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holding the harm to defendant does not outweigh the harm to a plaintiff in terms of lost customer goodwill and business
Summary of this case from Champion Nat'l Sec., Inc. v. A&A Sec. Grp.Opinion
CIVIL ACTION NO. 3:01-CV-1333-P
December 6, 2001
ORDER
Now before the Court are the following:
1. Plaintiff Evans Consoles Inc.'s Motion for Preliminary Injunction;
2. Defendants' Response to Plaintiff's Application for Preliminary Injunction;
3. Plaintiff's Reply Memorandum in Support of Motion for Preliminary Injunction and Appendix thereto;
4. Defendants' Supplemental Brief in Response to Plaintiff's Application for Preliminary Injunction and Appendix thereto; and
5. Plaintiff's Supplemental Reply Memorandum in Support of Motion for Preliminary Injunction.
On July 12, 2001, Plaintiff applied to the Court for an ex parte temporary restraining order in the above-entitled civil action. The Court denied Plaintiff ex parte relief, converted the application for temporary restraining order into an application for preliminary injunction, and ordered an expedited briefing schedule.
By order of October 4, 2001, the court set the case for hearing on October 18, 2001. The order noted that the parties disputed whether defendant Hoffman Video Systems, Inc. was a competitor of plaintiff Evans Consoles, and defendant Hargus disputed that he received confidential and proprietary information while employed at Evans Consoles. For the reasons set forth below, the Court finds that Plaintiff's request for a preliminary injunction should be granted in part as against defendant Jame Hargus (but only as reformed by the Court pursuant to Tex. Bus. Com. Code § 15.51) and denied in its entirety as against defendant Hoffman Video Systems, Inc.
FACTS
The findings of fact contained in this Order are limited to this grant of preliminary injunction and do not control the ultimate determination of facts at trial.
Background
1. Plaintiff Evans Consoles Inc. ("Evans Consoles") is a Canadian corporation with a principal place of business in the Province of New Brunswick.
2. Defendant Jame Hargus ("Hargus") is a resident and citizen of the state of Texas and resides in Dentòn, Texas.
3. Defendant Hoffman Video Systems, Inc. ("Hoffman") is a California corporation with its headquarters in Glendale, California.Evans Consoles' Business
4. Evans Consoles is in the business of manufacturing and designing technical furniture, desks and computer consoles for technological rooms such as data centers, control centers, trading floors, command centers and other technology-intensive centers, and more recently, through one of its divisions, Evolutia, became a provider of audio/visual systems and services, and of systems and integration services.Evans Consoles' Policies to Protect Confidential Information
5. Evans Consoles' salespersons are employed pursuant to contracts that contain covenants relating to the protection and return of confidential information.Jame Hargus' Employment with Evans Consoles
6. Between approximately November 1, 1989 and May 2000, Hargus worked in various capacities for Evans Consoles. From on or about November 1, 1989 until early 2000, Hargus was a Regional Sales Manager, selling technical furniture to Evans Consoles' customers in his region, which included six (6) states: Texas, Oklahoma, Colorado, Louisiana, New Mexico and Arkansas. During this time period, on or about January 1, 1991, Hargus and Evans Consoles executed a Representation Agreement. The Representation Agreement sets forth obligations on the part of both Hargus and Evans Consoles. In September 1993, Hargus and Evans entered into an Employment Contract.
7. In or about June 2000, Hargus accepted an offer of 500 Voting Common Shares in Evans Consoles, and thereby became a Management Shareholder. As a condition of the offer of the Voting Common Shares and of his designation as Management Shareholder, on or about June 1, 2000, Hargus entered into a "Participation Agreement" with Evans Consoles, under which he "agree[d] to be bound by all the terms and conditions of the Shareholders Agreement." Under the Participation Agreement, Hargus "covenanted] and agree[d]" that he "has received a copy of the Shareholders' Agreement and has reviewed and fully understands the terms and conditions of the Shareholders' Agreement." In addition, on or about September 21, 2000, Hargus signed the Shareholders' First Amending Agreement. In pertinent part, the provisions of the Shareholders' Agreement (or "Contract") to which Hargus agreed to be bound set forth the following:
a. Confidentiality and Non-Disclosure Obligations — Hargus agreed to the non-disclosure of any confidential and proprietary information that he would be provided by Evans Consoles, including information relating to or concerning the customers, products, technology, trade secrets, systems or operations, or other confidential information regarding the property, business and affairs of Evans Consoles. (Shareholders' Agreement ¶ 8.1(a)). The confidentiality clause contained an exception for "information which is or generally becomes available to the public." ( Id. ¶ 8.1(a)(i)).
