Opinion
NO. 14-18-01071-CV
04-07-2020
INSGROUP, INC., Appellant v. JEFFREY A. LANGLEY AND ALLIANT INSURANCE SERVICES, INC., Appellees
On Appeal from the 189th District Court Harris County, Texas
Trial Court Cause No. 2018-82219
MEMORANDUM OPINION
This is an interlocutory appeal from a trial court's order denying a request for temporary injunction. See Tex. Civ. Prac. & Rem. Code Ann. § 51.014(4). The request for temporary injunction arises out of a suit filed by Insgroup, Inc. in which Insgroup alleged that Jeffrey A. Langley, its former employee, breached his contract of employment, specifically the non-competition clause of the employment contract. Insgroup also alleged a cause of action for tortious interference with contract in which Insgroup alleged Langley tortiously interfered with Insgroup's contracts with its clients.
In three issues Insgroup argues the trial court abused its discretion in denying its motion for temporary injunction because (1) Insgroup clearly established the likelihood of success on the merits and irreparable injury; (2) the trial court ignored common-law and statutory obligations of an employee to his employer; and (3) the trial court improperly based its decision on Langley's assertion of an affirmative defense. Because Insgroup did not meet its burden to show a probable right to relief, we overrule Insgroup's issues and affirm the order denying temporary injunction.
BACKGROUND
The plaintiff in this case is an insurance company. The defendants are Langley, who worked for Insgroup from 2015 through 2018, and Alliant, another insurance company for whom Langley began working in November 2018.
In May 2015 Langley began selling insurance for Insgroup. Langley signed a Producer Agreement (the Agreement), which was for a one-year term that would be automatically renewed each year. The Agreement could be terminated by either party giving at least 60 days' written notice. As to compensation, the Agreement provided that Langley would be compensated in the form of salary plus commissions on a sliding salary scale for the first three years. The Agreement also provided a commission schedule under which Langley would be compensated. It is undisputed that after the third year of the Agreement Langley would no longer receive a salary and would be paid on commission alone.
Insgroup agreed to provide Langley with certain confidential information in the form of client lists including what Insgroup called Restrictive Accounts. In exchange for this information Langley agreed to be bound by a non-compete provision, which stated in material part that he would not solicit business from the Restrictive Accounts, and that he would not divert business from Insgroup. The Agreement bound Langley to these provisions for two years.
In May 2018, when the Agreement was set to automatically renew, Langley discussed his compensation with a supervisor. Langley understood that he would no longer receive a salary from Insgroup and asked whether he would still have health insurance, workers' compensation coverage, and the ability to participate in a 401k plan. A human resources representative did not specifically answer Langley's questions about benefits but told him not to "worry about it." In June 2018, the first month Langley was not paid a salary, Langley learned that he was unable to contribute to the firm's 401k program. Langley remained unsure about his eligibility for health insurance and other benefits.
In August 2018 Langley was given another Producer Agreement, which changed his employment status to that of an independent contractor. The new agreement also removed undefined "fringe benefits" and workers' compensation benefits. Langley refused to sign the new agreement. Effective June 1, 2018, Insgroup paid Langley as an independent contractor despite the fact that the Agreement had automatically renewed and Insgroup had not given 60 days' notice of termination of the Agreement. Insgroup did not withhold payroll taxes, deduct health insurance premiums, or withhold contributions for a 401k. Insgroup proceeded as if Langley had signed the new agreement, which he had not.
Langley subsequently accepted employment with Alliant in November 2018. Insgroup learned that after Langley began working for Alliant, he approached three of Insgroup's clients from the Restrictive Accounts list. Based on Langley's contact of the clients Insgroup sued Langley for breach of the non-compete agreement and tortious interference with the contracts with Insgroup's clients. Insgroup subsequently amended its petition to include causes of action alleging tortious interference against Alliant, breach of fiduciary duty against Langley, and violation of the Texas Uniform Trade Secrets Act against Langley.
