Smith, Barney, Harris Upham & Co., Inc. v. Robinson
| Decision Date | 31 January 1994 |
| Docket Number | Nos. 93-3566,93-3664,s. 93-3566 |
| Citation | 12 F.3d 515 |
| Parties | 1994-1 Trade Cases P 70,500 SMITH, BARNEY, HARRIS UPHAM & CO., INCORPORATED, Plaintiff-Appellee, v. Thomas E. ROBINSON, Sr., Defendant-Appellant. Summary Calendar. |
| Court | U.S. Court of Appeals — Fifth Circuit |
Alexander N. Breckinridge, IV, Earl S. Eichin, Jr., Michael D. Sledge, O'Neil, Eichin, Miller & Breckinridge, New Orleans, La., for defendant-appellant in No. 93-3566 and 93-3664.
David M. Minnick, First Vice Pres., Gen. Cnsl., Morgan Keegan & Co., Inc., Memphis, TN, for defendant-appellant in No. 93-3566.
Robert A. Kutcher, Warren Horn, Bronfin & Heller, New Orleans, LA, for plaintiff-appellee in No. 93-3566 and 93-3664.
Appeals from the United States District Court for the Eastern District of Louisiana.
Before JOLLY, WIENER, and EMILIO M. GARZA, Circuit Judges.
Defendant-Appellant Thomas E. Robinson, Sr. appeals the district court's grant of a preliminary injunction in favor of Plaintiff-Appellee Smith, Barney, Harris Upham and Co., Inc. (Smith Barney), and its dismissal of his counterclaim for a permanent injunction of arbitration proceedings initiated by Smith Barney against him. This case centers around the enforceability of an employee's agreement not to solicit other employees of his employer after termination of such employee's employment, considered in light of La.R.S. 23:921. 1 We find that La.R.S. 23:921 does not apply to the instant agreement not to solicit employees of the former employer. The Agreement is also enforceable as written: it suffers neither from failure of consideration
nor impermissible vagueness as to the beginning date of the one-year period during which Robinson expressly contracted to abstain from soliciting Smith Barney's employees. We therefore affirm both the issuance of the preliminary injunction in favor of Smith Barney and the dismissal of Robinson's counterclaim.
Robinson was the branch manager of one of Smith Barney's brokerage offices. One of his "most important duties," Robinson asserts, was to recruit experienced brokers. He contracted annually with Smith Barney in 1991, 1992, and 1993 under three separate but identical agreements, each of which was entitled "Branch Managers' Incentive Compensation Plan Agreement" (the Agreement). The 1993 Agreement, like its predecessors, provided that
[i]n consideration of payment of the 1993 Incentive Compensation to me, I agree that should my employment with Smith Barney terminate for any reason and I become employed at a competitor organization I will not for a one (1) year period directly or indirectly solicit or induce any Smith Barney employee to resign from either (a) the Smith Barney branch office at which I worked; or (b) any other Smith Barney branch office within a fifty (50) mile radius of the competitor organization's office at which I work, in order for that employee to accept employment at the competitor organization at which I work.
Robinson concedes that during 1993, he left Smith Barney's employ, began to work for a competitor organization, and, having been advised that the Agreement was unenforceable, knowingly breached the Agreement not to solicit Smith Barney's employees by actively recruiting those employees. 2
Robinson made this promise in return for a promise from Smith Barney to allow him to participate in the firm's 1993 incentive compensation program. The exact amount of Robinson's incentive compensation was to be calculated after Smith Barney's 1993 profits were determined. He was to receive quarterly advances toward the subject compensation that he would ultimately be paid. In the event that Robinson were to resign from Smith Barney or that he were to be terminated for cause during 1993, he would be required to return any advances received in that year. The relevant provision of the Agreement reads:
I further understand that I will not be entitled to any Incentive Compensation should I resign from Smith Barney or be terminated for cause prior to the date in 1994 when the 1993 Incentive Compensation is paid to Branch Managers. In such instances I agree to promptly refund to Smith Barney all quarterly advance payments that I may have received.
In April 1993, Robinson received a $7,000 advance, which he did not repay after he voluntarily left Smith Barney's employ on June 17, 1993. 3 In the face of legal action threatened by Smith Barney, Robinson demanded that any dispute be arbitrated pursuant to the arbitration procedures of the National Association of Securities Dealers, Inc. (NASD).