b. Non-Compete — During his employment and for the Non-Competition Term (defined below), Hargus agreed not to directly or indirectly be employed by any competitor of Evans Consoles or otherwise compete with Evans Consoles in the business in which it is engaged. (Id. ¶ 8.2).
i. "Non-Competition Term" is defined as beginning on the date on which Hargus first became a Management Shareholder of Evans Consoles, and continuing until three (3) years after the happening of certain exit events including, without limitation, the repurchase by Evans Consoles of the shares held by the Management Shareholder following his voluntary resignation from Evans Consoles. ( Id. at Art. 1 (Definitions and Principles of Interpretation at page 9)).
2. "Compete" is defined as follows: "[A] shareholder will be deemed to compete with [Evans Consoles] if, in Alberta, the other Provinces of Canada, North America or anywhere in the world, the Shareholder sells any products or undertakes any contracts or projects which are competitive with: (i) any products produced or sold by [Evans Consoles] or which [Evans Consoles] was considering producing or selling at any time during the Non-Competition Term including any products contemplated by any proposals made or expected to be made by [Evans Consoles] within eighteen (18) months following the Non-Competition Term; or (ii) any projects or contracts undertaken by [Evans Consoles] during the Non-Competition Term including any contracts or projects contemplated by any proposals made or expected to be made with eighteen (18) months following the Non-Competition Term. ( Id. ¶ 8.2(c)(i) and (ii)).
c. Non-Solicitation of Evans Consoles' Employees Customers — Hargus agreed that he would not interfere with the relationship of Evans Consoles and its employees, customers, vendors and suppliers. ( Id. ¶ 8.2(b)).
d. Injunctive Relief — Under the terms of the Shareholders Agreement, the parties agreed that any breach of Hargus' covenants regarding confidentiality, non-competition and/or non-solicitation would result in immediate, direct, irreparable and substantial harm to Evans Consoles, and that Evans Consoles would, therefore, be entitled to injunctive relief. ( Id. ¶ 8.1(b), 8.2(f)).
8. In or about September 2000, Hargus became a Key Accounts Manager, in charge of the Evans Consoles' accounts for Verizon, Lucent and Southwestern Bell, which had global operations. Hargus received an increase in salary from approximately $72,000.00 to $120,000.00 sometime in 2000.
9. On or about April 20, 2001, Hargus informed Evans Consoles that he intended to resign effective May 25, 2001, with his last day at work to be May 11, 2001, taking into account his two (2) remaining weeks of vacation.
10. During Hargus' tenure with Evans Consoles, he was privy to customer lists, financial statements and other confidential information.Jame Hargus' Employment with Hoffman
11. On or about June 2001, Hargus became an employee of Hoffman. Hargus is selling for Hoffman primarily in Texas and Oklahoma.Hoffman's Business
Plaintiff Evans Consoles Inc. resulted from the amalgamation of several prior entities, some extant and some not, and carried on the business of Evans Consoles Inc., a corporation with its offices in Alberta, and also Evans Consoles Incorporated, a Colorado corporation. The Court uses the label "Evans Consoles" to refer to all these entities, not just the New Brunswick, Canada corporation.
Hoffman is in the business of selling video systems, and more recently has begun to offer a "four wall in" approach which includes acoustical, lighting and furniture. Hoffman also markets its audio, video and audio/visual furniture. Hoffman focuses on control room and mission critical facilities. While Hoffman may not always be a manufacturer of the furniture products for the systems it sells (with the exception of the "four-wall in" approach), when Hoffman's clients require furniture for the systems purchased from Hoffman, Hoffman works with a furniture manufacturer to facilitate the provision of such furniture. At the hearing on October 18, Hargus testified he had made four proposals for the sale of video systems on behalf of Hoffman. In two of those proposals, the customer requested information from Hargus about technical furniture.
