COURT OF APPEALS
SECOND DISTRICT OF TEXAS
FORT WORTH
NO. 2-03-364-CV
31-W
INSULATION CO., INC. APPELLANT
V.
PHIL
DICKEY APPELLEE
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FROM
THE 153RD DISTRICT COURT OF TARRANT COUNTY
OPINION
I. INTRODUCTION
Appellant
31-W Insulation Co., Inc. (“31-W”) appeals from the trial court’s denial
of 31-W’s request for a temporary injunction seeking to prevent appellee Phil
Dickey, 31-W’s former employee, from violating the terms of a noncompete
covenant contained in the parties’ employment contract. In two points, 31-W
complains that the trial court erred in finding that (1) the noncompete covenant
was invalid under Texas law and (2) the motion for temporary injunction had to
be verified. We affirm.
II. FACTUAL AND PROCEDURAL BACKGROUND
Phil
Dickey is an experienced insulation salesman, having worked in that field since
the early 1980s. On October 3, 2001, Dickey began work for the Arlington, Texas
office of 31-W selling insulation. That same day, Dickey executed a Salesman
Employment Agreement (the “Agreement”) as a condition of being hired. In the
Agreement, 31-W agreed to pay Dickey a commission on his sales, reimburse his
work-related expenses, and pay him a monthly automobile allowance. The Agreement
specified that Dickey was an at-will employee of 31-W and could be terminated at
any time, with or without cause, upon two weeks’ notice. Although the
Agreement required 31-W to continue to compensate Dickey for the entire two-week
notice period, it also gave 31-W the option of immediately relieving Dickey of
any further duties upon his termination.
The
Agreement further stipulated that, “[i]n return for being granted access to [e]mployer’s
[c]onfidential [i]nformation,” Dickey promised “not to disclose or use that
[c]onfidential [i]nformation other than in the proper performance of his duties
or with the prior written consent of [the] [e]mployer.” Dickey agreed to
account for all company property in his possession upon termination of his
employment and to return all documents in his possession or control that
contained any confidential information to 31-W.
The
Agreement also contained a noncompete clause, under which Dickey agreed to
refrain from competing with 31-W in “the area within a hundred mile radius of
any of [e]mployer’s locations at which [e]mployee worked” for six months
following the termination of his employment with 31-W. Dickey agreed that, if he
violated the Agreement, “the terms of each covenant violated shall be
automatically extended for a period of six months from the date on which [the] [e]mployee
permanently ceases the violation” and that 31-W would be entitled to
injunctive relief restraining him from breaching or threatening to breach the
Agreement.
Six
weeks before completing his second full year of employment, Dickey resigned from
31-W, apparently in a dispute over commission payments. The following Monday,
August 18, 2003, he began work selling insulation for Select Insulation Company
(“Select”), also located in Arlington, Texas and began approaching
superintendents in various subdivisions in the Dallas-Fort Worth area about
bidding insulation jobs on behalf of Select. Shortly thereafter, Dickey filed
suit against 31-W under the Texas Uniform Declaratory Judgment Act “seeking a
declaratory judgment . . . declaring that the [a]greement, including but not
limited to [p]aragraphs 7b and 7c in particular [the noncomplete covenants], is
not enforceable and that [p]laintiff is not in breach or violation of the [a]greement
by virtue of his employment with his new employer.” 31-W subsequently answered
and filed a counterclaim, alleging breach of the Agreement by Dickey and seeking
a temporary injunction in accordance therewith. Following a two-day hearing, the
trial court denied the temporary injunction request, prompting this appeal.
III. STANDARD OF REVIEW—THE TRIAL COURT’S DENIAL
OF A
TEMPORARY INJUNCTION
We
review the denial of a temporary injunction under the abuse of discretion
standard. Walling v. Metcalfe, 863 S.W.2d 56, 57 (Tex. 1993). The
enforcability of a covenant noncompete is a question of law. Light v. Centel
Cellular Co. of Tex., 883 S.W.2d 642, 644 (Tex. 1994). The issue before the
trial court in a temporary injunction hearing is whether the applicant is
entitled to preserve the status quo of the subject matter of the suit until the
case is tried on the merits. Davis v. Huey, 571 S.W.2d 859, 862 (Tex.
1978). For this court to reverse the trial court, it must be shown that the
trial court misapplied the law to the facts or that the evidence does not
reasonably support the trial court’s ruling. State v. S.W. Bell Tele. Co.,
526 S.W.2d 526, 528 (Tex. 1975). Under this standard, the evidence and its valid
inferences will be viewed in the light most favorable to the ruling, and we may
not substitute our judgment for the trial court’s. Only arbitrary action by
the trial court exceeding the bounds of reasonable discretion will warrant a
reversal. Butnaru v. Ford Motor Co., 84 S.W.3d 198, 204 (Tex. 2002).