Before it filed its second-amended petition Insgroup sought injunctive relief seeking to enjoin Langley from:
(a) Sending the broker of record or agent of record letters for Apache Services or Morrell Supply to any insurance provider;
(b) Contacting any representative or employee for any Restricted Account of Insgroup, as that term is defined in the Agreement and recited herein;
(c) Diverting business from Insgroup;
(d) Interfering with the Goodwill of Insgroup, as that term is defined in the Agreement and recited herein;
(e) Soliciting or otherwise attempting to obtain or accept insurance or financial services business from any Restricted Account;
(f) Aiding or assisting anyone else in soliciting or attempting to obtain or accepting insurance or financial services business from any Restricted Account;
(g) Using, disclosing, or permitting others to use Insgroup's Confidential Information/Trade Secrets, as those terms are defined in the Agreement and recited herein, for Defendant's own benefit, for the benefit of others, and/or for a purpose other than the furtherance of Insgroup's business interest without Insgroup's written consent; and
(h) Serving as an advisor or consultant for any Restricted Account with respect to insurance or financial services matters.
Langley responded to Insgroup's application for temporary injunction arguing that Insgroup could not establish a probable right to relief because (1) the non-compete covenant was overbroad and unenforceable; and (2) Insgroup materially breached the agreement containing the non-compete covenant. Langley further argued that Insgroup could not establish irreparable harm because (1) any harm could be remedied by monetary relief; and (2) the Agreement's acknowledgement that irreparable harm would occur in the event of a breach failed to independently establish irreparable harm.
The trial court held a hearing on the application for temporary injunction at which Ryan Shinkle, executive vice president at Insgroup, and Langley testified. Langley testified that when he signed the Agreement with Insgroup he understood that he would have all the benefits of an employee with a sliding salary scale. Langley had been an independent contractor at another firm and sought employment that would provide him with health insurance and the ability to participate in a 401k program. Langley understood that his salary would eventually be phased out but did not understand that he would lose his status as an employee and would be classified as an independent contractor.
In May 2018 Shinkle and Langley discussed Langley's compensation once the salary provisions ended. Langley asked whether he would still have health insurance, workers' compensation coverage, and the ability to participate in a 401k plan. Shinkle told Langley he did not know the answers to Langley's questions. A human resources representative advised Langley to form a limited liability corporation because he would be paid as an independent contractor. The human resources representative did not specifically answer Langley's questions about benefits but told him not to "worry about it." In June 2018, the first month Langley was not a salaried employee, Langley contacted the 401k provider, who told Langley he could no longer contribute to the 401k. When Langley tried to establish an Individual Retirement Account and transfer his 401k funds into the account, the 401k provider would not transfer the funds telling Langley it could not transfer the funds because he was "still with Insgroup."
Shinkle testified that Langley signed the Agreement in 2015 and his employment terminated November 12, 2018. The day after Langley resigned, Insgroup learned that certain clients signed "broker of record" letters with Langley's new employer. Shinkle testified that Langley continued to receive health insurance benefits but Insgroup no longer paid its portion of payroll tax and Langley was no longer eligible for Insgroup's 401k plan.
As to damages Shinkle testified Insgroup would suffer "hundreds of thousands of dollars" in lost commissions. With regard to non-monetary harm Shinkle testified Insgroup would be severely hindered in its ability to renew accounts. Insgroup reached out to the clients that Langley had signed and was able to get one client, Apache, to rescind the broker of record letter with Alliant.
At the end of the hearing the trial court stated on the record that the geographic and customer restrictions in the non-compete clause were reasonable, but the two-year time period was excessive. The trial court further stated that by failing to pay Langley as an employee under the Agreement, Insgroup had materially breached the Agreement, which, by its terms, had been renewed. The trial court denied Insgroup's application for temporary injunction on the grounds that Insgroup had failed to show a probable right to relief because the non-compete time period was excessive and Insgroup had materially breached the renewed contract.
