Vartech Systems, Inc. v. Hayden
| Decision Date | 20 December 2006 |
| Docket Number | No. 2005 CA 2499.,2005 CA 2499. |
| Citation | 951 So.2d 247 |
| Parties | VARTECH SYSTEMS, INC. v. Todd HAYDEN, Peter Newman, Joel Tedder, and Deepsouth Hardware Solutions, L.L.C. |
| Court | Court of Appeal of Louisiana — District of US |
W. Steven Mannear, Poynter, Mannear & Colomb, Baton Rouge, for Plaintiff-Appellee VarTech Systems, Inc.
H. Michael Bush, D. Scott Landry, Chaffe McCall, L.L.P., New Orleans, for Defendants-Appellants Todd Hayden, Peter Newman, Joel Tedder, and DeepSouth Hardware Solutions, L.L.C.
Before: PARRO, McDONALD, and HUGHES, JJ.
The defendants appeal from a trial court judgment granting a preliminary injunction in favor of the former employer of the individual defendants, based in part on a non-competition agreement and a non-disclosure agreement signed by each of them. For the following reasons, the judgment is reversed in part and affirmed in part.
Todd D. Hayden (Hayden), Peter G. Newman (Newman), and Joel D. Tedder (Tedder) were formerly employed by VarTech Systems, Inc. (VarTech). While working for VarTech, each signed a "Non-competition Agreement" containing the following five provisions: (1) agreement not to compete; (2) agreement not to solicit customers; (3) consent to equitable relief; (4) savings clause; and (5) binding effect/controlling law and venue clause. Execution of the agreement by Hayden occurred on January 14, 2000, by Newman on June 12, 2000, and by Tedder on July 25, 2001. Hayden, Newman, and Tedder also signed a "Non-Disclosure Agreement." Hayden and Newman left their employment with VarTech in March 2005 and April 2005, respectively, and on May 11, 2005, they formed DeepSouth Hardware Solutions, L.L.C. (DeepSouth). When Tedder left VarTech's employment in May 2005, he went to work for DeepSouth the next day, and the following month became vice president of the business.1
VarTech filed a petition for injunctive relief and damages against Hayden, Newman, Tedder, and DeepSouth (collectively, defendants) seeking to restrain and enjoin them from operating their business. The nature of VarTech's business was identified in the petition, and allegedly included sales, servicing, and repair of computers and related hardware, as well as providing training, technical services, and consulting concerning computer systems and software. The petition alleged that Hayden, Newman, and Tedder were in direct competition with VarTech, in violation of their non-competition agreements. The petition further alleged that Hayden, Newman, and Tedder took with them when they left project worksheets containing client information and contacted VarTech's customers, making negative and defamatory remarks about VarTech. VarTech sought damages for defamation and for violations of the non-compete and non-solicitation clauses of the non-competition agreements, of the Louisiana Unfair Trade Practices Act, and of the Louisiana Trade Secrets Act. A temporary restraining order was issued in favor of VarTech on July 5, 2005, and was renewed on July 14, 2005, pending a determination of VarTech's request for a preliminary injunction.
The defendants opposed VarTech's application for preliminary injunctive relief on several grounds. They claimed the non-compete agreements were invalid as a matter of law, in that the non-compete clause contained an overly broad description of VarTech's business, contained an overly broad geographical restriction, and prohibited Hayden, Newman, and Tedder from taking any job with a competitor of VarTech. In addition, the non-solicitation clause in the non-competition agreements failed to specify any geographical limitation. Finally, they argued that VarTech had not shown that it would suffer irreparable injury absent injunctive relief, and beyond its mere allegations, had not demonstrated that there was a substantial likelihood that it would succeed on the merits of any of its claims.