LEGAL DISCUSSION
I. Factors Considered for Preliminary Injunction
In ruling on a motion for preliminary injunction, the Court must consider whether: (1) there is a substantial likelihood of success on the merits; (2) there is a substantial threat of irreparable injury if the injunction is not granted; (3) the threatened injury to the plaintiff outweighs the threatened injury to the defendant; and (4) granting of the preliminary injunction serves the public interest. Cherokee Pump Equip. Inc. v. Aurora Pump, 38 F.3d 246, 249 (5th Cir. 1994).
II. Likelihood of Success on the Merits as against Defendant Hargus
In its Verified Complaint (the "Complaint"), Evans Consoles alleges in Count 1 that Hargus breached the non-compete covenant in his Contract by working for defendant Hoffman, which Evans Consoles alleges is its competitior. Evans Consoles alleges in Count 2 that Hargus breached the non-solicitation covenant of the Contract by soliciting Evans Consoles' customers for Hoffman. Evans Consoles alleges in Count 3 that Hargus breached the confidentiality covenant of the Contract by using and disclosing Evans Consoles' trade secrets and other confidential and proprietary information to compete with Evans Consoles and solicit Evans Consoles' customers. In Count 7, Evans Consoles alleges that Hargus breached his fiduciary duty to it by misrepresenting the reasons for his resignation so he could avoid his contractual obligations and, upon information and belief, by retaining Evans Consoles' confidential and proprietary information prior to resigning his employment and/or using this information to the benefit of himself and Hoffman and the detriment of Evans Consoles following his resignation. In Count 9, Evans Consoles alleges that Hargus misappropriated its trade secrets. In Count 10, Evans Consoles alleges that Hargus tortiously interfered with its prospective business advantage by soliciting its long-time customers utilizing its trade secrets and confidential and proprietary information. In Count 11, Evans Consoles alleges that Hargus committed fraud by making false representations that he was resigning to engage in employment that was not in competition with Evan Consoles. Finally, in Count 12, Evans Consoles seeks indemnification from Hargus for its expenses in bringing this suit A. Breach of Contract — Counts I — III
Although Evans Consoles may also prevail on the merits of the remaining Counts directed at Hargus, there is no need for the Court to address these Counts as the Court finds for purposes of Evans Consoles' request for injunctive relief that Evans Consoles is likely to prevail on Counts 1and 2, and to a limited extent Count 3.
1. Choice of Law
"[T]he law governing enforcement of non-competition agreements is fundamental policy" and must be judged by Texas law. DeSantis v. Wackenhut, 793 S.W.2d 670, 681 (Tex. 1990). Thus, although the relevant agreement in the above-entitled civil action contains a choice of law clause requiring application of the law of Alberta, Canada, the law concerning the non-competition agreements must be analyzed under Texas law. Id. 2. The Non-Compete Agreement
Under the definition of "compete" set forth in the Shareholders' Agreement at ¶ 8.2(c)(i) and (ii))( see supra at 4) and the evidence presented at the hearing, the Court finds that Evans Consoles and Hoffman are competitors. While employed by Evans Consoles, it is undisputed that Hargus sold technical furniture to its customers. Hoffman's website advertises that it sells a "four wall-in approach," which includes technical furniture. In addition, both parties' internet websites show that they are competitors in systems integration services and control room and mission critical facilities. While Hoffman may not always be a manufacturer of the furniture products for the systems it sells (with the exception of the "four-wall in" approach), when Hoffman's clients require furniture for the systems purchased from Hoffman, Hoffman works with a furniture manufacturer to facilitate the provision of such furniture. Regardless of whether Hoffman actually manufactures the technical furniture, Hoffman still markets the technical furniture to the end-user. The Court further notes that Hoffman has hired another of Evans Consoles' former employees, Kent Brewer, and has filed a lawsuit in state court of Kentucky seeking declaratory and injunctive relief, asking the Kentucky court to declare Brewers' restrictive covenants unenforceable. Hoffman has not argued in that case that it is not a competitor of Evans Consoles. ( Hoffman Media Systems East, LLC and Kent Brewer v. Evans Consoles Incorporated, Civil Action File No. 2001cv37904, in the Superior Court of Fulton County State of Georgia).
