United States Court of Appeals Fifth Circuit F I L E D Revised July 14, 2003 June 17, 2003 IN THE UNITED STATES COURT OF APPEALS Charles R. Fulbruge III FOR THE FIFTH CIRCUIT Clerk
__________________________
No. 02-11239 __________________________
GUY CARPENTER & COMPANY, INC., Plaintiff - Appellant,
v.
ANTHONY PROVENZALE,
Defendant - Appellee.
___________________________________________________
Appeal from the United States District Court For the Northern District of Texas ___________________________________________________
* Before WIENER and CLEMENT, Circuit Judges, and LITTLE, District Judge.
EDITH BROWN CLEMENT, Circuit Judge:
I. FACTS AND PROCEEDINGS 1 Anthony Provenzale (“Provenzale”) began his career as a reinsurance broker in 1984.
In 1993, Provenzale signed an employment agreement (the “1993 Agreement”) with
Sedgwick Payne Co. The 1993 Agreement named Provenzale Senior Vice President-Branch
* District Judge of the Western District of Louisiana, sitting by designation. 1 Reinsurance refers to the practice of transferring all or part of the risk of one insurance contract to another contract issued by a different insurance company. Manager, and contained a provision labeled “Non-Disclosure/Non-Competition.” That
provision included both non-disclosure and non-solicitation covenants:
6. Non-Disclosure/Non-Competition. Employee acknowledges that during the course of his employment, whether voluntarily or involuntarily, he will have access to confidential information, proprietary information and/or trade secrets. This information may include, without limitation, technical know-how; lists of clients or customers; contract terms and conditions; rates; loss statistics; financial information; methods of marketing; research activities and data; computer software and other aspects of the affairs and business operations of Employer (collectively referred to as “Confidential Information”). Employee agrees that all Confidential Information is the sole property of Employer, and its successors and assigns, and that both during and after the term of this Agreement no such information will be disclosed, except as may be required by law, to any person for any reason or purpose whatsoever, without the express prior written consent of Employer.
Employee agrees that for a period of one (1) year after the termination of his employment, whether voluntary or involuntary, he will not directly or indirectly call upon, solicit, divert, accept, or take away from Employer any individual, account, customer, company, partnership or any other entity (collectively referred to as “Clients”) to whom Employer rendered intermediary, consulting or broking [sic] services, either on a fee for services or commission basis, during the course of his employment with Employer.
In May or June 1999, Sedgwick Payne’s successor merged with Guy Carpenter & Co.,
Inc. (“Guy Carpenter”). Presumably in conjunction with the impending merger with Guy
Carpenter, the parties amended the employment agreement (the “1999 Agreement”). The
changes included: (1) adding an arbitration provision (not implicated here); (2) amending
the compensation and term-of-employment provisions of the 1993 Agreement; (3) and
reducing Provenzale’s severance in the event of a not-for-cause discharge, from an
2 automatic three years of salary to one year of salary if Provenzale were discharged prior
to a specified date. The 1999 Agreement otherwise incorporated the terms of the 1993
Agreement, including the non-disclosure and non-solicitation covenants. Sedgwick paid
Provenzale $35,000 to execute the 1999 Agreement.
On July 13, 2001, Provenzale voluntarily ended his employment with Guy Carpenter
and began working for Benfield Blanch. On August 3, 2001, Guy Carpenter sued
Provenzale, asserting breach of contract and misappropriation of trade secrets. Guy
Carpenter alleged Provenzale began contacting and soliciting its clients in an attempt to
get them to transfer their business to Benfield Blanch in violation of the 1999 Agreement’s
non-solicitation covenant. Provenzale admits soliciting clients. Guy Carpenter also
alleged Provenzale disclosed its confidential and proprietary information in violation of
the 1999 Agreement’s non-disclosure covenant and of the common law duty to not
misappropriate trade secrets.
The district court granted a temporary restraining order (“TRO”) on September 5, 2001.
