Midstate Environmental Services, LP v. John Atkinson and 5A Environmental Services, LLC ( 2017 )

NUMBER 13-17-00190-CV
COURT OF APPEALS
THIRTEENTH DISTRICT OF TEXAS
CORPUS CHRISTI – EDINBURG
MIDSTATE ENVIRONMENTAL
SERVICES, LP, Appellant,
v.
JOHN ATKINSON AND 5A
ENVIRONMENTAL SERVICES,
LLC, Appellee.
On appeal from the 94th District Court
of Nueces County, Texas.
MEMORANDUM OPINION
Before Chief Justice Valdez and Justices Contreras and Hinojosa
Memorandum Opinion by Justice Contreras
This is an appeal of the denial of a temporary injunction. Appellant Midstate
Environmental Services, LP (Midstate) sued its former employee, appellee John Atkinson,
and Atkinson’s company, appellee 5A Environmental Services, LLC (5A), claiming that
Atkinson violated a non-compete agreement. By one issue on appeal, Midstate argues
that the trial court erred by denying its request for a temporary injunction. We affirm.
I. BACKGROUND
Midstate provides environmental waste management and related services.
Beginning around 1998, Atkinson worked as a route driver for Midstate, collecting used
oil, oil filters, antifreeze, and other materials from customers.
On June 1, 2012, Atkinson and Midstate executed an “Employment Signing
Incentive and Retention Agreement” (the Retention Agreement). The Retention
Agreement stated that, in exchange for Atkinson’s continued employment with Midstate
and “conditional upon his agreement to and signing of” a “Non-Disclosure, Non-
Competition, Non-Solicitation and Limitation Agreement” (the Non-Compete Agreement),
Midstate would pay Atkinson a $15,000 signing incentive. The Retention Agreement
further provided that Atkinson would be paid a separate $15,000 retention payment if he
remained employed by Midstate until June 1, 2014.
Atkinson and Midstate executed the Non-Compete Agreement, as contemplated
in the Retention Agreement, on June 5, 2012. The Non-Compete Agreement generally
provides that, in consideration for his employment with Midstate, the signing incentive,
and Midstate’s obligation to provide Atkinson with confidential information and trade
secrets, Atkinson agreed that he would not compete with Midstate or solicit its customers
during the period of his employment and for one year thereafter. The Non-Compete
Agreement defined “trade secret” to include lists of Midstate’s customers, suppliers, and
prices. The Non-Compete Agreement further contained the following clause: “This
Agreement shall constitute the entire understanding between the Parties with respect to
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the subject matter hereof and supersedes and replaces all prior communications,
understandings and agreements between the parties, whether written or oral, express or
implied, relating to the subject matter hereof.” Both the Retention Agreement and the
Non-Compete Agreement explicitly provided that Atkinson remained an at-will employee
of Midstate.
In March 2017, Atkinson’s supervisor Robert Staton discovered a business card
identifying Atkinson as the owner of 5A and stating that 5A was in the business of “Used
Oil/Filters/Antifreeze.” Staton also found that Atkinson had applied for a DOT number,
which would allow 5A to transport hazardous materials. According to Staton, when he
confronted Atkinson with this information, Atkinson did not deny that he was attempting
to start a company to compete against Midstate. Staton reported this to Ned Murray,
Midstate’s president. Believing that this action violated the Non-Compete Agreement,
Midstate sued Atkinson and 5A (collectively referred to as Atkinson) for breach of
contract, misappropriation of trade secrets under the Texas Uniform Trade Secrets Act,
see TEX. CIV. PRAC. & REM. CODE ANN. ch. 134A (West, Westlaw through 2017 1st C.S.),
and tortious interference with existing contract and prospective business relationships.
The trial court then rendered a temporary restraining order which (1) enjoined Atkinson
from competing with Midstate in certain Texas counties until April 6, 2017, and (2) and
set a temporary injunction hearing for April 3, 2017.