The enforceability of the non-compete agreement is a question of law for the Court. Light v. Centel Cellular Co., 883 S.W.2d 642, 643 (Tex. 1994). Section 15.50 of the Texas Business and Commerce Code governs the enforceability of the Contract. This section states:
Notwithstanding Section 15.05 [which generally declares restraints on competition unlawful] of this code, a covenant not to compete is enforceable if it is ancillary to or part of an otherwise enforceable agreement at the time the agreement is made to the extent that it contains limitations as to time, geographical area, and scope of activity to be restrained that are reasonable and do not impose a greater restraint than is necessary to protect the goodwill or other business interest of the promisee.
Tex. Bus. Comm. Code Section 15.50 (Vernon Supp. 1994).
This section applies to the case sub judice because the alleged breach of the non-compete covenant occurred after August 28, 1989. Ruscitto v. Merrill Lynch. Pierce. Fenner Smith. Inc., 777 F. Supp. 1349, 1354(N.D.Tex.),aff'd, 948 F.2d 1286 (5th Cir. 1991). cert. denied, 504 U.S. 930 (1992).
The threshold issue for enforcement of a non-compete covenant is whether (1) there is an otherwise enforceable agreement and (2) the covenant restricting competition is ancillary to that agreement. Light. Then the Court must examine whether the limitations on competition imposed by the non-compete covenant are reasonable and no more restrictive than necessary.
a. Enforceable Agreement
The first inquiry under Light is whether there was an otherwise enforceable agreement other than the non-compete agreement. Light. 883 S.W.2d at 645. Hargus disputes Evans Consoles' argument that the covenant-not-to-compete is ancillary to or part of an otherwise enforceable agreement. He complains that the Court should excuse him from the restrictive covenants because he never read them. The Court rejects Hargus' argument as contrary to established contract law. The evidence shows that on or about June 1, 2000, Hargus signed the Participation Agreement in which he "covenanted] and agree[d]" that he "has received a copy of the Shareholders' Agreement and has reviewed and fully understands the terms and conditions of the Shareholders' Agreement," and would be "bound by all of the terms and conditions of the Shareholders' Agreement." In addition, on or about September 21, 2000, Hargus acknowledged with his signature the Shareholders' First Amending Agreement. "It is a cardinal rule of contract law, recognized by the Supreme Court more than a century ago, that a party is bound by a contract to which he signified his assent and cannot be heard to complain that he did not read its contents." Marsh v. First USA Bank, 103 F. Supp. 909, 919 (N.D. Tex. 2000). See Cajun Electric Power Coop. v. Riley Stoker Corp., 791 F.2d 353 (5th Cir. 1986) ("one is presumed to have read a contract that one signs").
To find an otherwise enforceable agreement, the Court "only need[s] to find one non-illusory promise to establish consideration for the agreement." Curtis v. Ziff Energy Group, 12 S.W.2d 114, 118 (Tex.App. 1999). In June 2000, Hargus entered into a Participation Agreement with Evans Consoles under which he was granted 500 Voting Common Shares in Evans Consoles, a privately held corporation (at the time worth $2,500.00), and made a Management Shareholder of Evans Consoles "on the condition that [he] . . . agrees in writing to become a party to the Shareholders Agreement." Evans Consoles asserts that the intent of the grant was to secure Hargus' continued loyalty and employment, by providing him with an ownership stake in Evans Consoles. In return, Hargus agreed in writing to become a party to the Shareholders' Agreement, which contained the restrictive covenants. Upon becoming a Management Shareholder, Hargus was privy to confidential information. He was one of only approximately twenty employees out of six-hundred who was held the designation of Management Shareholder. The Court finds that Evans Consoles' promises were not illusory and an otherwise enforceable agreement existed between Evans Consoles and Hargus. See Totino v. Alexander Alexander Associates, Inc., 1998 WL 552818 (Tex.App. 1998) ("in exchange for . . . signing the employment agreements [which contained non-competes, A A awarded Totino and Newell stock options, which award was a non-illusory promise A A actually performed").