Smith Barney initiated a New York Stock Exchange Arbitration against Robinson and his new employer, Morgan, Keegan & Co., Inc. (Morgan Keegan), (1) seeking damages for breach of the non-solicitation provision of the Agreement and identical provisions in the 1991 and 1992 Agreements, and (2) asking for a permanent injunction to prevent both Robinson's and Morgan Keegan's solicitation of Smith Barney's employees. On the same day that Smith Barney initiated the arbitration, it filed suit against Robinson (but not against Morgan Keegan) in district court, asking for a temporary restraining order (TRO) and preliminary and permanent injunctions against Robinson. Smith Barney represented that immediate injunctive relief was unavailable in the arbitration proceeding.
Robinson answered and counterclaimed for a permanent injunction prohibiting Smith Barney from proceeding with the arbitration. The asserted basis for that injunction is central to this dispute: Robinson claimed that the non-solicitation provision of the Agreement is unenforceable under La.R.S. 23:921, and that the Agreement may not legally be enforced for reasons that are unrelated to the statute. Therefore, he asserted, the Agreement may not form the basis of a valid arbitration award or a permanent injunction by the arbitrators against him. Robinson also moved the court to set the hearing on his counterclaim at the same time as the hearing on Smith Barney's requested injunctive relief. The district court denied Robinson's motion to hear both parties' requests for injunctive relief simultaneously.
Smith Barney withdrew its request for a TRO, and directly pursued a preliminary injunction against Robinson. At the hearing on Smith Barney's request for a preliminary injunction, Robinson challenged the enforceability of the Agreement on several grounds, specifically contesting its validity as a non-competition agreement under La.R.S. 23:921(A), its failure under 23:921(C) to list the specific parishes to which it applies, and its failure under that subsection to describe the part or parts of Smith Barney's multi-faceted businesses from which Robinson is prohibited from soliciting employees. Robinson also argued that the Agreement is void for two reasons unrelated to the statute, (1) failure of consideration, and (2) impermissible vagueness regarding the commencement of the one-year period during which he would be required to refrain from soliciting employees. 4
The district court held that La.R.S. 23:921 did not excuse Robinson's admitted flagrant breach of the Agreement, and granted Smith Barney's request for a preliminary injunction barring Robinson from soliciting Smith Barney's employees to work for Morgan Keegan, effective July 28, 1993 (the date of the hearing), for a period of one year. Robinson appeals the issuance of that injunction.
Smith Barney moved to dismiss, under Federal Rule of Civil Procedure 12(b)(6), Robinson's counterclaim for permanent injunctive relief, and the district court dismissed the counterclaim. Robinson also appeals that dismissal order.
We review de novo the district court's determination that the Agreement is enforceable under Louisiana law. 5
Smith Barney argues that La.R.S. 23:921 does not apply to the Agreement, primarily because the pre-1989 version of that statute did not apply to agreements not to solicit employees of the employer. 6 The earlier version read,
No employer shall require or direct any employee to enter into any contract whereby the employee agrees not to engage in any competing business for himself, or as an employee of another, upon the termination of his contract of employment with such employer.... 7
The present version appears on its face to be much broader in its application: it expressly covers agreements in addition to those between employers and employees, and it prohibits agreements in addition to those not to "engage in any competing business." It now reads Every contract or agreement, or provision thereof, by which anyone is restrained from exercising a lawful profession, trade, or business of any kind, except as provided in this Section, shall be null and void. 8
No case since the 1989 revision of the statute has discussed the applicability of the statute to agreements not to solicit employees of the employer.
We agree with Smith Barney that this Agreement does not possess the attributes of an agreement prohibited by La.R.S. 23:921. Contrary to Robinson's assertions, the Agreement does not restrain Robinson from exercising a lawful profession, trade, or business. As Smith Barney maintains, the Agreement assumes that Robinson will exercise his profession, presumably even as a branch manager, with a competitor firm. Robinson is free to recruit stockbrokers or employees for Morgan Keegan--anywhere, any time, and from any organization--save only that small class comprising Smith Barney's employees, a class which he willingly agreed not to solicit. The district court recognized that Robinson was not restrained from exercising a lawful profession, trade, or business when it issued the preliminary injunction. The Agreement simply does not meet the definition of the kinds of contracts covered by the statute.
To find that the narrowly tailored Agreement falls within the ambit of the...
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