After the trial court denied Insgroup's application for temporary injunction Insgroup filed a motion for reconsideration. In its motion for reconsideration Insgroup argued that Langley continued as an enrollee in Insgroup's group health insurance plan after May 20, 2018. Insgroup attached Shinkle's affidavit to the motion for reconsideration. In the affidavit Shinkle stated that Langley was enrolled in Insgroup's health insurance plan at the time he left Insgroup.
Also attached was the affidavit of Charlene Ulmer, a senior account manager of Insgroup. Ulmer averred that Langley had misrepresented to Apache, a client, that Insgroup and Alliant were merging. According to Ulmer, Langley used this misrepresentation to lure Apache away from Insgroup as a client. Ulmer also averred that the harm to Insgroup from this action was "impossible" to measure because Insgroup could not calculate how many years Apache might have been an Insgroup client and how much money would have been lost in commissions. Shinkle testified at the hearing, however, that Apache subsequently withdrew its broker letter with Alliant.
William Covington, a vice president at Insgroup, filed an affidavit in which he averred that Langley had also signed Morrell, another client. Covington was able to thwart Langley's attempt to sign a third client by contacting them before Langley could contact them but averred that "the harm to Insgroup posed by Mr. Langley is imminent."
Insgroup also filed a second amended petition, which added causes of action for breach of fiduciary duty and violation of the Texas Uniform Trade Secrets Act (TUTSA). Insgroup sought, for the first time, injunctive relief pursuant to the TUTSA. See Tex. Civ. Prac. & Rem. Code Ann. § 134A.003. Insgroup presented no evidence of trade secrets that had been misappropriated by Langley or how the trial court's order denying temporary injunction violated the TUTSA.
JURISDICTION
Langley first argues that this court lacks jurisdiction over this appeal because Insgroup is attempting to appeal from the denial of its motion for reconsideration rather than the denial of its application for temporary injunction. Langley asserts that pursuant to section 51.014 of the Texas Civil Practice and Remedies Code Insgroup can only appeal from the trial court's order denying the application for temporary injunction and cannot appeal from the order denying the motion for reconsideration.
In City of Houston v. Estate of Jones, 388 S.W.3d 663 (Tex. 2012) (per curiam), the Texas Supreme Court addressed whether the City of Houston was entitled to a second appeal under section 51.014(a)(8), which permits an interlocutory appeal from an order that grants or denies a plea to the jurisdiction by a governmental unit.
In holding that the court of appeals lacked interlocutory appellate jurisdiction over the City of Houston's appeal, the supreme court noted that parties may appeal certain interlocutory orders, but that section 51.014, which must be "strictly construe[d]" as a "narrow exception to the general rule that only final judgments are appealable," requires the party to file a notice of appeal within twenty days of the date the challenged order was signed to invoke interlocutory appellate jurisdiction. Id. at 666-667.
The court reasoned that allowing an interlocutory appeal in that case—in which the trial court denied the City of Houston's plea to the jurisdiction, the City of Houston failed to take advantage of its ability to challenge that ruling via interlocutory appeal, the City of Houston subsequently filed an amended plea raising the same immunity argument, and the trial court also denied the amended plea—"would effectively eliminate the requirement that appeals from interlocutory orders must be filed within twenty days after the challenged order is signed." Id. at 667; see also Bally Total Fitness Corp. v. Jackson, 53 S.W.3d 352, 358 (Tex. 2001) (stating, in class decertification context, "Allowing interlocutory appeals whenever a trial court refuses to change its mind . . . would invite successive appeals and undermine the [interlocutory appeal] statute's purpose of promoting judicial economy"). The court concluded that because the City of Houston did not assert a new ground of immunity in its amended plea, the amended plea was "substantively a motion to reconsider the denial of its [original] plea." Estate of Jones, 388 S.W.3d at 667. The supreme court held that the court of appeals "did not have jurisdiction to consider any part of the merits of the interlocutory appeal." Id.
