Criterion Brock, Inc. v. Aguirre et al
Filing
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ORDER DENYING 16 Request for temporary restraining order and preliminary injunction, DENYING 4 MOTION to Expedite Discovery, 7 Amended MOTION to Expedite Discovery, 27 Amended MOTION to Expedite Discovery.(Signed by Judge Gray H. Miller) Parties notified.(rkonieczny)
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF TEXAS
HOUSTON DIVISION
CRITERION BROCK , INC.,
Plaintiff,
v.
ABELARDO AGUIRRE , et al.,
Defendants.
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CIVIL ACTION H-11-1877
O RDER
Before the court are plaintiff’s requests for a temporary restraining order and a preliminary
injunction incorporated into the second amended complaint (Dkt. 16), and plaintiff’s motion for
expedited discovery (Dkt. 27). After review of the relevant pleadings, and the applicable law, the
motions are DENIED.
BACKGROUND
Plaintiff Criterion Brock, Inc. (“Criterion Brock”) is a company that sells carpet to “the multifamily flooring industry.” Dkt. 16 ¶ 1. Defendants Abelardo Aguirre (“Aguirre”), Patricia Miller
(“Miller”), and John Ellis (“Ellis”) are former account executives with Criterion Brock who each left
Criterion Brock and accepted similar positions with defendant Redi-Carpet, Inc. (“Redi-Carpet”).
Id. Criterion Brock has filed a second amended complaint along with an application for temporary
and permanent injunctive relief asserting claims of breach of contract against defendants Aguirre,
Miller, and Ellis alleging that they violated contractual covenants not to compete. Id. at 19.
Criterion Brock also asserts claims for tortious interference with contractual and potential business
relations and civil conspiracy against all named defendants. Id. at 21-22.
The crux of plaintiff’s complaint is that “Redi-Carpet hired Aguirre, Miller, and Ellis in the
first quarter of 2011, and promptly put them to work soliciting the very same customers with whom
they had dealings during their last year of employment at Criterion Brock.” Id. ¶ 2. This is alleged
to be in contravention of the agreements Aguirre, Miller, and Ellis signed with Criterion Brock that
they would not “directly or indirectly solicit or interfere with, or endeavor to entice away from
Criterion Brock . . . any of its . . . customers for a period of one year following the termination of
employment . . . .” Dkt. 16-2 at 2-16. Criterion Brock does not, however, seek to enforce the
covenants specifically as written. Instead, Criterion Brock pleads that the covenants not to compete
should be reformed so that the bar against soliciting “any” Criterion Brock customer for one year
should actually prohibit defendants Aguirre, Miller, and Ellis from:
Directly or indirectly soliciting or interfering with, or endeavor[ing] to entice away
from Criterion Brock, or its successors, any of its customers with whom they had
personal dealings during th[eir] last year of employment at Criterion Brock for a
period of one year following their employment with Criterion Brock.
Dkt. 16 ¶ 28 (emphasis added). Preliminary injunctive relief is requested in the nature of an order
enforcing this provision, with the proposed reformation, and also preventing Aguirre, Miller, and
Ellis from disclosing Criterion Brock’s confidential information, and directing them to return any
and all “data, documents, electronic media or any kind, and technical information” they may have
retained when they left Criterion Brock. Dkt. 16 at 23-24.
Criterion Brock alleges that it provided to Aguirre, Miller, and Ellis confidential information
including “customers’ names and addresses, price levels and other pricing information,” business
strategies and market initiatives, “methods of operation, product needs, product designs, [and]
market strategies . . ..” Dkt. 16 ¶18. More specifically, “Criterion Brock maintains a computer
database called ‘RFMS,’ that contains customer information on pricing, yardages of carpeting the
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customer has purchased from Criterion Brock, their management company, notes related to the
customer, and other customer related information that is not publicly available.” Id.
Criterion Brock also makes specific allegations of potential violations of the covenants that
it believes have already occurred, and that prompted this lawsuit. Defendant Aguirre allegedly
solicited two former Criterion Brock customers he had contact with during his last year of
employment, JAW Equity LLC and Coopers Mill Apartments, in March, 2011. Dkt. 16 ¶ 32. Redi
Carpet is alleged to have admitted that bids were made by Aguirre on its behalf to these two entities.
