Guy Carpenter & Co., Inc. v. Provenzale

• Decision Date: 17 June 2003
• Docket Number: No. 02-11239.,02-11239.
• Citation: 334 F.3d 459
• Parties: GUY CARPENTER & COMPANY, INC., Plaintiff-Appellant, v. Anthony PROVENZALE, Defendant-Appellee.
• Court: U.S. Court of Appeals — Fifth Circuit

334 F.3d 459

GUY CARPENTER & COMPANY, INC., Plaintiff-Appellant, v. Anthony PROVENZALE, Defendant-Appellee.

No. 02-11239.

United States Court of Appeals, Fifth Circuit.

June 17, 2003.

COPYRIGHT MATERIAL OMITTED

William G. Miossi (argued), Reid R. Broda, Winston & Strawn, Chicago, IL, Thomas

L. Case, Bell, Nunnally & Martin, Dallas, TX, for Plaintiff-Appellant.

Bruce William Collins, Timothy Francis Gavin (argued), Angelina M. LaPenotiere, Carrington, Coleman, Sloman & Blumenthal, Dallas, TX, for Defendant-Appellee.

Appeal from the United States District Court for the Northern District of Texas.

Before WIENER and CLEMENT, Circuit Judges, and LITTLE,^* District Judge.

CLEMENT, Circuit Judge:

I. FACTS AND PROCEEDINGS

Anthony Provenzale ("Provenzale") began his career as a reinsurance broker in 1984.¹ In 1993, Provenzale signed an employment agreement (the "1993 Agreement") with Sedgwick Payne Co. The 1993 Agreement named Provenzale Senior Vice President-Branch Manager, and contained a provision labeled "Non-Disclosure/Non-Competition." That provision included both non-disclosure and non-solicitation covenants:

6. Non-Disclosure/Non-Competition.

Employee acknowledges that during the course of his employment, whether voluntarily or involuntarily, he will have access to confidential information, proprietary information and/or trade secrets. This information may include, without limitation, technical know-how; lists of clients or customers; contract terms and conditions; rates; loss statistics; financial information; methods of marketing; research activities and data; computer software and other aspects of the affairs and business operations of Employer (collectively referred to as "Confidential Information"). Employee agrees that all Confidential Information is the sole property of Employer, and its successors and assigns, and that both during and after the term of this Agreement no such information will be disclosed, except as may be required by law, to any person for any reason or purpose whatsoever, without the express prior written consent of Employer.

Employee agrees that for a period of one (1) year after the termination of his employment, whether voluntary or involuntary, he will not directly or indirectly call upon, solicit, divert, accept, or take away from Employer any individual, account, customer, company, partnership or any other entity (collectively referred to as "Clients") to whom Employer rendered intermediary, consulting or broking [sic] services, either on a fee for services or commission basis, during the course of his employment with Employer.

In May or June 1999, Sedgwick Payne's successor merged with Guy Carpenter & Co., Inc. ("Guy Carpenter"). Presumably in conjunction with the impending merger with Guy Carpenter, the parties amended the employment agreement (the "1999 Agreement"). The changes included: (1) adding an arbitration provision (not implicated here); (2) amending the compensation and term-of-employment provisions of the 1993 Agreement; (3) and reducing Provenzale's severance in the event of a not-for-cause discharge, from an automatic three years of salary to one year of salary if Provenzale were discharged prior to a specified date. The 1999 Agreement otherwise incorporated the terms of the 1993 Agreement, including the non-disclosure and non-solicitation covenants. Sedgwick paid Provenzale $35,000 to execute the 1999 Agreement.

On July 13, 2001, Provenzale voluntarily ended his employment with Guy Carpenter and began working for Benfield Blanch. On August 3, 2001, Guy Carpenter sued Provenzale, asserting breach of contract and misappropriation of trade secrets. Guy Carpenter alleged Provenzale began contacting and soliciting its clients in an attempt to get them to transfer their business to Benfield Blanch in violation of the 1999 Agreement's non-solicitation covenant. Provenzale admits soliciting clients. Guy Carpenter also alleged Provenzale disclosed its confidential and proprietary information in violation of the 1999 Agreement's non-disclosure covenant and of the common law duty to not misappropriate trade secrets.

The district court granted a temporary restraining order ("TRO") on September 5, 2001. The district court held a preliminary injunction hearing in early October and dissolved the TRO on October 19, 2001. The district court held Guy Carpenter did not have a substantial likelihood of success on its breach of contract claims because the non-competition covenants were unenforceable under Texas law, or on its misappropriation of trade secrets claim because it had not fully developed what constituted confidential information.