The district court held a preliminary injunction hearing in early October and dissolved the
TRO on October 19, 2001. The district court held Guy Carpenter did not have a substantial
likelihood of success on its breach of contract claims because the non-competition
covenants were unenforceable under Texas law, or on its misappropriation of trade secrets
claim because it had not fully developed what constituted confidential information.
Guy Carpenter filed a motion for reconsideration which the district court denied almost
a full year later, on September 30, 2002. Guy Carpenter appeals this interlocutory order
3 2 denying the motion to reconsider. Provenzale responds to the merits of the appeal, and
also argues the appeal is moot.
II. STANDARD OF REVIEW
Mootness is a jurisdictional question, that this Court will determine de novo. North
Carolina v. Rice, 404 U.S. 244, 246 (1971).
A district court’s determinations as to each of the elements required for a preliminary
injunction are mixed questions of fact and law, the facts of which this Court leaves
undisturbed unless clearly erroneous. Kern River Gas Transmission, Co. v. Coastal Corp.,
899 F.2d 1458, 1462 (5th Cir. 1990). Conclusions of law made with respect to the denial of
a preliminary injunction are reviewed de novo. Id. The ultimate decision for or against
issuing a preliminary injunction is reviewed under an abuse of discretion standard. Id.
The trial court’s denial of the preliminary injunction was predicated on a determination
that the non-competition covenant is unenforceable. This is a legal question, Light v.
Centel Cellular Co. of Texas, 883 S.W.2d 642, 644 (Tex. 1994), that this Court reviews de
novo. See, e.g., Blue Bell Bio-Medical v. Cin-bad, Inc., 864 F.2d 1253, 1256 (5th Cir. 1989).
III. DISCUSSION
A. Mootness
Provenzale argues that all questions regarding a preliminary injunction based on the
2 The district court has a pending motion from Provenzale for summary judgment and a pending motion from Guy Carpenter for a stay of litigation pending a ruling from this Court.
4 non-solicitation claim are moot. To be cognizable in a federal court, a suit “must be
definite and concrete, touching the legal relations of parties having adverse legal interests.
. . . It must be a real and substantial controversy admitting of specific relief through a
decree of a conclusive character . . . .” Rice, 404 U.S. at 245-46. Provenzale’s employment
ended on July 13, 2001. By its own terms, the non-solicitation covenant expired one year
later, on July 13, 2002. Provenzale argues that the relief Guy Carpenter
seeks—enforcement of an expired non-solicitation agreement through an injunction—is
not available under Texas law.
Guy Carpenter responds that injunctions are equitable in nature and that district courts
may impose injunctions that last beyond a contract provision’s expiration date. See, e.g.,
Premier Indus. Corp. v. Tex. Indus. Fastener Co., 450 F.2d 444, 448 (5th Cir. 1971)
(applying Texas law and stating that “[an] argument that the trial judge exceeded his
discretion by enjoining the appellants beyond the time specified in the . . . contract is
without merit”). We agree with Guy Carpenter. The expiration of the one-year contract
limit does not make this issue moot. If this Court remands, the district court has the power
under Texas law to craft an injunction that extends beyond the expiration of the non-
solicitation covenant. Exercising this equitable power might be particularly appropriate
given the district court’s year-long delay before ruling on the motion to reconsider.
We note that neither case Provenzale cites in support of his mootness argument is
relevant to the facts of this case. See Hi-Line Electric Co. v. Dowco Electrical Products, 765
F.2d 1359, 1363 (5th Cir. 1985) (holding an appeal of injunction moot where the injunction
5 expired three months before the appellate court heard arguments in the case); John R. Ray
& Sons, Inc. v. Stroman, 923 S.W.2d 80, 85 (Tex. App. 1996) (finding that reforming (e.g.,
shortening) the length of a non-competition covenant would be an exercise in futility
because the time limit in the sought-to-be-reformed covenant expired before the district
court entered judgment).
