Juliette Fowler Homes, Inc. v. Welch Associates, Inc.

Decision Date06 June 1990
Docket NumberNo. C-7805,C-7805
Citation793 S.W.2d 660
PartiesJULIETTE FOWLER HOMES, INC. et al., Petitioners, v. WELCH ASSOCIATES, INC. Respondent.
CourtTexas Supreme Court
OPINION

HIGHTOWER, Justice.

This breach of contract and tortious interference with contractual relations case involves issues concerning the enforceability of a covenant not to compete. The trial court rendered judgment in favor of Welch Associates Inc. and against Juliette Fowler Homes, Inc. et al. The court of appeals affirmed the judgment of the trial court. 1 We reverse the judgment of the court of appeals and render judgment that Welch Associates, Inc. take nothing.

Juliette Fowler Homes, Inc. (Fowler) is a charitable nonprofit organization, an affiliate of the Disciples of Christ Church. In 1981, Fowler entered into a fund-raising contract (Fowler-Welch contract) with Welch Associates, Inc. (Welch), whereby Welch agreed to conduct a fund-raising campaign for the benefit of Fowler. Welch contracted with John W. Butler Companies, Inc. (Butler Companies), to help execute the Fowler fund-raising campaign. The contract between Welch and Butler Companies (Butler Companies-Welch contract) contained a covenant not to compete which bound Butler Companies to not "enter into any form of contract for services" with any of Welch's clients for a period of two years after the conclusion of the Butler Companies-Welch contract. Eventually, Fowler became dissatisfied with Welch's fund-raising results, and Welch and Butler Companies became dissatisfied with one another's performance. Pursuant to the express notice provisions, Fowler terminated its contract with Welch. Butler Companies also terminated its contract with Welch. Subsequently, John Butler, the president 2 of Butler Companies, was hired by the National Benevolent Association (NBA), one of whose agencies is Fowler. John Butler was assigned to work directly with Fowler, and supervise Fowler's fund-raising campaign.

Welch filed this action against Fowler, alleging breach of the Fowler-Welch contract, and further alleging tortious interference with the noncompetition clause 3 in the contract between Welch and Butler Companies by inducing John Butler to accept the Director of Development position with NBA. Welch also named John Butler and Butler Companies as defendants, seeking damages for breach of the noncompetition clause of the Butler Companies-Welch contract and for tortious interference with Welch's contractual relations with Fowler.

The jury found that John Butler breached the noncompetition clause of Butler Companies' contract with Welch and that John Butler and Butler Companies tortiously interfered with Welch's contractual relationship with Fowler. Furthermore, the jury found that Fowler tortiously interfered with Welch's contractual relationship with Butler Companies. A judgment for damages was rendered in favor of Welch against Fowler, John Butler and Butler Companies, jointly and severally. In addition, John Butler was enjoined from certain activities for one year from the date of the judgment. 4

BREACH OF THE BUTLER COMPANIES-WELCH NONCOMPETITION CLAUSE

The jury found that John Butler breached the noncompetition clause of the Butler Companies-Welch contract by accepting the Director of Development position with NBA. Among other things, judgment for actual damages was rendered for Welch and against John Butler based upon his breach of the noncompetition clause. John Butler argues that the noncompetition clause of the Butler Companies-Welch contract is unenforceable as written and that Welch may not recover monetary damages for breach of an unenforceable noncompetition clause. Welch does not allege that Butler Companies violated the noncompetition clause by contracting with Welch's clients; rather, Welch argues that John Butler and Butler Companies are liable for breach of contract because John Butler violated the noncompetition clause in the Butler Companies-Welch contract by accepting a position with NBA. Since the noncompetition clause is unenforceable as written, we agree that Welch may not recover monetary damages for John Butler's breach of the Butler Companies-Welch contract.

The noncompetition clause in the Butler Companies-Welch contract provides:

The employees of the John W. Butler Companies, Inc., upon acceptance of this contract, agreed that no disclosure of any confidential information will be given to any third party at any time; and further, that during the life of this contract, and for a period of two (2) years after conclusion of this contract, The John W. Butler Companies, Inc., will not enter into any form of contract for services, directly or indirectly, with any client of Welch Associates, Inc., past or present, including Juliette Fowler Homes, Inc., any agencies of the National Benevolent Association, St. Louis, Missouri, without the expressed written consent of Welch Associates, Inc.

