Marsh Usa Inc. v. Cook

• Decision Date: 26 May 2009
• Docket Number: No. 05-08-00685-CV.,05-08-00685-CV.
• Citation: 287 S.W.3d 378
• Parties: MARSH USA INC. and Marsh & McLennan Companies, Inc., Appellants v. Rex COOK, Appellee.
• Court: Texas Court of Appeals

287 S.W.3d 378

MARSH USA INC. and Marsh & McLennan Companies, Inc., Appellants v. Rex COOK, Appellee.

No. 05-08-00685-CV.

Court of Appeals of Texas, Dallas.

May 26, 2009.

Beverly A. Whitley, Thomas L. Case, Bell Nunnally & Martin L.L.P., Dallas, for Appellant.

Stephanie Michelle Dooley, Monica Wiseman Latin, Carrington, Coleman, Sloman, & Blumenthal, L.L.P., Jesse K. Shumway, Dallas, TX, for Appellee.

Before Justices WRIGHT, MOSELEY, and FRANCIS.

OPINION

Opinion by Justice WRIGHT.

Marsh USA Inc. and Marsh & McLennan Companies, Inc. (collectively "MMC") appeal from the trial court's order granting Rex Cook's motion for partial summary judgment on the breach of contract claim.¹ MMC asserts two issues contending generally that the trial court erred in concluding that the non-solicitation agreement was unenforceable as a matter of law. We overrule MMC's issues and affirm the trial court's order.

Background

MMC provides insurance brokerage and consulting services. Cook began working for MMC in 1983. Prior to leaving MMC in 2007, Cook worked as a managing director for MMC. Cook was a valuable employee for MMC. As a valued employee, MMC included Cook in its 1992 Employee Incentive and Stock Award Plan. Pursuant to that plan, MMC granted Cook stock options on March 21, 1996. Before exercising those stock options, however, Cook had to sign a non-solicitation agreement. That agreement included a covenant not to compete for a period of two years following Cook's termination of his employment with MMC.² Cook signed the non-solicitation agreement on February 3, 2005 and exercised the stock options. MMC transferred the stock to Cook.

On November 15, 2007, Cook terminated his employment and soon began employment with a competitor of MMC's. MMC sued Cook and his new employer. MMC alleged that Cook breached the non-solicitation agreement by soliciting and servicing clients and prospective clients of MMC. Cook moved for partial summary judgment on the ground that the non-solicitation agreement was unenforceable. The trial court granted the motion. MMC nonsuited all its other claims and this appeal timely followed.

Standard of Review

The standards for reviewing a summary judgment are well established. The party moving for summary judgment has the burden of showing no genuine issue of material fact exists and that it is entitled to judgment as a matter of law. Tex.R. Civ. P. 166a(c); Nixon v. Mr. Prop. Mgmt. Co., 690 S.W.2d 546, 548 (Tex.1985). In deciding whether a disputed material fact issue exists precluding summary judgment, evidence favorable to the non-movant will be taken as true. Nixon, 690 S.W.2d at 548-49. Further, every reasonable inference must be indulged in favor of the non-movant and any doubts resolved in its favor. Id. A matter is conclusively established if ordinary minds could not differ as to the conclusion to be drawn from the evidence. Triton Oil & Gas Corp. v. Marine Contractors & Supply, Inc., 644 S.W.2d 443, 446 (Tex.1982).

Non-Solicitation Agreement

MMC contends that the non-solicitation agreement is enforceable. Specifically, MMC contends the consideration provided by it, the transfer of stock in return for Cook's covenant not to compete, is sufficient to render the covenant enforceable under Texas law.

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 and it contains reasonable limitations that do not impose a greater restraint than necessary to protect the goodwill or other business interest of the promisee. TEX. BUS. & COM. CODE ANN. § 15.50(a) (Vernon 2002). To be ancillary to or part of an otherwise enforceable agreement, a covenant not to compete must meet the following two conditions:

(1) the consideration given by the employer in the otherwise enforceable agreement must give rise to the employer's interest in restraining the employee from competing; and

(2) the covenant must be designed to enforce the employee's consideration or return promise in the otherwise enforceable agreement.

Light v. Centel Cellular Co. of Tex., 883 S.W.2d 642, 647 (Tex.1994); Alex Sheshunoff Mgmt. Servs., L.P. v. Johnson, 209 S.W.3d 644, 648-49 (Tex.2006).

In his motion for summary judgment, Cook asserted that the non-solicitation agreement was not ancillary to or part of an otherwise enforceable agreement because the consideration given by MMC did not give rise to MMC's interest in restraining Cook from competing.

The most common types of consideration given in return for a covenant not to compete are a company's trade secrets or other confidential information. See Light, 883 S.W.2d at 647 n. 14; Sheshunoff, 209 S.W.3d at 649; Curtis v. Ziff Energy Group, Ltd., 12 S.W.3d 114, 118 (Tex.App.-Houston [14th Dist.] 1999, no pet.). A company's goodwill is dependent, in part, in keeping such information confidential. Financial benefits, on the other hand, do not give rise to an interest worthy of protection. Sheshunoff., 209 S.W.3d at 650; Trilogy Software, Inc. v. Callidus Software, Inc., 143 S.W.3d 452, 463 (Tex. App.-Austin 2004, pet. denied).

MMC contends that offering a stock option to a valuable employee gives rise to its interest in protecting its goodwill. As support, MMC relies upon an unpublished court of appeals case. See Totino v. Alexander & Assoc., Inc., No. 01-97-01204-CV, 1998 WL 552818 (Tex.App.-Houston [1st Dist.] Aug. 20, 1998, no pet.). Totino is factually similar to this case in that it involves stock option awards conditioned on the employees' execution of a covenant not to compete. Id. at *7. Totino holds that the employees' covenants not to compete were ancillary to the award of stock options. Id. The sole authority for the court's holding, however, was an Indiana case that we find distinguishable from this case. See Field v. Alexander & Alexander of Ind., Inc., 503 N.E.2d 627 (Ct.App. 2nd Dist.1987). In Field, the employee accepted his company's stock option agreement that contained a covenant not to compete. The employer terminated the employee and a dispute arose over the validity of the covenant not to compete. The trial court awarded judgment in favor of the employer. On appeal, the employee argued that the covenant was not ancillary to the stock option agreement. Id. at 631. The court set forth the test in Indiana to determine whether a covenant not to compete is ancillary to an agreement as follows: "whether the covenant and contract have a significant nexus to the `employment situation' so as to render the covenant ancillary to the `employment situation' and necessary to protect legitimate rights of the employer although these rights do not arise from the contract to which the covenant is attached." Id. at 632. (emphasis supplied). The court held the covenant not to compete was enforceable because the stock option agreement had a significant relationship to the employee's employment situation. Id.

The Indiana test set forth in Field is significantly less burdensome than the test in Texas. Texas requires that the consideration provided by the employer give rise to the company's interest in restraining competition. See Light, 883 S.W.2d at 647. By contrast, in Indiana, the legitimate rights of the employer need not arise from the contract to which the covenant is attached. This is a critical distinction that the Totino court did not address. We decline to follow Totino because of its reliance on the inapplicable holding in Field.

All companies have an interest in retaining good employees. Stock options are frequently utilized in an effort to retain...