B. Substantive Arguments
Guy Carpenter seeks a preliminary injunction based on its contract claims for breach
of the non-solicitation and non-disclosure covenants and on its common law tort claim for
misappropriation of trade secrets. In order to prevail on a motion for preliminary
injunction, Guy Carpenter must establish that: (1) it has a substantial likelihood of
prevailing on the merits; (2) there is a substantial threat it will suffer irreparable injury if
the preliminary injunction is denied; (3) the threatened injury to Guy Carpenter outweighs
the potential injury posed by the injunction to Provenzale; and (4) granting the preliminary
injunction will not disserve the public interest. Canal Authority of Florida v. Callaway,
489 F.2d 567, 572 (5th Cir. 1979). A preliminary injunction is an extraordinary remedy
which courts grant only if the movant has clearly carried the burden as to all four
elements. Kern River, 899 F.2d at 1462.
The district court concluded Guy Carpenter was not likely to succeed on the merits
because the non-solicitation and the non-disclosure covenants were unenforceable. The
court also concluded Guy Carpenter was not likely to succeed on the merits of its
misappropriation of trade secrets claim.
6 1. Breach of Contract Claims
Texas has a statute governing the enforceability of covenants not to compete. It
provides:
§ 15.50 Criteria for Enforceability of Covenants Not to Compete
[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 (Vernon 2002) (emphasis removed). As a preliminary
matter, non-disclosure covenants do not restrain trade and competition in the same way
that non-solicitation covenants restrain trade and competition. As a result, § 15.50 does not
govern or impair the enforceability of non-disclosure covenants. See CRC-Evans Pipeline
Intern., Inc., v. Myers, 927 S.W.2d 256 (Tex. App. 1996); Zep Mfg. Co. v. Harthcock, 824
S.W.2d 654 (Tex. App. 1992). The district court’s assumption—that § 15.50 governs the
enforceability of the non-disclosure covenant—erroneously tainted its conclusion that Guy
Carpenter did not have a likelihood of success on the merits of this claim.
The Texas Supreme Court analyzed the requirements of § 15.50 in some detail in Light
v. Centel Cellular Co. of Texas, 883 S.W.2d 642 (Tex. 1994). The court wrote that “[s]ection
15.50 requires . . . two initial inquiries as to formation of the covenant not to compete: (1)
is there an otherwise enforceable agreement, to which (2) the covenant not to compete is
ancillary to or a part of at the time the agreement is made.” Light, 883 S.W.2d at 644.
7 The 1999 Agreement satisfies Light’s “otherwise enforceable agreement” test, which
requires promises to be non-illusory. Id. at 644-46. Some of Guy Carpenter’s promises,
including the promises to pay a certain salary and a bonus, are illusory because they
require continued employment to be fulfilled. However, Guy Carpenter also promised to
pay a designated severance if it terminated Provenzale’s contract before May 1, 2002, 3 without “good cause.” Moreover, it paid Provenzale $35,000 to execute the 1999
Agreement. This payment was part of the bargain, even though reference to the $35,000
figure was kept out of the 1999 Agreement document at Guy Carpenter’s request. See Ikon
Office Solutions, Inc. v. Eifert, 2 S.W.3d 688, 693 (Tex. App. 1999) (treating two separate
documents as one where circumstances warranted). For his part, Provenzale agreed to,
inter alia, mandatory arbitration, a reduction in severance, and the non-disclosure and
non-solicitation covenants of the 1993 Agreement. Because both parties made non-illusory
promises, the 1999 Agreement satisfies the “otherwise enforceable agreement” test.
The parties dispute whether the 1999 Agreement satisfies Light’s “ancillary to or part
of” requirement. See § 15.50 (“[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.”)
(emphasis added). Light establishes a two-part test for satisfying the “ancillary to or part
of” requirement:
3 Provenzale contends this Court should not consider certain contract provisions, including the arbitration and severance provisions, in its analysis. Provenzale does not explain why these provisions should be ignored under this Court’s de novo review of the contract’s enforceability.
8 (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.
