Brad Vaughn and East Coast Directional Drilling, Inc. v. Intrepid Directional Drilling Specialists, Ltd. ( 2009 )

Opinion filed April 30, 2009
In The
Eleventh Court of Appeals
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No. 11-08-00259-CV
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BRAD VAUGHN AND EAST COAST DIRECTIONAL DRILLING, INC.,
Appellants
V.
INTREPID DIRECTIONAL DRILLING SPECIALISTS, LTD., Appellee
On Appeal from the 142nd District Court
Midland County, Texas
Trial Court Cause No. CV-46633
OPINION
Intrepid Directional Drilling Specialists, Ltd. obtained a temporary injunction enforcing
covenants not to compete against its former employee Brad Vaughn and East Coast Directional
Drilling, Inc. In this interlocutory appeal, Vaughn and East Coast appeal from the trial court’s order
granting the temporary injunction. See TEX . CIV . PRAC. & REM . CODE ANN . § 51.014(a)(4) (Vernon
2008). We affirm.
Factual Background
Intrepid performs directional drilling services. Vaughn worked as a salesman for Intrepid
for nine months before leaving in 2004 or 2005. After leaving Intrepid, Vaughn formed another
directional drilling company, Vaughn Guidance Systems, LLC (VGS). In March 2007, Intrepid
purchased VGS from Vaughn and his mother, Carolyn, for $7,000,000. Vaughn received $3.43
million of the sales proceeds, and he became an employee of Intrepid. Vaughn and Intrepid signed
a three-year employment agreement. The agreement provided that Vaughn would be paid a signing
bonus of $15,000, a base annual salary of $150,000, and a bonus in accordance with Intrepid’s
directional drilling specialists sales commission plan. Vaughn signed an agreement not to compete,
dated March 30, 2007. The agreement included the following provisions:
2. Covenant Against Competition. [Vaughn] agrees that during the period
commencing on [March 30, 2007] and ending on March 31, 2011 (the “Non-
Compete Period”), [he] shall not (except on behalf of [VGS] and/or Intrepid) engage,
directly or indirectly, within the geographic area set out on Schedule A, attached
hereto and made a part hereof (the “Restricted Territory”), in any manner including
by way of example, but without limitation, as a sole proprietor, partner, officer,
director, Member, member, investor, lender, lessor, advisor, consultant, independent
contractor or employee in directional drilling and/or measurement while drilling;
provided, however, that the foregoing shall not preclude [Vaughn] from owning not
more than one percent (1%) of the outstanding voting securities of any company
having publicly-traded equity securities.
3. Covenants Against Solicitation of Customers, Employees and
Suppliers.
(a) [Vaughn] agrees that during the Non-Compete Period, [he]
shall not (except on behalf of [VGS] and/or Intrepid), solicit, directly
or indirectly, any former customers of [VGS] or any current or
prospective customers of [VGS] and/or Intrepid for the purpose of
selling within the Restricted Territory directional drilling and/or
measurement while drilling services, or otherwise interfere, directly
or indirectly, in any manner with any relationship between [VGS]
and/or Intrepid and such customers within the Restricted Territory.
(b) [Vaughn] agrees that during the Non-Compete Period, [he]
shall not solicit, recruit or employ, directly or indirectly, within the
Restricted Territory any of [VGS’s] and/or Intrepid’s employees, or
otherwise interfere, directly or indirectly, in any manner with their
employment by [VGS] and/or Intrepid.
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(c) [Vaughn] agrees that during the Non-Compete Period [he]
shall not take any action which would, or has the potential to, impair
the goodwill of the business of [VGS] and/or Intrepid, including,
without limitation, actions which would interfere with or damage
[VGS’s] and/or Intrepid’s business relationships with its employees,
suppliers, creditors, customers and others with which it does business.
Schedule A of the agreement contained a “Geographic Scope of Limitation” that included the
following states: Texas; New Mexico; Oklahoma; Louisiana; and Colorado.
Trial Court Proceedings
On August 27, 2008, Intrepid filed this cause against Vaughn, East Coast, and Joshua E.
Mitchell. Like Vaughn, Mitchell is a former employee of Intrepid.1 Mitchell had an employment
agreement with Intrepid that contained covenants not to compete. In its petition, Intrepid alleged that
Vaughn and Mitchell had conspired with each other “to violate their Employment Agreements with
Intrepid and their fiduciary and other contractual duties owed to Intrepid by leaving the employ of
Intrepid and taking one or more Intrepid clients, business opportunities and employees with them
to a new entity, East Coast.” Intrepid also alleged that Vaughn’s wife had created East Coast “as an
entity to which Vaughn and Mitchell would divert Intrepid business, employees, and customers, to
Intrepid’s detriment.” Intrepid alleged that Vaughn and Mitchell had breached their covenants not
to compete, and Intrepid sought temporary and permanent injunctive relief to enforce the covenants
against them. Intrepid also alleged breach of fiduciary duty, misappropriation of trade secrets, and
conspiracy claims against Vaughn and Mitchell. The trial court granted Intrepid a temporary
restraining order enforcing the covenants not to compete against Vaughn and Mitchell.