b. Ancillary to an otherwise enforceable agreement
The second inquiry under Light is whether the non-compete agreement is ancillary to the otherwise enforceable agreement. In order for a non-compete covenant to be ancillary to an otherwise enforceable agreement between employer and employee (1) the consideration given by the employer in the otherwise enforceable agreement must give rise to the employer's interest in restraining the employee from competing; and (2) the covenant must be designed to enforce the employee's consideration or return promise in the otherwise enforceable agreement. Light, 883 S.W.2d at 647.
Evans Consoles has submitted evidence that the consideration it gave Hargus included his ownership interest in Evans Consoles, his designation as management shareholder, and the rights and benefits of that position. In exchange, Hargus signed the "Participation Agreement" whereby he agreed "to be bound by all the terms and conditions of the Shareholders Agreement." Evans Consoles further claims that Hargus, as a management shareholder, was given access to confidential and proprietary information about Evans Consoles, including Consolidated Financial Statements, and that Hargus was invited to attend Shareholders meetings at which strategic business plans, financial performance and projections, growth opportunities and the future direction of Evans Consoles were discussed.
Furthermore, in exchange for his Voting Common Shares and designation as a management shareholder, Evans Consoles required that Hargus agree that he would abide by restrictive covenants designed, according to Evans Consoles, to protect the trust it placed in him as a management shareholder, and to preclude him from taking confidential information to a competitor.
In short, the Court finds that Evans Consoles has shown a substantial likelihood of prevailing on the merits of its claim that the non-compete agreement in ancillary to an otherwise enforceable agreement. Light, 883 S.W.2d 642, 647 nn. 14, 15.
c. Limitations
Finally, the Court must examine whether the non-compete covenant contains limitations as to time, geographical area, and scope of activity to be restrained that are reasonable and do not impose a greater restraint than is necessary to protect Evans Consoles' good will and other business interests pursuant to Tex. Bus. Comm. Code § 15.50.
Pursuant to Tex. Bus. Comm. Code § 15.51, "the court shall reform the covenant to the extent necessary to cause the limitations contained in the covenant as to time, geographic area, and scope of activity to be restrained to be reasonable. . . ."
i. Time
Hargus argues that the time limitations in the covenant-not-to-compete are unreasonable. The Court disagrees.
The "Non-Competition Term" is defined as beginning on the date on which Hargus first became a Management Shareholder of Evans Consoles, and continuing until three (3) years after the happening of certain exit events including, without limitation, the repurchase by Evans Consoles of the shares held by the Management Shareholder following his voluntary resignation from Evans Consoles. ( Id. at Art. 1 (Definitions and Principles of Interpretation at page 9)).
Following Hargus' voluntary resignation in May 2001, Evans Consoles sent Hargus a letter by certified mail on July 10, 2001, informing him that it was buying back his 500 Voting Common Shares, and on July 27, 2001 forwarded Hargus a check in full payment of his Voting Common Shares. According to Evans Consoles, the Non-Competition Term would therefore expire on July 10, 2004, or three (3) years from the July 10, 2001 notice to repurchase. Hargus argues that the "exit event" triggering the Non-Competition Term of three (3) years ( i.e., the July 10, 2001 Notice requiring Hargus to sell his shares back to Evans Consoles) never occurred since he did not receive the notice.