883 S.W.2d at 647.
The arrangement between Guy Carpenter and Provenzale is the precise type of
arrangement that the Texas Supreme Court believes satisfies this test:
[I]f an employer gives an employee confidential and proprietary information or trade secrets in exchange for the employee’s promise not to disclose them, and the parties enter into a covenant not to compete, the covenant is ancillary to an otherwise enforceable agreement because:
(1) the consideration given by the employer [the trade secrets] in the otherwise enforceable agreement [exchange of trade secrets for promise not to disclose] must give rise to the employer’s interest in restraining the employee from competing [employer has interest in restraining employee with knowledge of employer’s trade secrets from competing] and
(2) the covenant must be designed to enforce the employee’s consideration or return promise [the promise not to disclose the trade secrets] in the otherwise enforceable agreement.
883 S.W.2d at 647 n. 14 (all but first alteration in original). This is precisely the relationship
that the 1999 Agreement establishes. Guy Carpenter’s promise to provide confidential
information gives rise to its interest in restraining Provenzale from competing, and the
non-solicitation covenant is designed to enforce Provenzale’s non-disclosure covenant.
Provenzale argues Light supports his position that the non-solicitation covenant is
unenforceable. To do so, Provenzale seizes language from a separate discussion in Light
9 considering the dangers of illusory promises in at-will employment contracts. See 883
S.W.2d at 644-46. Provenzale emphasizes the specific text of this contract: “Employee
acknowledges that during the course of his employment, whether voluntary or
involuntary, he will have access to confidential information, proprietary information
and/or trade secrets.” (emphasis added). Provenzale argues this is an illusory promise:
had Guy Carpenter immediately terminated Provenzale’s employment, Guy Carpenter
would not have had a lingering promise to provide any information. Provenzale also
believes Light implies that (1) the exchange of trade secrets for a non-solicitation covenant
must itself be the “otherwise enforceable agreement” and (2) the promise to provide trade
secrets must itself be non-illusory consideration. Id. at 647 n.14 (“[T]he consideration
given by the employer [the trade secrets] in the otherwise enforceable agreement
[exchange of trade secrets for promise not to disclose] must give rise to the employer’s
interest in restraining the employee from competing . . . .”) (emphasis added).
Provenzale asserts that, because Guy Carpenter’s promise to provide trade secrets is
illusory for purposes of an analysis of contractual consideration, the agreement to
exchange trade secrets for a non-solicitation covenant fails Light’s“ancillary to or part of”
test. We decline to adopt this construction of Light’s “ancillary to or part of” test. Cf.
Donahue v. Bowles, Troy, Donahue, Johnson, Inc., 949 S.W.2d 746, 755 (Tex. App. 1997)
(Moseley, J., concurring) (basing criticism of Light on the premise that the consideration
referred to in the “ancillary to or part of” test is measured by the same standards used to
measure illusory promises). To hold otherwise would pin the enforceability of non-
10 solicitation agreements on whether an employer discloses confidential information at the
time the employee signs an employment contract. This is not what Light, or § 15.50,
intends or requires.
Because the non-solicitation covenant incorporated in the 1999 Agreement is
enforceable, the district court erred as a matter of law by concluding the covenant’s
unenforceability precluded likely success on the merits. Denying a preliminary injunction
on this basis was an abuse of discretion.
2. Common Law Misappropriation of Trade Secrets Claim
To prevail on its claim for misappropriation of trade secrets, Guy Carpenter must show:
(1) the existence of a trade secret; (2) a breach of a confidential relationship or improper
discovery of the trade secret; and (3) use of the trade secret without authorization. See
Phillips v. Frey, 20 F.3d 623, 627 (5th Cir. 1994).
The Texas Supreme Court defines a trade secret as “any formula, pattern, device, or
compilation of information which is used in one’s business, and which gives him an
opportunity to obtain an advantage over competitors who do not know or use it.” Hyde
Corp. v. Huffines, 314 S.W.2d 763, 766 (Tex. 1958).