Where, as here, the trial court did not file findings of fact and conclusions of
law, we must uphold the court’s ruling on any legal theory that is supported
by the evidence. Davis, 571 S.W.2d at 862.
IV. LEGAL ANALYSIS—IS DICKEY INSULATED FROM
LIABILITY?
In
it’s first point, 31-W argues that the trial court erred in refusing to enjoin
Dickey from selling insulation for a competitor because the trial court found
the noncompete covenant to be invalid under Texas statutory law. See Tex. Bus. & Com. Code Ann. § 15.50 (Vernon 2003). Simply put,
it is 31-W’s contention that because Dickey is in breach of the Agreement, it
is entitled to an injunction pursuant to the Agreement’s own terms.
Accordingly, 31-W must show that the Agreement is valid and that there has been
“an actual or threatened breach of this [a]greement” entitling it to
injunctive relief as set forth in its paragraph 8. Paragraph 7 of the Agreement
provides that “[f]or a period of six months following employee’s
termination, [e]mployee shall not, directly or indirectly, enter into
competition with [e]mployer in a [r]estrictive [t]erritory . . . [which] is the
area within a 100-mile radius of any employer’s locations.” After leaving
31-W’s employment, Dickey immediately went to work for 31-W’s local
competitor. At the temporary injunction hearing, Dickey testified as follows:
Q.
Finally, Mr. Dickey, I just want to ask you: You do not dispute that since your
employment ended with 31-W you have been competing with 31-W for [a] competitor
in the Dallas-Fort Worth area, correct?
A.
Correct.
We
conclude that there has been a breach of the Agreement, thereby leaving
enforceability of the Agreement the issue to be decided.
The
viability of noncompete covenants is addressed in subchapter E of Chapter 15 of
the Texas Business and Commerce Code. See Tex.
Bus. & Com. Code Ann. § 15.50-15.52 (Vernon 2004). Section 15.51(b)
states that “[i]f the primary purpose of the Agreement to which the
[noncompete] covenant is ancillary is to obligate the promisor to render personal
services . . . the promisee has the burden of establishing that the covenant
meets the criteria specified by [s]ection 15.50 of this code.” Id. §
15.51(b) (emphasis supplied). This provision applies to the employment Agreement
in this case because the primary purpose of the Agreement is Dickey’s
employment—that is, engaging Dickey’s personal services of selling 31-W’s
insulation products. Thus, the noncompete covenant is enforceable if 31-W can
prove that it meets section 15.50's criteria: the covenant must be “ancillary
to or part of an otherwise enforceable agreement at the time the
agreement is made.” Id. § 15.50(a) (emphasis supplied).
To
determine whether the noncompete covenant meets this standard, we undertake a
three-step process. First, we must determine whether an agreement
“otherwise” exists apart from the noncompete covenant. That is, we set aside
the Agreement’s noncompete covenants and determine whether any other promises
remain to bind the parties under the Agreement. Second, we must examine the
remaining promises to ensure that the Agreement is enforceable apart from the
noncompete covenant—that the promises are non-illusory promises that the
parties are in fact bound to perform. Third, if we have concluded that an
“otherwise enforceable agreement” exists, we must determine whether the
noncompete covenant is a part of or ancillary to that otherwise enforceable
agreement. We make this final determination by examining whether the
Agreement’s remaining promises satisfy the following two factors: (1) the
employer’s promise must give rise to the employer’s interest in restraining
the employee from competing; and (2) the noncompete covenant must be designed to
enforce the employee’s return promise in the otherwise enforceable agreement. Id.
“Unless both elements of the test are satisfied, the [noncompete] covenant
cannot be ancillary to or a part of an otherwise enforceable agreement, and is
therefore a naked restraint of trade and unenforceable.” Light, 883
S.W.2d at 647.
Turning
to the three-part analysis and reviewing the pertinent parts of the Agreement as
previously described, we first determine whether an agreement “otherwise”
exists apart from the noncompete covenants. After disregarding paragraphs 7b and
7c, which are noncompete covenants, and reviewing the remaining promises, we
conclude that the other terms of the Agreement are sufficient to bind the
parties and constitute an agreement even in the absence of the noncompete
covenants.
We
turn now to the second step in the analysis and determine whether the remaining
promises in the Agreement are nonillusory terms that bind the parties to
perform, thus making the Agreement apart from the noncompete covenant an
“otherwise enforceable” agreement. It is undisputed that Dickey was an
employee at will. At-will employment agreements are not themselves “otherwise
enforceable agreements,” because they are not binding on the employer or
employee. Travel Masters, Inc. v. Star Tours, Inc., 827 S.W.2d 830,
832-33 (Tex. 1991). However,
at-will
employment does not preclude the formation of other contracts between employer
and employee. At-will employees may contract with their employers on any matter
except those which would limit the ability of either employer or employee to
terminate the employment at will. Consideration for a promise, by either the
employee or the employer in an at-will employment, cannot be dependent on a
period of continued employment. Such a promise would be illusory because it
fails to bind the promisor who always retains the option of discontinuing
employment in lieu of performance. When illusory promises are all that support a
purported bilateral contract, there is no contract. In short, . . . “otherwise
enforceable agreements” can emanate from at-will employment so long as the
consideration for any promise is not illusory.