The Court disagrees with Hargus' argument and finds that, under the definition of "notice" in the Shareholders' Agreement ( see Article 8.11 at p. 103-104 to Appendix to Defendants' Response to Plaintiffs Application for Preliminary Injunction), notice occurred on July 11, 2001, and therefore the Non-Competition Term began on that date. Evans Consoles sent the notice on July 10, 2001 to Hargus' Justin, Texas address by certified mail. Under the notice provisions, "Any notice mailed to the address and in the manner provided for in this Section (which includes certified mail) shall be deemed to have been given and received on the Business Day next following the date of its mailing." The Court further finds that this three (3) year period in not unreasonable. See Evan's World Travel, Inc. v. Adams, 978 S.W.2d 225 (Tex.App. 1998) (upholding three year term of non-compete against travel agent); French v. Community Broadcasting of Coastal Bend, Inc., 766 S.W.2d 330 (Tex.App. 1989) (upholding three year term for non-compete); Integrated Interiors v. Snyder, 565 S.W.2d 350 (Tex.App. 1978) (upholding three year term of non-compete)
ii. Geographical Area
The geographical time limits in the covenant are without boundary:
Pursuant to the Shareholder Agreement, a Shareholder will be deemed to compete with [Evans Consoles] if, in Alberta, the other Provinces of Canada, North America or anywhere in the world, the Shareholder sells any products or undertakes any contracts or projects which are competitive with [Evans Consoles],
Evans Consoles argues that the unlimited geographical scope is reasonable because at the time of his resignation from Evans Consoles, Hargus was working on transactions in at least nine (9) states, including Texas, Oklahoma, Arkansas, New York, Wisconsin, West Virginia, Kansas, New Mexico and Washington, and in six countries, including Bolivia, Peru, Argentina, Mexico, Kuwait and Ireland. Hargus argues that the non-compete covenant violates § 15.50 because, in effect, it contains no geographical limitations. The Court finds that the lack of geographical restriction in this case is unreasonable.
"Texas courts have generally held that a geographical limitation imposed on the employee which consists of the territory within which the employee worked during his employment is a reasonable geographic restriction." Evan's World Travel Inc. v. Adams, 978 S.W.2d 225, 232-33 (Tex.App.-Texarkana 1998, no writ) (citations omitted). As noted by Evans Consoles, pursuant to § 15.51(c), the Court may reform a non-competition covenant to make the geographic area reasonable. As a reasonable substitution for an express geographical limitation, the Court limits the covenant to restrict Hargus from soliciting former clients with whom he had dealings at the time he left Evans Consoles. See Investors Diversified Services, Inc. v. McElroy, 645 S.W.2d 338, 339 (Tex.App.-Corpus Christi 1982, no writ) (non-compete valid when it applied only to clients with whom former employee had contact); Stocks v. Banner American Corp., 599 S.W.2d 665, 666 (Tex.Civ.App. — Texarkana 1980, no writ) (use of a customer list at time former employee resigned as alternative to setting specific geographic limit was a reasonable means to enforce a noncompetition covenant); Totino v. Alexander Associates, Inc., 1998 WL 55288188 at *4 (Tex.App. — Hous. (1 Dist.)) (non-compete covenants did not need to contain express geographical restrictions when they limited their scope only to those clients with whom former employees had personal dealings). In American Express Financial Advisors, Inc. v. Scott, 955 F. Supp. 688, 692 (N.D. Tex. 1996), this Court, applying Texas law, held that a noncompetition covenant was reasonable under § 15.50 when it restricted the former employee from soliciting former clients with whom he had dealings in the undefined "territory" in which he worked. The Court in Scott, in finding the scope reasonable, relied heavily on the fact that the former employee could sell his services anywhere, just not to his former employer's customers whom he had served. Id.
The Court reforms the scope of the restrictive covenants to enjoin Hargus from soliciting those customers with whom he worked during the time Hargus was Regional Sales Manager or Key Accounts Manager for Evans Consoles. The evidence before the Court shows that these customers included Verizon, Lucent and Southwestern Bell. Further, Hargus is enjoined from selling technical furniture to any customer on behalf of Hoffman in the six states in which Hargus worked as Regional Sales Manager for Evans Consoles. Those six states are Texas, Oklahoma, Colorado, Louisiana, New Mexico, and Arkansas.
iii. Scope of Activity
Evans Consoles seeks to restrain Hargus from "working for Hoffman or any other competitor of Evans, designing, manufacturing, selling, or distributing, or attempting to sell or distribute, products or services that are competitive with the products or services offered by Plaintiff." Evans Consoles argues that this includes selling video systems for Hoffman.
