Commonwealth Life Ins. Co. v. Neal

• Decision Date: 05 March 1982
• Docket Number: No. 81-3520,81-3520
• Citation: 669 F.2d 300
• Parties: COMMONWEALTH LIFE INSURANCE COMPANY, Plaintiff-Appellant, v. Francis Craig NEAL, Defendant-Appellee. Summary Calendar.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 300

669 F.2d 300

COMMONWEALTH LIFE INSURANCE COMPANY, Plaintiff-Appellant, v. Francis Craig NEAL, Defendant-Appellee.

No. 81-3520

Summary Calendar.

United States Court of Appeals Fifth Circuit.

March 5, 1982.

Baldwin & Haspel, Jacob J. Meyer, New Orleans, La., for plaintiff-appellant.

Kim G. Mayhall, Baton Rouge, La., for defendant-appellee.

Appeal from the United States District Court for the Middle District of Louisiana.

Before CLARK, Chief Judge, RANDALL and WILLIAMS, Circuit Judges.

PER CURIAM:

Plaintiff Commonwealth Life Insurance Company ("Commonwealth") appeals from the district court's, 521 F.Supp. 812, denial of a preliminary injunction restraining a former employee, defendant Francis Craig Neal, from soliciting Commonwealth policyholders. Having determined that the district court did not abuse its discretion in denying the injunction, we affirm.

The basic facts are not in dispute. Neal was employed in 1968 by First National Life Insurance Company as an insurance salesman handling primarily "industrial" or burial insurance. In 1971, First National merged with Commonwealth. Neal and all other First National salesmen who wished to remain as employees were required to execute an employment contract which provided inter alia, that upon termination of the employer/employee relationship:

Agent shall thereafter for a period of one year refrain from further solicitation or servicing of policyholders of the Company or of Fire & Casualty or of any agency which Agent has been assigned, or in any way interfering with existing policies.

The contract was dated November 22, 1971. Subsequent to the merger, Neal continued in his employ with Commonwealth until December 12, 1980, when he resigned and became an independent insurance salesman.

Neal established agency relationships with several other insurance companies and went into the insurance business for himself. He has been and is currently soliciting and selling insurance to policyholders of Commonwealth. Commonwealth sought a preliminary injunction in the United States District Court for the Middle District of Louisiana to enforce the non-solicitation provisions of the contract. The trial court suggested to counsel that a trial on the merits be consolidated with the hearing on the motion for preliminary injunction as permitted under Rule 65(a)(2); however, since counsel objected to consolidation, the trial court did not require it. At the hearing for preliminary relief, counsel for Neal argued that the non-solicitation provisions of the contract relied upon by Commonwealth were void due to Louisiana's prohibition on non-competition clauses. La.Rev.Stat. Ann. § 23:921 (West). After a thorough review of the relevant Louisiana jurisprudence, the district court decided that the state's highest court would hold that non-solicitation agreements are indistinguishable from non-competition agreements for purposes of § 23:921. It then considered whether, nevertheless, the provisions in question might be enforceable under a statutory exception which permits non-competition clauses to be enforced if the employer has made sufficient training and advertising expenditures on behalf of the employee. The district court found that Commonwealth had not made a sufficient showing of such expenditures. It therefore denied the motion for preliminary relief, holding that Commonwealth had not demonstrated a likelihood of success on the merits. Commonwealth filed a timely appeal to this court.

Scope of Review of a Denial of Injunctive Relief

Our scope of review is conditioned by the procedural posture in which this case comes before us. We are dealing not with an appeal from a judgment entered after a full trial on the merits but rather from a denial of an injunction made after a hearing for preliminary relief. In general, a preliminary injunction is justified upon plaintiff's showing of the following requirements:

(1) that plaintiff has a substantial likelihood of success on the merits;

(2) that a substantial threat exists that plaintiff will suffer an irreparable injury if the injunction is not granted;

(3) that the threatened injury to plaintiff outweighs the threatened harm that the injunction will cause defendant; and

(4) that the granting of the injunction will not disserve the public interest.

The plaintiff bears the burden of persuasion on all four elements. Spiegel v. City of Houston, 636 F.2d 997 (5th Cir. 1981); Clements Wire & Manufacturing Company, Inc. v. NLRB, 589 F.2d 894 (5th Cir. 1979); Canal Authority of the State of Florida v. Callaway, 489 F.2d 567 (5th Cir. 1974). However, the grant or denial of a preliminary injunction rests in the sound discretion of the trial judge and will not be disturbed upon review unless there is an abuse of discretion. Foley v. Alabama State Bar, 648 F.2d 355 (5th Cir. 1981); Compact Van Equipment Co. v. Leggett & Platt, Inc., 566 F.2d 952 (5th Cir. 1978); Johnson v. Radford, 449 F.2d 115 (5th Cir. 1971).