The issue encountered in Estate of Jones is not presented in this case. While Insgroup does complain of the trial court's denial of its motion for reconsideration in its notice of appeal, Insgroup timely appealed the trial court's order denying its application for temporary injunction. The trial court's order was signed November 27, 2018, and Insgroup filed its notice of appeal December 10, 2018, within 20 days of the trial court's order. We therefore have jurisdiction to consider Insgroup's appeal. See Tex. R. App. P. 26.1.
ANALYSIS
Insgroup challenges the trial court's denial of its application for temporary injunction arguing the trial court abused its discretion (1) because Insgroup clearly established the likelihood of success on the merits and irreparable injury; (2) by ignoring the common-law and statutory obligations of an employee to an employer; and (3) by basing its decision on Langley's affirmative defense. We conclude that the trial court did not abuse its discretion in denying the temporary injunction.
I. Temporary injunction requirements and review
The purpose of a temporary injunction is to preserve the status quo of the subject matter of the litigation pending a trial on the merits. Butnaru v. Ford Motor Co., 84 S.W.3d 198, 204 (Tex. 2002). A temporary injunction is an extraordinary remedy and does not issue as a matter of right. Id. To obtain a temporary injunction under equitable principles, the applicant must plead and prove (1) a claim against the defendant, (2) a probable right to the relief sought, and (3) a probable, imminent, and irreparable injury in the interim. Id.; Hsin-Chi-Su v. Vantage Drilling Co., 474 S.W.3d 284, 295 (Tex. App.—Houston [14th Dist.] 2015, pet. denied).
To show a probable right to relief on a claim, the applicant is not required to establish that it will prevail at trial on the merits. Hsin-Chi-Su, 474 S.W.3d at 295. With regard to imminent and irreparable injury in the interim, an injury is considered irreparable if the party cannot be adequately compensated in damages or if those damages are incapable of calculation. See Butnaru, 84 S.W.3d at 204; N. Cypress Med. Ctr. Operating Co., Ltd. v. St. Laurent, 296 S.W.3d 171, 175 (Tex. App.—Houston [14th Dist.] 2009, no pet.). An adequate remedy at law is one that is "as complete, practical, and efficient to the prompt administration of justice as is equitable relief." Tex. Black Iron, Inc. v. Arawak Energy Int'l Ltd., 527 S.W.3d 579, 584 (Tex. App.—Houston [14th Dist.] 2017, no pet.).
We review a trial court's order granting temporary injunctive relief for a clear abuse of discretion. Henry v. Cox, 520 S.W.3d 28, 33 (Tex. 2017). In reviewing the order, we view the evidence in the light most favorable to the trial court's ruling, indulging every reasonable inference in its favor. LasikPlus of Tex., P.C. v. Mattioli, 418 S.W.3d 210, 216 (Tex. App.—Houston [14th Dist.] 2013, no pet.). We do not review or decide the underlying merits of the case, but instead limit our review to the validity of the order. Henry, 520 S.W.3d at 33-34. The trial court does not abuse its discretion if some evidence reasonably supports its ruling. Id. at 34. A trial court abuses its discretion if it misapplies the law to the established facts of the case. Tex. Black Iron, Inc., 527 S.W.3d at 584.
Insgroup argues, in its first issue, that the trial court abused its discretion in denying the temporary injunction because Insgroup established a probable right of recovery and irreparable injury.
II. The trial court did not abuse its discretion because Insgroup did not establish a probable right of recovery.
To be enforceable, noncompetition provisions must contain limitations as to time, geographic area, and scope of activity to be restrained that are reasonable and do not impose a greater restraint than necessary to protect the goodwill or other business interest of the employer. See Tex. Bus. & Com. Code Ann. § 15.51(c); Marsh USA, Inc. v. Cook, 354 S.W.3d 764, 768 (Tex. 2011) ("Covenants that place limits on former employees' professional mobility or restrict their solicitation of the former employers' customers and employees are restraints on trade and are governed by the [Covenants Not to Compete] Act.").
