Cardoni v. Prosperity Bank

• Decision Date: 29 October 2015
• Docket Number: 15–20005.,Nos. 14–20682,s. 14–20682
• Citation: 805 F.3d 573
• Parties: Chris CARDONI, an individual; Wesley Webb, an individual; Terry Blain, an individual; Billy Shaffer, an individual, Plaintiffs–Appellees v. PROSPERITY BANK, a Texas Financial Institution, Defendant–Appellant. Prosperity Bank, Plaintiff–Appellant v. Christopher Cardoni; Wesley Webb; Terry Blain; William Shaffer, Defendants–Appellees.
• Court: U.S. Court of Appeals — Fifth Circuit

805 F.3d 573

Chris CARDONI, an individual; Wesley Webb, an individual; Terry Blain, an individual; Billy Shaffer, an individual, Plaintiffs–Appellees
v.
PROSPERITY BANK, a Texas Financial Institution, Defendant–Appellant.

Prosperity Bank, Plaintiff–Appellant
v.
Christopher Cardoni; Wesley Webb; Terry Blain; William Shaffer, Defendants–Appellees.

Nos. 14–20682
15–20005.

United States Court of Appeals, Fifth Circuit.

Oct. 29, 2015.

805 F.3d 576

Craig T. Enoch (argued), Melissa Lorber, Attorney, Enoch Kever, P.L.L.C., Austin, TX, Jeffrey Lloyd Joyce, Benjamin C. Wickert, Joyce & McFarland, L.L.P., Houston, TX, for Plaintiffs–Appellees.

Warren W. Harris, Jay Ronald Aldis, Attorney, Bryan S. Dumesnil, Jessica Lee Freedson, Yvonne Y. Ho, Esq., Jeffrey L. Oldham (argued), Bracewell & Giuliani, L.L.P., Houston, TX, for Defendant–Appellant.

Appeals from the United States District Court for the Southern District of Texas.

Before JOLLY, HIGGINSON, and COSTA, Circuit Judges.

Opinion

GREGG COSTA, Circuit Judge:

In addition to their well-known disagreements over boundaries¹ and football,² Texas and Oklahoma do not see eye to eye on a less prominent issue: covenants not to compete. Texas generally allows them so long as they are limited both geographically and temporally. Tex. Bus. & Com.Code Ann. § 15.50(a). Oklahoma generally does not. Okla. Stat. tit. 15, § 217. These different policy choices—Texas's view which prioritizes parties' freedom to contract and Oklahoma's which emphasizes the right to earn a living and competition—came to a head when Texas-based Prosperity Bank acquired Oklahoma-based F & M Bank and Trust Company. Prosperity entered into contracts with a number of the F & M bankers that included covenants not to compete, not to solicit, and not to disclose confidential information obtained while working at Prosperity. The agreements also provided that Texas law would govern the parties' relationship.

805 F.3d 577

Four of the bankers later left Prosperity and went to work for a competitor. Both the bankers and Prosperity raced to the courthouse to file lawsuits that ended up being consolidated in federal court in Houston. Prosperity sought to enforce the restrictive covenants under Texas law, contending that the choice-of-law provision was valid. The district court denied Prosperity's applications for injunctive relief. It found that the choice-of-law provision was not enforceable with respect to the noncompetition and nonsolicitation provisions; instead, it applied Oklahoma law, under which it concluded the covenants were not lawful. In contrast, the district court ruled that Texas law applied to the nondisclosure provisions, but denied injunctive relief to enforce that provision. Following the guidance of Texas courts on the enforcement of choice-of-law provisions, we affirm in part and reverse in part.

I.

In August 2013, Prosperity acquired F & M. Prior to the merger, Chris Cardoni, Wesley Webb, and Terry Blain were Senior Vice Presidents of F & M in Tulsa focused on energy industry customers. As the energy group's team leader, Cardoni supervised Webb and Blain and other energy industry bankers, including a manager who worked in F & M's Dallas, Texas office.³ Billy Shaffer, also a Senior Vice President of F & M in Tulsa, focused on middle market commercial customers.

In anticipation of the potential merger, Prosperity offered employment contracts to thirty-five senior-level F & M employees, including Cardoni, Webb, Blain, and Shaffer (“the bankers”). Prosperity considered the retention of these employees critical to the merger's successful completion. The bankers were given two days to accept the contracts, which were presented to them by F & M representatives. They were told that if they did not sign the contracts, the merger might fall apart or that, if the merger did come to pass, their jobs with Prosperity could not be guaranteed absent the contract. After multiple meetings with F & M representatives and discussions among themselves, the bankers signed the contracts in Oklahoma.⁴ The contracts were then signed by Prosperity officials in Texas.

