Opinion
2016 CA 0015
12-22-2016
ENVIROZONE, LLC v. THE TARP DEPOT, INC. & FREDERICK W. PILE
Sam J. Collett, Jr. Paul J. Mayronne Bailey D. Morse Covington, Louisiana Counsel for Plaintiff/Appellant Envirozone, LLC John B. Dunlap, III Jennifer A. Fiore Susan N. Eccles Katelin H. Varnado Baton Rouge, Louisiana Counsel for Defendants/Appellees The Tarp Depot, Inc. & Frederick W. Pyle
NOT DESIGNATED FOR PUBLICATION
On Appeal from the Nineteenth Judicial District Court In and for the East Baton Rouge State of Louisiana
No. 641821 Honorable Donald R. Johnson, Judge Presiding Sam J. Collett, Jr.
Paul J. Mayronne
Bailey D. Morse
Covington, Louisiana Counsel for Plaintiff/Appellant
Envirozone, LLC John B. Dunlap, III
Jennifer A. Fiore
Susan N. Eccles
Katelin H. Varnado
Baton Rouge, Louisiana Counsel for Defendants/Appellees
The Tarp Depot, Inc. & Frederick W. Pyle BEFORE: WHIPPLE, C.J., GUIDRY, AND McCLENDON, JJ. McCLENDON, J.
Appellant seeks review of the trial court's judgment that denied its request for a preliminary injunction and dismissed its suit. For the following reasons, we affirm the judgment in part, vacate the judgment in part, and remand the matter to the trial court.
FACTS AND PROCEDURAL HISTORY
Envirozone, LLC, a company located in Prairieville, Louisiana, and The Tarp Depot, Inc., a company located in Houston, Texas, are competitors in the hazardous and non-hazardous waste business. In 2006, Tarp Depot, in an effort to expand its product offerings to its customers, began purchasing certain products from Envirozone. Thereafter, Envirozone began purchasing certain products, including filter bags, from Tarp Depot. Although the two companies were competitors, they purchased products from one another in situations where one company was able to produce a particular item at a cost lower than the other.
On October 11, 2007, Envirozone, through its manager Korey Blanchard, and The Tarp Depot, through its president Frederick Pyle, entered into reciprocal confidentiality agreements. According to Mr. Blanchard, he sought the confidentiality agreement because Envirozone's customers would have no incentive to purchase a product from Envirozone if the customers were aware that Envirozone was purchasing these products from Tarp Depot.
Subsequently, Envirozone learned that Mr. Pyle had informed Rain for Rent, one of Envirozone's customers, that Tarp Depot was making filter bags for Envirozone. As a condition of continuing to do business with Tarp Depot, Mr. Blanchard requested that the two companies, in addition to the confidentiality agreements, execute a separate non-compete agreement. Accordingly, on December 21, 2007, the two companies through Mr. Blanchard and Mr. Pyle executed a non-compete agreement that prohibited Tarp Depot from selling certain products to Rain for Rent, Phillip Services Corporation, and any affiliates of those two companies, which companies comprised roughly 30% of Envirozone's gross sales.
The business relationship between Envirozone and Tarp Depot continued from 2007 through March 2015. During that time period, Envirozone sold approximately $800,000.00 in products to Tarp Depot, and Tarp Depot sold approximately $1,100,000.00 in products to Envirozone.
Mr. Pyle indicated that at some point prior to 2012, he was advised the non-compete agreement may not be enforceable. Nevertheless, on March 2, 2015, Tarp Depot sent Envirozone correspondence that allegedly terminated all agreements between the two companies effective March 10, 2015. After he wrote the letter purportedly terminating the agreement, Mr. Pyle testified that Tarp Depot began competing against Envirozone with those specific customers listed in the non-compete agreement. Mr. Pyle denied that Tarp Depot intentionally solicited any business from the companies covered in the agreement during the existence of the non-compete agreement.
However, the record reflects sales between Tarp Depot and Rain for Rent occurred on April 3, 2014, July 8, 2014, and November 13, 2014, while the non-compete was purportedly still in place. Mr. Pyle acknowledged these sales, but testified that Tarp Depot did not solicit Rain for Rent's business. On the other hand, Envirozone submits that these sales are representative examples of sales made contrary to the non-compete agreement that Envirozone has been able to identify prior to full discovery. Envirozone avers that the total amount of products Tarp Depot sold to Rain for Rent and Phillip Services Corporation during this time period is currently unknown, but may be revealed through full discovery.