The four factors listed above which are to be considered in determining the propriety of injunctive relief are mixed questions of fact and law. This circuit has made clear that in the course of reviewing the actions of the district court for abuse of discretion, the district court's findings of fact will be upheld unless clearly erroneous. Fed.R.Civ.P. 52(a). On the other hand, the district court's conclusions of law are subject to broad review and will be reversed if incorrect. Roberts v. Austin, 632 F.2d 1202, 1208 (5th Cir. 1980), cert. denied, --- U.S. ----, 102 S.Ct. 527, 70 L.Ed.2d --- (1981); Buchanan v. United States Postal Service, 508 F.2d 259, 267 n.24 (5th Cir. 1975).

In the present case Commonwealth is contesting the trial judge's denial of relief on the grounds that a likelihood of success on the merits was not established. This decision was based on two findings: (1) that § 23:921 applied to non-solicitation as well as non-competition clauses as a matter of Louisiana law, and (2) that Commonwealth had made an insufficient factual showing of substantial expenditures made on behalf of Neal to remove Neal's contract from the prohibitions of § 23:921. The first of these involves a pure question of statutory interpretation and is subject to broad review; the second involves a mixed question of fact and law.

Issues of Local Law

There is still one further wrinkle to our analysis. It is well settled that in diversity cases which involve questions of local law, an appellate court will show deference to the opinion of a district court and give its views great weight. Cole v. Elliott Equipment Corp., 653 F.2d 1031 (5th Cir. 1981); Watson v. Callon Petroleum Co., 632 F.2d 646 (5th Cir. 1980); Avery v. Maremont Corp., 628 F.2d 441 (5th Cir. 1980). This is especially so when "a statutory scheme is less than clear and capable of varying interpretation." Black v. Fidelity and Guaranty Insurance Underwriters, Inc., 582 F.2d 984 (5th Cir. 1978). See also Bishop v. Wood, 426 U.S. 341, 96 S.Ct. 2074, 48 L.Ed.2d 684 (1975), and cases cited therein at 346 n.10, 96 S.Ct. at 2078 n.10. As explained in Cole, supra, the reason for this deference is that a federal trial judge who sits in a particular state and has practiced before its courts is better able to resolve difficult questions about the law of that state than other federal judges lacking such experience. 653 F.2d at 1034. The soundness of this rationale is aptly demonstrated in this case, where we are dealing with a construction of the law of Louisiana, a civil law jurisdiction where common law principles of contract have only limited relevance. Thus, although we will not abdicate our responsibility as an appellate court to pass upon questions of law, the expertise of the district court in local law matters is entitled to some deference, and we will be "reluctant to substitute our views of the state law for those of the trial judge." Id. Accord, Bernhardt v. Polygraphic Co. of America, 350 U.S. 198, 76 S.Ct. 273, 100 L.Ed. 199 (1956). With the principles underlying our analysis and review of this case firmly established, we now consider the district court's decision.

Scope of the Non-Solicitation Provision

A threshold issue is easily disposed of. Neal points to the language of the non-solicitation provision which states that an employee may not solicit "policyholders of the Company ... or of any agency to which Agent has been assigned," and argues that this language only prohibits solicitation of policyholders to whom the employee was assigned when he first joined the company. Since Neal was never assigned any policyholders, he cannot be in violation of this clause. The district court rejected this strained reading of the contract, and so do we. It is clear that "to which Agent has been assigned" refers to the agency and not the policyholders. Neal was assigned to the Port Allen Agency, and the clear purpose of the non-solicitation provision is to prevent him from soliciting Port Allen customers or any other clients of Commonwealth. The question now before us is whether this can be done under Louisiana law.

Applicability of Section 23:921 to Non-Solicitation Agreements

The statute in question, La.Rev.Stat.Ann. § 23:921 (West), provides as follows:

§ 921. Competing business; contracts against engaging in forbidden; exceptions No employer shall require or direct any employee to enter into any contract whereby the employee agrees not to engage in any competing business for himself, or as the employee of another, upon the termination of his contract of employment with such employer, and all such contracts, or provisions thereof containing such agreement shall be null and unenforceable in any court, provided that in those cases where the employer incurs an expense in the training of the employee or incurs an expense in the advertisement of the business that the employer is engaged in, then in that event it shall be permissible for the employer and employee to...