Hayden, Newman, Tedder, and Carlton Wayne Prater (Prater), who was VarTech's president and chairman, testified at the hearing on the request for a preliminary injunction. Although only the original agreements signed by Newman were introduced at the hearing, Prater testified that Hayden and Tedder had also signed similar non-competition agreements and non-disclosure agreements.2
After taking the matter under advisement, the trial court reformed the noncompete clause and found that the non-competition agreement, as thus reformed, was valid and enforceable against the defendants. The trial court granted VarTech's request for a preliminary injunction, enjoining Hayden, Newman, Tedder, and DeepSouth (and their agents, officers, or employees) from competing with VarTech in the business of the corporation. Based on the description in the petition and the non-compete clause of the non-competition agreement, the trial court defined the business of VarTech to include the following: (1) the buying, selling, trading, exchanging, repairing and/or servicing of new and used mainframe computer systems (such as those made by Harris Corporation, Landis & Gyr, or Telegyr), flat panel displays, industrial displays, minisystems or personal computer systems inclusive of all related peripherals whether sold, repaired, or transferred in the form of complete systems or individual components, (2) the selling of computer-related training classes accessed via the internet, (3) the selling of technical services related to the implementation, repair, or servicing of computer hardware, and (4) the selling of consulting services related to the development of software, whether created to meet specific criteria for a specialized application or simply modifications of existing software rendered to address customer preferences or needs. The defendants were enjoined from doing any of these activities in all 64 parishes in Louisiana for a period of two years from the dates of their departure from VarTech.
Additionally, pursuant to the non-solicitation clause of the non-competition agreements, Hayden, Newman, Tedder, and DeepSouth (their agents, officers, and employees) were enjoined from (1) soliciting any customers of VarTech for a period of two years following the dates of the termination of their employment and (2) soliciting, diverting, or appropriating to themselves or to a competing business, or attempting to solicit, divert, or appropriate to themselves or to any competing business, any person or entity whose account with VarTech was sold or serviced by Hayden, Newman, or Tedder during their previous employment by VarTech. In accordance with the non-disclosure agreements, the defendants were also enjoined from disclosing any confidential information that had been disclosed to them or of which they had become aware while employed at VarTech, including, but not limited to: (1) the business operations or internal structures of VarTech, (2) the identities of customers of the corporation, (3) past, present, or future research done by VarTech respecting the business or operations of the corporation, or customers or potential customers of the corporation, or (4) releasing any method or procedure relating or pertaining to projects developed by VarTech or contemplated by VarTech to be developed. In connection with VarTech's claim for defamation, the defendants were enjoined from making any untrue, disparaging, or false comments or remarks concerning VarTech to any person.
From the judgment granting VarTech's request for a preliminary injunction, Hayden, Newman, Tedder, and DeepSouth appealed, urging that the non-compete and non-solicitation clauses were void and unenforceable as a matter of law and that the trial court erred in reforming the non-compete clause and, after applying the savings clause, finding the non-compete clause to be enforceable. The defendants argue that the non-compete clause was geographically overly broad and did not accurately describe VarTech's business, which was much more limited in scope. Furthermore, they claim that the absence of any geographical restriction in the non-solicitation clause rendered it null and void. Additionally, the defendants urge that VarTech failed to produce facts sufficient to show that it had any likelihood of succeeding on its claim for breach of the non-competition agreement or for defamation, so as to warrant the issuance of a preliminary injunction.3
Over the years, Louisiana has had a strong public policy disfavoring non-competition agreements between employers and employees. SWAT 24 Shreveport Bossier, Inc. v. Bond, 00-1695 (La.6/29/01), 808 So.2d 294, 298. This public policy is expressed in LSA-R.S. 23:921(A)(1), which at the time pertinent to this matter provided:4
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.
Louisiana's strong public policy restricting non-competition agreements is based on an underlying state desire to prevent an individual from contractually depriving himself of the ability to support himself and consequently becoming a public burden.5 See McAlpine v. McAlpine, 94-1594 (La.9/5/96), 679 So.2d 85, 91. Because such agreements are in derogation of the common right, they must be strictly construed against the party seeking their enforcement. SWAT 24, 808 So.2d at 298.
The exceptions to LSA-R.S. 23:921(A)(1) set forth in the statute include employer/employee relationships, corporation/shareholder relationships, partnership/partner relationships, and franchise/franchisee relationships. The statute defines the limited circumstances under which a non-competition clause may be valid in the context of each of these relationships. Kimball v. Anesthesia Specialists of Baton Rouge, Inc., 00-1954 (La. App. 1st Cir.9/28/01), 809 So.2d 405, 410, writs denied, 01-3316 (La.3/8/02), 811 So.2d 883, and 01-3355 (La.3/8/...
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