In deciding whether to enforce covenants not to compete, courts are to determine whether the agreement is reasonable. DeSantis v. Wackenhut, 793 S.W. 670, at 683; Tex. Bus. Com. Code Ann. §§ 15050-15.51. One of the factors considered by courts in determining the reasonableness of an agreement is whether the defendant is restricted from earning a living if the agreement not to compete is enforced. American Express Financial Advisors, Inc. v. Scott, 955 F. Supp. 688 at 693; French v. Community Broadcasting of Coastal Bend. Inc., 766 S.W.2d 330, 334 (Tex.App.-Corpus Christi 1989). The court finds the restriction proposed by Evans Consoles unreasonable. The evidence showed that Evans Consoles began its entry in the video systems market at the very end of Hargus' employment. Hargus spent the vast majority of his time with Evans Consoles selling technical furniture. He went to work for Hoffman to sell video systems. The evidence showed that only recently has Hoffman attempted to gain entry into the technical furniture market. Evidence presented at the hearing showed that Evans Consoles' receipts from the sale of video systems amounts to no more than ten percent, perhaps less, of its income. Thus, although selling video systems for Hoffman does entail competition with Evans Consoles at some level, the court finds it would be unreasonable under the circumstance of this case to prohibit Hargus from selling video systems for Hoffman. Hence, the court finds that Hargus can sell video systems for Hoffman. However, Hargus cannot sell technical furniture on behalf of Hoffman to any customer in the six states set out above during the Non-Competition Term. Further, during the Non-Compete Term, Hargus cannot sell video systems or technical furniture to any former customer with whom he worked while he was Regional Sales Manager or Key Accounts Manager for Evans Consoles. This allows Hargus to pursue his livelihood, while protecting Evans Consoles' interests in not allowing Hargus to use information about former customers gained during his employment with Evans Consoles, and in not allowing Hargus to compete in Evans Consoles' primary area of business.
3. Confidentiality Agreement — The court finds that Evans Consoles is entitled to a preliminary injunction prohibiting Hargus from using confidential information he obtained during his employment at Evans Consoles. However, as set forth below, the Court also finds that Evans Consoles, by making public certain documents it previously claimed to be confidential, is barred from enjoining Hargus from using that specific information.
Hargus agreed to the non-disclosure of any confidential and proprietary information that he would be provided by Evans Consoles, including information relating to or concerning the customers, products, technology, trade secrets, systems or operations, or other confidential information regarding the property, business and affairs of Evans Consoles. (Shareholders' Agreement ¶ 8.1(a)). The confidentiality clause contained an exception for "information which is or generally becomes available to the public." ( Id. ¶ 8.1(a)(i)).
On August 6, 2001, as Exhibit 5 to Evans Consoles' Appendix to Plaintiff's Reply Memorandum in Support of Motion for Preliminary Injunction, Evans Consoles made public record much of the information it is claiming to be highly confidential and proprietary, including the "Consolidated Financial Statements" that contain all the private financial information of Evans Consoles. Because Evans Consoles made its Consolidated Financial Statements a matter of public record, it cannot now claim in Count III that Hargus should be enjoined from disclosing this same information. Thus, the Court denies Evans Consoles motion for preliminary injunction insofar as Evans Consoles seeks to enjoin Hargus from disseminating any of the information made public in Exhibit 5 to Evans Consoles' Appendix to Plaintiff's Reply Memorandum in Support of Motion for Preliminary Injunction.