Light,
883 S.W.2d at 644-45.
The
Dallas Court of Appeals addresses a similar situation in Strickland v.
Medtronic, Inc., 97 S.W.3d 835 (Tex. App.—Dallas 2003, pet. dism’d w.o.j.).
That case involved an interlocutory appeal from an order granting Medtronic Inc.
a temporary injunction enforcing a noncompete covenant against its former
at-will employee, Strickland. The court noted that
in
this case there are several nonillusory promises that were capable of serving as
consideration for the agreement despite Strickland’s at-will status, namely:
(1) Medtronic’s promise to provide ninety days[’] notice of termination if
Strickland was terminated without cause; . . . (3) Strickland’s promise not to
use or disclose confidential information; [and] (4) Strickland’s promise to
return documents and tangible items upon termination. Medtronic argues that the
following provision in the employee agreement’s “Introduction” was
additional consideration by Medtronic. “This agreement is intended to
recognize that Medtronic provides the Employee with information concerning its
business, products and customers and entrusts the Employee with business
relationships and good will of great value to Medtronic.”
Id.
at 838-39. The court held, “even assuming by this [last] provision [that]
Medtronic impliedly promised to provide confidential information to Strickland,
we conclude [that] such a promise is illusory because it necessarily depends on
a period of employment. Medtronic could avoid this obligation by simply firing
Strickland on the day [that] the employment Agreement was executed.” Id.
at 839. The same analysis applied to the providing of training by Medtronic and
was deemed by the court also to be illusory. Id.
Here,
31-W’s promise in the Agreement to provide Dickey access to its confidential
information is illusory for the same reason set forth in Strickland: 31-W
could terminate Dickey’s employment immediately after signing the Agreement
and thereby never be obligated to provide him with any confidential information
at all. On the other hand, certain promises in the Agreement are not illusory
because they are “not dependant on a period of continued employment”: (a)
the two weeks’ notice of termination; (b) 31-W’s promise to compensate
Dickey during that two-weeks notice period; and (c) Dickey’s promise to return
and not use 31-W’s business information, including confidential information.
Therefore, because 31-W and Dickey are bound by these nonillusory promises, the
Agreement is “otherwise enforceable” apart from the noncompete covenant.
Finally
under our analysis, we must determine whether the noncompete covenant is a part
of or ancillary to this otherwise enforceable agreement. To make this
determination, we test the Agreement, apart from the noncompete covenant, to see
if (1) 31-W’s remaining enforceable promises give rise to its interest in
restraining Dickey from competing and (2) the covenant is designed to enforce
Dickey’s consideration in the otherwise enforceable agreement, recalling that
both tests must be met. See Light, 883 S.W.2d at 647.
As
to whether 31-W’s remaining promises to give Dickey two weeks’ notice of
termination and to compensate him during that two-week period give rise to its
interest in restraining Dickey from competing, we find, as in Strickland,
that “such promises do not give rise to an interest worthy of protection by a
covenant not to compete.” See Strickland, 97 S.W.3d at 838. As such,
the noncompete agreement is not ancillary to or part of an otherwise enforceable
agreement and is therefore unenforceable under section 15.50 of the Texas
Business and Commerce Code. Accordingly, we cannot say the trial court abused
its discretion in denying the requested temporary injunction. We overrule
31-W’s first point.
V. LACK OF VERIFICATION
By
its second point, 31-W asserts that the trial court erred if it denied the
temporary injunction because 31-W’s motion for temporary injunction was
unverified. The error alleged in this issue has been mooted by the evidentiary
hearing the trial court held on this motion. See Nguyen v. Interex, Inc.,
93 S.W.3d 288, 298 (Tex. App.—Houston [14th Dist.] 2002, no pet.); Georgiades
v. Ferrante, 871 S.W.2d 878, 882 (Tex. App.—Houston [14th
Dist.] 1994, writ denied); Ohlhausen v. Thompson, 704 S.W.2d 434, 437
(Tex. App.—Houston [14th Dist.] 1986, no writ) (all holding that a
verified petition for injunctive relief is not required to obtain a permanent
injunction when a full evidentiary hearing on evidence has been held). 31-W’s
second point is overruled.
VI. CONCLUSION
Having
disposed of 31-W’s points on appeal, we affirm the trial court’s judgment.
BOB
MCCOY
JUSTICE
PANEL
A: LIVINGSTON, DAUPHINOT, and MCCOY, JJ.
DELIVERED:
July 29, 2004