Summary
declining to apply presumption because "well-settled Texas Supreme Court law makes clear an applicant bears the burden to plead and adduce proof of probable, imminent, and irreparable injury to obtain a temporary injunction"
Summary of this case from Direct Biologics, LLC v. McQueenOpinion
NO. 01-16-00186-CV
12-29-2016
DGM SERVICES, INC., Appellant v. NELSON FIGUEROA, GULF COAST CRATING, AND PAUL PITMAN, Appellees
On Appeal from the 215th District Court Harris County, Texas
Trial Court Case No. 2015-56758
MEMORANDUM OPINION
Appellant DGM Services, Inc. ("DGM") alleges that Nelson Figueroa breached and continues to breach his covenant not to compete after he quit his job at DGM and immediately began working for DGM's competitor, Gulf Coast Crating ("GCC"). After an evidentiary hearing, the trial court denied DGM's request for a temporary injunction. DGM challenges that ruling on appeal. We affirm.
Background
In April 2010, Figueroa started working in the sales department at DGM—a crating and packing services company that specializes in the handling of dangerous goods. Next, Figueroa worked in DGM's warehouse where, in the summer of 2013, he became warehouse and operations manager.
Approximately three and a half years into Figueroa's employment with DGM, DGM presented him with a Confidentiality/Non-Compete/Solicitation Agreement (the "Agreement"). The Agreement provides that Figueroa will be given access to various trade secrets and confidential information of DGM including compilations of market information, business plans, management practices, customer lists, marketing plans, pricing data, internal financial statements and analysis, internal pricing and cost information, and salary and compensation information. The Agreement also provides that during his employment with DGM, and for 18 months following the termination of his employment with DGM, Figueroa will not solicit DGM employees or customers or compete with DGM in a particular geographic area. Figueroa signed the Agreement in November 2013. DGM promoted Figueroa to Director of On-site Projects and In-House Operations in January 2015.
In September 2015, Figueroa resigned from DGM and accepted a position at GCC. A week after Figueroa resigned, DGM sued Figueroa, GCC, and Paul Pitman alleging conversion/civil theft, civil conspiracy, trade secret misappropriation, and violation of the Texas Uniform Trade Secrets Act. DGM also asserted claims of breach of covenant not to compete and breach of covenant not to solicit against Figueroa and interference with contract against GCC and Pitman. DGM sought to enjoin Figueroa from working for GCC. GCC counterclaimed, seeking its attorney's fees and a declaratory judgment to the effect that Figueroa is entitled to work for GCC.
Approximately six months after DGM filed suit, the trial court held a hearing on DGM's request for a temporary injunction. DGM's president and co-owner Jean Petillon testified that in 2013 he and DGM co-owner Mark Petillon decided that they wanted to create a management task force and leadership committee because DGM was growing rapidly. According to Petillon, the committee consisted of eight employees—all department heads including Figueroa, who was the head of operations. Petillon testified that the leadership group discussed and agreed upon an 18-month non-compete that they each signed in November 2013.
Petillon testified that Figueroa had access to certain confidential information before he signed the non-compete in November 2013. According to Petillon, the leadership group was to have "complete transparency" and discussed their budgets, forecasts and predictions for their departments, as well as confidential and proprietary information regarding financials, revenue generation, and cost-saving. Petillon specified that, after signing the Agreement, Figueroa had access to additional confidential information, including internal financial statements, and that Figueroa participated in a January 2014 meeting in which the leadership committee discussed the company's financials, goals, vision, and future. According to Petillon, part of Figueroa's job was to build relationships with customers and give input regarding pricing based on his assessment of labor, material input, and design.
Petillon also testified that GCC competes with DGM. According to Petillon, the companies have been competing for the same customers on a daily basis for the last two to three years. He noted that since Figueroa left DGM, DGM and GCC have "gone up for some bids together or against each other." He expressed concern that a former employee could undercut DGM's prices and gain an unfair advantage. According to Petillon, a temporary injunction was necessary in order to protect DGM from harm because:
Mr. Figueroa is doing the exact same thing he did when he worked for DGM . . . . We're competing with him on a daily basis. The only difference is, we do not have any information for his present company that he has of ours. So at this point in time, it is very difficult for us to even compete on a level playing field.
