William Cobb v. Caye Publishing Group, Inc.

• Court: Court of Appeals of Texas
• Decided: August 19, 2010
• Docket: 02-09-00426-CV
• Status: Published

Opinion

COURT OF APPEALS SECOND DISTRICT OF TEXAS FORT WORTH

NO. 2-09-426-CV

W ILLIAM COBB APPELLANT

V.

CAYE PUBLISHING GROUP, INC. APPELLEE

------------

FROM THE 236TH DISTRICT COURT OF TARRANT COUNTY

OPINION

INTRODUCTION

In this accelerated interlocutory appeal, Appellant W illiam Cobb challenges

the trial court’s temporary injunction order enforcing a covenant not to compete in

an employment agreement between Cobb and Appellee Caye Publishing Group, Inc.

Because we conclude that the geographical area of the trial court’s injunction order

is unnecessarily broad, we modify the injunction in terms of geographical scope and

affirm the injunction as modified.

FACTUAL AND PROCEDURAL BACKGROUND Caye Publishing publishes and distributes a “coupon based” magazine in

Johnson County called Local Life. On May 1, 2008, Caye Publishing hired Cobb to

sell advertising for Local Life as an independent contractor. The parties signed a

“Contractor Agreement” containing a noncompete clause in which Cobb promised

that, upon termination of his contractual engagement with Caye Publishing, he would

not work for a competing third party or start a publication outside of Caye Publishing

for a term of one year.

Cobb sold advertising space in Local Life until September 23, 2009, when he

resigned. In early November 2009, he published and distributed a magazine titled

Who What Where in the cities of Aledo and W eatherford, which are located in

nearby Parker County. Caye Publishing then sued Cobb for breach of contract,

misappropriation of trade secrets, and tortious interference with contract. On

November 24, 2009, the trial court signed a temporary injunction order preventing

Cobb from starting a new publication or publishing his existing magazine in Johnson

County and in the cities of Aledo and W eatherford in Parker County. Cobb now

appeals.

LAW AND APPLICATION TO FACTS

A. Standard of Review

A temporary injunction’s purpose is to preserve the status quo of the

litigation’s subject matter pending a trial on the merits.1 A temporary injunction is an

1  Walling v. Metcalfe, 863 S.W .2d 56, 57 (Tex. 1993).

2 extraordinary remedy and does not issue as a matter of right.2 To be entitled to a

temporary injunction, the applicant must plead a cause of action and further show

both a probable right to recover on that cause of action and a probable, imminent,

and irreparable injury in the interim.3

W hether to grant or deny a request for a temporary injunction is within the trial

court’s discretion, and we will not reverse its decision absent an abuse of discretion.4

To determine whether a trial court abused its discretion, we must decide whether the

trial court acted without reference to any guiding rules or principles; in other words,

we must decide whether the act was arbitrary or unreasonable.5 A trial court abuses

its discretion if it misapplies the law to established facts.6

In an appeal from an order granting or denying a temporary injunction, the

scope of review is restricted to the validity of the order granting or denying relief.7

The legal issues involved in a temporary injunction hearing are whether the applicant

showed a probability of success and irreparable injury; the ultimate merits of the

2  Id. 3  Butnaru v. Ford Motor Co., 84 S.W .3d 198, 204 (Tex. 2002). 4  Id. 5  Low v. Henry, 221 S.W .3d 609, 614 (Tex. 2007); Cire v. Cummings, 134 S.W .3d 835, 838–39 (Tex. 2004). 6  State v. Sw. Bell Tel. Co., 526 S.W .2d 526, 528 (Tex. 1975); In re Talco- Bogata Consol. Indep. Sch. Dist. Bond Election, 994 S.W .2d 343, 347 (Tex. App.—Texarkana 1999, no pet.). 7  Walling, 863 S.W .2d at 58.