The trial court conducted a two-day hearing on Intrepid’s request for temporary injunctive
relief. Following the hearing, the trial court entered an order granting Intrepid a temporary injunction
against Vaughn and denying Intrepid injunctive relief against Mitchell. In the order, the trial court
found that Intrepid had established a probable right of recovery against Vaughn and East Coast and
that Intrepid had no adequate remedy at law. The trial court granted the temporary injunction “to
preserve the status quo between the parties pending final resolution of this suit, or until March 31,
2011, whichever date first occurs.”
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Intrepid terminated Vaughn’s and Mitchell’s employment the day after filing this cause.
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The trial court made detailed findings in support of its conclusion that Intrepid had
established a probable right of recovery. The trial court stated the following findings, among others,
in its order:
(1) Pursuant to and in conjunction with the Purchase Agreement, INTREPID
and VAUGHN also entered into an Agreement Not To Compete (“Vaughn Non-
Compete Agreement”), attached to this order. . . . VAUGHN was contractually
employed by INTREPID from approximately March 20, 2007 until his employment
with INTREPID was terminated by INTREPID on August 28, 2008;
(2) On April 22, 2008, VAUGHN’s wife Dana Sue Vaughn organized EAST
COAST as a for-profit corporation under the laws of the State of Texas. Although
organized by Dana Sue Vaughn, EAST COAST is under the direction and control of
VAUGHN. VAUGHN has operated and intends to operate EAST COAST as a
directional drilling and measurement while drilling company;
(3) The Vaughn Non-Compete Agreement restricts VAUGHN from
conducting certain competitive activities in a five-state restricted territory consisting
of Texas, New Mexico, Oklahoma, Louisiana and Colorado (the “Restricted
Territory”). VAUGHN is bound by the terms of the Vaughn Non-Compete
Agreement and it is enforceable by INTREPID against VAUGHN;
(4) The Vaughn Non-Compete Agreement protects INTREPID against
VAUGHN engaging in competing work within the Restricted Territory and also
protects INTREPID’s customer base within the Restricted Territory against certain
competitive activities by VAUGHN, as specified in the Vaughn Non-Compete
Agreement, regardless of the location of the actual work to be performed on behalf
of the INTREPID customer;
(5) Chesapeake Energy Corporation (“CHESAPEAKE”) is a valuable
business customer of INTREPID which is headquartered in Oklahoma but is engaged
in business both within and beyond the Restricted Territory;
(6) Imminent and irreparable harm will be sustained by INTREPID as a result
of VAUGHN’s breach and threatened breach of Sections 2, 3(a) and 3(c) of [the]
Vaughn Non-Compete Agreement. The Court finds that INTREPID has established
its probable right to recover for breach and threatened breach of the Vaughn Non-
Compete Agreement by introduction of evidence tending to establish that VAUGHN
caused EAST COAST to attempt to compete against INTREPID by conducting
directional drilling activities and/or measurement while drilling activities for
INTREPID customer CHESAPEAKE in Pennsylvania;
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(7) VAUGHN breached and threatened breach of Section 3(b) of the Vaughn
Non-Compete Agreement when VAUGHN solicited and recruited Defendant
MITCHELL to work for VAUGHN and EAST COAST;
(8) VAUGHN has used and, absent injunction, intends to continue to use
EAST COAST to compete with INTREPID in the Restricted Territory;
(9) VAUGHN has competed and, absent injunction, intends to continue to
compete with INTREPID in the Restricted Territory;
(10) The Court finds that no reformation of the Vaughn Non-Compete
Agreement is necessary under [TEX . BUS. & COM . CODE ANN . § 15.50 (Vernon
2002)].
The trial court also found that, absent a temporary injunction, Intrepid would suffer irreparable injury
in two respects:
(1) Loss of employees to VAUGHN and/or EAST COAST; and
(2) Loss of customers to VAUGHN and/or EAST COAST from within the
Restricted Territory.
The trial court stated that, “[u]nder the circumstances described herein, including the potential
ongoing loss of employees and customers, INTREPID’s damages are impossible to measure by any
definite, certain, or useable pecuniary standard.” Therefore, the trial court concluded that Intrepid’s
harm was imminent, irreparable, and lacked an adequate legal remedy.
The trial court awarded injunctive relief in Section III of the order. In Section III, the trial
court required Vaughn and East Coast to immediately:
(a) Cease, desist and refrain from any direct or indirect participation in a
directional drilling or measurement while drilling entity within the Restricted
Territory. The 1% or less ownership exclusion under Paragraph 2 of the Vaughn
Non-Compete Agreement is excepted;
(b) Cease, desist and refrain from any solicitation of any INTREPID customer
within the Restricted Territory for selling directional drilling or measurement while
drilling within the Restricted Territory (paragraph 3(a) of the Vaughn Non-Compete
Agreement);
(c) Cease, desist and refrain from any other interference with any INTREPID
customer within the Restricted Territory for directional drilling or measurement
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while drilling outside the Restricted Territory (paragraph 3(a) of the Vaughn Non-
Compete Agreement);
(d) Cease, desist and refrain from any solicitation or offers of employment to
any of INTREPID’s employees within the Restricted Territory (paragraph 3(b) of the
Vaughn Non-Compete Agreement);
(e) Cease, desist and refrain from any conduct calculated to interfere with,
impair or disparage INTREPID’s business relationships with INTREPID’s
customers, creditors, and suppliers located within the Restricted Territory
(paragraph 3(c) of the Vaughn Non-Compete Agreement).