Notably, Petillon testified that he did not know whether Figueroa had given GCC or Paul Pitman any confidential trade secret or proprietary information of DGM. Petillon also stated that he did not know whether any of DGM's customers had taken their business to GCC since Figueroa resigned. Petillon testified that he could not quantify the resulting lost opportunities but he expressed his concern that customers would be confused about the identity of Figueroa's employer because he had worked for DGM for so long.
DGM also presented testimony from its Director of Business Development, Raul Perez, and its Information Technology Director, Manuel Alverado, both members of DGM's leadership committee. Both testified that after signing the non-competition agreement, they were given access to additional information related to all of DGM's departments. Perez described DGM as being "extremely transparent" to members of the leadership group and stated that he could "start a DGM" with the information to which he had access. Perez also testified that Figueroa assisted him in conducting pricing assessments and preparing responses to requests for quotes both before and after Figueroa signed the non-compete agreement.
DGM rested following its presentation of evidence. Before Figueroa put on his evidence, the trial court denied DGM's request for a temporary injunction, stating orally that DGM had not established imminent harm. DGM's counsel argued that the law presumes that an employee who has confidential information will use that information when he leaves, thus, the burden was on Figueroa to rebut this presumption. He further argued that without being allowed to cross-examine Figueroa, DGM would be denied the opportunity to determine what DGM information is being used by GCC and what business DGM had lost. Figueroa's counsel responded that DGM failed to demonstrate imminent harm given that it waited five months after filing to seek a temporary injunction.
The trial court signed an order denying the injunction without making findings of fact and conclusions of law. DGM appealed.
Discussion
In its sole issue, DGM contends that the trial court abused its discretion in denying DGM's application for temporary injunction seeking to enjoin Figueroa from working for GCC.
A. Standard of Review
The decision to grant or deny a temporary injunction lies in the sound discretion of the trial court, and the court's ruling is subject to reversal only for a clear abuse of discretion. Butnaru v. Ford Motor Co., 84 S.W.3d 198, 204 (Tex. 2002). We do not substitute our judgment for the trial court's judgment unless the trial court's action was so arbitrary that it exceeded the bounds of reasonable discretion. Id. (citing Johnson v. Fourth Court of Appeals, 700 S.W.2d 916, 918 (Tex. 1985), disapproved of in part on other grounds by In re Columbia Med. Ctr., 290 S.W.3d 204 (Tex. 2009)).
In reviewing an order granting or denying a temporary injunction, we draw all legitimate inferences from the evidence in a manner most favorable to the trial court's order. TMC Worldwide, L.P. v. Gray, 178 S.W.3d 29, 36 (Tex. App.—Houston [1st Dist.] 2005, no pet.) (citing CRC-Evans Pipeline Int'l v. Myers, 927 S.W.2d 259, 262 (Tex. App.—Houston [1st Dist.] 1996, no writ)). Abuse of discretion does not exist if the trial court heard conflicting evidence and evidence appears in the record that reasonably supports the trial court's decision. Id. (first citing Davis v. Huey, 571 S.W.2d 859, 862 (Tex. 1978); then citing Myers, 927 S.W.2d at 262). When, as here, the trial court does not make findings of fact or conclusions of law, we must uphold the court's order on any legal theory supported by the record. EMSL Analytical, Inc. v. Younker, 154 S.W.3d 693, 696 (Tex. App.—Houston [14th Dist.] 2004, no pet.) (citing Universal Health Servs., Inc. v. Thompson, 24 S.W.3d 570, 577 (Tex. App.—Austin 2000, no pet.)).