Guy Carpenter filed a motion for reconsideration which the district court denied almost a full year later, on September 30, 2002. Guy Carpenter appeals this interlocutory order denying the motion to reconsider.² Provenzale responds to the merits of the appeal, and also argues the appeal is moot.

II. STANDARD OF REVIEW

Mootness is a jurisdictional question, that this Court will determine de novo. North Carolina v. Rice, 404 U.S. 244, 246, 92 S.Ct. 402, 30 L.Ed.2d 413 (1971).

A district court's determinations as to each of the elements required for a preliminary injunction are mixed questions of fact and law, the facts of which this Court leaves undisturbed unless clearly erroneous. Kern River Gas Transmission, Co. v. Coastal Corp., 899 F.2d 1458, 1462 (5th Cir.1990). Conclusions of law made with respect to the denial of a preliminary injunction are reviewed de novo. Id. The ultimate decision for or against issuing a preliminary injunction is reviewed under an abuse of discretion standard. Id.

The trial court's denial of the preliminary injunction was predicated on a determination that the non-competition covenant is unenforceable. This is a legal question, Light v. Centel Cellular Co. of Texas, 883 S.W.2d 642, 644 (Tex.1994), that this Court reviews de novo. See, e.g., Blue Bell Bio-Medical v. Cin-Bad, Inc., 864 F.2d 1253, 1256 (5th Cir.1989).

III. DISCUSSION

A. Mootness

Provenzale argues that all questions regarding a preliminary injunction based on the non-solicitation claim are moot. To be cognizable in a federal court, a suit "must be definite and concrete, touching the legal relations of parties having adverse legal interests.... It must be a real and substantial controversy admitting of specific relief through a decree of a conclusive character...." Rice, 404 U.S. at 245-46, 92 S.Ct. 402. Provenzale's employment ended on July 13, 2001. By its own terms, the non-solicitation covenant expired one year later, on July 13, 2002. Provenzale argues that the relief Guy Carpenter seeks — enforcement of an expired non-solicitation agreement through an injunction — is not available under Texas law.

Guy Carpenter responds that injunctions are equitable in nature and that district courts may impose injunctions that last beyond a contract provision's expiration date. See, e.g., Premier Indus. Corp. v. Tex. Indus. Fastener Co., 450 F.2d 444, 448 (5th Cir.1971) (applying Texas law and stating that "[an] argument that the trial judge exceeded his discretion by enjoining the appellants beyond the time specified in the ... contract is without merit"). We agree with Guy Carpenter. The expiration of the one-year contract limit does not make this issue moot. If this Court remands, the district court has the power under Texas law to craft an injunction that extends beyond the expiration of the non-solicitation covenant. Exercising this equitable power might be particularly appropriate given the district court's year-long delay before ruling on the motion to reconsider.

We note that neither case Provenzale cites in support of his mootness argument is relevant to the facts of this case. See Hi-Line Electric Co. v. Dowco Electrical Products, 765 F.2d 1359, 1363 (5th Cir.1985) (holding an appeal of injunction moot where the injunction expired three months before the appellate court heard arguments in the case); John R. Ray & Sons, Inc. v. Stroman, 923 S.W.2d 80, 85 (Tex.App.1996) (finding that reforming (e.g., shortening) the length of a non-competition covenant would be an exercise in futility because the time limit in the sought-to-be-reformed covenant expired before the district court entered judgment).

B. Substantive Arguments

Guy Carpenter seeks a preliminary injunction based on its contract claims for breach of the non-solicitation and non-disclosure covenants and on its common law tort claim for misappropriation of trade secrets. In order to prevail on a motion for preliminary injunction, Guy Carpenter must establish that: (1) it has a substantial likelihood of prevailing on the merits; (2) there is a substantial threat it will suffer irreparable injury if the preliminary injunction is denied; (3) the threatened injury to Guy Carpenter outweighs the potential injury posed by the injunction to Provenzale; and (4) granting the preliminary injunction will not disserve the public interest. Canal Authority of Florida v. Callaway, 489 F.2d 567, 572 (5th Cir.1979). A preliminary injunction is an extraordinary remedy which courts grant only if the movant has clearly carried the burden as to all four elements. Kern River, 899 F.2d at 1462.

The district court concluded Guy Carpenter was not likely to succeed on the merits because the non-solicitation and the non-disclosure covenants were unenforceable. The court also concluded Guy Carpenter was not likely to succeed on the merits of its misappropriation of trade secrets claim.

1. Breach of Contract Claims

Texas has a statute governing the enforceability of covenants not to compete. It provides:

§ 15.50 Criteria for Enforceability of Covenants Not to Compete

[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...