Howard v. Nitro–Lift Techs., L.L.C., No. 109,003.

• Court: Supreme Court of Oklahoma
• Writing for the Court: WATT
• Citation: 2011 OK 98,273 P.3d 20,33 IER Cases 902
• Parties: Eddie Lee HOWARD and Shane D. Schneider, Plaintiffs/Appellants, v. NITRO–LIFT TECHNOLOGIES, L.L.C., Defendant/Appellee.
• Docket Number: No. 109,003.
• Decision Date: 13 February 2012

2011 OK 98
273 P.3d 20
33 IER Cases 902

Eddie Lee HOWARD and Shane D. Schneider, Plaintiffs/Appellants,
v.
NITRO–LIFT TECHNOLOGIES, L.L.C., Defendant/Appellee.

No. 109,003.

Supreme Court of Oklahoma.

Nov. 22, 2011.Rehearing Denied Feb. 13, 2012.

[273 P.3d 21]

Appeal from the District Court of Johnston County.¶ 0 The plaintiffs/appellants, Eddie Lee Howard (Howard) and Shane D. Schneider

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(Schneider) (collectively, employees), both Oklahoma residents hired in Tishomingo, entered an employment contract with the defendant/appellee, Nitro–Lift Technologies, L.L.C. (Nitro–Lift/employer). For two years following termination, the contract prohibits the employees from: working for, leasing to, or selling equipment to competitors; canvassing, soliciting, approaching, or enticing away any past or present Nitro–Lift customer or supplier; and engaging, employing, soliciting, or contacting officers and employees of the employer with the intent to employ the same. The contract contains an arbitration agreement requiring application of Louisiana law with disputes to be resolved in Houston, Texas. After the employees terminated their employment with Nitro–Lift, they went to work for a competitor in Arkansas. The employer filed an arbitration proceeding in Houston. Howard and Schneider filed an application for a declaratory judgment and injunctive relief in Johnston County asserting that the non-competition agreement violated public policy. The district court initially granted the employees a temporary injunction, prohibiting the employers from continuing the arbitration proceedings in Texas. Thereafter, the employer filed a motion to dismiss. After considering the parties' briefs and arguments, the district court found the arbitration clause to be valid on its face and reasonable in its terms, lifted the temporary restraining order, and granted the motion to dismiss. We hold that: 1) in conformance with our prior jurisprudence, the existence of an arbitration agreement in an employment contract does not prohibit judicial review of the underlying agreement; 2) as drafted, the non-competition covenants are void and unenforceable as against Oklahoma's public policy expressed by the Legislature's enactment of 15 O.S.2001 § 219A; and 3) judicial modification of the covenant not to compete is inappropriate where, as here, the contractual provisions would have to be substantially excised, leaving only a shell of the original agreement, and would require the addition of at least one material term.REVERSED AND REMANDED.

Micah Knight, Durant, Oklahoma, for Plaintiffs/Appellants.

Kelli M. Masters, Fellers, Snider, Blankenship, Bailey & Tippens, Oklahoma City, Oklahoma, for Defendant/Appellee.

WATT, J.

¶ 1 Three issues ¹ must be addressed to resolve this cause. They are whether: 1) the validity of the covenants not to compete should be resolved by the arbitrator or this Court; 2) the underlying covenant is void as

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against public policy pursuant to 15 O.S.2001 § 219A; ² and 3) if so, can it be modified judicially to conform with the controlling statutory provision.³

¶ 2 We determine that the existence of an arbitration agreement in an employment contract does not prohibit judicial review of the underlying agreement. Our determination is supported by our prior jurisprudential pronouncements in: Wyatt–Doyle & Butler Engineers, Inc. v. City of Eufaula, 2000 OK 74, 13 P.3d 474; Cardiovascular Surgical Specialists, Corp. v. Mammana, 2002 OK 27, 61 P.3d 210; Thompson v. Bar–S Foods Co., 2007 OK 75, 174 P.3d 567; and Bruner v. Timberlane Manor Ltd. Partnership, 2006 OK 90, 155 P.3d 16.

¶ 3 As drafted, we hold that the non-competition covenants are void and unenforceable as against Oklahoma's public policy expressed by the Legislature's enactment of 15 O.S.2001 § 219A.⁴ They contain provisions, for the period of two years, prohibiting: 1) employment with any oil or gas entity located in the United States and generating five percent (5%) of its gross revenues from nitrogen generation; 2) solicitation of any past or present Nitro–Lift customer or supplier; and 3) employing or soliciting employment of any Nitro–Lift officer or employee. Finally, we determine that judicial modification of the contractual provisions is inappropriate where, as here, the contractual provisions would have to be substantially rewritten to cure multiple defects.⁵

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FACTS

¶ 4 Howard was hired by Nitro–Lift initially on August 18, 2008 at its offices in Tishomingo. At that time, Howard had approximately twenty (20) years' experience in the oil and gas industry. Due to a dispute over hours worked, compensation paid, and time off, Howard quit in November of 2009. Approximately a month later, Nitro–Lift rehired him. Based on similar concerns to those he had in 2009, Howard again resigned in April of 2010.