A covenant not to compete is in restraint of trade and unenforceable on grounds of public policy unless it is reasonable. DeSantis v. Wackenhut Corp., 793 S.W.2d 670 (Tex.1990); Frankiewicz v. National Comp Assoc., 633 S.W.2d 505, 507 (Tex.1982). A covenant not to compete is not a reasonable restraint of trade unless it meets each of three criteria: (1) the covenant not to compete must be ancillary to an otherwise valid transaction or relationship; (2) the restraint created by the covenant not to compete must not be greater than necessary to protect the promisee's legitimate interest; and (3) the promisee's need for the protection afforded by the covenant not to compete must not be outweighed by either the hardship to the promisor or any injury likely to the public. DeSantis v. Wackenhut Corp., 793 S.W.2d at 682. Whether a covenant not to compete is a reasonable restraint of trade is a question of law for the court. DeSantis v. Wackenhut Corp., 793 S.W.2d at 682; Hershaw v. Kroenecke, 656 S.W.2d 416, 418 (Tex.1983).

In determining the enforceability of the noncompetition clause in the Butler Companies-Welch contract, we need only consider the second criteria: the restraint created by the covenant not to compete must not be greater than necessary to protect the promisee's legitimate interest. Under the second criteria, our primary focus is whether the covenant not to compete incorporates reasonable limitations concerning time, geographical area and scope of activity which do not impose a greater restraint than is necessary to protect the promisee's interest. DeSantis v. Wackenhut Corp., 793 S.W.2d at 685. As written, the noncompetition clause in the Butler Companies-Welch contract contains no limitations concerning geographical area or scope of activity. Butler Companies and its employees 5 are prohibited from entering into any form of contract for services or employment in any capacity or position, directly or indirectly, with any past or present clients of Welch wherever they may be located. This prohibition is absolute, unequivocal and unreasonable. Accordingly, we hold that the noncompetition clause in the Butler Companies-Welch contract as written is an unreasonable restraint of trade and unenforceable on grounds of public policy.

John Butler argues that since the noncompetition clause of the Butler Companies-Welch contract is unenforceable as written, Welch may not recover monetary damages for breach of an unenforceable noncompetition clause. We agree.

An action for damages may not be predicated upon the breach of an unenforceable noncompetition clause. Weatherford Oil Tool Co. v. Campbell, 161 Tex. 310, 340 S.W.2d 950, 952-953 (1960); Frankiewicz v. National Comp Assoc., 633 S.W.2d at 507-508. For purposes of an action for damages, the enforceability of the covenant not to compete will be determined as written and may not be modified to render it reasonable and enforceable. Weatherford Oil Tool Co. v. Campbell, 340 S.W.2d at 952-953; Frankiewicz v. National Comp Assoc., 633 S.W.2d at 507-508. As this court discussed in Weatherford Oil Tool Co. v. Campbell:

If the agreement is not reasonably limited as to either time or space, the parties are not definitely apprised of their respective rights and duties until a court of equity has carved out an area or a period that is reasonable under the circumstances. It is one thing for the court to do this as an incident to the granting of injunctive relief which operates prospectively and an entirely different matter to reform the contract for the purpose of giving the employer a cause of action for damages. In the latter situation the defendant would be required to respond in damages for what he had done at a time when there was no way of determining, except possibly by an action for declaratory judgment, where or for how long he was legally obligated to refrain from competing.

* * * * * *

We hold that an action for damages resulting from competition occurring before a reasonable territory and period have been prescribed by a court of competent jurisdiction must stand or fall on the contract as written. If the agreement is not enforceable in accordance with its terms because either the time or the area stipulated therein is unreasonable, the employer may obtain injunctive relief but will not be awarded a money recovery for anything the employee may have done prior to a judicial declaration of the rights and obligations arising from the contract.

340 S.W.2d at 952-953. Since the noncompetition clause of the Butler Companies-Welch contract is unenforceable as written, we hold that Welch may not recover monetary damages for John Butler's breach of the noncompetition clause by accepting a position with NBA. 6

TORTIOUS INTERFERENCE WITH THE BUTLER COMPANIES-WELCH CONTRACT

Welch obtained favorable jury findings regarding its claim that Fowler tortiously interfered with Welch's...

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