B. Applicable Law
A temporary injunction's purpose is to preserve the status quo of the litigation's subject matter pending a trial on the merits. Butnaru, 84 S.W.3d at 204. A temporary injunction is an extraordinary remedy and does not issue as a matter of right. Id. To obtain a temporary injunction, the applicant must plead and prove three specific elements: (1) a cause of action against the defendant; (2) a probable right to the relief sought; and (3) a probable, imminent, and irreparable injury in the interim. Id. The party applying for a temporary injunction has the burden of production, which is the burden of offering some evidence of each of these elements. See Osaka Japanese Rest., Inc. v. Osaka Steakhouse Corp., No. 14-09-01031-CV, 2010 WL 3418206, at *2 (Tex. App.—Houston [14th Dist.] Aug. 31, 2010, no pet.) (mem. op.). If an applicant does not discharge its burden, it is not entitled to injunctive relief. Allied Home Mortg. Capital Corp. v. Fowler, No. 14-10-00992-CV, 2011 WL 2367086, at *4 (Tex. App.—Houston [14th Dist.] June 9, 2011, no pet.) (mem. op.); Osaka, 2010 WL 3418206 at *2.
"[F]ear or apprehension of the possibility of injury alone is not a basis for injunctive relief." Frey v. DeCordova Bend Estates Owners Ass'n, 647 S.W.2d 246, 248 (Tex. 1983); see also Washington DC Party Shuttle, LLC v. IGuide Tours, 406 S.W.3d 723, 742 (Tex. App.—Houston [14th Dist.] 2013, pet. denied) ("An injunction is not proper when the claimed injury is merely speculative; fear of injury is not sufficient to support a temporary injunction."); Prosperity Bank v. Rogge, No. 01-07-00161-CV, 2007 WL 2005134, at *6 (Tex. App.—Houston [1st Dist.] July 12, 2007, no pet.) (mem. op.) (holding evidence did not establish harm was probable or imminent where record established only fear of possible injury which is insufficient to support temporary injunction). But an injury is irreparable if the injured party cannot be adequately compensated in damages or if the damages cannot be measured by any certain pecuniary standard. Tex. Indus. Gas v. PhoenixMetallurgical Corp., 828 S.W.2d 529, 533 (Tex. App.—Houston [1st Dist.] 1992, no writ).
C. Analysis
1. Probable, Imminent, and Irreparable Harm
DGM asserts that the evidence establishes Figueroa's breach of the non-competition agreement and gives rise to a rebuttable presumption of irreparable harm. DGM further contends that Figueroa failed to rebut the presumption of irreparable harm; thus, the trial court abused its discretion in denying DGM's application for a temporary injunction.
Texas law is clear that a trial court may issue a temporary injunction to prevent a threatened injury, but the act to be enjoined must be more than speculative and the injury that flows from it must be more than conjectural. Tex. Indus. Gas, 828 S.W.2d at 532; Mfrs. Hanover Trust v. Kingston Inv'rs Corp., 819 S.W.2d 607, 611 (Tex. App.—Houston [1st Dist.] 1991, no pet.). A trial court abuses its discretion if it grants a temporary injunction when the evidence does not clearly establish that the applicant is threatened with an actual, irreparable injury. Tex. Indus. Gas, 828 S.W.2d at 532; Mfrs. Hanover Trust, 819 S.W.2d at 611.
Here, Petillon testified regarding his general concern that a former employee could undercut DGM's prices and gain an unfair advantage but conceded that he did not know whether Figueroa disclosed DGM's confidential information since leaving DGM. Petillon also expressed concern that there would be customer confusion about the identity of Figueroa's employer but could not identify any instances of actual confusion. And, Petillon could not identify any lost opportunities resulting from Figueroa's employment with GCC. In fact, Petillon conceded that he did not know whether any of DGM's customers had taken their business to GCC since Figueroa resigned.
In short, despite waiting nearly six months to seek a temporary injunction, DGM could not establish what information, if any, Figueroa had used to DGM's detriment or what business, if any, DGM had lost due to Figueroa's employment with GCC. Petillon's testimony thus establishes that DGM had only a fear of possible injury, which is insufficient to support issuance of a temporary injunction. See Washington DC Party Shuttle, 406 S.W.3d at 742 ("An injunction is not proper when the claimed injury is merely speculative; fear of injury is not sufficient to support a temporary injunction."); The Reach Grp., L.L.C. v. Angelina Grp., 173 S.W.3d 834, 838 (Tex. App.—Houston [14th Dist.] 2005, no pet.) (explaining that testimony that company could be put at "great risk" by former employee's competition did not support temporary injunctive relief because it "established only a fear of probable injury").
