Inter/National Rental Insurance Services, Inc. d/b/a USI Rental Specialties v. Albrecht

Filing 24

REPORT AND RECOMMENDATION OF UNITED STATES MAGISTRATE JUDGE re 10 Emergency MOTION for Temporary Restraining Order and Preliminary Injunction filed by Inter/National Rental Insurance Services Inc, 6 MOTION to Dismiss for Lack of Jurisdiction filed by Gerald Albrecht. Signed by Magistrate Judge Don D. Bush on 2/27/2012. (baf, )

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF TEXAS
SHERMAN DIVISION

INTER/NATIONAL RENTAL
INSURANCE SERVICES, INC. d/b/a
USI RENTAL SPECIALTIES
Plaintiff,
v.
GERALD “GUS” ALBRECHT,
Defendant.

§
§
§
§
§
§
§
§
§
§
§
§

CASE NO. 4:11–CV–00853

REPORT AND RECOMMENDATIONS OF UNITED STATES MAGISTRATE JUDGE
DENYING MOTION TO DISMISS, GRANTING PLAINTIFF’S APPLICATION FOR
TEMPORARY RESTRAINING ORDER AGAINST GERALD “GUS” ALBRECHT, AND
SETTING HEARING ON MOTION FOR PRELIMINARY INJUNCTION
Now before the Court are Plaintiff’s Emergency Application for Temporary Restraining
Order and Preliminary Injunction (Dkt. 10) and Defendant’s Rule 12(b)(1) Motion to Dismiss (Dkt.
6). The Court held a hearing on February 22, 2012. At the hearing, both parties were represented
by counsel. Having heard the arguments of counsel, the application and the record before the Court,
the Court declines to dismiss this case and finds that a temporary restraining order is warranted.
FACTUAL BACKGROUND
This case involves a dispute over a covenant not to compete. Plaintiff Inter/National Rental
Services, Inc. d/b/a USI Rental Specialties (“USI”) seeks the entry of a temporary restraining order
and preliminary injunction to enjoin Defendant Gerald “Gus” Albrecht (“Albrecht”) from continuing
to breach his covenant not to compete with respect to USI customers and prospective customers with

1

whom he had personal contact, for whom he provided services, or about whom he acquired
confidential information.
USI is an insurance brokerage and consulting firm specializing in delivering risk
management and insurance solutions to rental equipment operations. Albrecht was employed by USI
from January 2003 to December 1, 2011, and, at the time of his resignation, held the position of
Producer and Vice President. According to Plaintiff, Albrecht was responsible for, among other
things, soliciting and providing services to rental industry prospects and customers, marketing
insurance products offered by USI, and handling client contact on his assigned accounts. Plaintiff
claims that Albrecht was the “face of USI” to the USI clients and prospective clients that he serviced
and solicited, and USI invested in that relationship by providing Albrecht with the opportunity to
develop goodwill for USI through his continued interactions with USI customers and prospects.
At the hearing, Plaintiff argued that, in order to perform his job, USI was required to – and
did – provide Albrecht with access to its confidential and proprietary information, including highly
confidential information concerning the underwriting guidelines and pricing structures associated
with its rental insurance program. Plaintiff further alleges that during his employment with USI,
Albrecht participated in confidential strategy communications concerning the products that he was
selling, and acquired confidential information throughout these discussions. According to Plaintiff,
Albrecht also acquired confidential information concerning the USI customers and prospects in his
region, including customer preferences, needs, coverages, pricing, and expiration dates. Plaintiff
seeks a temporary restraining order restraining Albrecht from violating the terms of his covenant
not to compete.

