Johnson Serv. Group Inc. v. France

• Decision Date: 13 January 2011
• Docket Number: Civil Action No. 3:10–CV–1988–D.
• Citation: 763 F.Supp.2d 819
• Parties: JOHNSON SERVICE GROUP, INC., Plaintiff,v.OLIVIA FRANCE, et al., Defendants.
• Court: U.S. District Court — Northern District of Texas

763 F.Supp.2d 819

JOHNSON SERVICE GROUP, INC., Plaintiff,

v.OLIVIA FRANCE, et al., Defendants.

Civil Action No. 3:10–CV–1988–D.

United States District Court, N.D. Texas, Dallas Division.

Jan. 13, 2011.

David L. Barron, Epstein Becker Green Wickliff & Hall, Houston, TX, for Plaintiff.Jason C. Moon, Brown Dean Wiseman Proctor Hart & Howell, Fort Worth, TX, for Defendants.

MEMORANDUM OPINION

SIDNEY A. FITZWATER, Chief Judge.

Plaintiff Johnson Service Group, Inc. (“JSG”) applies for a preliminary injunction against defendant Olivia France (“France”) seeking to enjoin France's alleged violation of her employment agreement with JSG (the “Agreement”), breach of her duty of loyalty to JSG, and misappropriation of JSG's confidential information, including its trade secrets.¹ For the reasons that follow,² the court grants the application.

I

This action arises out of France's resignation as an employee of JSG. JSG is an employee staffing company that provides technical workers to industrial businesses, including those in the aerospace industry. JSG hired France to work as Branch Manager of its Texas office in March 2010. She was responsible for developing and maintaining relationships with JSG's staffing clients. The Agreement JSG reached with France includes non-compete clauses that provide that, within six months of terminating her employment with JSG, she will not (1) solicit business from JSG's customers; (2) engage in business similar to JSG's within a 50–mile radius of any JSG office, or (3) recruit or hire JSG employees to work for other companies. The Agreement also provides that France will keep trade secrets and other confidential information in confidence during employment with JSG and, when relevant, return such information to the company at the termination of her employment. The Agreement also contains a choice of law clause that provides, in pertinent part, that “This agreement shall be construed in accordance with the Laws of the State of Illinois.” P.App. 9.

In August 2010 France began negotiating a staffing services agreement (“SSA”) with Barnes Aerospace, Inc. (“Barnes”) on behalf of JSG. The negotiations involved her traveling to Barnes's manufacturing facility in West Chester, Ohio to learn about Barnes's processes and requirements. She also became familiar with JSG's expected price schedule for its contract with Barnes, as well as the employees whom JSG expected to present to Barnes for placement. JSG's agreement with Barnes was never finalized. France resigned from her employment with JSG on September 2, 2010. She then began working for defendant Apollo Design Services, Inc., d/b/a Apollo Professional Solutions, Inc. (“Apollo”) out of her home in Duncanville, Texas. On September 7, 2010 Apollo began placing employees at Barnes, including at least one employee—Dallas Flanagan (“Flanagan”)—whom JSG had previously considered for placement at Barnes.

JSG alleges that France breached the Agreement by failing to secure the Barnes contract for JSG; beginning employment negotiations with Apollo during the course of her employment with JSG; using and disclosing JSG's confidential information to secure the Barnes contract for Apollo, as well as Flanagan's employment with Apollo; and engaging in a business similar to JSG's within 50 miles of its offices. JSG also avers that France breached her duty of loyalty by negotiating her employment with Apollo while employed by JSG and by using JSG's confidential information to identify Flanagan as a candidate for employment with Apollo and placement at Barnes. Finally, JSG alleges that France misappropriated JSG's trade secrets when she used JSG's confidential sales, pricing, customer, and employee information to compete against JSG as an Apollo employee.

France maintains that the non-competition provisions in the Agreement are unenforceable under Illinois law, which she argues applies under the Agreement's choice of law provision; even if the non-competition provisions are enforceable, she has not breached them; she has not breached the geographical restrictions in the Agreement because, although she works out of her Duncanville, Texas home, all of her clients are located outside the state of Texas; she has not solicited JSG employees, in violation of the Agreement, because JSG never finalized an agreement to place JSG employees with Barnes; she never encountered confidential information or trade secrets during her tenure with JSG; and she has not disclosed any such information to Apollo. France therefore contends that she could not have misappropriated confidential information or trade secrets or disclosed them to JSG in violation of the duty of loyalty.

