Smooth Transitions : Rob Radcliff : Texas Non-Compete Lawyer & Attorney : Gruber Hurst Johansen & Hail LLP Law Firm : Dallas Employment & Employee Departures : Smooth Transitions Law Blog

                                        

 

Mike Leach's application for a temporary restraining order to permit him to coach Texas Tech in the Alamo Bowl on January 2 was mooted when Tech fired him on December 30.  Allegedly, the timing of the firing was based on Leach's contract that entitled him to $800,000 on December 31. Tech went on to beat Michigan State 41-31. Tech now begins the search for a new coach and Leach's lawyer has promised a lawsuit.

Even without the firing, Leach faced an uphill battle.  As discussed here previously, an applicant for a TRO must establish there is no adequate remedy at law and imminent harm, among other things.  Leach sought to prevent Tech from suspending him from coaching the football team because he essentially was deprived of due process.  The Petition provided:

8.  Mike Leach seeks that this Court enter an order restraining Texas Tech University from suspending Mike Leach from coaching the football team.

 

9.  It is probable Mike Leach will recover from Defendant after trial on the merits because Mike Leach has not committed any wrongdoing, he has not been informed of any rules or standards he violated, and his contract does not provide for suspension even if Defendant had shown a violation of a rule or standard, which it has not.

10.  If Mike Leach's application is not granted, harm is imminent because Mike Leach will be unable to coach his football team in practice prior to the Alamo Bowl and during the Alamo Bowl.

The claimed basis for the firing of Leach stems from his treatment of sophomore Wide Receiver Adam James following a concussion.  James' is the son of former SMU player and television analyst Craig James.  Leach reportedly had James confined to a shed as described in the affidavit of a Tech football trainer:

I walked Adam to the room, which was at least as big as a two-car garage . . .Inside the room there is an electrical closet. I looked in the closet and stated that there was 'no way that Adam would be placed in there.' I shut the door to the electrical closet, and it was never opened again. At no time during this practice was Adam ever placed in the electrical closet.

Regardless of what actually occurred, it seems unlikely a Texas court would have ordered Tech to permit Leach to coach in the Alamo Bowl.  Leach's claim that he would suffer imminent harm because he could not coach is unpersuasive.  An employer generally has the right to restrict or modify the duties of an employee, as Tech did with Leach.   In response to the TRO application, Tech took the decision away from the Court and fired Leach.

The Leach/Tech battle is a long way from over.  With a significant amount of money at stake, Leach, a lawyer himself, will continue his legal fight.  Stay tuned. 

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The difference between equitable claims and legal claims goes back hundreds of years when there were essentially 2 different courts depending upon the relief sought.  District courts and county courts in Texas can award both equitable and legal relief.  So what does that mean?

A claim for injunctive relief is equitable.  Also, a claim for quantum meruit (basically an action for work done or services provided) arises in equity.  In cases where injunctive relief is sought, like a non-compete case or business control case, the Courts may make equitable considerations.  Put another way, courts balance the equities. 

Typically individuals trying to get out of a non-compete identify numerous equitable facts in their favor: (1) they were fired; (2) the non-compete prevents them from carrying out their livelihood; (3) they didn't take any trade secrets; and (4) they aren't talking with their former client's customers or employees.  While these factors in and of their own right may not be sufficient to legally defeat a non-compete, the Court will certainly consider them in issuing an injunction or temporary restraining order.

Parties going into court need to be aware of whether they appear to be the good guy or the bad guy.  A person that takes the customer list with him as they walk out the door generally isn't a good guy.  Neither is the employer that has a 4 year non-compete that prevents an employee from working anywhere in the world.  Parties need to use common sense and think about how their respective side is going to appear to the judge. 

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I liked Jay Shepherds' remarks in Eight Ways to Lose a Non-Compete Case blog entry.    Here they are with my thoughts in italics:

• Putting too much faith in the belief that the court will enforce the language of the non-compete agreement as written.
• Trying to enforce a non-compete against employees who really don't possess any confidential information or customer relationships.   Does the employee really have trade secrets?
• Drafting the non-compete too broadly.
• Focusing only on geography, duration, and scope of the non-compete rather than on the existence of protectable interests. 
• Waiting too long to file.
• Asking for an injunction before you've developed enough evidence. Texas permits TROs and a party can secure limited discovery for the injunction hearing.
• Filing in the wrong jurisdiction. If you want to enforce a non-compete file in the jurisdiction where the former employee is based or working.
• Focusing on the law instead of on the story of the case.