A party who wrongfully breaches a contract provision favorable to another cannot secure, by injunction, the enforcement of another contract provision favorable to it. Am. Ship & Indus. Cleaning Corp. v. Parrish, 596 S.W.2d 244, 245 (Tex. Civ. App.—Houston [14th Dist.] 1980, no writ). An employer cannot wrongfully breach a provision of an employment contract that is favorable to the employee (such as reducing his wages without his consent and without contractual authority to do so) and then go into a court of equity to secure, by injunction, the enforcement of another provision favorable to it. Norris of Houston, Inc. v. Gafas, 562 S.W.2d 894, 896 (Tex. Civ. App.—Houston [1st Dist.] 1978, writ ref'd n.r.e.).
Reviewing the evidence in the light most favorable to the trial court's order, evidence at the temporary injunction hearing established that the Agreement, by its terms, renewed in May 2018. The Agreement permitted either party to terminate it with 60 days' notice to the other party. Insgroup breached the agreement by failing to continue to pay Langley as an employee. As to Langley's employment status, the Agreement provides, "The parties hereby mutually agree that Producer shall be an employee of Agency." By contrast, the new producer agreement that Langley refused to sign stated that, "The parties hereby mutually agree that Producer shall be an Independent Contractor." While the Agreement provided that Langley would not be a salaried employee at the end of its first three years, it did not provide that Langley would be treated by Insgroup as an independent contractor, and Langley does not argue that not receiving a salary made Langley an independent contractor as a matter of law. Langley testified at the hearing that he did not sign the new agreement because, as an independent contractor as opposed to an employee, he would not be entitled to insurance benefits, would have to pay income taxes as a self-employed individual, and would lose the ability to contribute to a 401k retirement plan.
Insgroup essentially terminated the agreement without the appropriate notice and proceeded to treat Langley as an independent contractor as if he had signed the new agreement presented to him. Insgroup ceased to treat Langley as an employee of the agency as it had agreed to do. The evidence is conflicting as to whether Insgroup continued to pay Langley's health insurance benefits, but the evidence is uncontroverted that Insgroup stopped paying Langley's portion of payroll taxes and ended Langley's ability to participate in its 401k program.
The trial court made an oral finding at the hearing that by doing so Insgroup had materially breached the Agreement, which contains the noncompete clause. Insgroup breached a portion of the Agreement that was favorable to Langley; Insgroup cannot then attempt to obtain enforcement of a portion of the Agreement favorable to Insgroup through an injunction. See Parrish, 596 S.W.2d at 245. Because Insgroup breached the portion of the agreement favorable to Insgroup, it has failed to show entitlement to injunction based on Langley's breach of another portion of the same agreement. See generally Neeley v. West Orange-Cove Consol. Sch. Dist., 176 S.W.3d 746, 812 n. 82 (Tex. 2005) (A party seeking an equitable remedy such as an injunction, must do equity and come into court with clean hands). The trial court did not abuse its discretion in finding Insgroup failed to show a probable right to recovery. We overrule Insgroup's first issue without addressing whether it established irreparable harm.
III. The trial court did not abuse its discretion in considering Insgroup's material breach of the Agreement.
In its third issue Insgroup argues that the trial court was not authorized to consider Langley's affirmative defense to the breach-of-contract action. Citing DeVilbiss v. West, 600 S.W.2d 767, 768 (Tex. 1980), Insgroup argues that consideration of Insgroup's breach of the Agreement inappropriately determines the merits of the underlying dispute. In DeVilbiss, the supreme court held that an appellate court is not to review the merits of the case on the basis of evidence introduced at a preliminary hearing. Id.
