invited them to tour the facility. York testified that Hamilton Daniels, Folicure's salon manager, encouraged him to contact his former Hair Club clients.
Daniels testified in his deposition that Folicure engaged a private investigator to generate a client list by observing Hair Club's clients entering and exiting the building and running their license plates to obtain their identities. Daniels also testified that Folicure provided Hair Club customers with a form letter to send to Hair Club to terminate their memberships. A private investigator testified that Daniels offered to pay him thirty thousand dollars to obtain Hair Club's client list.
Hair Club sued York, Reynolds, Daniels, and Folicure for common law claims of misappropriation of trade secrets, tortious interference with contract, and conspiracy, and York and Reynolds in particular for breach of the non-competition, non-solicitation, and non-disclosure agreements. Hair Club moved for a temporary injunction to prevent the Folicure defendants from soliciting Hair Club customers, and from using, disclosing, transferring, or communicating Hair Club's confidential and trade secret customer information. The trial court conducted an evidentiary hearing, and it granted a temporary injunction. In the temporary injunction order, the trial court found that Hair Club had developed confidential and proprietary information, including client identities and information, at substantial cost and effort, and that it had taken substantial measures to protect the information, which York and Reynolds would not have known but for Hair Club's efforts. Second, it further found that York and Reynolds acknowledged in the non-competition, non-solicitation, and non-disclosure agreements that they would receive confidential information by virtue of their employment with Hair Club and had agreed not to disclose the information or solicit Hair Club's clients for a period of two years after the termination of their employment with Hair Club. Third, it found that, since going to work for Folicure, York and Reynolds have used the confidential information they received by virtue of their employment with Hair Club to solicit Hair Club's customers for Folicure, constituting a breach of their agreements with Hair Club. Fourth, it found that Daniels and Folicure should have known that York and Reynolds were bound by the agreement, and they encouraged York and Reynolds to use and disclose confidential information. Finally, the trial court found that Hair Club's primary assets are its relationship with its clients and goodwill, and that York and Reynolds, as licensed cosmetologists, could find work in cosmetology outside of hair replacement.
The trial court thus concluded that Hair Club pleaded and proved viable causes of action against York, Reynolds, Daniels, and Folicure; a probable right to relief under the non-solicitation and non-disclosure, but not the non-compete, provisions of the agreement; and a probable, imminent and irreparable injury in the interim for which Hair Club has no adequate remedy at law. The trial court further concluded that the non-disclosure agreements were valid and enforceable, and that adequate consideration supported the non-solicitation agreements, but that the agreements should be reformed to limit non-solicitation to customers who received treatment at Hair Club Houston between October 1, 2006, and October 1, 2008. Finally, the trial court concluded that the harm which Hair Club was suffering outweighed the harm that the appellants would suffer from an injunction because no adequate remedy at law exists for disclosure of a trade secret in this context. The trial court therefore enjoined Reynolds and York from soliciting any of their clients from Hair Club, providing hair replacement services to any of their clients from Hair Club, disclosing or communicating any confidential, proprietary or trade secret information they obtained directly or indirectly through their employment with Hair Club, including clients', customers', and employees' names, addresses and phone numbers, and viewing any of Hair Club's information provided by someone else. It further enjoined Folicure and Daniels from soliciting any customers Reynolds and York serviced at Hair Club between October 1, 2006 and October 1, 2008, from using any of Hair Club's confidential information obtained by York and Reynolds or accepting any other confidential information, and from contacting current and former Hair Club employees. The injunction is to remain in effect until a final trial on the merits and a ruling on Hair Club's application for permanent injunction.
The purpose of a temporary injunction is to preserve the status quo pending trial, but it is an extraordinary remedy and does not issue as a matter of right. Butnaru v. Ford Motor Co., 84 S.W.3d 198, 204 (Tex. 2002). Trial courts have broad discretion in deciding whether to grant or deny a temporary injunction, and an appellate court should reverse only if it finds a clear abuse of that discretion. Tel. Equip. Network, Inc. v. TA/Westchase Place, Ltd., 80 S.W.3d 601, 607 (Tex.App.-Houston [1st Dist.] 2002, no pet.). We should not reverse a trial court's temporary injunction unless it is "so arbitrary as to exceed the bounds of reasonable discretion." Id. We review the evidence in a light most favorable to the trial court's order, but an erroneous application of the law to undisputed facts constitutes an abuse of discretion. Id.
To obtain a temporary injunction, an applicant must prove (1) a cause of action against a defendant, (2) a probable right to the relief sought, and (3) a probable, imminent, and irreparable injury in the interim. Butnaru, 84 S.W.3d at 204. An injury is irreparable if there is no adequate remedy at law; if for example, a prevailing applicant could not be compensated adequately in damages, or if damages cannot be measured by any certain pecuniary standard. Id. The absence of any one of these elements renders an award of temporary injunctive relief inappropriate. See id.
York, Reynolds, Hamilton, and Folicure contend that the trial court erred in enforcing the non-solicitation agreements because the trial court declined to enforce the non-compete agreements because they were unenforceable for lack of consideration. They further contend that the trial court erred in finding that Hair Club's customer roster is a trade secret. We construe these contentions as challenges to part (2) of the required proof for a temporary injunction: that Hair Club had a probable right to the relief sought. In the event we reject these arguments, the Folicure defendants also contend that the trial court erred in failing to balance the equities to find that the hardship on York, Reynolds, Daniels and Folicure from the temporary injunction outweighs any harm to Hair Club.
