Rafael Ortega, Rosara Investments, LLC,. LMMM Houston 50 Ltd., and SOGA Investments, Ltd. v. Amin Abel, Mohamad Mustafa, Saeed Abdel Fatah, Ihab Aboushi, Hanna Hinnawi, Sameera Abel, Amy Latif, Joann Barghout, Super Bravo, Inc., Bravo Ranch, Inc., Abel, Inc., Houston Bravo, Inc.

• Court: Court of Appeals of Texas
• Decided: August 23, 2018
• Docket: 01-16-00415-CV
• Status: Published

Opinion

Opinion issued August 23, 2018

In The

Court of Appeals For The

First District of Texas ———————————— NO. 01-16-00415-CV ——————————— RAFAEL ORTEGA, ROSARA INVESTMENTS, LLC, LMMM HOUSTON #50 LTD., AND SOGA INVESTMENTS, LTD., Appellants V. AMIN ABEL, MOHAMAD MUSTAFA, SAEED ABDEL FATAH, IHAB ABOUSHI, HANNA HINNAWI, SAMEERA ABEL, AMY LATIF, JOANN BARGHOUT, SUPER BRAVO, INC., BRAVO RANCH, INC., ABEL, INC., AND HOUSTON BRAVO, INC., Appellees

On Appeal from the 269th District Court Harris County, Texas Trial Court Case No. 2012-70156

DISSENTING OPINION

This case arose from the sale of a business, freely and voluntarily entered into

by all parties. The business sold groceries in a specific market, Hispanic themed grocery stores. The sale was an arm’s length transaction for valuable consideration,

$7.5 million. The contract of sale contained a non-competition agreement. Not only

was this agreement also freely and voluntarily entered into, but the “Sellers [were]

represented by counsel throughout the negotiation of this agreement. . . .” Para. 6,

Non-Competition Agreement. The non-competition agreement was an important

part of the deal because the sellers were experienced and actively involved in the

niche market and their continued use of this knowledge and experience “would

seriously, adversely and irreparably affect the ability of the Buyers to derive the

benefit or value for which it bargained in the Asset Purchase Agreement.” Para. A,

Non-Competition Agreement. Therefore, the agreement was “a material inducement

to the Buyers to consummate the transactions contemplated by the Asset Purchase

Agreement, and the Buyer would be unwilling to consummate such transactions if

either Sellers did not enter into this Agreement.” Para. D., Non-Competition

Agreement. The non-competition agreement was material enough to the sale that the

buyers specifically paid $1.7 million for it. Para. 2, Asset Purchase Agreement.

The jury found that the sellers had breached the contract of sale and violated

the non-competition agreement. The jury awarded over $21 million in damages and

found that the sellers had acted in such bad faith and malice that they awarded

approximately $5.2 million in punitive damages. All damages were taken away by

2 the trial court when it reformed the non-competition agreement by reducing its

scope.

This non-competition agreement satisfied the statutory requirement that it be

part of “an otherwise enforceable agreement.” TEX. BUS. & COM. CODE ANN.

§ 15.50(a) (West 2011). It is not seriously contested, and the majority opinion holds,

that the non-competition agreement is enforceable. However, the trial court and the

majority hold that the agreement is too broad in scope and must be narrowed before

it can be enforced. An enforceable non-competition agreement must have a scope

that is no broader than necessary “to protect the goodwill or other business interest

of the promisee.” Id. The trial court, in a decision sustained by the majority, did this

by interpreting the transaction to be the sale of 5 grocery stores and limiting the

scope of the non-compete to a 3-mile radius around the five stores. I respectfully

submit that this misconstrues the business deal that is our focus. It is true that the

business operated out of five stores at the time of the purchase. However, it is clear

from the record and the documents through which this purchase was affected, that

the purchase was not merely of five stores, standing alone, but it was the purchase

of a business that was competing with the buyers in the specialty market of Hispanic

themed grocery stores. The non-competition agreement was not to free the buyers

from competition with the former operators of Mi Rancho only in the neighborhood

of the five Mi Rancho stores, but to free the buyers from such competition in that

3 part of its market area covered by the agreement. Courts applying Texas law have

upheld non-competition agreements ancillary to the sale of a business with far larger

geographical scope than the one we are reviewing. In specialty, or niche markets,

courts have particularly upheld statewide1 and, indeed, nationwide2 restrictions as

necessary to accomplish their lawful purpose. This lengthy and carefully worded

purchase agreement, and its ancillary non-competition agreement, negotiated

between sophisticated parties, with counsel available, for which money was paid,

appears to be narrowly tailored to accomplish just that.

The promisor bears the burden of establishing that the non-competition

agreement does not meet the criteria set out in section 15.50. See TEX. BUS. & COM.

CODE ANN. § 15.51(b) (West 2011). The sellers attempted to do that through the

testimony of a marketing expert who examined the five stores and opined as to the

geographical scope of the market share of the five stores. The analysis treated each

store as a stand-alone business, which completely misses the mark. The purpose of

the transaction was not merely the purchase of five stores, it was the purchase of the

Mi Rancho business and the elimination of the competition of the former operators

of that business from the areas covered by the non-competition agreement. The jury

1 Caraway v. Flagg, 277 S.W.2d 803, 806 (Tex. Civ. App.—Dallas 1955, writ ref’d n.r.e.). 2 Vais Arms, Inc. v. Vais, 383 F.3d 287, 295 (5th Cir. 2004).

4 heard this evidence and the defense used it in their argument on damages. We can

infer from the verdict that the jury was unmoved by this testimony. I agree with the

jury. The sellers are required to establish that the scope of the non-competition

agreement is unreasonable. I believe they failed to carry that burden. I would

reinstate the jury’s verdict in its entirety and respectfully dissent from the holding of

the majority. “The role of the courts is not to protect parties from their own

agreements, but to enforce contracts that parties enter into freely and voluntarily.”

El Paso Field Serv., L.P. v. MasTec N. Am., Inc., 389 S.W.3d 802, 810–11 (Tex.

2012). A deal is a deal.

Russell Lloyd Justice

Panel consists of Justices Higley, Massengale, and Lloyd.

Lloyd, J., dissenting.