2

JURISDICTION
Defendant has first argued that the Court lacks subject matter jurisdiction over Plaintiff’s
claims here. Specifically, Defendant has alleged that Plaintiff has failed to show an amount in
controversy sufficient to confer diversity jurisdiction.
Diversity jurisdiction exists in federal district courts when the suit involves a controversy
between citizens of different states and the amount in controversy exceeds $75,000, exclusive of
interest and costs. 28 U.S.C. § 1332(a). “Dismissal of a diversity action for want of jurisdiction is
justified only where it appears to a legal certainty that the plaintiff cannot recover the jurisdictional
amount.” Duderwicz v. Sweetwater Sav. Ass’n, 595 F.2d 1008, 1012 (5th Cir. 1979) (citing St. Paul
Mercury Indemnity Co. v. Red Cab Co., 303 U.S. 283, 288-89, 58 S. Ct. 586, 590, 82 L. Ed. 845
(1938); Burns v. Anderson, 502 F.2d 970 (5th Cir. 1974)) (emphasis added). “In making that
determination the district court may look, not only to the face of the complaint, but to the proofs
offered by the parties.” U.S. Fire Ins. Co. v. Villegas, 242 F.3d 279, 283 (5th Cir. 2001). If the
complaint states a proper amount in controversy, then should generally not dismiss the case for want
of jurisdiction “unless it appears or is in some way shown that the amount stated in the complaint
is not claimed ‘in good faith.’” Nat’l Union Fire Ins. Co. v. Russell, 972 F.2d 628, 630 (5th
Cir.1992) (quoting Horton v. Liberty Mut. Ins. Co., 367 U.S. 348, 353, 81 S. Ct. 1570, 6 L. Ed.2d
890 (1961)).
Here, both Plaintiff’s original and amended complaints allege an amount in controversy in
excess of $75,000. See Dkt. 1 at ¶6 and Dkt. 15 at ¶9. And, Plaintiff claims that the revenue stream
at issue exceeds $400,000 per year. The Court finds that it has jurisdiction of this matter and that,
on the face of Plaintiff’s complaint, the amount in controversy is met. See Hartford Ins. Grp. v.

3

Lou-Con Inc., 293 F.3d 908, 910 (5th Cir. 2002) (describing the measurement of the amount in
controversy as the value of the right to be protected or the extent of the injury to be prevented).
Therefore, Defendant’s Rule 12(b)(1) Motion to Dismiss (Dkt. 6) should be denied.
TEMPORARY RESTRAINING ORDER
Finding that it has jurisdiction, the Court turns to Plaintiff’s request for injunctive relief.
STANDARD
Under Rule 65 of the Federal Rules of Civil Procedure, “[e]very order granting an injunction
and every restraining order shall set forth the reasons for its issuance; shall be specific in terms; shall
describe in reasonable detail ... the act or acts sought to be restrained....” FED . R. CIV . P. 65(d).
Plaintiffs seeking injunctive relief must show:
(1)

a substantial likelihood of success on the merits,

(2)

a substantial threat that plaintiffs will suffer irreparable harm if the injunction is not
granted,

(3)

that the threatened injury outweighs any damage that the injunction might cause the
defendant, and

(4)

that the injunction will not disserve the public interest.

Nichols v. Alcatel USA, Inc., 532 F.3d 364, 372 (5th Cir. 2008). The party seeking an injunction
carries the burden of persuasion on all four requirements. Lake Charles Diesel, Inc. v. Gen. Motors
Corp., 328 F.3d 192, 196 (5th Cir. 2003).
ANALYSIS
USI has presented sufficient evidence to show that, in exchange for providing Albrecht with
its confidential information and the opportunity to develop goodwill on behalf of USI, USI and
Albrecht entered into an Employment Agreement that, among other things, prohibits Albrecht from

4

competing with USI in certain respects for a period of two years following the termination of his
employment with USI.

Plaintiff has also alleged that, shortly after Albrecht resigned his

employment with USI, USI notified Albrecht that it was waiving certain provisions of his restrictive
covenants, and would limit enforcement of his covenant not to compete to clients and prospects with
whom he had personal contact, to whom he provided services, or about whom he received
confidential information during his employment with USI.
Albrecht contends that USI has unilaterally reformed the agreement picking and choosing
what provisions it desires to enforce. If the agreement is enforceable, then the Court has the duty
to reform the agreement. See TEX . BUS & COM . CODE §15.51 (c). He also contends that many of
the customers USI wants to prohibit him from contacting were his customers prior to joining USI.
Every contract in restraint of trade is unlawful. See TEX . BUS & COM . CODE §15.05(a). Yet, 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 is necessary to protect the goodwill or
other business interest of the promisee. TEX . BUS & COM . CODE §15.50(a).
Covenants that place limits on former employees’ professional mobility or restrict their
solicitation of the former employers’ customers and employees are restraints on trade and are
governed by the Act. See DeSantis v. Wackenhut Corp., 793 S.W.2d 670, 681–82 (Tex. 1990);
Miller Paper Co. v. Roberts Paper Co., 901 S.W.2d 593, 599–600 (Tex. App. - Amarillo 1995, no
writ) (stating that non-solicitation covenants prevent the employee from soliciting customers of the
employer and effectively restrict competition); see also Guy Carpenter & Co. v. Provenzale, 334
F.3d 459, 464–65 (5th Cir. 2003) (applying Texas law and stating that non-solicitation covenants

