Mann Frankfort Stein & Lipp v. Fielding

Decision Date17 April 2009
Docket NumberNo. 07-0490.,07-0490.
Citation289 S.W.3d 844
PartiesMANN FRANKFORT STEIN & LIPP ADVISORS, INC., MFSL GP, L.L.C., and MFSL Employee Investments, Ltd., Petitioners, v. Brendan J. FIELDING, Respondent.
CourtTexas Supreme Court

Warren W. Harris, Laura B. Herring, Eden P. Sholeen and Jenny Reynolds Mohr, Bracewell & Giuliani, L.L.P., Houston, for Petitioners.

Levon G. Hovnatanian, William Jackson Wisdom, Jr., Bruce Edwin Ramage and Elizabeth Mata Kroger, Martin Disiere Jefferson & Wisdom L.L.P., Houston, for Respondent.

Justice JOHNSON delivered the opinion of the Court.

In this case we determine whether a covenant not to compete in an at-will employment agreement is enforceable when the employee expressly promises not to disclose confidential information, but the employer makes no express return promise to provide confidential information. We hold that if the nature of the employment for which the employee is hired will reasonably require the employer to provide confidential information to the employee for the employee to accomplish the contemplated job duties, then the employer impliedly promises to provide confidential information and the covenant is enforceable so long as the other requirements of the Covenant Not to Compete Act are satisfied.

I. Background

Mann Frankfort Stein & Lipp Advisors, Inc., MFSL GP, L.L.C., and MFSL Employee Investments, Ltd. (collectively "Mann Frankfort") is an accounting and consulting firm. It hired Brendan Fielding, a certified public accountant, on January 6, 1992. Fielding worked as a staff accountant in Mann Frankfort's Tax Department. He resigned in 1995 but was rehired later that year as a senior manager in the Tax Department. As a condition of Fielding's re-employment in 1995, Mann Frankfort required him to sign one of its standard at-will employment agreements. The agreement contained the following "client purchase provision":

10. If at any time within one (1) year after the termination or expiration hereof, Employee directly or indirectly performs accounting services for remuneration for any party who is a client of Employer during the term of this Agreement, Employee shall immediately purchase from Employer and Employer shall sell to employee that portion of Employer's business associated with each such client.

The agreement listed and defined the types of "business" Fielding would have to purchase from Mann Frankfort and set the purchase price. By executing the agreement, Fielding also promised he would "not disclose or use at any time ... any secret or confidential information or knowledge obtained by [Fielding] while employed...." In the course of his employment, Fielding also signed a limited partnership agreement that included a similar client purchase provision.

On January 19, 2004, Fielding again resigned from Mann Frankfort. Soon after he resigned, Fielding opened an accounting firm with David Hardy. Fielding1 then filed a declaratory judgment action seeking to have the client purchase provisions in his employment and limited partnership agreements declared unenforceable pursuant to Texas Business and Commerce Code section 15.50(a), which states in part:

[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 activity to be restrained that are reasonable and do not impose a greater restraint than is necessary to protect the goodwill or other business interest of the promisee.

Mann Frankfort answered and filed a counterclaim, asserting, among other matters, a breach of contract claim. Fielding filed a motion for partial summary judgment on the grounds that the client purchase provisions in his employment and limited partnership agreements were unenforceable covenants not to compete. Mann Frankfort filed a motion for partial summary judgment on the grounds that Fielding had breached the agreements, the client purchase provisions were not restrictive covenants, and even if they were, the provisions were nevertheless enforceable. The trial court granted Fielding's motion and denied that of Mann Frankfort.

After prevailing in the declaratory judgment action, Fielding sought attorney's fees under both the Uniform Declaratory Judgments Act (UDJA), see TEX. CIV. PRAC. & REM.CODE § 37.009, and under his employment agreement. His employment agreement provided that the "prevailing party" in a suit between Mann Frankfort and Fielding was entitled to attorney's fees. The trial court refused to award Fielding attorney's fees under the UDJA. Fielding and Mann Frankfort filed competing motions for partial summary judgment on Fielding's entitlement to attorney's fees under his employment agreement. The trial court granted Mann Frankfort's motion and denied Fielding's. The court determined that Fielding's claim for attorney's fees under his employment agreement was preempted by Business and Commerce Code section 15.52, which states:

The criteria for enforceability of a covenant not to compete provided by Section 15.50 of this code and the procedures and remedies in an action to enforce a covenant not to compete provided by Section 15.51 of this code are exclusive and preempt any other criteria for enforceability of a covenant not to compete or procedures and remedies in an action to enforce a covenant not to compete under common law or otherwise.

