Butler v. Arrow Mirror & Glass

• Decision Date: 21 June 2001
• Citation: 2001 WL 699935,51 S.W.3d 787
• Parties: <!--51 S.W.3d 787 (Tex.App.-Houston 2001) WILLIAM R. BUTLER AND REGLAZE, INC., Appellants v. ARROW MIRROR & GLASS, INC., Appellee ARROW MIRROR & GLASS, INC., Appellant v. WILLIAM R. BUTLER AND REGLAZE, INC., Appellees NO. 01-00-00445-CV Court of Appeals of Texas, Houston (1st Dist.)
• Court: Texas Court of Appeals

Page 787

51 S.W.3d 787 (Tex.App.-Houston [1st Dist.] 2001)

WILLIAM R. BUTLER AND REGLAZE, INC., Appellants v ARROW MIRROR & GLASS, INC., Appellee ARROW MIRROR & GLASS, INC., Appellant v WILLIAM R. BUTLER AND REGLAZE, INC., Appellees

NO. 01-00-00445-CV

Court of Appeals of Texas, Houston (1st Dist.)

June 21, 2001

On Appeal from the 11th District Court Harris County, Texas Trial Court Cause No. 99-43299

[Copyrighted Material Omitted]

[Copyrighted Material Omitted] Panel consists of Justices Mirabal, Jennings, and Duggan.^*

OPINION

Terry Jennings, Justice

Appellants, William Butler (Butler) and ReGlaze, Incorporated (ReGlaze), appeal the trial court's final judgment and issuance of a permanent injunction enjoining them from doing business in Harris and Fort Bend Counties pursuant to a covenant not to compete clause in Butler's previous employment agreement with appellee, Arrow Mirror and Glass, Incorporated (Arrow), Butler's former employer. In three points of error, Butler and ReGlaze claim (1) the covenant not to compete is unenforceable as a matter of law, (2) the issuance of the permanent injunction was improper, and (3) the court erred in enjoining ReGlaze because it was not a party to the covenant not to compete. Arrow has filed three cross-points claiming the trial court erred by (1) narrowing the geographical scope of the covenant not to compete, (2) failing to award Arrow damages, and (3) failing to award Arrow its attorney's fees. We affirm in part and reverse and render in part.

Facts and Procedural History

Arrow's primary business is making and installing shower stalls and mirrors for new home builders, comprising 90 percent of its revenues. Arrow also offers reglazing¹ services independently and as an incentive for builders to purchase a package of services, comprising the remaining 10 percent of its revenues.

On April 6, 1998, Arrow hired Butler as its Operations Manager. His primary job responsibilities were to supervise fabrication of mirrors and stalls in the fabrication shop, purchase materials for inventory, and oversee the dispatch office which handled customer service issues that arose at the building sites. Prior to working for Arrow, Butler had no experience in the glass business.

Butler's employment agreement with Arrow contained a post-termination non-competition clause restricting Butler from engaging in "the same or similar" type of business for a period of two years after leaving Arrow in seven counties within the Houston metropolitan area and in any other area where Arrow began doing business during the term of Butler's employment.

Butler resigned from Arrow on June 28, 1999. In August of 1999, he started his own business, ReGlaze, which was incorporated under Texas law.² ReGlaze, as its name implies, focused solely on providing reglazing services for new home builders. On August 13, 1999, Arrow sent a letter to Butler requesting that he "honor the non-compete covenant which [he] voluntarily entered into with Arrow and cease all glass related activities which would result in [his] breaching the non-compete covenant." Butler continued to operate his reglazing business.

At the end of August, Arrow filed this lawsuit against Butler and ReGlaze, seeking injunctive relief and damages for Butler's breach of the covenant not to compete. Butler and ReGlaze answered with a general denial and a verified denial claiming failure of consideration.

Following a bench trial³ and post-trial hearings, the trial court reformed the covenant not to compete and issued a permanent injunction enjoining Butler and ReGlaze as follows:

[Butler] and [ReGlaze] are enjoined from directly or indirectly, either as an employee, officer, director, consultant[,] agent, principal, partner, owner, or in any other individual or representative capacity, engaging or participating in selling and/or installing mirrors and glass products in new residential construction in Harris, and Fort Bend, Counties, Texas, for a period ending on June 28, 2001 . . . .

(Emphasis added.) The court made the following findings of fact and conclusions of law:

1. Findings of fact:

1. William Butler failed to comply with the terms of his contract with Arrow.

2. The non competition agreement is ancillary to or part of an otherwise enforceable agreement.

3. The limitations of the non competition agreement as to time and scope of activity to be restrained are reasonable and do not impose a greater restraint than is necessary to protect the goodwill or other business interest of the promisee, Arrow.