5

restrain trade and competition and are governed by the Act); Rimkus Consulting Grp., Inc. v.
Cammarata, 255 F.R.D. 417, 438–39 (S.D. Tex. 2008) (holding that a “nonsolicitation covenant is
also a restraint on trade and competition and must meet the criteria of section 15.50 of the Texas
Business and Commerce Code to be enforceable” (citations omitted)). Agreements not to disclose
trade secrets and confidential information are not expressly governed by the Act. See, e.g.,
CRC–Evans Pipeline Int’l, Inc. v. Myers, 927 S.W.2d 259, 265 (Tex. App. - Houston [1st Dist.]
1996, no writ); Zep Mfg. Co. v. Harthcock, 824 S.W.2d 654, 663 (Tex. App. - Dallas 1992, no writ);
see also Olander v. Compass Bank, 172 F. Supp.2d 846, 852 (S.D. Tex. 2001).
USI presented evidence that Albrecht is engaged in ongoing communications with at least
one USI customer with whom he had personal contact and about whom he received confidential
information while at USI, and attempting to transfer that account to Jenkins Insurance Group, his
current employer and a competitor of USI. USI asserts that Albrecht’s conduct poses an imminent
and irreparable threat to USI for which no adequate remedy at law exists. Albrecht argues that there
is an adequate remedy at law in the form of damages and no injunction is thus warranted. According
to USI, client relationships and knowledge of certain highly confidential information concerning the
underwriting guidelines and pricing structures associated with USI’s rental insurance programs are
the core of the rental insurance business. USI argues that if Albrecht is permitted to use the
goodwill and client relationships he developed at USI and on USI’s behalf, as well as USI’s
confidential and proprietary information, to compete with USI on behalf of Jenkins, USI will suffer
an immediate and irreparable injury.
The Court finds that USI has set forth sufficient grounds to entitle it to a temporary
restraining order to prevent Albrecht from continuing to breach his covenant not to compete. USI

6

has made a sufficient showing that there is a substantial likelihood it will succeed on the merits of
its claim for breach of the covenant not to compete against Albrecht. USI is seeking only to enforce
the covenant not to compete with respect to USI customers and prospective customers with whom
Albrecht had personal contact, provided services to, or about whom he received confidential
information while employed by USI, and USI has affirmatively waived any provision of the
covenant not to compete that exceeds this scope.
The Court finds that Texas law governs the matters presented herein, and that the scope of
the restraint sought is reasonable under Texas law except that the Court finds that the agreement
should be reformed as noted below. The Court also finds that an otherwise enforceable agreement
exists between the parties, and the covenant not to compete is ancillary to or part of that agreement.
Based upon these findings, the Court concludes that USI has presented sufficient evidence
demonstrating a substantial likelihood that Albrecht’s covenant not to compete as limited by USI
is valid and enforceable under § 15.50 et seq of the Texas Business and Commerce Code.
The Court finds that USI has presented sufficient evidence to demonstrate that a substantial
likelihood that Albrecht has breached the covenant not to compete as limited by USI, and the Court
and that Albrecht is likely to continue breaching the covenant unless a temporary restraining order
is issued. USI presented evidence that Albrecht is engaged in ongoing communications with at least
one current USI customer with whom he worked while at USI, and attempting to move that
customer’s business from USI to Jenkins Insurance Group, his new employer. The Court finds this
evidence both credible and sufficient. This was not rebutted in Albrecht’s response to the Court.
The Court also finds that USI has shown that immediate and irreparable harm may result if
Albrecht is not enjoined from continuing to communicate with USI customers with whom he had

