Iberia Financial Services, LLC v. John A. Mitchell

• Court: Louisiana Court of Appeal
• Decided: June 17, 2020
• Docket: CA-0019-0413
• Status: Unknown

Opinion

STATE OF LOUISIANA COURT OF APPEAL, THIRD CIRCUIT

19-413

IBERIA FINANCIAL SERVICES, LLC

VERSUS

JOHN A. MITCHELL

**********

APPEAL FROM THE FOURTEENTH JUDICIAL DISTRICT COURT PARISH OF CALCASIEU, NO. 2019-95 HONORABLE SHARON D. WILSON, DISTRICT JUDGE

D. KENT SAVOIE JUDGE

Court composed of Billy Howard Ezell, D. Kent Savoie, and Van H. Kyzar, Judges.

AFFIRMED.

Kyzar, J., dissents and assigns reasons. Russell J. Stutes, Jr. Shelley B. Bouillion Stutes & Lavergne, LLC 600 Broad Street Lake Charles, Louisiana 70601 (337) 433-0022 COUNSEL FOR DEFENDANT/APPELLEE: John A. Mitchell

Vernon Ed McGuire, III Plauche’, Smith & Nieset Post Office Drawer 1705 Lake Charles, Louisiana 70602 (337) 436-0522 COUNSEL FOR PLAINTIFF/APPELLANT: Iberia Financial Services, LLC

C. Parker Kilgore Andrew R. Lee Jones Walker L.L.P. Four United Plaza, Fifth Floor 8555 United Plaza Boulevard Baton Rouge, Louisiana 70809-7000 (225) 248-2181 COUNSEL FOR PLAINTIFF/APPELLANT: Iberia Financial Services, LLC SAVOIE, Judge.

Plaintiff Iberia Financial Services, LLC (IFS) appeals the judgment of the trial

court, granting Defendant John A. Mitchell’s Exceptions of No Right of Action and

No Cause of Action and dismissing IFS’s claims in their entirety. For the following

reasons, we affirm.

FACTS AND PROCEDURAL HISTORY

John Mitchell began working for IFS as a Junior Investment Representative

on December 14, 2009, eventually rising through the ranks to become a Senior

Investment Advisor. He provided financial and insurance services to IFS’s clients

and had assets under management in excess of $100,000,000. Mitchell resigned his

position with IFS on November 30, 2018.

On January 7, 2019, IFS filed a Verified Petition for Temporary Restraining

Order, Injunctive Relief, and Damages. The Temporary Restraining Order was

signed the same day. The petition claims that Mitchell, upon leaving IFS, began

working for LPL Financial, LLC (LPL) on December 1, 2018. IFS alleges that

Mitchell moved 108 accounts totaling over $21,000,000 with him to LPL in violation

of a non-solicitation agreement prohibiting him from soliciting IFS’s clients.

In the petition, IFS explains that it is not a broker-dealer of securities. Rather,

it contracts with investment advisors to provide these services. Iberia Bank, IFS’s

parent company, entered into a networking agreement with Infinex Investments, Inc.

(Infinex). Through this agreement, IFS was able to offer securities brokerage,

investment advisory, and insurance products and services. The investment advisors

also entered into an agreement with Infinex separately in order to have access to the

services that Infinex provides. John Mitchell entered into one of these agreements.

According to the agreement, Mitchell became a “registered representative, investment advisor agent and/or licensed insurance producer of Infinex.” IFS is a

third-party beneficiary of the contract between Mitchell and Infinex.

Mitchell’s agreement with Infinex included a non-solicitation clause.

Paragraph 8(c) states, in pertinent part:

Except as required in connection with the performance of your duties as an Infinex Representative as contemplated hereunder, you agree that, during your engagement under this Agreement and for a period of one (1) year thereafter, you will not, either directly or indirectly, for your own account or as an agent, servant, employee, officer, director, shareholder, partner, member or manager of any entity, or member of any firm, or participant in any venture:

....

(iii) solicit the securities brokerage, investment advisory or insurance business of, or otherwise contact, any customer whose name became know to you as a direct or indirect result of your engagement as an Infinex Representative in locations where the Representative agrees are contained in Appendix A hereto.[1]

IFS claims in the petition that Mitchell contacted IFS’s customers, requesting

that they move their financial and insurance business to his new firm. IFS alleges

that it has sustained significant damage as a result of Mitchell’s breach of the non-

solicitation agreement.