4. The limitations of the non competition agreement as to geographical area, once reformed to include only Harris and Fort Bend Counties, Texas, are reasonable and do not impose a greater restraint than is necessary to protect the goodwill or other business interest of the promisee, Arrow.

5. The amounts of attorney's fees stipulated to by the parties are usual, customary, and reasonable.

2. Conclusions of law:

1. As reformed, the non competition agreement is enforceable.

2. Arrow did not prove its lost profits by competent evidence and with reasonable certainty.

3. Since Arrow did not adequately prove its lost profits, its claims for damages under its breach of contract, conversion, and tortious interference theories are denied.

4. Because Arrow did not adequately prove a pecuniary loss, it is not entitled to recover its attorney's fees.

Butler and ReGlaze appeal from the issuance of the permanent injunction. Arrow, by cross-appeal, challenges the reformation of the covenant not to compete and the portion of the judgment denying it damages and attorney's fees.

Standard of Review

The decision to grant or deny a permanent injunction is ordinarily within the sound discretion of the trial court if a bench trial has been conducted, and appellate review of the trial court's action is limited to the question of whether such action constituted a clear abuse of discretion. Crain v. Unauthorized Practice of Law Committee of the Supreme Court of Texas, 11 S.W.3d 328, 332 (Tex. App.--Houston [1st Dist.] 1999, pet. denied). An abuse of discretion occurs if the trial court (1) acts arbitrarily and unreasonably, without reference to guiding rules or principles or (2) misapplies the law to the established facts of the case. Baywood Country Club v. Estep, 929 S.W.2d 532, 535 (Tex. App.--Houston [1st Dist.] 1996, writ denied). An abuse of discretion does not exist if the trial court heard conflicting evidence, and evidence appears in the record that reasonably supports the trial court's decision. CRC-Evans Pipeline Int'l, Inc. v. Myers, 927 S.W.2d 259, 262 (Tex. App.--Houston [1st Dist.] 1996, no writ). We may not substitute our judgment for that of the trial court. Myers, 927 S.W.2d at 262.

When, as here, specific findings of fact and conclusions of law are filed and a statement of facts is before the appellate court, the findings will be sustained if there is evidence to support them, and the appellate court will review the legal conclusions drawn from the facts found to determine their correctness. Myers, 927 S.W.2d at 263.

Enforceability and Reformation of the Covenant Not to Compete

The enforceability of a covenant not to compete is a question of law for the court. Light v. Centel Cellular Co., 883 S.W.2d 642, 644 (Tex. 1994); Myers, 927 S.W.2d at 263. We review questions of law de novo and without deference to the lower court's conclusion. Precast Structures, Inc. v. City of Houston, 942 S.W.2d 632, 636 (Tex. App.--Houston [14th Dist.] 1996, no writ).

We apply the Covenants Not to Compete Act which provides two criteria for the enforceability of a covenant not to compete. Tex. Bus. & Com. Code Ann. § 15.50(a) (Vernon Supp. 2001). The covenant must (1) be "ancillary to or part of an otherwise enforceable agreement" and (2) contain "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." Id.

The Act expressly states that if the limitations as to time, geographical area, or scope of activity to be restrained are not reasonable or they impose a greater restraint than is necessary to protect the goodwill or other business interest of a promisee, "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" and "enforce the covenant as reformed . . . ." Tex. Bus. & Com. Code Ann. § 15.51(c) (Vernon Supp. 2001) (emphasis added).⁴

The Act further provides that sections 15.50 and 15.51 "are exclusive and preempt any other criteria for enforceability of a covenant not to compete . . . ." Tex. Bus. & Com. Code Ann. § 15.52 (Vernon Supp. 2001). Thus, section 15.52 makes clear the legislature intended the Covenants Not to Compete Act "to largely supplant the Texas common law relating to enforcement of covenants not to compete." Light, 883 S.W.2d at 644; see also Tex. Bus. & Com. Code Ann. § 15.52.⁵

Butler's employment agreement provides in pertinent part:

Employee acknowledges that, during the term of his employment by Employer, Employee will be entrusted with and have access to trade secrets, confidential and proprietary data and information, and intimate knowledge of Employer's business practices which, if used by Employee in competition with Employer, would seriously, adversely and irreparably affect Employer's business. In exchange for the trust extended by Employer in this regard, Employee therefore agrees, warrants and covenants that during the term of this Agreement (including extensions) and for a period of two (2) years following termination of Employee's employment. [sic] Employer, whether voluntary, involuntary, or by expiration of this Agreement, Employee will not, directly or indirectly, either as an employee, employer, officer, director,...