7

personal contact, provided services to, or about whom he received confidential information while
employed by USI. Absent an injunction, Albrecht’s conduct would leave USI with no adequate
remedy at law because USI will lose business and goodwill, as well as the confidential information
that it entrusted to Albrecht, which would give Albrecht an unfair competitive advantage in the
marketplace. This Court has previously recognized that the loss of business and goodwill are
immeasurable through money damages. See Simmons v. Quixtar, Inc., No. 2007 WL 3256244 (E.D.
Tex. 2007) (granting preliminary injunction where Plaintiffs would have no adequate remedy at law
because “they will lose business and goodwill, which are immeasurable through money damages”).
The evidence presented at the February 22, 2012 hearing demonstrated that USI’s goodwill and
business are imminently threatened by Albrecht’s conduct because client relationships, knowledge
of the underwriting guidelines and procedures, pricing needs and structures, and expiration dates of
client policies are at the core of the insurance brokerage business. Thus, Albrecht’s ability to use
this information to unfairly compete with USI poses an credible and serious threat to its goodwill,
confidential information, and profits for which USI will have no adequate remedy at law.
The Court also finds that the threatened injury to USI outweighs any potential harm to
Albrecht, as the restraint imposed reflects the contractual agreement between the parties. The Court
also finds that the entry of a temporary restraining order will not disserve the public interest and,
indeed, will serve the public’s interest in enforcing covenants not to compete in Texas. For these
reasons and in order to preserve the status quo until a full evidentiary hearing on the matter can be
held, the Court finds that a temporary restraining order should be issued.
The Court, however, finds that the prohibition for contact of “active prospective customers”–
proposed by Plaintiff – is too broad. Under Plaintiff’s proposed definition, an active prospective

8

customer could have been contacted by anyone in USI’s organization, even without Albrecht’s
knowledge. That contact could have occurred two years prior to Albrecht’s resignation. Even if that
customer did not come on board, the agreement would prevent any contact with that person for a
period of two years even if that person did business with another agency. The Court finds that
provision is simply too broad. Therefore, the Court reforms that provision of the agreement and it
shall not extend to an active prospective client of USI.
Defendant Gerald “Gus” Albrecht, and his respective officers, managers, trustees, agents,
servants, employees, attorneys, confederates, and all other persons in active concert or participation
with him, are hereby restrained and enjoined immediately from, directly or indirectly:
soliciting, selling, servicing, managing, providing, or accepting any request
to provide, or otherwise profiting or benefitting from, or inducing the
termination, cancellation, or non-renewal of, any USI business from or by
any person, corporation, firm or other entity, whose account constituted a
Client Account of USI at any time within the 24 months preceding the date
of termination of Albrecht’s employment with the Company
Further, unless the parties are able to reach an agreement as to the injunctive relief requested,
the Court will hold an evidentiary hearing on the request for Preliminary Injunction on March 12,
2012 at 1:30 p.m.
No bond will be required until the Court conducts the preliminary injunction hearing.
RECOMMENDATION
Based on the foregoing, the Court recommends that Defendant’s Rule 12(b)(1) Motion to
Dismiss (Dkt. 6) be DENIED, that Plaintiff’s Emergency Application for Temporary Restraining
Order and Preliminary Injunction (Dkt. 10) be GRANTED in part and that the district court enter
a temporary restraining order preventing Defendant from continuing to breach his covenant not to
compete on the terms set forth above.

9

Within fourteen (14) days after service of the magistrate judge’s report, any party may serve
and file written objections to the findings and recommendations of the magistrate judge. 28
U.S.C.A. § 636(b)(1)(C).
Failure to file written objections to the proposed findings and recommendations contained
in this report fourteen days after service shall bar an aggrieved party from de novo review by the
.

district court of the proposed findings and recommendations and from appellate review of factual
findings accepted or adopted by the district court except on grounds of plain error or manifest
injustice. Thomas v. Arn, 474 U.S. 140, 148 (1985); Rodriguez v. Bowen, 857 F.2d 274, 276–77 (5th
Cir. 1988).
SIGNED this 27th day of February, 2012.
.

____________________________________
DON D. BUSH
UNITED STATES MAGISTRATE JUDGE

10