After the hearing, the trial court denied Midstate’s request for temporary injunction.
Pursuant to Midstate’s request, the trial court issued findings of fact and conclusions of
law, including the following:
1. Plaintiff failed to prove that it suffered a substantial threat of
irreparable injury as a result of conduct by Atkinson.
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2. Plaintiff could prove any loss it suffered as a result of actions by
Atkinson without the necessity of receiving a restraining order.
3. Plaintiff is not entitled a temporary injunction based on the evidence
presented at the hearing.
4. Paragraph 10 of the non-disclosure, non-competion [sic], non-
solicitation and limitation agreement signed by Atkinson states that it
is the only document that defines the rights of the parties and all [sic]
replaces all prior agreements between the parties thereby voiding
the incentive and retention agreement signed five days prior.
5. Both Agreements make it clear that Atkinson was an at will employee
during his tenure with Midstate.
6. Atkinson was privy to all of the company’s trade secrets for at least
thirteen years before signing either agreement and therefore that
could not serve as good and valuable consideration to support the
non-compete agreement.
7. The Court finds that sending Atkinson to one training was not
sufficient good and valuable consideration to support the non-
compete agreement.
This accelerated interlocutory appeal followed. See TEX. CIV. PRAC. & REM. CODE
ANN. § 51.014(a)(4) (West, Westlaw through 2017 1st C.S.) (allowing immediate appeal
of interlocutory order denying temporary injunction).
II. DISCUSSION
A. Standard of Review and Applicable Law
A temporary injunction is an extraordinary remedy and does not issue as a matter
of right. Butnaru v. Ford Motor Co., 84 S.W.3d 198, 204 (Tex. 2002) (citing Walling v.
Metcalfe, 863 S.W.2d 56, 57 (Tex. 1993)). Its purpose is to preserve the status quo of
the litigation’s subject matter pending a trial on the merits. Id. (citing Walling, 863 S.W.2d
at 57). To obtain a temporary injunction, the applicant must plead and prove three specific
elements: (1) a cause of action against the defendant; (2) a probable right to the relief
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sought; and (3) a probable, imminent, and irreparable injury in the interim. Id. (citing
Walling, 863 S.W.2d at 57; Sun Oil Co. v. Whitaker, 424 S.W.2d 216, 218 (Tex. 1968)).
Whether to grant or deny a temporary injunction is within the trial court’s sound
discretion. Id. (citing Walling, 863 S.W.2d at 58; State v. Walker, 679 S.W.2d 484, 485
(Tex. 1984)). We will not overrule the trial court’s decision unless it acted unreasonably
or in an arbitrary manner, without reference to guiding rules or principles. Id. at 211 (citing
Beaumont Bank v. Buller, 806 S.W.2d 223, 226 (Tex. 1991)). A trial court does not abuse
its discretion if some evidence reasonably supports its ruling. Id. We review the evidence
in the light most favorable to the ruling, drawing all legitimate inferences from the evidence
and deferring to the trial court’s resolution of conflicting evidence. Cameron Int’l Corp. v.
Guillory, 445 S.W.3d 840, 845 (Tex. App.—Houston [1st Dist.] 2014, no pet.).
B. Temporary Injunction Hearing
At the temporary injunction hearing, Murray testified that Atkinson was the second-
highest paid route driver in the company, earning more than $93,000 annually. According
to Murray, Atkinson’s responsibilities included soliciting new customers for Midstate.
Atkinson had daily contact with Midstate’s customers, and he had access to its customer
lists and pricing methods during his employment. Murray said that, if Atkinson were to
compete against Midstate, Midstate would lose business and suffer damage to its
reputation, and he opined that the reputation damages would be very difficult to calculate.