I agree with most of the eight but here is what I would add:

1. Know the law from state to state, the enforceability of a non-compete in Texas is quite different from California;
2. Make sure the state law you want will control.  Along the same lines, if your non-compete specifies Texas law and the employee is in California, make sure the choice-of-law provision will stick;
3. Don't wait to file.  Sometimes you may have to file a lawsuit and seek an injunction before you have all the evidence - but filing early can protect your business and possibly make your former employee think twice about violating the non-compete.
4. Contact your clients.  Just because your company's contact person with the client has departed doesn't mean the business will go.  Call your clients and be up front with what has occurred and how valuable their business is to your company.
5. Marshall your evidence.  Odds are your departing employee began preparing to compete before they left your company.  See if they left a papertrail.  (email, phone calls, accessing company databases, and printing out company information)
6. Remember your targets.  Not only the employee who left, but the company they left for or formed.

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Joe Torre's recent memoir concerning his stint with the Bronx Bombers has prompted some in Yankee circles to suggest the need for non-disparagement clauses for players and managers.  Typically, non-disparagement clauses appear in settlement and severance agreements.  The idea is that in exchange for money a former employee will not bad mouth his or her former company. 

Here is an example from a settlement agreement:

Non-disparagement. The Parties agree not to make any statements, written or verbal, or cause or encourage others to make any statements, written or verbal, that defame, disparage or in any way criticize the personal or business reputation, practices, or conduct of Defendant, its employees, directors, and officers. The Parties acknowledge and agree that this prohibition extends to statements, written or verbal, made to anyone, including but not limited to, the news media, investors, potential investors, any board of directors or advisory board or directors, industry analysts, competitors, strategic partners, vendors, employees (past and present), and clients.

The Parties understand and agree that this Paragraph is a material provision of this Agreement and that any breach of this Paragraph shall be a material breach of this Agreement, and that each Party would be irreparably harmed by violation of this provision.

The above is couched to support the application for an injunction, hence the "irreparably harmed" language.  While wonderful in theory, (who wouldn't want to prevent an ex-employee from belittling the company) actually enforcing such an agreement is another matter.  As with any breach of contract claim, the plaintiff will have to prove breach and damages.  Proving damages in a non-disparagement case is akin to proving damages in a defamation case, both are difficult.   

Quantifying a damage number based upon a written or oral communication is cumbersome.  For that reason, some clauses attempt to tie a liquidated damage into any breach.  In order to enforce a liquidated damage clause in Texas, the court must find: (1) that the harm caused by the breach is incapable or difficult of estimation, and (2) that the amount of liquidated damages called for is reasonable forecast of just compensation (not punitive). 

Including a non-disparagement clause in a severance or settlement agreement is good practice, but enforcement of the clause is an entirely different matter.  Every effort should be made to ensure that the language defining "disparagement" is specific enough to remove all doubt as to whether the statements are actionable.  Whether an aggrieved party can quantify the the damage caused by the disparagement will be an uphill battle in most cases.

 

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Commentators have described inevitable disclosure as the following:

There are circumstances in which trade secrets inevitably will be used or disclosed, even if the defendant swears that he or she will keep the information confidential. Courts applying the doctrine have differed over its reach and the circumstances required for its application, but, generally speaking, the doctrine applies when a defendant has had access to trade secrets and then defects to the trade secret owner's competition to perform duties so similar that the court believes that those duties cannot be performed without making use of trade secrets relating to the previous affiliation.

Linda K. Stevens, Trade Secrets & Inevitable Disclosure, 36 TORT & INS. L. J. 917, 929 (Summer 2001).

Some form of an inevitable disclosure argument is usually made when a Plaintiff is attempting to obtain a temporary restraining order or injunction to enforce a non-compete. The Texas Supreme Court has never recognized the doctrine.

In 1999, the Dallas Court of Appeals in an unpublished opinion stated: "this Court has recognized that a former employee may be enjoined from using or disclosing the former employer's confidential or proprietary information if the employee is in a situation where use or disclosure is probable." Conley v. DSC Communs. Corp., No. 05-98-01051-CV, 1999 Tex. App. LEXIS 1321 (Tex. App. Dallas --- 1999, no pet.)(not published).

That opinion stated the Dallas court was not adopting the inevitable disclosure doctrine. Whether "probable disclosure" is actually a viable theory under Texas law remains unresolved by the the Texas Supreme Court.

Read David Knight's analysis of a recent Ohio inevitable disclosure case here.

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The use of injunctive relief has been discussed at length in this blog. Last week a federal judge in Minnesota issued an injunction preventing the National Football League from suspending several players for violation of its anti-doping policy including New Orleans Saint Deuce McAllister (pictured right). Until further ruling from the Court, McAllister and the other players may continue to play on Sunday. McAllister carried the ball one time yesterday in the Saints' victory over the Atlanta Falcons.

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