3 controversy are not before the trial court.8 Thus, we address the enforceability of the

covenant not to compete only to the extent that it affects the analysis of whether the

elements required for issuance of a temporary injunction have been satisfied.9 Our

review of the trial court’s order is limited to determining whether the trial court

abused its discretion by granting temporary relief.10

B. Probable Right to Recover

1. Evaluating the geographical limitation of a covenant not to compete

Caye Publishing pleaded a breach of contract cause of action in which it

alleged that Cobb had breached the Contractor Agreement by, among other things,

starting a publication outside of Caye Publishing in a geographical area targeted by

Caye Publishing for expansion. Generally, every contract in restraint of trade or

commerce is unlawful.11 A covenant not to compete, however, 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.12 A restraint is unreasonable if it is broader than necessary to protect the

8  Id.; see also Tom James of Dallas, Inc. v. Cobb, 109 S.W .3d 877, 882 (Tex. App.—Dallas 2003, no pet.). 9  See Tom James, 109 S.W .3d at 882. 10  Id. at 885. 11  Tex. Bus. & Com. Code Ann. § 15.05(a) (Vernon 2002). 12  Id. § 15.50(a) (Vernon 2002 & Supp. 2009).

4 legitimate interests of the employer.13 W hether a covenant imposes a reasonable

restraint on trade is a question of law for the court.14

In his first issue, Cobb challenges the reasonableness of the geographical

limitation in the trial court’s injunction, asserting that the trial court abused its

discretion by enforcing an overbroad covenant not to compete and by prohibiting him

from publishing in Aledo and W eatherford. The noncompete covenant in the

Contractor Agreement contains no geographical limitation at all; it simply states that

Cobb “will not work for a competing third party for the term of one year” and that he

“will not start a publication outside of [Caye Publishing] for a term of one year,”

without inclusion of or reference to any geographical area. A covenant not to

compete with a broad geographical scope is unenforceable, particularly when no

evidence establishes that the employee actually worked in all areas covered by the

covenant.15 Accordingly, we agree that the noncompete covenant in this case, which

prohibits Cobb from working for a competitor or publishing any other magazine

without any limitation as to geographical area, is overbroad and unenforceable.16

13  DeSantis v. Wackenhut Corp., 793 S.W .2d 670, 682 (Tex. 1990), cert. denied, 498 U.S. 1048 (1991). 14  Light v. Centel Cellular Co. of Tex., 883 S.W .2d 642, 644 (Tex. 1994); Peat Marwick Main & Co. v. Haass, 818 S.W .2d 381, 388 (Tex. 1991). 15  Butler v. Arrow Mirror & Glass, Inc., 51 S.W .3d 787, 793–94 (Tex. App.—Houston [1st Dist.] 2001, no pet.). 16  See Goodin v. Jolliff, 257 S.W .3d 341, 352 (Tex. App.—Fort W orth 2008, no pet.) (holding that an agreement restricting a party from starting, directly or indirectly, a competing business “without any limitation as to geographic scope whatsoever” was unenforceable).

5 2. Reforming the geographical limitation of a covenant not to compete

If the trial court in a suit to enforce a covenant not to compete determines that

the limitations as to time, geographical area, or scope of activity in the covenant are

unreasonable, the court shall reform the covenant to the extent necessary to cause

the limitations to be reasonable and to impose a restraint that is not greater than

necessary to protect the goodwill or other business interest of the promisee and

enforce the covenant as reformed.17 In its temporary injunction order, the trial court

found that Caye Publishing had demonstrated a probable right of recovery against

Cobb and granted injunctive relief, but it restricted the geographical area of the

covenant to Johnson County and the cities of Aledo and W eatherford in Parker

County. To grant this injunctive relief, the trial court judge was required to conclude

that Caye Publishing had shown that it would probably succeed on the merits of its

claim of breach of the covenant not to compete as reformed to this geographical

area.18 It is this conclusion that we review for an abuse of discretion.19

Generally, a reasonable area for purposes of a covenant not to compete is

considered to be the territory in which the employee worked while in the employment

of his employer.20 Although Cobb worked only in Johnson County during his

employment with Caye Publishing, Caye Publishing asserts that including Aledo and

17  Tex. Bus. & Com. Code Ann. § 15.51(c) (Vernon 2002). 18  See id.; Butnaru, 84 S.W .3d at 204 (requiring applicant to show a probable right to recover). 19  See Butnaru, 84 S.W .3d at 211; Tom James, 109 S.W .3d at 882–83. 20  Butler, 51 S.W .3d at 793.