Fielding appealed the trial court's denial of his motion for attorney's fees. 263 S.W.3d 232, 238-39. Mann Frankfort cross-appealed, arguing that the client purchase provisions were enforceable. Id. at 239. The court of appeals held the client purchase provisions were unenforceable covenants not to compete. Id. at 245-50. The appeals court held that the client purchase agreement was not ancillary to or part of an "otherwise enforceable agreement" as required by the Covenant Not to Compete Act (the Act). Id. at 247; TEX. BUS. & COM.CODE § 15.50(a). The court held that Mann Frankfort failed to provide any consideration because it made no promise to give Fielding access to confidential information. 263 S.W.3d at 247 (citing Alex Sheshunoff Mgmt. Servs., L.P. v. Johnson, 209 S.W.3d 644 (Tex.2006), and Light v. Centel Cellular Co. of Tex., 883 S.W.2d 642 (Tex.1994)). The court of appeals reasoned that because Fielding never acknowledged that he had received or would receive confidential information and the employment agreement contained no representations that Fielding was to receive any consideration for agreeing to the client purchase or non-disclosure provisions, there was no implied promise on the part of Mann Frankfort to disclose confidential information. Id.

As to Fielding's entitlement to attorney's fees, the court of appeals determined that the trial court did not abuse its discretion in denying attorney's fees under the UDJA and did not reach the issue of whether the Act preempts an award of attorney's fees under the UDJA. Id. at 255 n. 8. The court did, however, hold that Fielding was entitled to attorney's fees under his employment agreement. Id. at 259. It held (1) the Act did not preempt Fielding's claim because the Act's preemption provision limits only actions to enforce covenants not to compete, not actions seeking to prevent enforcement, and (2) the unenforceable client purchase provision was severable from the remainder of the agreement. Id. at 256, 259; see also TEX. BUS. & COM.CODE § 15.52.

Here, Mann Frankfort contends (1) the client purchase provision in Fielding's employment agreement is enforceable because Mann Frankfort impliedly promised to provide confidential information; and (2) Fielding was not entitled to attorney's fees under his employment agreement because Business and Commerce Code section 15.52 preempts his claim and the attorney's fees provision in Fielding's employment agreement was not severable from the remainder of the agreement.2 We agree the client purchase provision is an enforceable covenant not to compete because (1) in a situation such as this— where the nature of the contemplated employment will reasonably require the employer to furnish the employee with confidential information—the employer impliedly promises to provide the information; and (2) the summary judgment evidence shows that Mann Frankfort provided such information to Fielding. Because of our conclusion, we do not reach the issue of whether Fielding is entitled to attorney's fees under his employment agreement.

II. Standard of Review

We review a summary judgment de novo. Provident Life & Accident Ins. Co. v. Knott, 128 S.W.3d 211, 215 (Tex.2003). We review the evidence presented in the motion and response in the light most favorable to the party against whom the summary judgment was rendered, crediting evidence favorable to that party if reasonable jurors could, and disregarding contrary evidence unless reasonable jurors could not. See City of Keller v. Wilson, 168 S.W.3d 802, 827 (Tex.2005); Johnson v. Brewer & Pritchard, P.C., 73 S.W.3d 193, 208 (Tex.2002). The party moving for traditional summary judgment bears the burden of showing no genuine issue of material fact exists and it is entitled to judgment as a matter of law. TEX.R. CIV. P. 166a(c); see also Knott, 128 S.W.3d at 216. When both sides move for summary judgment and the trial court grants one motion and denies the other, we review the summary judgment evidence presented by both sides and determine all questions presented. Comm'rs Court of Titus County v. Agan, 940 S.W.2d 77, 81 (Tex.1997). In such a situation, we render the judgment as the trial court should have rendered. Id.

III. Enforceability of the Covenant Not to Compete

The relevant part of the Act provides:

[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...

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