DGM asserts that it was not required to adduce proof of probable, imminent, and irreparable harm because it established breach of Figueroa's non-compete agreement and is thus entitled to a presumption of probable injury. See Cardinal Health Staffing Network, Inc. v. Bowen, 106 S.W.3d 230, 236 (Tex. App.—Houston [1st Dist.] 2003, no pet.); Martin v. Linen Sys. For Hosps., Inc., 671 S.W.2d 706, 709 (Tex. App.—Houston [1st Dist.] 1984, no writ). But well-settled Texas Supreme Court law makes clear an applicant bears the burden to plead and adduce proof of probable, imminent, and irreparable injury to obtain a temporary injunction. Butnaru, 84 S.W.3d at 204; Tex. Indus. Gas, 828 S.W.2d at 532. We thus decline to hold that a presumption of harm arose and relieved DGM of the burden to adduce evidence of probable, imminent, and irreparable injury. See W.R. Grace & Co.-Conn. v. Henson, No. 13-06-668-CV, 2007 WL 2389547, at *3 n.3 (Tex. App.—Corpus Christi Aug. 23, 2007, no pet.) (mem. op.) (finding presumption of irreparable injury inapplicable where no evidence of misuse of confidential information or "wrongful acts imminently threatened or in the course of accomplishment"). Rather, consistent with Butnaru and more recent authorities from the courts of appeals, we hold that, as the applicant for a temporary injunction, DGM bore the burden of producing some evidence of each element necessary for a temporary injunction. See Lawrence v. Page, No. 01-16-00133-CV, 2016 WL 5947490, at *6 (Tex. App.—Houston [1st Dist.] Oct. 13, 2016, no pet.) (mem. op.) ("The temporary injunction applicant bears the initial burden of proof—i.e., he or she must offer some evidence of each of these elements.") (emphasis added); AlliedHome, 2011 WL 2367086, at *4 ("The party applying for a temporary injunction has the burden of production, which is the burden of offering some evidence that establishes a probable right to recover and a probable interim injury.") (emphasis added). Because DGM established only a fear of possible injury rather than probable, imminent, and irreparable injury, we conclude that the trial court did not abuse its discretion in denying DGM's request for a temporary injunction. See Shoreline Gas, Inc. v. McGaughey, 2008 WL 1747624, No. 13-07-364-CV, at *11-12 (Tex. App.—Corpus Christi Apr. 17, 2008, no pet.) (mem. op.) (affirming denial of temporary injunction and holding former employer had established only fear or apprehension of possibility of injury where its president testified that former employee could take away business by undercutting prices and taking advantage of customer relationships but produced no evidence that he had actually done so); EMSL Analytical, 154 S.W.3d at 697 (finding that testimony "established only a fear of possible injury" but that "is not sufficient to support issuance of a temporary injunction").
2. Inevitable Disclosure
DGM next argues that the inevitable disclosure doctrine effectively relieved it of the burden to prove irreparable injury. DGM urges us to adopt the doctrine, citing state and federal cases applying various versions of it. See FMC Corp. v. Varco Int'l, Inc., 677 F.2d 500, 504-05 (5th Cir. 1982) (holding former employee hired by competitor to make duplicate engineering technology would have difficulty preventing disclosure of former employee's technology); Baker Petrolite Corp. v. Spicer, No. 06-1749, 2006 WL 1751786, at *9-10 (S.D. Tex. June 20, 2006) (allowing former employee to continue working with competitor but granting limited injunction with regard to disclosure of confidential or trade secret information because employee was in position where he could reasonably be expected to reveal, base judgments upon, or otherwise disclose such information); Conley v. DSC Communications Corp., No. 05-98-01051-CV, 1999 WL 89955, at *8 (Tex. App.—Dallas Feb. 24, 1999, no pet.) (mem. op., not designated for publication) (not recognizing doctrine of inevitable disclosure but finding injunction appropriate when it was probable that former employee would use confidential information for his benefit or to detriment of former employer); Rugen v. Interactive Bus. Sys., Inc., 864 S.W.2d 548, 552 (Tex. App.—Dallas 1993, no writ) (finding disclosure probable where former employee possessed confidential information and operated at firm in direct competition with former employer); Weed Eater, Inc. v. Dowling, 562 S.W.2d 898, 902 (Tex. Civ. App.—Houston [1st Dist.] 1978, writ ref'd n.r.e.) (enjoining former employee from working for competitor to create specialized assembly line and finding that employee could "hardly prevent" disclosure of former employer's confidential information regarding similar assembly line).