On August 27, 2015, Envirozone filed a "Petition for Declaratory Judgment and Injunctive Relief," which sought a declaration that the confidentiality agreements and the non-compete agreement were valid and enforceable and not subject to termination by the March 2, 2015 correspondence. Envirozone also sought a preliminary and permanent injunction to enjoin "The Tarp Depot, Inc. and Frederick W. Pyle ... from soliciting and/or selling products to the two (2) Protected Parties and in any manner disclosing confidential or proprietary information obtained by The Tarp Depot, Inc., and Frederick W. Pyle from EnviroZone, LLC as set forth more particularly in accordance with the terms and conditions of the Non-Compete Agreement ... and the Confidentiality Agreement."
On September 21, 2015, the trial court considered the preliminary injunction. At the beginning of the hearing, both parties agreed, and the trial court acknowledged, that the only matter currently before the trial court was the preliminary injunction. Mr. Blanchard and Mr. Pyle were the only two witnesses called to testify at the hearing.
Mr. Blanchard testified at the hearing that Envirozone's first dealings with Tarp Depot began when Envirozone provided to Tarp Depot liners at a reduced price. Once Tarp Depot began purchasing items from Envirozone, Mr. Pyle asked Mr. Blanchard to expand that relationship by Envirozone purchasing items from Tarp Depot. Eventually, Envirozone decided to purchase filter bags from Tarp Depot. Because Tarp Depot, Envirozone's competitor, was making Envirozone's filter bags, Mr. Blanchard indicated that he had an attorney draft confidentiality agreements for both companies wherein each party promised to treat the information received from the other company as confidential. The confidentiality agreements were signed by both parties. After the agreements had been executed, Mr. Blanchard, in an effort to help Tarp Depot produce the bags at a cheaper cost, introduced Mr. Pyle to an Envirozone vendor, Tencate, which Envirozone had been utilizing to purchase the raw materials for its bags. According to Mr. Blanchard, he persuaded Tencate to give Tarp Depot the benefit of preferential pricing that had been previously given to Envirozone by Tencate. Mr. Blanchard also testified that he provided confidential information to Tarp Depot, including information about Envirozone's annual sales volumes and cost structure.
Mr. Blanchard also testified that Envirozone had approximately 160 customers, with Rain for Rent and Philip Services Corporation being two of the most significant. Given that Tarp Depot was located in Houston, and both Rain for Rent and Philip Services had branches in Houston, Mr. Blanchard believed that this geographical location could give Tarp Depot an unfair competitive advantage with these two companies. Therefore, Envirozone proposed and drafted a non-compete agreement restricting Tarp Depot from soliciting or selling to these two companies. The non-compete agreement was later signed by Mr. Pyle without objection. After the non-compete agreement was signed, Mr. Blanchard provided Tarp Depot with detailed information on Envirozone's sales volumes, including one e-mail marked "confidential."
According to Mr. Pyle's testimony, there was mutual agreement for the two companies to have a closer relationship, and he had no objection to executing confidentiality agreements. Mr. Pyle also testified that while Envirozone may have introduced Tarp Depot to Tencate, Tarp Depot negotiated its own price with Tencate. Mr. Pyle indicated that Mr. Blanchard had shared information about the volume of filter bags sold by Envirozone. Moreover, Mr. Pyle acknowledged that Mr. Blanchard wanted to keep the fact that Tarp Depot was manufacturing filter bags for Envirozone confidential, and that Envirozone shared information with Tarp Depot that he would not have shared with a competitor. Mr. Pyle testified that both companies benefitted from the arrangement because they both received preferential pricing from each other. Mr. Pyle also acknowledged that Envirozone did not purchase any products from Tarp Depot until the confidentiality agreements were executed. According to Mr. Pyle, he took action in March 2015 to rescind the confidentiality and non-compete agreements.
