Olander v. Compass Bank

• Decision Date: 18 October 2001
• Docket Number: No. H-01-2184.,H-01-2184.
• Citation: 172 F.Supp.2d 846
• Parties: Gary OLANDER, Plaintiff, v. COMPASS BANK AND COMPASS BANCSHARES, INC., Defendants.
• Court: U.S. District Court — Southern District of Texas

172 F.Supp.2d 846

Gary OLANDER, Plaintiff, v. COMPASS BANK AND COMPASS BANCSHARES, INC., Defendants.

No. H-01-2184.

United States District Court, S.D. Texas, Houston Division.

October 18, 2001.

COPYRIGHT MATERIAL OMITTED

Gregg M Rosenberg, Gregg M Rosenberg & Associates, Houston, TX, for Gary M Olander, plaintiff.

Sherrard L Hayes, Fulbright & Jaworski, Austin, TX, for Whitney National Bank, intervenor-plaintiff.

Neil Martin, Gardere & Wynne, Houston, for Compass Bank, Compass Bancshares Inc, defendants.

MEMORANDUM AND ORDER

ATLAS, District Judge.

This employment dispute concerns a non-compete clause in a contract between Plaintiff Gary Olander and Defendants Compass Bank and Compass Bancshares, Inc. (collectively, "Compass"). This case is before the Court on Defendants' Application for Preliminary Injunction [Doc. # 5]. Plaintiff Gary Olander filed a Response to Compass's Application [Doc. # 9].¹ Whitney National Bank ("Whitney"), Olander's new employer, was permitted to intervene. See Order entered September 26, 2001 [Doc. # 15]. Whitney has filed a Brief on Invalidity of Compass's Covenant Not to Compete [Doc. # 17], to which Compass has responded (see Response to Whitney's Brief [Doc. # 22]). The Court held an evidentiary hearing for several hours on October 9 and 10, 2001.

Having considered the parties' briefs and exhibits thereto, the evidence and argument presented at the preliminary injunction hearing, all matters of record, and applicable legal authorities, the Court concludes that Compass's Application for Preliminary Injunction should be denied.

I. FACTUAL AND PROCEDURAL BACKGROUND

Plaintiff Gary Olander worked in mortgage lending for Compass Bank in Houston from 1988 until he voluntarily resigned in June 2001. At the time he left Compass, Olander was an Executive Vice President in the real estate lending department. Compass considered Olander a highly valued employee. The parties agree that Olander developed personal goodwill and enhanced the bank's goodwill during his tenure at Compass. During 2001, Olander became dissatisfied with his compensation and certain personnel policies at Compass. In June 2001, Olander left Compass's employ and took a position with Whitney to head up its fledgling real estate lending group. Olander has responsibilities at Whitney similar to those he had at Compass.

Every year since 1990, Olander and Compass entered into stock option agreements giving Olander the right to purchase designated numbers of shares of Compass Common Stock, on a specified schedule at a set price. The stock options were intended to reward employees who were contributing to Compass's continuing success in the financial marketplace, and were designed to assist in retaining valued employees.

Beginning in 1994, the stock option agreements contained non-compete clauses. The two stock option agreements at issue in this case are dated February 21, 2000 (the "2000 Agreement") and February 23, 2001 (the "2001 Agreement"). The options granted under both the 2000 and 2001 Agreements were exercisable only during Olander's employment with Compass, or upon Olander's death, or disability, or the sale of the bank.² The parties have stipulated that Olander was an at-will employee of Compass at all times.

The non-compete clauses in the Agreements are extensive. Paragraph 8 of the 2000 Agreement bars Olander (the "Employee") for a period of two years from directly or indirectly soliciting (i) any Compass customer "called on, serviced by, contracted by the Employee in any capacity, or otherwise known to the Employee in any territory in which [Compass] has been or is conducting business;" or (ii) any employee at Compass or any former employee who leaves Compass's employment for any reason.

The non-compete clause of the 2001 Agreement bars Olander, for two years, from (i) carrying on or engaging in a business like or similar to any business of Compass in any territory in which Compass has been or is conducting business; (ii) soliciting or doing business with any Compass customer in any territory in which Compass has been or is conducting business; or (iii) soliciting any employee of Compass to leave their employment for any reason.

The 2000 and 2001 Agreements also contain provisions obligating Olander not to divulge, furnish or make accessible to any third party any trade secrets, customer lists, information regarding customers, or other confidential information concerning Compass or its business, including without limitation confidential methods of operation and organization, trade secrets, confidential matters related to pricing, markups, commissions and customer lists. However, neither Agreement contains a corresponding promise from Compass that it will provide confidential information to Olander.