The ultimate merits of the controversy, both legal and factual issues, are not before the trial court. EMS USA, Inc. v. Shary, 309 S.W.3d 653, 658 (Tex. App.—Houston [14th Dist.] 2010, no pet.). Moreover, we do not assume that the evidence presented at the injunction hearing is the same as the evidence that will be developed at a full trial on the merits. Id. Our decision is expressly limited to whether the trial court's interlocutory order was an abuse of discretion and, like the temporary injunction, has no bearing on the ultimate merits of the case. See HMS Holdings Corp. v. Pub. Consulting Group, Inc., No. 05-15-00925-CV, 2016 WL 1179436, at *2 (Tex. App.—Dallas Mar. 28, 2016, no pet.) (mem. op.). While the merits of the suit are not presented for review, we are bound to review the trial court's order to determine whether some evidence supports the trial court's decision. See Butnaru, 84 S.W.3d at 211.
In that regard we are not prohibited from considering the evidence presented at the hearing. The trial court heard evidence that Insgroup stopped paying Langley's payroll taxes and prohibited his participation in the firm's 401k program. In considering Ingroup's probable right of recovery, the trial court determined that those actions constituted a material breach of a portion of the Agreement favorable to Langley. Nothing in the DeVilbiss decision prohibits this court from reviewing the evidence the trial court considered. While Langley may or may not recover on final trial, the trial court did not abuse its discretion in considering evidence that Insgroup breached a portion of the agreement favorable to Langley. We overrule Insgroup's third issue.
IV. The trial court did not fail to give effect to common-law principles and statutory protections for Insgroup's proprietary information.
In its second issue Insgroup argues that the trial court "failed to give effect to Texas common law principles and statutory protections for Insgroup's proprietary information." Insgroup first argues that we are bound to apply common-law principles in our review of the trial court's denial of temporary injunction rather than apply the Texas Covenants Not to Compete Act. We agree and have applied common-law principles in our review of the trial court's order. See EMSL Analytical, Inc. v. Younker, 154 S.W.3d 693, 695 (Tex. App.—Houston [14th Dist.] 2004, no pet.) (An appeal of an order granting or denying a temporary injunction based on a noncompete covenant does not present for appellate review the ultimate question of whether the covenant is enforceable under the Covenant Not to Compete Act).
Insgroup further argues that the trial court should have issued a temporary injunction to protect Insgroup's confidential information. Insgroup argues that Langley "admittedly used information gleaned while he was employed by Insgroup when he approached Ingroup's clients after tendering his resignation[.]"
On the same day Insgroup filed a motion for reconsideration of the trial court's order it filed a second-amended petition alleging violation of the TUTSA. The TUTSA permits injunctive relief for misappropriation of trade secrets. See Tex. Civ. Prac. & Rem. Code Ann. § 134A.003; Sw. Energy Prod. Co. v. Berry-Helfand, 491 S.W.3d 699, 711 (Tex. 2016). Although Insgroup filed a motion for reconsideration at the same time it amended its pleading Insgroup did not argue its TUTSA claim before the trial court.
Insgroup did not amend its pleading to include a misappropriation-of-trade-secrets claim until after the trial court denied the temporary injunction. In determining whether to grant trade secret protection by a temporary injunction, a trial court does not determine whether the information sought to be protected is, in law and fact, a trade secret; rather, the trial court determines whether the applicant has established that the information is entitled to trade secret protection until the trial on the merits. IAC, Ltd. v. Bell Helicopter Textron, Inc., 160 S.W.3d 191, 197 (Tex. App.—Fort Worth 2005, no pet.). Here, the trial court did not make a determination whether to grant trade secret protection because that issue was not raised in the trial court. In failing to argue this issue before the trial court Insgroup has not preserved this issue for review. See Tex. R. App. P. 33.1. We overrule Insgroup's second issue.
CONCLUSION
Having overruled each of Insgroup's issues we affirm the trial court's order denying the application for temporary injunction.
/s/ Jerry Zimmerer
Justice Panel consists of Justices Zimmerer, Spain, and Hassan.