6 W eatherford in the geographical scope of the covenant not to compete is reasonable

because Caye Publishing had already targeted Parker County for expansion by the

time that Cobb resigned. Thus, the issue in this case is whether a reasonable

geographical limitation of the parties’ covenant not to compete includes areas where

Cobb never worked for Caye Publishing, and where Caye Publishing never actually

distributed any publications, but where Caye Publishing intended to distribute

publications at some point in the future.

Caye Publishing also contends that extending the covenant’s geographical

limitation to Aledo and Weatherford is reasonable because the evidence showed that

Caye Publishing had made “more than a cursory inquiry” into publishing in Parker

County. Stephen Lee Ellis, publisher of Caye Publishing, testified at the temporary

injunction hearing that at the same time he had started publishing Local Life in

Johnson County, approximately two years earlier, he had also started researching

the feasibility of starting a publication in Parker County. He testified that he already

had finished his research and had decided to begin publishing in Parker County

before Cobb left Caye Publishing. In February or March 2009, Ellis approached the

publisher of Parker County Today, a publication already being distributed in Parker

County, about buying that publication. The publisher declined, but three months

later, he contacted Ellis about a sale. This time, Ellis declined because he had just

started a children’s publication and his “plate was full.” Ellis later contacted the

Parker County Today publisher again about a sale, but the “deal fell through.” Ellis

testified that his “discussions” with the publisher were ongoing and that he had met

7 with the publisher and the publisher’s business partner the previous week “[t]rying

to come to some agreement.”

Ellis also testified that he had told Cobb while Cobb was still working for Caye

Publishing that Ellis was researching expansion opportunities in W eatherford and

Aledo. Ellis told Cobb that he intended to let Cobb “run” the Parker County

publication once it got started. According to Ellis, Cobb was aware that the startup

of the Parker County publication was dependent on “getting the revenues [that Caye

Publishing] needed to a certain point in Johnson County” and that Caye Publishing

would not expand into Parker County unless it “got Johnson County up to a certain

level.” Furthermore, Ellis testified that Caye Publishing had looked into starting

publications in other cities such as Cleburne, Mansfield, Flower Mound, and

Highland Village but that it had not actually expanded its operation to those areas.

The parties have not cited, and we have not found, a case in which a

geographical limitation including areas where an employer does not currently

operate but has targeted for future potential expansion, standing alone, is

reasonable. Texas law does, however, mandate that a geographical limitation

cannot impose a greater restraint than is necessary to protect the goodwill or other

business interest of the employer.21 The trial court stated in its temporary injunction

21  See Tex. Bus. & Com. Code Ann. § 15.50(a); see also, e.g., Evan’s World Travel, Inc. v. Adams, 978 S.W .2d 225, 233–34 (Tex. App.—Texarkana 1998, no pet.) (holding that a noncompete agreement was enforceable only in the one county in which an employee had worked for her former employer because she had not had clients from any other locations); Zep Mfg. Co. v. Harthcock, 824 S.W .2d 654, 660–61 (Tex. App.—Dallas 1992, no writ) (holding that a noncompete covenant that prohibited an employee from working anywhere, regardless of whether he had

8 order that without an injunction, Cobb would damage Caye Publishing’s interests by

displacing its exclusive right to use its research and be the first to enter markets

“targeted by” Caye Publishing, thus usurping Caye Publishing’s opportunity to fill the

limited market void, and by capturing customer goodwill that would otherwise be

winnable by Caye Publishing as the first and sole entrant into the targeted markets.

None of these reasons, however, displays any connection to Cobb’s activities

when he was an employee of Caye Publishing or to the geographical area in which

Cobb actually worked when he was an employee of Caye Publishing.22 During

Cobb’s employment with Caye Publishing, he sold advertising for a publication

distributed in Johnson County only; he never sold advertising for any publication

distributed in Aledo or W eatherford, and Caye Publishing never distributed any

publications in Aledo or W eatherford. Ellis even testified that Cobb did not

participate in conducting any of the company’s research into the Parker County

market, and Cobb was not part of the discussions with the publisher of Parker

County Today.