Id. Miller is alleged to have solicited JAW Equity LLC and Brookmore Hollow Apartments after
she left Criterion Brock. Id. at ¶ 34. On April 27, 2011, Criterion Brock alleges that it learned
Aguirre had solicited business from Rubicon Apartments, a client Aguirre “dealt with extensively”
during his final year of employment at Criterion Brock. Id. at ¶ 38. There is no allegation that
Aguirre, Miller, or Ellis have disclosed any of Criterion Brock’s confidential information, but it is
alleged that Criterion Brock may “possibly lose its confidential information” to Redi Carpet. Id. at
¶ 42.
Defendants Aguirre, Miller, and Ellis have responded to the complaint and the requests for
temporary and preliminary injunctive relief, and deny that they were provided any confidential
information by Criterion Brock, or that they have employed any such information in making contacts
with former Criterion Brock clients. Dkt. 29. Instead, Aguirre, Miller, and Ellis argue that they
already possessed the knowledge of and relationships with clients when they began working for
Criterion Brock, and that this knowledge was a result of their long experience selling carpeting to
clients who own and operate apartment complexes. Id. Defendants also argue that the information
Criterion Brock identifies as “confidential” is actually information readily available to competitors,
and is often available from the potential clients themselves as apartment management companies
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often seek competitive bids from several vendors, i.e., that one vendor’s bid will be provided to other
vendors to solicit competing bids. Id. Thus, defendants assert that no “confidential” information
was actually provided to them that could serve as a basis for an enforceable covenant not to compete
under Texas law. Id.1 Defendants also argue that preliminary injunctive relief is not appropriate
because, even if the covenants (when reformed as suggested) are enforceable, damages may be
readily ascertained in this case by tracking any sales of carpeting to Criterion Brock clients by
defendants Aguirre, Miller, and Ellis. Id.
LEGAL STANDARD
A party seeking a temporary restraining order or other injunction pursuant to Rule 65 of the
Federal Rules of Civil Procedure has the burden to demonstrate each of four elements: (1) a
substantial likelihood of success on the merits; (2) a substantial threat of irreparable injury if the
injunction is denied; (3) that the threatened injury outweighs any prejudice the injunction might
cause the defendant; and (4) that the injunction will not disserve the public interest. Janvey v.
Alguire, 628 F.3d 164, 174 (5th Cir.2010); Bluefield Water Ass’n, Inc. v. City of Starkville, Miss.,
577 F.3d 250, 252-53 (5th Cir. 2009); Affiliated Prof' l Home Health Care Agency v. Shalala, 164
F.3d 282, 285 (5th Cir. 1999). Injunctive relief, particularly at the preliminary stages of litigation,
is an extraordinary remedy that requires an unequivocal showing of the need for the relief to issue.
Valley v. Rapides Parish Sch. Bd., 118 F.3d 1047, 1050 (5th Cir. 1997). Thus, injunctive relief
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The parties agree that, in order for the covenants not to compete to be enforceable
under Texas law, Criterion Brock must have both promised to provide, and then must actually have
provided, confidential information to Aguirre, Miller, and Ellis during their employment. Texas law
in this respect will discussed in more detail below.
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should only be granted where the movant has “clearly carried the burden of persuasion.” Bluefield
Water Ass’n, 577 F.3d at 252-53; Anderson v. Jackson, 556 F.3d 351, 360 (5th Cir. 2009).
At this stage of the litigation, the court can resolve plaintiff's requests for preliminary
injunctive relief without addressing the enforceability of the covenants not to compete because
plaintiff has not satisfied the second requirement for a preliminary injunction–that it will suffer
irreparable harm. Irreparable harm requires a showing that: (1) the harm to plaintiff is imminent;
(2) the injury would be irreparable; and (3) that plaintiff has no other adequate legal remedy. See
Chacon v. Granata, 515 F.2d 922, 925 (5th Cir. 1975). It must be remembered that “only those
injuries that cannot be redressed by the application of a judicial remedy after a hearing on the merits
can properly justify a preliminary injunction.” Canal Auth. of the State of Florida v. Callaway, 489
F.2d 567, 573 (5th Cir. 1974). The Fifth Circuit has also noted that preliminary injunctions may be
denied without a hearing, despite a request for a hearing by the movant, when the written evidence
shows the lack of a right to relief so clearly that receiving further evidence would be pointless.