With regard to other confidential information not already made public, the Court finds that Evans Consoles is entitled to a preliminary injunction. A preliminary injunction is the proper remedy where an employee has breached, or is in such a position that it is likely that he will breach, a confidentiality agreement. Picker Intern., Inc. v. Blanton, 756 F. Supp. 971, 981 (N.D. Tex. 1990). See also FMC Corp. v. Vareo International, Inc. 677 F.2d 500 (5th Cir. 1982) (injunctive relief proper to enforce the non-disclosure provision of an employment contract where the defendant was newly employed in a position in which it would have been difficult to avoid the disclosure or use of his former employer's confidiential information); Weed Eater, Inc. v. Dowling, 562 S.W.2d 898 (Tex.Civ.App.-Houston [1st Dist] 1978) (injunctive relief proper to enforce confidentiality agreement because, even assuming the best of good faith on the part of former employer, he could hardly prevent his knowledge of his former employer's trade secrets from showing up in his nearly identical position). Although Evans Consoles has not submitted evidence to show that Hargus is actively disclosing or using confidential information he obtained while employed by Evans Consoles, the Court finds that Hargus is employed in a position at Hoffman in which it might be difficult to avoid the disclosure or use of Evans Consoles' confidential information.
C. Irreparable Injury to Plaintiff Without Injunctive Relief
In Texas, injury resulting from the breach of non-compete covenants is the epitome of irreparable injury, Ruscitto. In a situation where trade secrets and goodwill are involved, the threat is significant that the harm experienced by the misappropriation or misuse of trade secrets will be irreparable, IDS Financial Services Inc. v. Smithson, 843 F. Supp. 415, 418 (N.D. Ill. 1994), and damages are impossible to calculate. Merrill, Lynch, Pierce, Fenner Smith, Inc. v. Stidham, 658 F.2d 1098, 1102 n. 8 (5th Cir. 1981).
D. Threatened Injury to Plaintiff Outweighs Threatened Injury to Defendant
Although this restriction on Hargus' activities will be meaningful, the harm to Hargus does not outweigh the harm to Evans Consoles in terms of lost customer goodwill and business. Ruscitto, 777 F. Supp. at 1354.
E. Granting Preliminary Injunction Serves Public Interest
This Court finds that granting the requested injunctive relief limiting Hargus' activities will preserve Evans Consoles' rights and protect the public interest. Preventing Hargus from profiting from confidential and proprietary information he gained in Evans Consoles' employ serves the public interest.
III. Preliminary Injunction against Hoffman
Evans Consoles alleges in Count 4 that defendant Hoffman tortiously interfered with the non-competition and non-solicitation covenants in the Shareholders' Agreement, and in Count 5, that Hoffman tortiously interfered with the confidentiality covenants of the Shareholder Agreement. In Count 6, Evans Consoles alleges that Hoffman and Hargus engaged in a civil conspiracy to breach the Shareholder Agreement. In Count 8, Evans Consoles alleges that defendant Hoffman aided and abetted Hargus in breaching his fiduciary duty of trust and loyalty. In Count 9, Evans Consoles alleges that defendants Hargus and Hoffman misappropriated its trade secrets. In Count 10, Evans Consoles alleges that defendants Hargus and Hoffman tortiously interfered with its prospective business advantage by soliciting its long-time customers utilizing its trade secrets and confidential and proprietary information.
The Court finds that Evans Consoles has not submitted any evidence, at this stage, to support its claims that Hoffman did anything other than hire Mr. Hargus. Moreover, Evans Consoles' allegations against Hoffman, other than the fact that Hoffman hired Hargus, are based "on information and belief." (Complaint ¶¶ 26, 30). Because Evans Consoles has not satisfied the requirements for entry of preliminary injunctive relief as against Hoffman, Evans Consoles' motion to enjoin defendant Hoffman is denied.
CONCLUSION
ACCORDINGLY, it shall be and it is hereby ORDERED that Plaintiff Evans Consoles Inc.'s Motion for Preliminary Injunction is GRANTED as against defendant Jame Hargus on Counts I and II of the Complaint (as reformed by the Court), and in part as to Count III, excepting the information made public by Evans Consoles at Exhibit 5 to Evans Consoles' Appendix to Plaintiff's Reply Memorandum in Support of Motion for Preliminary Injunction. FURTHER, it shall be and it is hereby ORDERED that Plaintiff Evans Consoles Inc.'s Motion for Preliminary Injunction is DENIED as against defendant Hoffman Video Systems, Inc.
SO ORDERED