¶ 5 In July of 2009, Nitro–Lift hired Schneider at its office in Tishomingo. The employee had prior experience in the oil field with Halliburton. Harboring complaints similar to those of Howard, Schneider quit on June 11, 2010.

¶ 6 Both employees signed confidentiality/non-compete agreements with Nitro–Lift at their hiring.⁶ The agreements provide that neither employee, for a period of two (2) years following separation, will: be employed by any business involved in nitrogen generation ⁷ in the United States; solicit any past or present customer or supplier of the employer; or engage, employ, solicit, or contact any Nitro–Lift officer or employee for the purpose of recruiting the officer or employee for employment. They also bar the employees from loaning money to a business engaging in nitrogen generation and selling or leasing equipment to any person or company of like kind.

¶ 7 After July 8, 2010, Nitro–Lift served the employees with a demand for arbitration alleging that the employees had breached the non-compete agreement and should be ordered to refrain: a) from disclosing or using Nitro–Lift's confidential information; b) from inducing its employees to leave their employment with the company; and c) from competing or interfering with the employer's business relationships or soliciting its customers.⁸ The agreement calls for the application of Louisiana law in an arbitration proceeding to

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be conducted in Houston, Texas.⁹

¶ 8 The instant cause arises out of the employee's petition for declaratory judgment and injunctive relief filed in the District Court of Johnston County on October 14, 2010. The employees sought judgment declaring the non-compete agreement null and void and enjoining enforcement of the same. The district court granted the employees a temporary restraining order pending a hearing. On November 9, 2010, Nitro–Lift filed a motion to dismiss. The cause was heard on November 23, 2010. An order issued that same day in which the district court found the arbitration agreement to be valid on its face and reasonable in its terms and scope. Nitro–Lift's motion to dismiss was granted. The district court denied the employees' motion for a stay pending appeal filed on December 2, 2010. We also declined to issue a stay. However, we granted the employees' motion to retain the cause on January 19, 2011.

¶ 9 On October 18, 2011, we issued a show cause order directing the parties to address the effect of 15 O.S.2001 § 219A on the cause. Briefs were filed on October 28^th and October 31^st by the employees and the employer, respectively.

Standard of Review¹⁰

¶ 10 In Oklahoma, the rules governing appellate review in regard to injunctive relief are settled. Matters involving the granting or denying of injunctive relief are of equitable concern.¹¹ A judgment issuing or refusing to issue an injunction will not be disturbed on appeal unless the lower court has abused its discretion or the decision is clearly against the weight of the evidence.¹² An abuse of discretion occurs when a decision is based on an erroneous conclusion of law or where there is no rational basis in evidence for the ruling.¹³ Nevertheless, this Court is not bound by the findings or reasoning of the lower court. Rather, we independently consider, weigh, and examine the evidence.¹⁴

¶ 11 We remain mindful that injunctions are extraordinary remedies that should not be lightly granted.¹⁵ Entitlement to injunctive relief must be established by clear and convincing evidence and the nature of the complained of injury must not be nominal, theoretical, or speculative.¹⁶ Nevertheless,

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the question of the existence of a viable, enforceable agreement to arbitrate is a question of law which this Court reviews de novo.¹⁷

¶ 12 a) Oklahoma case law supports a determination that the existence of an arbitration agreement in an employment contract does not prohibit judicial review of the underlying agreement.

¶ 13 Nitro–Lift argues that the issue of the validity of the covenants not to compete is for the arbitrator. In doing so, the employers rely upon United States Supreme Court jurisprudence. The employees assert that jurisdiction lies in this Court based on our pronouncements addressing the issue. We agree with the employees.

¶ 14 Our jurisprudence controls this issue.¹⁸ Wyatt–Doyle & Butler Engineers, Inc. v. City of Eufaula, 2000 OK 74, 13 P.3d 474 held that the Uniform Arbitration Act, 12 O.S. Supp.2006 § 1851, et seq.¹⁹ did not prohibit this Court from reviewing a contract submitted to arbitration where one party asserted that the underlying agreement was void and unenforceable. In Cardiovascular Surgical Specialists, Corp. v. Mammana, 2002 OK 27, 61 P.3d 210, we relied on Wyatt–Doyle in determining that an arbitrator's review of a contract would not prevent this Court from considering the contract's validity. Furthermore, we re-emphasized a principle first enunciated in Wyatt–Doyle, that the public right to be free from restraint of trade “cannot be waived by the parties' agreement to submit the issue of the validity of a contract provision to...