Guy Carpenter asserts it has confidential information, divided into thirteen categories, 4 that qualifies for trade secret protection. The district court analyzed the claim that Guy
4 The categories are: (1) customer lists; (2) potential customers; (3) terms of existing contracts with customers, including renewal dates, premium information, loss information, credit issues, and reinsurance rates; (4) marketing methods; (5) analytic program structures; (6) research activities, data resources, and compilations; (7) reference manuals, training aids, and brochures; (8) specialized computer software; (9)
11 Carpenter’s customer lists are trade secrets separately from the claim that the other twelve
categories of information are trade secrets.
a. Customer Lists
A customer list may be a trade secret, Hyde Corp., 314 S.W.2d at 766, but not all
customer lists are trade secrets under Texas law. The broader rule of trade secrets, that
they must be secret, applies to customer lists. A customer list of readily ascertainable
names and addresses will not be protected as a trade secret. See Gaal v. BASF Wyandotte
Corp., 533 S.W.2d 152, 155 (Tex. App. 1976). Thus, Texas courts consistently consider three
factors when determining whether a customer list is a trade secret: (1) what steps, if any,
an employer has taken to maintain the confidentiality of a customer list; (2) whether a
departing employee acknowledges that the customer list is confidential; and (3) whether
the content of the list is readily ascertainable. Compare Flake v. EGL Eagle Global
Logistics, 2002 Tex. App. LEXIS 6593 at *10-11 (Tex. App. 2002) (finding trade secret where
departing employee admitted information was confidential); Center for Economic Justice
v. Am. Ins. Assoc., 39 S.W.3d 337, 246 (Tex. App. 2001) (affirming trade secret status of a
quasi-customer list that insurance companies are required to submit to a Texas regulatory
agency, even though the insurance companies only took measures to protect the
confidentiality of the lists once they became aware of an “open-records request” to disclose
the lists); Gibson, et al. v. Canfield, 2001 Tex. App. LEXIS 133 at *3-4 (Tex. App. 2001)
loss statistics; (10) copyrighted material; (11) private financial information; (12) technical know-how; and (13) proprietary retention models, studies and actuarial analyses.
12 (finding district court did not abuse its discretion in granting an injunction in the face of
conflicting testimony about whether an employer kept the list confidential—parties
disputed whether two entities that received employer’s customer list were employer’s
subcontractors or employer’s competitors); Sauter, et al. v. The Comp Solutions Network,
Inc., 1998 Tex. App. LEXIS 7248 at *13 (Tex. App. 1998) (finding a trade secret where
employer testified a new entrant in this niche insurance market would initially book no,
or almost no, policies within the first couple of weeks of business because the new entrant
would have to determine which insurance agents participate in niche market, and where
employer testified it took 30 years to compile a list of 1,200 agents); Keystone Life Ins. Co.
v. Marketing Mgmt. Inc., 687 S.W.2d 89, 91 (Tex. App. 1985) (finding that a list of 900
names and addresses that were not generally available to persons in the business of selling
group life insurance was a trade secret); with Bandit Messenger of Austin, Inc. v.
Contreras, 2000-2 Trade Cas. (CCH) ¶ 73,109 (Tex. App. 2000) (finding no trade secret
where employer did not show what specific steps were taken to maintain the
confidentiality of the customer list); Numed, Inc. v. McNutt, 724 S.W.2d 432, 435 (Tex.
App. 1987) (finding no trade secret where customer list can be compiled by calling
hospitals and doctors and asking the identity of their supplier); Keystone Life, 687 S.W.2d
89, 94 (Guillot, J. dissenting) (arguing that a list of 900 names and addresses that was not
generally available to persons in the business of selling group life insurance was not a
trade secret because there was no evidence of the confidential nature of the customer list,
no evidence that it was treated confidentially by the partners, and no evidence that the
13 employer told the employee to keep the list confidential).
Whether customer lists are trade secrets is a question of law reviewed de novo. Kern
River Gas Transmission, Co. v. Coastal Corp., 899 F.2d 1458, 1462. The first two factors
that a customer list is a trade secret are present in this case. First, the district court found,
in reference to customer trade lists and other items, that Guy Carpenter had “taken
reasonable precautions to prevent the unauthorized disclosure of such information.”