II

To obtain a preliminary injunction, the party seeking relief must establish the following: (1) a substantial likelihood that it will prevail on the merits; (2) a substantial threat that it will suffer irreparable injury if the injunction is not granted; (3) that the threatened injury to it outweighs the threatened harm the injunction may do to defendants; and (4) that granting the preliminary injunction will not disserve the public interest. See, e.g., Jones v. Bush, 122 F.Supp.2d 713, 718 (N.D.Tex.2000) (Fitzwater, J.), aff'd, 244 F.3d 134 (5th Cir.2000) (per curiam) (unpublished table decision). Although the decision to grant a preliminary injunction is within the court's discretion, it is an extraordinary remedy that should only be granted if the movant has clearly carried its burden of persuasion on all four elements. See Lake Charles Diesel, Inc. v. Gen. Motors Corp., 328 F.3d 192, 196 (5th Cir.2003); Miss. Power & Light Co. v. United Gas Pipe Line Co., 760 F.2d 618, 621 (5th Cir.1985).

III

As a threshold matter, the court must address the parties' dispute about whether the Agreement should be interpreted under Texas or Illinois law. In its application for a preliminary injunction, JSG relies on Texas law. France relies on Illinois law. She contends that Illinois law governs the interpretation of the Agreement because it includes a choice of law clause that provides for the application of Illinois law, and because the law of the Texas forum honors choice of law clauses in employment agreements. JSG responds that the Agreement's enforceability must be determined under Texas law because enforcement of the Agreement's choice of law clause would violate fundamental Texas public policy.

Federal courts exercising diversity jurisdiction apply the choice of law rules of the forum state—here, Texas. See Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496, 61 S.Ct. 1020, 85 L.Ed. 1477 (1941); Bailey v. Shell W. E & P, Inc., 609 F.3d 710, 722 (5th Cir.2010). The Agreement provides that Illinois law governs its interpretation. “Texas choice-of-law rules provide that if the parties have expressly agreed that the contract is to be governed by the law of a particular state, that intention prevails.” Budge v. Post, 643 F.2d 372, 373 n. 1 (5th Cir. Unit A Apr.1981). See also Duncan v. Cessna Aircraft Co., 665 S.W.2d 414, 421 (Tex.1984) (adopting “most significant relationship” choice of law test in all cases “except those contract cases in which the parties have agreed to a valid choice of law clause”).

JSG relies on DeSantis v. Wackenhut Corp., 793 S.W.2d 670 (Tex.1990), for the proposition that, because the law governing enforcement of non-compete agreements is fundamental policy in Texas, the Agreement must be interpreted under Texas law.³ In DeSantis the court held that because enforcement of non-compete clauses is a matter of fundamental public policy, and the law of the state chosen by the parties (Florida) would have enforced an agreement that violated the fundamental policy of Texas, Texas law governed the interpretation of the non-compete clause. DeSantis, 793 S.W.2d at 681. The court followed the approach prescribed in the Second Restatement of Conflict of Laws § 187 (1971). The enforceability of an agreement is not an issue that can be resolved by the parties' explicit provision. See id. at § 187 cmt. d. In such cases, § 187(2) directs the court to apply the law of the state chosen by the parties unless that state has no substantial relationship to the parties or the application of the parties' chosen law would be contrary to a fundamental policy of a state with a materially greater interest. See id. at § 187(2). The DeSantis court held that it would violate the fundamental public policy of Texas to enforce the non-compete clause under Florida law and that Texas had a materially greater interest in the parties' agreement than did Florida. DeSantis, 793 S.W.2d at 680–81. Thus the court applied Texas law to interpret the parties' agreement. Id. at 680.

DeSantis does not require the court to apply Texas law because the Agreement is enforceable under Illinois or Texas law. Covenants not to compete are enforceable in Texas so long as they (1) are “ancillary to or part of an otherwise enforceable agreement at the time the agreement is made” and (2) contain only reasonable limitations as to time, geographical area, and scope of activity to be restrained. Tex. Bus. & Com.Code Ann. § 15.50(a) (Vernon 2002 & Supp. 2010). In the present case, the non-compete clauses contained in the Agreement are part of an otherwise-enforceable employment contract, and the time, geographical area, and scope of activity limitations are reasonable. The Agreement states that, for a period of six months following the termination of France's employment, she will not “solicit any business from the then customers of the Employer or from potential customers of Employer that Employee may have contacted or been assigned to.” P.App. 8. “A restraint on client solicitation in a personal services contract is ... unreasonable if it extends to clients with whom the employee had no dealings during [her] employment,” but a restraint “limited to current customers is not necessarily unreasonable on its face.” EMS USA, Inc. v. Shary,...