On cross-examination, Murray could not name any of Midstate’s customers that
Atkinson had done business with separately; however, he said his employees had found
Atkinson’s business cards “in the field at customer locations,” so it was “pretty obvious”
that Atkinson intended to compete with Midstate. Murray stated that he “assumed”
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Atkinson’s company is ongoing because Atkinson has a business card and a used oil
handler’s permit, and because the company is registered with the Secretary of State.
However, Murray agreed that, in order to compete against Midstate, Atkinson would need
a specialized truck to handle used oil collection, and Murray did not know whether
Atkinson had such a truck.
Staton testified that he was Atkinson’s supervisor for ten years until Atkinson left
the company. He stated that Atkinson cultivated relationships with Midstate’s customers
in twenty-four Texas counties during his time at the company. Since 2012, Atkinson has
received weekly confidential customer lists, and Midstate once paid for Atkinson to
receive hazardous material training.
Staton testified that, when he approached Atkinson about the 5A business card in
March 2017, Atkinson told him that “he had talked to 98 percent of his customers and that
they were gonna go with him.” Atkinson also showed Staton a picture of a truck which
was similar to Midstate’s truck. According to Staton, Atkinson said that he was going to
go into business for himself and that he did not believe the Non-Compete Agreement was
binding. At the end of their meeting, Staton instructed Atkinson to leave his company
phone “until we got this situation sorted out” and Atkinson said “there was nothing to sort
out.” Staton understood this to mean that Atkinson was quitting his job with Midstate.
Later, Atkinson returned his Midstate uniforms to the company. Staton said that, although
route drivers typically complete a log book every month, Atkinson did not return any log
books, and there was only one log book in the truck that Atkinson used.
On cross-examination, Staton conceded that he did not know of any Midstate
customers which had stopped doing business with Midstate as a result of Atkinson’s
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competition. He also agreed with Atkinson’s counsel that Midstate kept records of which
customers Atkinson serviced with Midstate, and it “wouldn’t be that hard” to calculate the
amount of damages Midstate suffered if any of those customers hired 5A instead. He
denied that he intended to fire Atkinson if he did not quit.
John Fabricatore, a Midstate sales representative, testified that he visited between
80 and 100 customers that Atkinson serviced for Midstate, and that some of the
customers told him that Atkinson indicated to them he was going to start his own company
to compete with Midstate. One of the companies received a 5A business card from
Atkinson, which had been stapled to a Midstate receipt; this indicated to Fabricatore that
Atkinson had been giving out his business card while still employed by Midstate.
Fabricatore identified the names of two customers which he claimed Midstate had lost
since March 2017 as a result of Atkinson’s competition. On cross-examination,
Fabricatore opined that it would, in fact, be “very hard” to calculate damages Midstate
suffered as a result of Atkinson’s competition.
Atkinson testified that, when he was told to turn in his company phone, he believed
he had been terminated from his employment at Midstate. He stated that “when I came
to work for Midstate I knew the same things that I know today basically.” He knew the
names of Midstate’s customers, but he denied that he worked with anything that he
considered to be a trade secret. Atkinson stated that his company does not currently
have a truck capable of oil collection, though he has one “picked out.” He admitted
handing out his business card to Midstate customers while he was still working with
Midstate in an effort to generate business for 5A. He said he threw all of his old log books
“in the dumpster.”
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On cross-examination, Atkinson agreed that he signed the Non-Compete
Agreement in order to remain employed with Midstate. He also agreed that he signed the
Retention Agreement and received the payments contemplated thereunder.
C. Analysis
Because it is dispositive, we will first examine whether Midstate established the
third temporary injunction element—i.e., a probable, imminent, and irreparable injury in
the interim. See Butnaru, 84 S.W.3d at 204. Specifically, we focus on the third part of
that third element: irreparable injury. See id. An injury is considered irreparable if the
injured party cannot be adequately compensated in damages or if the damages cannot
be measured by any certain pecuniary standard. Id.