Furthermore, the evidence at the temporary injunction hearing established that

serviced the area during his employment, was unenforceable); Gomez v. Zamora, 814 S.W .2d 114, 118 (Tex. App.—Corpus Christi 1991, no writ) (holding that a covenant defining “future marketing area” as nearly every major city in Texas was unenforceable because no evidence established that the employee actually had worked in all areas covered by the covenant); Webb v. Hartman Newspapers, Inc., 793 S.W .2d 302, 303 (Tex. App.—Houston [14th Dist.] 1990, no writ) (restricting geographical area of a noncompete covenant between a newspaper publisher and its former employee to the distribution area of the newspaper for which the employee had worked). 22  See Butler, 51 S.W .3d at 793–94.

9 Caye Publishing had nothing more than a potential business interest in Parker

County. There was no testimony that Caye Publishing had sold any advertising,

cultivated any customer goodwill, or taken any action to start a publication in Aledo

or W eatherford other than researching the area and having back-and-forth

“discussions” with an existing publication in Parker County. Caye Publishing

complains on appeal of Cobb’s contacting some of its Johnson County advertisers

to buy ad space in Cobb’s new Parker County publication as well. But Ellis admitted

at the temporary injunction hearing that Cobb was not competing with Caye

Publishing for advertisers because Cobb did not have a Johnson County publication,

and Caye Publishing was not in the Parker County market at that time.

Caye Publishing contends that it was Cobb’s fault that Caye Publishing could

not enter the Parker County market because Cobb did not sell enough ads and

generate enough revenue for its Johnson County publication. Additionally, the trial

court judge stated on the record that he found Cobb’s actions unconscionable

because Cobb had begun preparations to launch his own publication while he was

still employed by Caye Publishing. But the focus of the legal analysis in this case

is on Caye Publishing—the geographical location and reach of its business interests,

the extent of Cobb’s involvement in those business interests while he was working

for Caye Publishing, and the amount of restraint reasonably necessary to protect

Caye Publishing’s business interests. Any preresignation planning or drop in ad

sales on Cobb’s part is not relevant to the evaluation of the geographical extent of

injunctive relief needed to safeguard Caye Publishing’s legitimate business interests.

10 W e hold that, under the facts of this case, the trial court abused its discretion by

determining for purposes of the temporary injunction that Caye Publishing had a

probable right to recover for breach of a covenant not to compete in a geographical

area that included Aledo and W eatherford. W e sustain Cobb’s first issue.

Cobb argues in his second issue that the trial court abused its discretion by

enjoining him from publishing in Aledo and W eatherford because Caye Publishing

showed no evidence of irreparable injury and had unclean hands. Because Cobb

does not challenge the inclusion of Johnson County in the geographical scope of the

temporary injunction order, and because we have already held that the trial court

abused its discretion by entering a temporary injunction order that enjoined Cobb

from starting a publication in Aledo and W eatherford, we do not reach Cobb’s

remaining issue.23

CONCLUSION

Having sustained Cobb’s first issue, we dissolve those portions of the trial

court’s temporary injunction order restraining Cobb from (1) starting, launching,

operating, or participating in the start or launch of any publication outside of Caye

Publishing and within the cities of Aledo and W eatherford and (2) publishing or

selling any magazine or other publication that Cobb may currently be publishing or

selling outside of Caye Publishing and within the cities of Aledo and W eatherford.

W e modify the geographical area of the trial court’s temporary injunction order to

23  See Tex. R. App. P. 47.1.

11 Johnson County only, and we affirm the trial court’s order as modified.24

LEE ANN DAUPHINOT JUSTICE

PANEL: LIVINGSTON, C.J.; DAUPHINOT and MCCOY, JJ.

DELIVERED: August 19, 2010

24  See Tex. R. App. P. 43.2(b).