At the conclusion of the hearing, the trial court took the matter under advisement and reiterated that the only issue before it was the preliminary injunction. On October 8, 2015, the trial court issued written reasons for judgment, noting that it found the confidentiality agreement in favor of Envirozone to be valid and enforceable, but that it was properly terminated by the March 2, 2015 correspondence. The trial court also found the non-compete agreement to be null and void under LSA-R.S. 23:921 because Envirozone and Tarp Depot were not on equal footing. The trial court found that Envirozone was not entitled to injunctive relief and that its petition should be dismissed. On October 21, 2015, the trial court signed a judgment memorializing its written reasons, dismissing Envirozone's "Petition for Injunctive Relief and Declaratory Judgment."
Envirozone has appealed, assigning the following as error:
1. The trial court erred in rendering a final judgment on the merits at the conclusion of the preliminary injunction hearing.
2. Trial court erred in failing to recognize that plaintiff has made a prima facie case for relief and in failing to grant a preliminary injunction.
DISCUSSION
In its first assignment of error, Envirozone contends that the trial court erred in rendering a final judgment on the merits at the conclusion of the preliminary injunction hearing. In Barber v. Louisiana Workforce Comm'n, 15-1700 (La. 10/9/15), 176 So.3d 398, the Louisiana Supreme Court stated:
The only issue to be considered at a hearing on a preliminary injunction is whether the moving party has met its burden of proving that it will suffer irreparable injury, loss, or damage if the injunction is not issued, that it is entitled to the relief sought as a matter of law, and that it will likely prevail on the merits of the case. However, in the instant case, the district court's declaration of unconstitutionality was in effect a ruling on the merits of plaintiffs' petition for declaratory relief. There is nothing in the record to suggest that the parties agreed to try the declaratory action at the hearing on the preliminary injunction. Thus, the issue of the constitutionality of the statute was not ripe for determination. (Internal Citations Omitted.)Similarly, in Holy Cross Neighborhood Ass'n v. City of New Orleans, 14-1317 (La.App. 4 Cir. 9/9/15), 176 So.3d 476, 478-79, the appellate court stated:
We find that when the trial court declared the ordinance ineffective, it went beyond the limited legal issues regarding the preliminary injunction that were before the court. In the instant case, the district court's declaration of the ordinance's ineffectiveness was in effect a ruling on the merits of the Neighborhood Association's petition for declaratory relief. There is nothing in the record to suggest that the parties agreed to try the declaratory action at the hearing on the preliminary injunction. Thus, the issue of the statute's validity was not ripe for determination.Further, in Equitable Petroleum Corp. v. Central Transmission, Inc., 15,267 (La.App. 2 Cir. 5/6/83), 431 So.2d 1084, 1087, the appellate court noted that "[u]nless the parties expressly agree to submit the case for final decision at the hearing on the rule for a preliminary injunction, the principal demand for a permanent injunction is determined on its merits only after a full trial under ordinary process, even though the summary hearing on the rule for a preliminary injunction may tentatively decide merit-issues."
In this case, both the parties and the trial court recognized before and after the hearing that the sole matter before the trial court was whether a preliminary injunction should issue. Nevertheless, in its judgment, the trial court decided the merits of Envirozone's claims for a permanent injunction and a declaratory judgment, and dismissed Envirozone's action. However, these issues were not ripe for determination. As such, we find merit in Envirozone's first assignment of error and will vacate the trial court's ruling to the extent it determined the merits of Envirozone's claims for the permanent injunction and the declaratory judgment.
A preliminary injunction is essentially an interlocutory order issued in summary proceedings incidental to the main demand for permanent injunctive relief. It is designed to and serves the purpose of preventing irreparable harm by preserving the status quo between the parties pending a determination on the merits of the controversy. Concerned Citizens for Proper Planning, LLC v. Parish of Tangipahoa, 04-0270 (La.App. 1 Cir. 3/24/05), 906 So.2d 660, 664. Generally, a party seeking the issuance of a preliminary injunction must show that he will suffer irreparable injury if the injunction does not issue and must make a prima facie showing that he will prevail on the merits of the case. LSA-C.C.P. art. 3601; CDI Corp. v. Hough, 08-0218 (La.App. 1 Cir. 3/27/09), 9 So.3d 282, 286-87. The issuance of a preliminary injunction addresses itself to the sound discretion of the trial court and will not be disturbed on review unless a clear abuse of discretion has been shown. Giauque v. Clean Harbors Plaquemine, L.L.C., 05-0799 (La.App. 1 Cir. 6/9/06), 938 So.2d 135, 140, writs denied, 06-1720, 06-1818 (La. 1/12/07), 948 So.2d 150, 948 So.2d 151.