Except for the salary and common stock offered to each banker, the contracts do not differ in any respect relevant to this case. They provide for a three-year term as a senior vice president. The bankers' duties are to “solicit and service loan and depository accounts/relationships ... associated with the locations of [Prosperity] in and around Tulsa, Oklahoma, which were previously locations of [F & M].” ROA.907 § 2.1. The contracts further provide that the bankers “shall work in Tulsa, Oklahoma and shall be furnished with an office and other business facilities and services[.]” Id. § 2.2.

The contracts also contain the three restrictive covenants that are the subject of this appeal. A nondisclosure agreement provides that, during or after their employment, the bankers will not “make any unauthorized disclosure, directly or indirectly, of any Confidential Information of [F & M] or [Prosperity], or third parties,

805 F.3d 578

or make any use thereof, directly or indirectly.” ROA.909 § 6.1(c). A noncompetition clause provides that, for three years, the bankers will not “directly or indirectly” compete, engage, or be employed by a business entity within 50 miles of F & M's former banking centers “in a business similar to that of [F & M] or [Prosperity].” ROA.910 § 6.3(a); see also ROA.910 § 6.3(b) (providing that for three years the bankers will not “invest in, own, manage, operate, [or] control” a competitive business within 50 miles of F & M's former banking centers). A nonsolicitation agreement provides that, for three years, the bankers will not “directly or indirectly ... solicit competing business from customers or prospective customers of [F & M] or [Prosperity]” if the banker made contact with that customer or had access to information and files about that customer within the twelve months prior to the termination of the banker's employment. ROA.910 § 6.3(c). Finally, the contracts contain a choice-of-law provision stating that Texas law will govern “[a]ll questions concerning the validity, operation and interpretation of this Agreement and the performance of the obligations imposed upon the parties hereunder” and a forum selection clause stating that that “[e]xclusive venue of any dispute relating to this Agreement shall be, and is convenient in, Texas.” ROA.915 § 9.3.

The merger took effect in the spring of 2014. The bankers maintain that their compensation, benefits, and working conditions were worse off after the merger. On August 12, 2014 they gave notice of their intent to terminate their employment. In early September, the bankers went to work at CrossFirst Bank in Tulsa, which is approximately seven miles from the F & M/Prosperity location where they had been working.

Litigation had begun even before the bankers moved to CrossFirst. In June 2014, they filed a lawsuit against Prosperity⁵ in Oklahoma state court, seeking a declaration that the covenants were void and asserting claims for tortious interference with business relations and false representation. Two days later, Prosperity filed suit in Texas state court seeking a declaration that the covenants were enforceable and asserting a claim for breach of contract. Both cases were removed to federal court on diversity grounds and consolidated in the Southern District of Texas pursuant to the forum selection clause.

A flurry of motions ensued. The bankers filed two motions in federal district court. First, they sought a ruling that Oklahoma law applies despite the contractual choice of Texas law. Second, they moved for partial summary judgment on their claim that the noncompetition and nonsolicitation agreements were unenforceable under Oklahoma law. Prosperity, meanwhile, filed an application for temporary and permanent injunctive relief to enforce the restrictive covenants under the chosen Texas law.

The district court granted in part the bankers' motion for summary judgment, holding that Oklahoma law governed the noncompetition and nonsolicitation clauses but not the nondisclosure provision. The reason for the different ruling on the nondisclosure agreement was the court's conclusion that it—unlike the other two covenants—does not contravene a fundamental policy of Oklahoma. As a result, the court summarily denied Prosperity's request for injunctive relief which had been based on the belief that Texas law governed all three clauses, without prejudice to refiling.

805 F.3d 579

Prosperity then moved under Rule 59(e) to alter or amend the district court's order. In its motion, Prosperity requested that the nonsolicitation agreement be reformed and enforced under Oklahoma law, and sought reconsideration of the choice-of-law determination as to Cardoni because of his contacts with Texas. The district court denied the motion.

Prosperity then filed its second application for injunctive relief. This motion focused on the nondisclosure agreement that the district court found was governed by Texas law. The proposed injunction would prevent the bankers from disclosing Prosperity's...