On appeal, in discussing the issue of irreparable injury, Midstate relies on Murray’s
testimony that Midstate’s reputation would be damaged by Atkinson’s competition. It
argues that reputational damages are not easily calculable. See Tex. Dep’t of State
Health Servs. v. Holmes, 294 S.W.3d 328, 334 (Tex. App.—Austin 2009, pet. denied)
(“Irreparable harm for purposes of a temporary injunction may include noncompensable
injuries such as a ‘company’s loss of goodwill, clientele, marketing techniques, office
stability and the like.’”) (citing Graham v. Mary Kay Inc., 25 S.W.3d 749, 753 (Tex. App.—
Houston [14th Dist.] 2000, pet. denied)); Frequent Flyer Depot, Inc. v. Am. Airlines, Inc.,
281 S.W.3d 215, 228 (Tex. App.—Fort Worth 2009, pet. denied) (same). In response,
Atkinson contends that, based on the evidence adduced at the temporary injunction
hearing, the trial court could have reasonably concluded that monetary damages would
adequately compensate Midstate if it prevails at trial.
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We agree with Atkinson. In its application for temporary injunction contained within
its petition, Midstate did not argue that it would suffer reputational damage or loss of
goodwill as a result of Atkinson’s competition.1 At the temporary injunction hearing,
Murray testified that Atkinson’s competition may harm Midstate “reputation wise,” but
when pressed by his counsel to elaborate, Murray could not clearly explain how
Midstate’s reputation would be damaged.2 Moreover, although Fabricatore testified that
it would be difficult to calculate Midstate’s damages resulting from the loss of clientele to
5A, both Murray and Staton explicitly agreed that it would not be difficult. Staton agreed
that, to determine Midstate’s damages from Atkinson’s competition, it was necessary only
1 Regarding irreparable injury, Midstate alleged in its petition only as follows:
Plaintiff has no adequate remedy at law because the economic value of Midstate's trade
secrets and confidential information is difficult to precisely ascertain, and once the
confidential information and trade secrets are disclosed to third parties not subject to
confidentiality agreements, they will likely be impossible to recover, resulting in irreparable
injury to Midstate. In any event, although irreparable harm to Midstate is imminent here, a
showing of irreparable harm is not necessary under the Covenants Not to Compete Act.
Midstate did not make these specific arguments at the temporary injunction hearing, and it does not make
them on appeal.
2 Murray testified as follows regarding the nature of Midstate’s damages:
Q. [Midstate’s counsel]: [H]ow would Midstate be damaged if Mr. Atkinson is allowed to
compete in violation of [the Non-Compete Agreement]?
A. [Murray] On various levels. The first level, of course, would be lost volume
of business, that’s a pretty obvious one. But also, reputation
wise, a change in the market dynamics and the economics of our
business, you know, the efficiency of our routes is very directly
related to how productive, in particular, geography is. And if we
were to lose a part of that, a portion of that, or all of it, obviously,
it’s economically not—it doesn’t help the efficiency of our
business. It’s a little harder to get into numbers, but they’re
certainly there.
Q. Okay. So that sounds like more of a direct damage. You had
mentioned reputational damage. Tell me about that a little bit.
A. Well, Mr. Atkinson was with the company for 19 years and we
had some expectation of we were all on the same side, we were
all playing for Midstate Environmental Services. And then, not
too long ago we find that that’s not the case, that he was
preparing to compete against us without us, frankly, behind our
back.
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to calculate the proceeds that Midstate would have received for each customer that
switched to 5A.
Because some evidence supports the trial court’s finding that Midstate’s injury is
not irreparable by the award of damages, the trial court did not abuse its discretion by
denying the temporary injunction. See Butnaru, 84 S.W.3d at 204.3 We overrule
Midstate’s sole issue on appeal.
III. CONCLUSION
The trial court’s judgment is affirmed.
DORI CONTRERAS
Justice
Delivered and filed the
14th day of December, 2017.
3 We emphasize that we express no opinion on the ultimate enforceability of the agreements at
issue, or whether they were breached.
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