IFS filed this suit as a third-party beneficiary of Mitchell’s contract with

Infinex. Infinex is not a party to the lawsuit. Paragraph 8(f) of the agreement states:

You agree and acknowledge that [IFS] is an intended third party beneficiary of your obligations under this paragraph 8 and that, although not a signatory to this Agreement, [IFS] shall be entitled to enforce your obligations hereunder.

In response to the petition, Mitchell filed an Answer to Petition, General

Denial, Affirmative Defenses, Exceptions of No Right and No Cause of Action, and

1 Appendix A lists numerous parishes and counties located across the country, including Calcasieu Parish.

2 Motion for Expedited Hearing. Mitchell argued that the agreement was null and

void under La.R.S. 23:921 because it would “substantially restrain Mitchell from

exercising his lawful profession, trade and business, in ways that greatly exceed the

limited exceptions permitted by” the statute.

The preliminary injunction and the exceptions were set for hearing on

January 29, 2019. IFS withdrew its’ preliminary injunction, leaving only Mitchell’s

exceptions to be heard. After the hearing, the trial court took the matter under

advisement. In open court, on January 31, 2019, the trial court granted the exception

of no cause of action and the exception of no right of action, dismissing IFS’s claims.

In addition, the trial court granted Mitchell’s request for attorney’s fees, ordering

IFS to pay them in the amount of $27,802.75. Judgment was signed March 6, 2019.

IFS now appeals the trial court’s judgment. Mitchell answered the appeal,

requesting additional attorney’s fees for work done on appeal.

ASSIGNMENTS OF ERROR

1. The trial court erred in admitting and considering evidence in support of the Defendant/Appellee’s No Cause of Action Exception.

2. The trial court erred in granting the Defendant/Appellee’s Exception of No Cause of Action on the premise and finding that he, as an independent contractor, could not be subject to a non-solicitation agreement.

3. The trial court erred in granting the Defendant/Appellee’s Exception of No Cause of Action and dismissing with prejudice IFS’s breach of contract claim against him for his retention and use of IFS’s confidential information in violation of his agreement.

4. The trial court erred in granting the Defendant/Appellee’s Exception of No Cause of Action and dismissing with prejudice IFS’s claim for injunctive relief related to the Defendant/Appellee’s continuing non-solicitation and confidentiality agreement.

5. The trial court erred in granting the Defendant/Appellee’s Exception of No Right of Action and dismissing with prejudice IFS’s claims.

3 6. The trial court erred in awarding attorneys’ fees to the Defendant/Appellee.

DISCUSSION

I. Standard of Review

The appellate standard of review on an exception of no cause of action is a de

novo review. Aycock v. Chicola, 09-563 (La.App. 3 Cir. 12/16/09), 27 So.3d 1005.

Similarly, “[b]ecause it involves a question of law, the standard of review of the trial

court’s granting of the exception of no right of action is de novo review.” Bennett v.

Porter, 10-1088, p. 8 (La.App. 3 Cir. 3/9/11), 58 So.3d 663, 670.

II. Exception of No Cause Action

In Ramey v. DeCaire, 03-1299, pp. 7-8 (La. 3/19/04), 869 So.2d 114, 118-19

(citations omitted), our supreme court stated:

A cause of action, when used in the context of the peremptory exception, is defined as the operative facts that give rise to the plaintiff’s right to judicially assert the action against the defendant. The function of the peremptory exception of no cause of action is to test the legal sufficiency of the petition, which is done by determining whether the law affords a remedy on the facts alleged in the pleading. No evidence may be introduced to support or controvert an exception of no cause of action. Consequently, the court reviews the petition and accepts well-pleaded allegations of fact as true. The issue at the trial of the exception is whether, on the face of the petition, the plaintiff is legally entitled to the relief sought.

Louisiana has chosen a system of fact pleading. Therefore, it is not necessary for a plaintiff to plead the theory of his case in the petition. However, the mere conclusions of the plaintiff unsupported by facts does not set forth a cause of action.