Compass contends that during Olander's thirteen years at the bank Olander had frequent access to various confidential information and participated in high-level management meetings at which confidential information was discussed. The evidence establishes that in the course of his duties, Olander received information related to bank operations and management (credit guidelines, banking procedures, profitability models, budgets, marketing strategies, business development plans, funding mechanisms, and securitization plans and strategies), specific loans and customers (customer loan balances, repayment schedules, customer lists, loan payment histories, risk ratings on loans and specific customers, "past-due" reports, "watch" lists, and loan exception reports), and personnel information (salaries and bonuses of relationship managers and others). Olander does not agree with Compass's characterization of all of this information as confidential, but concedes that he had regular and continuous access to certain confidential information, such as current customer loan balances, customer risk ratings, "past-due" reports on loan performance and employee salaries. There is no evidence that Olander wrongfully took confidential information from Compass, such as unpublished bank operation data or strategy plans, or has wrongfully divulged confidential information to Whitney.

After resigning from Compass in June 2001, Olander filed a declaratory judgment action in state court against Compass seeking a declaration that the non-compete provisions of the 2000 and 2001 Agreements are invalid and unenforceable. Compass removed the suit to federal court in July 2001 based on diversity of citizenship. Compass filed its Application for Preliminary Injunction shortly thereafter. Whitney sought and was granted leave to intervene as a Plaintiff in this case and filed its own declaratory judgment action.³

II. LEGAL STANDARDS

A. Preliminary Injunction Standards

A preliminary injunction is an extraordinary and drastic remedy that is not to be granted routinely; a preliminary injunction should issue only when the movant, by a clear showing, carries the burden of persuasion. Harris County v. CarMax Auto Superstores, Inc., 177 F.3d 306, 312 (5th Cir.1999) (internal quotations and citations omitted). To obtain injunctive relief, the movant must establish four requirements:

First, the movant must establish a substantial likelihood of success on the merits. Second, there must be a substantial threat of irreparable injury if the injunction is not granted. Third, the threatened injury to the [movant] must outweigh the threatened injury to the [opponent]. Fourth, the granting of the preliminary injunction must not disserve the public interest.

Evergreen Presbyterian Ministries, Inc. v. Hood, 235 F.3d 908, 918 (5th Cir.2000) (internal citations omitted); see also Texas Catastrophe Property Ins. Ass'n v. Morales, 975 F.2d 1178, 1180 (5th Cir.1992). In order to secure a preliminary injunction, the applicant must establish each of the preliminary injunction elements. See Black Fire Fighters Assoc. of Dallas v. City of Dallas, Tex., 905 F.2d 63, 65 (5th Cir.1990). The decision to grant or deny a preliminary injunction is within the discretion of the Court. CarMax Auto Superstores, Inc., 177 F.3d at 312.⁴

B. Enforceability of Non-Compete Clauses

The enforceability of a covenant not to compete is regulated by Texas statute and presents a question of law for the court. TEX. BUS. & COM. CODE §§ 15.50, 15.52 (Vernon Supp.2001); see Light v. Centel Cellular Co. of Texas, 883 S.W.2d 642, 644 (Tex.1994); CRC-Evans Pipeline Int'l, Inc. v. Myers, 927 S.W.2d 259, 263 (Tex.App.-Hous.1996) (no writ). "Section 15.50 provides two criteria for the enforceability of a covenant not to compete: the covenant (1) must be ancillary to or part of an otherwise enforceable agreement at the time the agreement is made, and (2) must contain 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." Light, 883 S.W.2d at 644. A provision restricting solicitation of former employees and customers restrains trade and constitutes a covenant not to compete. See Miller Paper v. Roberts Paper Co., 901 S.W.2d 593, 599 (Tex.App.-Amarillo 1995, no writ).

Non-compete clauses signed by at-will employees generally are not enforceable if they are conditioned on continued employment, because such a promise is illusory.⁵ Travel Masters, Inc. v. Star Tours, Inc. 827 S.W.2d 830 (Tex.1991). "Any promise made by either employer or employee that depends on an additional period of employment is illusory because it is conditioned upon something that is exclusively within the control of the promisor." Light, 883 S.W.2d at 645 n. 5. However, if an employer provides some legally cognizable consideration, then obligations assumed by the employee may be enforceable. "Under Section 15.50, the relevant point in time is the moment the agreement is made; the issue is whether, `at the time the agreement is made,' there exists [si...