The Fifth Circuit recently noted that Texas courts have not adopted the inevitable disclosure doctrine. See Cardoni v. Prosperity Bank, 805 F.3d 573, 589-90 (5th Cir. 2015). In Cardoni, invoking many of the same older decisions that DGM cites, a former employer argued that Texas law presumes disclosure under the "inevitable disclosure" doctrine. Id. (citing FMC Corp, 677 F.2d at 504-05; Weed Eater, 562 S.W.2d at 902; Conley, 1999 WL 89955, at *8; Rugen, 864 S.W.2d at 552). But the Cardoni court noted that the cases cited, which are the cases DGM relies upon in this case, do not announce a blanket rule applicable to all nondisclosure provisions. 805 F.3d at 589. Rather, the Cardoni court distinguished cases like FMC and Weed Eater which involved trade secrets about manufacturing processes in which it would be virtually impossible to manufacture a similar product for a competitor without using the former employer's trade secrets. Id. The Cardoni court concluded that more recent Texas law has rejected the notion of a categorical rule of inevitable disclosure with regard to all nondisclosure provisions. Id. at 589-90; see also M-I, L.L.C. v. Stelly, No. H-09-CV-01552, 2009 WL 2355498, at *6-7 (S.D. Tex. July 30, 2009) (stating that "inevitable disclosure" is not yet the law in Texas, and noting that Texas courts of appeals have held that when there is no proof of misuse of confidential information, irreparable harm is not presumed); Cardinal Health, 106 S.W.3d at 242-43 (observing that "no Texas case expressly adopt[s] the inevitable disclosure doctrine" and declining to decide whether to adopt the modified version of the inevitable disclosure doctrine adopted by the Rugen and Conley courts).
Like the Cardoni court, we conclude that the inevitable disclosure doctrine has not been adopted by Texas courts and is not a blanket rule applicable to all nondisclosure provisions in Texas. See Cardoni, 805 F.3d at 589-90; see also Cardinal Health, 106 S.W.3d at 242-43 (noting that "no Texas case expressly adopt[s] the inevitable disclosure doctrine" and that it "is unclear to what extent Texas courts might adopt it or might view it as relieving an injunction applicant of showing irreparable harm"); Cameron Int'l Corp. v. Steven Abbiss, No. H-16-2117, 2016 WL 6216667, at *5 n.4 (S.D. Tex. Oct. 25, 2016) (noting that the inevitable disclosure doctrine is not recognized in Texas). Given that GCC was in existence and competing with DGM before it employed Figueroa, this case is unlike FMC or Weed Eater in that it would not be virtually impossible for GCC to offer its services without using DGM's trade secrets. See Cardoni, 805 F.3d at 589-90; FMC, 677 F.2d at 504-05; Weed Eater, 562 S.W.2d at 902. The trial court was not required by the inevitable disclosure doctrine to relieve DGM of its burden to prove a probable, imminent, and irreparable injury. Accordingly, viewing the evidence in the light most favorable to the trial court's denial of the temporary injunction, we conclude that the trial court did not abuse its discretion in denying DGM's request for a temporary injunction. See Cardinal Health, 106 S.W.3d at 236 (holding trial court's order could be sustained on implicit finding that former employer had adequate legal remedy where evidence did not establish probable injury); Shoreline, 2008 WL 1747624, at *11-12 (affirming denial of temporary injunction and holding former employer only established fear or apprehension of possibility of injury); W.R. Grace, 2007 WL 2389547, at *3 n.3 (affirming denial of temporary injunction because former employer did not prove irreparable injury or that it had no adequate legal remedy for any harm allegedly suffered).
We overrule DGM's sole issue.
Conclusion
We affirm the trial court's order denying a temporary injunction.
Rebeca Huddle
Justice Panel consists of Justices Massengale, Brown, and Huddle.