Hair Club's Probable Right to Relief
A. Enforceability of the Non-Solicitation Agreements
The Folicure defendants contend that, since the trial court found that the non-compete agreements were unenforceable for lack of consideration, it was likewise compelled to find the non-solicitation covenants unenforceable because those require similar consideration. In fact, although the trial court struck through paragraphs in the proposed order relating to the non-compete provision, it made no affirmative finding that any non-compete agreement was unenforceable, and we will not imply such a finding on the merits so as to nullify the findings it did make — that the Folicure defendants conspired to violate the non-solicitation and non-disclosure provisions of the agreements. Instead, we address whether Hair Club proved a probable right to relief based on the non-solicitation agreements.
Non-solicitation agreements, like non-compete agreements, are governed by Section 15.50 of the Texas Business and Commerce Code. That section provides that an agreement is enforceable
[I]f 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). The Texas Supreme Court recently addressed the enforceability of non-compete agreements in Mann Frankfort Stein Lipp Advisors, Inc. v. Fielding, No. 07-0490, 2009 WL 1028051 (Tex. April 17, 2009). There, the Court concluded that a non-compete agreement is enforceable if the nature of the contemplated employment will reasonably require the employer to furnish the employee with confidential information because, in such an instance, an employer impliedly promises to provide confidential information. Id. at *3. As is the case here, Mann Frankfort required its employees to sign an agreement, upon beginning employment, promising not to disclose any confidential information the employee obtained during his employment. Id. at *1. Mann Frankfort's employees had access to its client database, containing clients' names, billing information, and tax and financial information, which constitute confidential information, and thus Mann Frankfort provided sufficient consideration to support a non-disclosure agreement. Id. at *6 (citing DeSantis v. Wackenhut Corp., 793 S.W.2d 670, 684 (Tex. 1990)). Similarly, here Hair Club provided client names and limited client information to York and Reynolds, as it was necessary for their work as stylists. The testimony of Hair Club's CEO, Darryll Porter, established that Hair Club invested significant amounts of money in generating clients, thus supporting the trial court's finding that Hair Club had an interest in keeping its client information confidential. York and Reynolds could not have acted on their promises not to disclose confidential information unless Hair Club actually provided them with it, sufficient to find that an implied promise existed. See id.
Under Section 15.50(a), the non-compete agreement must be "ancillary to or part of" an otherwise enforceable agreement, meaning that (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. at *7 (quoting TEX. BUS. COM. CODE ANN. § 15.50(a)). Under Mann Frankfort, an employer's implied promise of access to confidential information satisfies the first requirement because the promise and provision of confidential information generates the employer's interest in preventing the later disclosure of such information. Id. The employee's promise not to disclose confidential information satisfies the second requirement. Id. York's and Reynolds's agreements present similar promises. We hold that the non-solicitation and non-disclosure agreements here are enforceable, and thus Hair Club has a probable right to relief under them. The trial court therefore did not abuse its discretion in granting a temporary injunction on this ground.
B. Protection of Customer Names
The Folicure defendants also contend that the trial court abused its discretion in finding that York's and Reynolds's customer lists are confidential information or trade secrets. They claim that York and Reynolds had no knowledge that the names of the clients were confidential because the agreements specified customer lists rather than specific names, thus Hair Club failed to protect its clients' names. York and Reynolds claim to have never had access to formal customer lists. This is a semantic dispute: the customer lists would have necessarily contained the customers' names. But the trial court plainly found that Hair Club sought to protect its customers' identities.
Even if York and Reynolds disclosed only the lists of customers that they serviced, divulging them to their new employer violates the non-solicitation, if not the non-disclosure, agreement. The non-solicitation agreement requires the employee not to solicit or aid in soliciting any business relating to hair replacement from any Hair Club customer for two years after the termination of employment. Reynolds and York both admitted to inviting their clients from Hair Club to visit the Folicure facility. Their action violates the non-solicitation agreement, even if the names were not protected under the non-disclosure provision. Thus, the trial court did not abuse its discretion in granting the injunction on the non-solicitation or non-disclosure agreements.
Balancing the Equities
The Folicure defendants claim that the trial court abused its discretion in failing to balance the equities and find that the harm they faced due to the injunction far outweighed the probable injury to Hair Club, which has an adequate remedy at law. On the contrary, the trial court's findings of fact and conclusions of law specifically indicate that it did balance the equities. The trial court expressly found that Hair Club's primary assets are its relationship with its clients and goodwill, and that York and Reynolds, as licensed cosmetologists, could find work in cosmetology outside of hair replacement.
As Hair Club customers frequently have an ongoing relationship with Hair Club, measured by year-long memberships, it could be difficult to estimate the actual damages from customers lost to Folicure. Furthermore, the Folicure defendants showed a willingness to poach customers from Hair Club before the trial court enjoined them from soliciting Hair Club customers. Of Folicure's fifty customers at the time of the injunction, forty-one were former Hair Club customers. Furthermore, the trial court specifically did not enjoin York and Reynolds from practicing hair replacement procedures. The injunction only prevents them from providing hair replacement to former Hair Club clients. While former Hair Club clients were the bulk of York's and Reynolds's customers at Folicure, the trial court did not prevent them from finding new customers and continuing their employment. Folicure can continue to operate during the course of the injunction, and Daniels may continue to manage the salon. Folicure may continue to seek new clients. We hold that the trial court did not abuse its discretion in balancing the equities and finding in favor of the injunction.
We conclude that the trial court did not abuse its discretion in granting a temporary injunction against York, Reynolds, Daniels and Folicure to prohibit solicitation of Hair Club's clients. We therefore affirm the order of the trial court.