The burden of demonstrating that the petition states no cause of action is upon the mover. In reviewing the judgment of the district court relating to an exception of no cause of action, appellate courts should conduct a de novo review because the exception raises a question of law and the lower court’s decision is based solely on the sufficiency of the petition. The pertinent question is whether, in the light most favorable to plaintiff and with every doubt resolved in plaintiff’s behalf, the petition states any valid cause of action for relief.

4 IFS first argues that the trial court erred when it considered evidence outside

the scope of the pleadings. After a review of the record, the trial court did admit the

1442 deposition of IFS representative Kendra Cain; however, it was clearly

submitted in support of the Exception of No Right of Action and accepted as such.

Evidence is admissible on an exception of no right of action. Bennett, 58 So.3d 663.

IFS also complains that the trial court considered the agreement at issue. IFS

attached the agreement to its’ petition. An exception of no cause of action is triable

on the face of the petition and any annexed documents. Kuebler v. Martin, 578 So.2d

113 (La.1991). Therefore, we find that assignment of error number one lacks merit.

Next, IFS contends the trial court erred in finding that Mitchell, as an

independent contractor, was not subject to a non-solicitation agreement. The law

applicable can be found in La.R.S. 23:921. Louisiana Revised Statutes 23:921(A)(1)

states:

Every contract or agreement, or provision thereof, by which anyone is restrained from exercising a lawful profession, trade, or business of any kind, except as provided in this Section, shall be null and void. However, every contract or agreement, or provision thereof, which meets the exceptions as provided in this Section, shall be enforceable.

IFS argues that the non-solicitation agreement falls under an exception found in

La.R.S. 23:921(C), which states:

Any person, including a corporation and the individual shareholders of such corporation, who is employed as an agent, servant, or employee may agree with his employer to refrain from carrying on or engaging in a business similar to that of the employer and/or from soliciting customers of the employer within a specified parish or parishes, municipality or municipalities, or parts thereof, so long as the employer carries on a like business therein, not to exceed a period of two years from termination of employment. An independent contractor, whose work is performed pursuant to a written contract, may enter into an agreement to refrain from carrying on or engaging in a business similar to the business of the person with whom the independent contractor has contracted, on the same basis as if the independent

5 contractor were an employee, for a period not to exceed two years from the date of the last work performed under the written contract.

The language at issue in the agreement is found in Paragraph 8(c) and states:

Except as required in connection with the performance of your duties as an Infinex Representative as contemplated hereunder, you agree that, during your engagement under this Agreement and for a period of one (1) year thereafter, you will not, either directly or indirectly, for your own account or as an agent, servant, employee, officer, director, shareholder, partner, member or manager of any entity, or member of any firm, or participant in any venture:

(iii) solicit the securities brokerage, investment advisory or insurance business of, or otherwise contact, any customer whose name became known to you as a direct or indirect result of your engagement as an Infinex Representative in locations where the Representative agrees are contained in Appendix A hereto.

Mitchell argues that the non-solicitation agreement is null and void because

La.R.S. 23:921(C) allows independent contractors to be refrained from “carrying on

or engaging in a business similar to the business of the person with whom the

independent contractor has contracted[.]” The exception found in this paragraph

does not exclude independent contractors from soliciting customers, as it does

elsewhere in La.R.S. 23:921. As an example, in allowing for an exception between

employers and employees, La.R.S. 23:921 specifically states that they can agree “to

refrain from carrying on or engaging in a business similar to that of the employer

and/or from soliciting customers of the employer[.]” In La.R.S. 23:921(B), anyone

“who sells the goodwill of a business may agree with the buyer that the seller or

other interested party in the transaction, will refrain from carrying on or engaging in

a business similar to the business being sold or from soliciting customers of the

business being sold[.]”

6 The seminal case in this area of the law is Swat 24 Shreveport Bossier, Inc. v.

Bond, 00-1695 (La. 6/29/01), 808 So.2d 294. In Swat 24, an employer sought to

injunctive relief, seeking to prohibit its’ previous employee from engaging in

business based on a non-competition agreement. Beginning its discussion, the

Louisiana Supreme Court explained, “Louisiana has long had a strong public policy

disfavoring noncompetition agreements between employers and employees.” Id. at

298. Historically, Louisiana’s public policy has been to prohibit or severely restrict

them. Id. This public policy “is based upon an underlying state desire to prevent an

individual from contractually depriving himself of the ability to support himself and

consequently becoming a public burden.” Id. at 298. The supreme court states that

“[b]ecause such covenants are in derogation of the common right, they must be

strictly construed against the party seeking their enforcement.” Id.