Commerce Park at DFW Freeport v. Mardian Constr. Co., 729 F.2d 334, 341 (5th Cir. 1984).
ANALYSIS
I.
Enforceable covenants not to compete.
Although the court need not address the likelihood of success on the merits because the issue
of preliminary injunctive relief is being decided on the irreparable harm prong, a discussion of the
legal standards for an enforceable covenant not to compete is helpful in framing the damages issue.
Agreements not to compete are enforced in Texas if they comply with the provisions of the Texas
Covenants Not to Compete Act (“Act”). The Act requires that a covenant not to compete be
ancillary to or part of an “otherwise enforceable agreement” at the time the covenant is made. TEX .
BUS. & COM .CODE ANN . § 15.50(a) (West Supp.2009). Here, Aguirre, Miller, and Ellis were at-will
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employees of Criterion Brock. Generally, an at-will employment relationship alone is not an
“otherwise enforceable agreement” as contemplated by the Act. Light v. Centel Cellular Co. of Tex.,
883 S.W.2d 642, 644-45 n. 6 (Tex. 1994) (at-will employment agreement is unenforceable at the
time it is made and cannot support a covenant not to compete). However, an at-will employment
relationship in conjunction with the provision of confidential information to the employee can give
rise to an enforceable covenant not to compete. Alex Sheshunoff Mgmt. Servs., L.P. v. Johnson, 209
S.W.3d 644, 648-51 (Tex. 2006) . In this case, Criterion Brock has alleged that it agreed to provide,
and did provide, confidential information to Aguirre, Miller and Ellis. Criterion Brock has,
therefore, pleaded that the covenants were ancillary to otherwise enforceable agreements.2
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Proof of enforceable agreements will be problematic in this case. In DeSantis v.
Wackenhut Corp., 793 S.W.2d 670 (Tex. 1990), the Supreme Court of Texas addressed a similar
situation and found that there was no “confidential information” worthy of protection. “Specifically,
Wackenhut contends that during his employ, DeSantis learned the identity of Wackenhut’s
customers, their special needs and requirements, and Wackenhut’s pricing policies, cost factors and
bidding strategies.” Id. at 684. This is quite similar to the allegations made by Criterion Brock in
this case. Dkt. 6 ¶18. While the court can presume that the covenants are enforceable for purposes
of ruling on the requests for preliminary relief, the DeSantis court’s rejection of a similar covenant
is instructive:
Again, while confidential information may be protected by an agreement not to
compete, Wackenhut has failed to show that it needed such protection in this case.
Wackenhut failed to show that its customers could not readily be identified by
someone outside its employ, that such knowledge carried some competitive
advantage, or that its customers' needs could not be ascertained simply by inquiry
addressed to those customers themselves. Also, Wackenhut failed to show that its
pricing policies and bidding strategies were uniquely developed, or that information
about its prices and bids could not, again, be obtained from the customers
themselves. There is no evidence that DeSantis ever took advantage of any
knowledge he had of Wackenhut's cost factors in trying to outbid Wackenhut or woo
away its customers. Wackenhut simply has not demonstrated a need to protect any
confidential information by limiting DeSantis' right to compete.
793 S.W. 2d at 684. Indeed, like DeSantis, defendants argue that Criterion Brock did not have
confidential information to protect that would justify the restriction requested.
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A covenant not to compete must also meet the reasonableness standards of the Act. John R.
Ray & Sons, Inc. v. Stroman, 923 S.W.2d 80, 85 (Tex.App.-Houston [14th Dist.] 1996, writ denied).
The restriction must be reasonable, not imposing a greater restraint than is necessary to protect the
goodwill or other business interest of the employer. TEX . BUS. & COM .CODE ANN . § 15.50(a). A
restraint is unnecessary if it is broader than what is required to protect the legitimate interests of the
employer. DeSantis, 793 S.W.2d at 682. Texas courts have found that a restrictive covenant is
“overbroad and unreasonable when it extends to clients with whom the employee had no dealings
during his employment.” Stroman, 923 S.W.2d at 85. Indeed, in this case, Criterion Brock
essentially concedes that the covenants as written are unenforceable absent reformation consistent
with Stroman to reflect a restriction involving only those clients with whom Aguirre, Miller, and
Ellis dealt during the last year of their employment with Criterion Brock.