Louisiana Revised Statutes 23:921 declares null and void "[e]very contract or agreement, or provision thereof, by which anyone is restrained from exercising a lawful profession, trade, or business of any kind." However, the general statutory prohibition of certain types of non-compete agreements does not apply between two independent corporations on equal footing. Louisiana Smoked Products, Inc. v. Savoie's Sausage and Food Products, Inc., 96-1716, 96-1727 (La. 7/1/97), 696 So.2d 1373, 1380. When two companies are on equal footing they are free to contract for any object that is lawful, possible, and determined or determinable. Savoie, 696 So.2d at 1380.
In denying Envirozone's prayer for a preliminary injunction, the trial court found that the two companies were not on equal footing such that the prohibition against non-compete clauses found in LSA-R.S. 23:921 applied. In connection with its second assignment of error, Envirozone asserts that the two companies were on equal footing such that the statutory prohibition against non-compete clauses should not apply.
Even if we were to agree that the trial court erred in concluding that the two companies were not on equal footing, it appears from the evidence introduced at the preliminary injunction hearing that the non-compete agreement was cancelled on March 10, 2015. Specifically, paragraph 8 of the non-compete agreement, entitled "Waivers and Amendments," provides that "No ... termination or waiver of any provision of this Agreement ... may in any event be effective unless in writing and signed by the party or parties affected thereby, and then only in the specific instance and for the specific purpose given." Moreover, because the non-compete agreement had no specified duration, it could be terminated at the will of either party by giving notice, reasonable in time and form, to the other party. See LSA-C.C. art. 2024. Mr. Pyle, on behalf of Tarp Depot, sent correspondence to Envirozone cancelling the non-compete agreement effective March 10, 2015. Such cancellation is consistent with the requirements found in the parties' agreement and LSA-C.C. art. 2024. Because Envirozone may no longer be bound by the terms of the non-compete agreement, there is no action with regard to the non-compete agreement to be restrained. Rather, if the non-compete agreement was valid and was breached—issues that we do not resolve herein—Envirozone's remedy may be limited to damages.
Envirozone additionally asserts that the confidentiality agreement, a document separate and distinct from the non-compete agreement, should be enforced. A confidentiality agreement, unlike a covenant not to compete, "cannot be challenged as an unreasonable restraint of trade." NovelAire Technologies, LLC. v. Harrison, 09-1372 (La.App. 4 Cir. 10/13/10), 50 So.3d 913, 918-19 (quoting Louis Altman and Malla Pollack, Callmann on Unfair Competition, Trademarks and Monopolies § 14:6 (4th ed. 2010)). Louisiana courts will enforce an agreement not to use confidential information "if the information used is in fact confidential." Southern Industrial Contractors, LLC v. Western Builders of Amarillo, Inc., 45,779 (La.App. 2 Cir. 12/15/10), 56 So.3d 307, 311. Citing Defcon, Inc. v. Webb, 28,898 (La.App. 2 Cir. 1/22/97), 687 So.2d 639, Envirozone submits that when a business is threatened with loss of confidential information or intangible injury such as loss of competitive advantage, this constitutes irreparable injury warranting injunctive relief, because the monetary value of such injuries is difficult to measure and any damage award is likely to be inadequate. Even if this argument has merit, Envirozone has not indicated what specific confidential information Tarp Depot has in its possession that would place Tarp Depot at a competitive advantage. As such, we cannot conclude that the trial court abused its discretion in failing to grant injunctive relief in this regard. Envirozone's second assignment of error is without merit.
CONCLUSION
For the foregoing reasons, the trial court's October 21, 2015 judgment is affirmed to the extent it denied injunctive relief. We vacate the judgment in all other respects, and remand this matter to the trial court for further proceedings. Costs of this appeal are to be split between the parties.