Second, Provenzale acknowledged the customer lists were confidential when he executed
the 1993 Agreement. In regard to the third factor, the district court implicitly found the
customer lists were readily ascertainable. We agree. Evidence in the record indicates
participants in the reinsurance market freely disclose the identity of their reinsurance
broker and the nature of the reinsurance products they regularly consume. See Numed,
724 S.W.2d at 435 (holding a customer list is readily ascertainable when businesses are
willing to disclose identity of a supplier when contacted by telephone). We also note that
Provenzale’s list of customers was relatively short—it included only those companies he
personally serviced while at Guy Carpenter. He could easily reconstitute this list even
without the aid of a trade publication. Cf. Sauter, 1998 Tex. App. at *13 (finding a
customer list was not readily ascertainable where customer list excluded non-participants
in niche insurance market). Even though Guy Carpenter took steps to protect its customer
list and Provenzale signed a contract stating the customer list was confidential, we
conclude the customer list was not a trade secret because it was readily ascertainable.
Although Provenzale admits he used the customer list to solicit business on behalf of
14 Benfield Blanch, the district court correctly found Guy Carpenter did not have a likelihood
of success on the merits of this claim because the customer list is not a trade secret.
b. Remaining Twelve Categories of Information
The district court found Guy Carpenter had proven that the other twelve categories of
confidential information qualified as trade secrets. The court held, however, that Guy
Carpenter failed to satisfy either the second or third elements of its misappropriation claim
because it failed to produce evidence Provenzale (1) breached a confidential relationship
or (2) used Guy Carpenter’s trade secrets.
Guy Carpenter asserts that a breach of the confidential relationship and the use of trade
secrets should be inferred because it was probable that Provenzale would use the trade
secrets. In Rugen v. Interactive Bus. Sys., 864 S.W.2d 548, 552 (Tex.App. 1993), the court
inferred that a former employee’s possession of a trade secret and employment by a
competitor, where the former employee operated the competitor, made it probable that the
former employee would use the trade secrets for her benefit to the detriment of the former
employer. See also T-N-T Motorsports, 965 S.W.2d at 21-22. Provenzale responds that
there is no reason to infer he would use Guy Carpenter’s trade secrets for four reasons: (1)
Provenzale testified he had not taken any confidential information with him; (2) Guy
Carpenter admitted that employees it had hired away from Benfield Blanch were able to
service customers without using their former employer’s confidential information; (3)
insofar as Guy Carpenter’s trade secrets covered analytic output of proprietary software,
Provenzale went to work for a competitor that had its own analytic tools already in place;
15 and (4) the terrorist attacks on September 11, 2001, completely altered the reinsurance
market, such that any confidential information Provenzale might have left with in July
2001 is completely out-of-date.
The district court’s conclusion that success on the merits was unlikely is supported by
the four points raised by Provenzale. In the face of imprecise claims and undeveloped
evidence from Guy Carpenter, the district court did not abuse its discretion in denying a
preliminary injunction on Guy Carpenter’s misappropriation of trade secrets claim as it
relates to the twelve groups of trade secrets.
IV. CONCLUSION
In denying Guy Carpenter’s motion for a preliminary injunction, the district court
rested its decision on the first of four factors governing preliminary injunctions—that Guy
Carpenter was not likely to succeed on the merits. We reverse the district court’s
determinations that the non-disclosure and non-solicitation covenants are unenforceable
and hold that Guy Carpenter demonstrated a likelihood of success on the merits of its
claims for (1) breach of the non-solicitation covenant and (2) breach of the non-disclosure
covenant. We affirm the district court’s determination that Guy Carpenter did not
demonstrate a likelihood of success on the merits of its misappropriation of trade secrets
claim, based on either Provenzale’s customer list or the twelve other categories of
information. We remand for the district court to apply the other three factors governing
preliminary injunctions without regard to the lapse of time since Provenzale voluntarily
terminated his own employment, and ultimately for a trial on the merits.
16 For the foregoing reasons, we AFFIRM IN PART, REVERSE IN PART and REMAND.