II.
Irreparable harm.
Criterion Brock argues that a continued breach of a non-compete agreement by a highly
trained employee can constitute prima facie proof of injury sufficient to warrant injunctive relief,
and cites to TransPerfect Translations, Inc. v. Leslie, 594 F.Supp.2d 742 (S.D. Tex. 2009) (Ellison,
J.). Dkt. 16-1 ¶ 42. In that case, the plaintiff sought an injunction against a former employee who
it believed was using confidential information he obtained while working for plaintiff to solicit
business for a new employer. Importantly, the court noted that “[l]ikely economic injuries may
support a finding of irreparable harm especially if the losses are difficult to quantify.” at 757
(emphasis added). A review of the opinion also reveals that it did not involve mere “poaching” of
a client list as is alleged in this case. Rather, the former employee’s intimate knowledge of
TransPerfect’s “e-Learning business strategies” was also at issue. Id. The court then specifically
held that “it is difficult to know how many former TransPerfect clients Leslie might be able to
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solicit” thereby making monetary damages both difficult to quantify, and likely an inadequate
remedy. Id.
This court has had occasion to distinguish the facts in TransPerfect in the context of denying
preliminary injunctive relief in a non-compete case, and does so again in this case. In M-I, LLC v.
Stelly, 2009 WL 2355498 (S.D. Tex. July 30, 2009), a former employee had begun working for a
competitor, and alleged that it lost, and would continue to lose, specific contracts due to the violation
of a covenant not to compete. Id. *6. As is the case here, the analysis focused on the adequacy of
monetary damages as a legal remedy. Id. Plaintiff M-I, LLC identified several jobs it believed it had
lost due to the alleged breach of the covenant not to compete. Id. The court concluded that the
plaintiff was, therefore, able to “track revenue” it had lost due to the alleged violation of the
covenant not to compete by its former employee, and was therefore “capable of calculating any
economic damage it has [suffered] and will suffer . . ..” at *6. Therefore, no irreparable harm had
been established and preliminary injunctive relief was denied. Id. Transperfect was distinguished
on its facts because Transperfect involved a situation where damages would be difficult to quantify,
but “M-I is monitoring its losses to Wellbore; it will not be difficult for the fact finder to calculate
damages.” Id. fn.3. The same result applies here because this case is much more analogous to M-I
than it is to TransPerfect.
Accepting as true all of the facts alleged in the complaint, and granting Criterion Brock the
further assumptions that its requested reformation of the agreements will be permitted, and that the
agreements as reformed will be found enforceable, the fact finder will be asked to determine whether
defendants solicited business from clients they had contact with as representatives of Criterion Brock
during their last year of employment, and whether plaintiff suffered damage from those solicitations.
In fact, the second amended complaint contains specific allegations of attempted solicitations of
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Criterion Brock clients by defendants. Dkt. 16 at ¶¶ 32, 34, 38. Therefore, as was the case in M-I,
there is evidence that Criterion Brock is already able to “track” the damages it has suffered and will
suffer, and this is prior to any discovery being conducted. Discovery in this case may disclose
further information that will assist the fact-finder in assessing damages (should it reach that issue).
The pleadings in this case make it apparent that it will not be difficult to identify clients Aguirre,
Miller, and Ellis worked with during their last year at Criterion Brock, nor will it be difficult to
determine if they solicited those clients as employees of Redi-Carpet and to determine the damages
suffered by Criterion Brock due to any “poaching” of clients that may be proven. In short, monetary
damages will not be difficult to calculate in this case, nor will those damages be an inadequate
judicial remedy. This is not a case where the extraordinary remedy of preliminary injunctive relief
is warranted.
III.
Expedited discovery.
Criterion Brock’s motion for expedited discovery is premised solely on the need to prepare
for a hearing on preliminary injunctive relief. Dkt. 27. Since no hearing is required to rule on the
requests for preliminary injunctive relief, the motion will be denied.
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CONCLUSION
After consideration of the requests for a temporary restraining order and a preliminary
injunction contained in the second amended complaint (Dkt. 16), and plaintiff’s motion for
expedited discovery (Dkt. 27), all relevant pleadings, and the applicable law, those motions are
DENIED.
Signed at Houston, Texas on June 23, 2011.
___________________________________
Gray H. Miller
United States District Judge
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