AFFIRMED IN PART; VACATED IN PART; MATTER REMANDED.
Whipple, J. concurring in part and dissenting in part.
While I agree with the majority's determination that the October 21, 2015 judgment should be vacated insofar as it determined issues beyond Envirozone's request for injunctive relief, I respectfully disagree with the majority's decision to affirm the trial court judgment insofar as it denied all injunctive relief to Envirozone.
The majority concludes that although the trial court may have erred in finding that the parties were not on equal footing, Envirozone was not entitled to injunctive relief as to the non-compete agreement because Tarp Depot's cancellation letter was valid pursuant to LSA-C.C. art. 2024. Additionally, the majority concludes that Envirozone was not entitled to injunctive relief as to the confidentiality agreement because Envirozone did not indicate what specific confidential information Tarp Depot has in its possession. I respectfully disagree.
I first address my disagreement with the trial court's finding that the parties were not on equal footing and thus, that the prohibition against non-compete agreements found in LSA-R.S. 23:921 applied. Tarp Depot may have been a new, relatively small company in 2007 when the non-compete was entered into, however, Mr. Pyle, who was Tarp Depot's president and founder, and who signed the non-compete agreement, had over twenty-six years of experience in the field of environment and industrial waste, including recently selling a prior company in this same field for three million dollars, and Mr. Pyle acknowledged that Tarp Depot had a built-in customer base from this prior company. Moreover, Mr. Pyle continuously acknowledged that the non-compete agreement was mutually beneficial to both Tarp Depot and Envirozone. Importantly, according to Mr. Pyle's own testimony this was not a non-compete agreement arising from two parties not on equal footing, benefiting one party to the detriment of the other. Thus, based on this record, the trial court erred in finding that the non-compete agreement was prohibited by LSA-R.S. 23:921.
Turning next to a discussion of whether the non-compete was actually and properly terminated, the non-compete agreement specifically states that a termination is effective if "signed" by the party "or parties affected." Certainly, the termination of the non-compete agreement herein affects both parties, i.e., Envirozone and Tarp Depot. Accordingly, to terminate the agreement both parties had to sign, which undisputedly was not done. Contracts have the effect of law for the parties. LSA-C.C. art. 1983. If the terms are clear, a court will enforce the contract as written, provided the agreement is not contrary to good morals or public policy. First National Bank of Commerce v. City of New Orleans, 555 So.2d 1345, 1348 (La. 1990). Pretermitting whether both parties were obligated to sign for a valid termination of the contract, here, the contract was not properly terminated under its very terms.
Specifically, while the majority relies on LSA-C.C. art. 2024 to find that the non-compete agreement was properly terminated, this article also requires good faith and reasonable advance notice. Tarp Depot's "cancellation letter" was dated March 2, 2015, was received by Envirozone on March 9, 2015, and purported to cancel the non-compete agreement as of March 10, 2015. Notwithstanding the issue of whether the cancellation was in "good faith," I am unable to find that this constitutes "reasonable advance notice." Thus, I disagree with the majority's finding that the non-compete agreement was validly cancelled by Tarp Depot's March 2, 2015 letter.
Last, with respect to the confidentiality agreement, I disagree with the finding of the majority that Envirozone's claims fall because it did not indicate what specific confidential information Tarp Depot has in its possession. Envirozone and Tarp Depot both testified that the purpose of the non-compete agreement was to ensure that Envirozone's customers would not learn that Envirozone was now purchasing from Tarp Depot products that it used to manufacture, as there was a risk that Envirozone's customers would then buy the product directly from Tarp Depot. Additionally, Mr. Pyle, on behalf of Tarp Depot, candidly acknowledged during his testimony that he had gained information about Envirozone's business and he would not have shared similar information concerning his company absent a confidentiality agreement. Accordingly, I respectfully disagree with the majority and find that Envirozone is entitled to the injunctive relief sought, i.e., to enforce the terms of the confidentiality agreement, as Tarp Depot has acknowledged that it has confidential information and the rationale for the confidentiality agreement is readily apparent from the record.
For the above stated reasons, I respectfully disagree with the majority herein and would reverse the judgment of the trial court in its entirety.