When drafting La.R.S. 23:921, the Legislature included language which

allows certain parties to refrain from soliciting customers; however, this language

was specifically excluded in the exception that applies to independent contractors.

We must assume that this was intentional and not a mere oversight. Further, we

must strictly construe this statute. The statute is clear. Independent contractors

cannot be refrained from soliciting customers. As such, we find that a claim for non-

solicitation against an independent contractor does not exist.

III. Exception of No Right of Action

IFS contends that the trial court erred in granting Mitchell’s No Right of

Action and dismissing its claims with prejudice. We disagree.

As discussed above, the agreement at issue must be strictly construed.

Louisiana Revised Statutes 23:921(H) explains that “[a]ny agreement covered by

Subsection . . . C . . . shall be considered an obligation not to do, and failure to

7 perform may entitle the obligee to recover damages for the loss sustained and the

profit of which he has been deprived.” This agreement is governed by Subsection C

of the statute because it concerns an independent contractor. Louisiana Revised

Statutes 23:921 specifically states that the obligee is entitled to recover damages in

the event of a failure to perform under the contract. IFS is not the obligee under this

contract. Infinex is the obligee, while Mitchell is the obligor. Paragraph 8(f) of the

agreement states:

You agree and acknowledge that [IFS] is an intended third party beneficiary of your obligations under this paragraph 8 and that, although not a signatory to this Agreement, [IFS] shall be entitled to enforce your obligations hereunder.

IFS is a third party beneficiary to this contract as clearly stated. While, the

agreement purports to entitle IFS to enforce the obligations found therein, this right

is in derogation of La.R.S. 23:921(H). Strictly construing the agreement, we find

that the obligee under the contract is the party to the agreement, Infinex.

Consequently, IFS does not have a right of action to bring this lawsuit.

Having found that IFS lacks a cause of action for non-solicitation and lacks a

right of action to bring a claim under the agreement, we find the assignments of error

regarding confidential information and trade secrets to be moot. We now move on

to the issue of attorney’s fees.

IV. Attorney’s Fees

IFS complains that the trial court erred in awarding Mitchell attorney’s fees

because it found the agreement unenforceable. The attorney’s fees clause is found

in Section 15 of the agreement. It states:

In the event of a breach of this Agreement, the prevailing party in any resulting litigation or arbitration shall recover its costs incurred in enforcing its rights with respect to such breach. Such costs shall include,

8 without limitation, reasonable internal and external attorneys’ fees and litigation expenses.

This lawsuit was brought by IFS based on allegations of a breach of this

agreement. We, along with the trial court, have determined that IFS did not have a

right to bring these claims and lacked a cause of action for non-solicitation.

Therefore, Mitchell is the prevailing party. The fact that we have found part of the

agreement to be unenforceable has no bearing on whether attorney’s fees can be

awarded. Section 12 of the agreement provides:

All agreements, provisions and covenants contained herein are severable and in the event that any one or more of them shall be held to be invalid, illegal or unenforceable in any respect by any court of competent jurisdiction, the validity, legality and enforceability of the remaining provisions contained herein shall not in any way be affected thereby and this Agreement shall be interpreted as if such invalid, illegal or unenforceable agreements, provision or covenants were not contained herein.

Further, La.Civ.Code art. 2034 states that “[n]ullity of a provision does not

render the whole contract null unless, from the nature of the provision or the

intention of the parties, it can be presumed that the contract would not have been

made without the null provision.” Therefore, based on the law and the language

found in the agreement, we find the trial court did not err in awarding attorney’s fees.

DECREE

The trial court’s judgment granting John A. Mitchell’s exceptions of no right

of action and no cause of action, dismissing all claims asserted by Iberia Financial

Services, LLC, and awarding attorney’s fees to John A. Mitchell and against Iberia

Financial Services, LLC is affirmed. We grant John A. Mitchell’s request for

attorney’s fees on appeal and set the sum at $5,000 to be ordered against Iberia

Financial Services, LLC.