Issues on Appeal
Vaughn and East Coast present two issues for review. In their first issue, they contend that
the trial court abused its discretion in granting the temporary injunction. In their second issue, they
assert that the temporary injunction was fatally defective in form and content and, therefore, failed
to comply with the requirements of TEX . R. CIV . P. 683.
Standard of Review
A temporary injunction’s purpose is to preserve the status quo of the litigation’s subject
matter pending a trial on the merits. Butnaru v. Ford Motor Co., 84 S.W.3d 198, 204 (Tex. 2002);
Walling v. Metcalfe, 863 S.W.2d 56, 57 (Tex. 1993). A temporary injunction is an extraordinary
remedy and does not issue as a matter of right. Butnaru, 84 S.W.3d at 204. 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 sought; and (3) a probable, imminent, and irreparable
injury in the interim. Id. A probable right to the relief sought is shown by alleging a cause of action
and presenting evidence that tends to sustain it. Tanguy v. Laux, 259 S.W.3d 851, 857 (Tex. App.—
Houston [1st Dist.] 2008, no pet.). An injury is irreparable if the injured party cannot be adequately
compensated in damages or if the damages cannot be measured by any certain pecuniary standard.
Butnaru, 84 S.W.3d at 204.
We review a trial court’s order granting or denying a temporary injunction under an abuse
of discretion standard. Butnaru, 84 S.W.3d at 204; Walling, 863 S.W.2d at 58. The reviewing court
must not substitute its judgment for the trial court’s judgment unless the trial court’s action was so
arbitrary that it exceeded the bounds of reasonable discretion. Butnaru, 84 S.W.3d at 204. In
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reviewing an order granting or denying a temporary injunction, we draw all legitimate inferences
from the evidence in a manner most favorable to the trial court’s judgment. Dallas Anesthesiology
Assocs., P.A. v. Tex. Anesthesia Group, P.A., 190 S.W.3d 891, 896 (Tex. App.—Dallas 2006, no
pet.); TMC Worldwide, L.P. v. Gray, 178 S.W.3d 29, 36 (Tex. App.—Houston [1st Dist.] 2005, no
pet.). A trial court does not abuse its discretion when it bases its decision on conflicting evidence,
as long as some evidence in the record reasonably supports the trial court’s decision. Butnaru, 84
S.W.3d at 211; Brammer v. KB Home Lone Star, L.P., 114 S.W.3d 101, 105 (Tex. App.—Austin
2003, no pet.).
Analysis
Vaughn and East Coast contend in their first issue that the trial court abused its discretion
in granting the temporary injunction. The evidence at the temporary injunction hearing showed that
Chesapeake was a valuable customer to Intrepid. Clint Leazer, the President of Intrepid, testified
that Intrepid did about $45 million of business with Chesapeake on a yearly basis and that it would
be a substantial loss to Intrepid to lose Chesapeake as a customer. Vaughn acknowledged during his
testimony that Chesapeake was a “target or a key account” for Intrepid. The evidence also showed
that Chesapeake is headquartered in Oklahoma, which is within the five-state restricted territory in
Vaughn’s agreement not to compete.
Vaughn set up East Coast in April 2008. Vaughn testified that East Coast was formed for
the purpose of performing directional drilling jobs in the East Coast area of the United States.
Vaughn also testified that, in late August 2008, he scheduled a job for East Coast to provide
directional drilling services to Chesapeake in Pennsylvania. Intrepid obtained a temporary
restraining order from the trial court before East Coast performed the Chesapeake job, and East
Coast elected not to perform the job.
Intrepid presented evidence that Vaughn had solicited its employees to work for East Coast.
Nathan L. Moore, a Vice President of Operations for Intrepid, testified that Vaughn had approached
him on two occasions about leaving Intrepid and going into a directional drilling business with him.
Moore also testified that Vaughn offered him and Mitchell 15% interests in the business.
The record supports the trial court’s granting of a temporary injunction. On behalf of East
Coast, Vaughn agreed to perform a job for Chesapeake in Pennsylvania. Intrepid presented evidence
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tending to show that Vaughn breached or threatened breach of Paragraphs 3(a), (b), and (c) of his
agreement not to compete. The evidence tends to show (1) that Vaughn interfered with an Intrepid
customer, Chesapeake; (2) that Vaughn engaged in conduct that was calculated to interfere with,
impair, or disparage Intrepid’s business relationship with Chesapeake; and (3) that Vaughn solicited
and recruited Intrepid employees to work for East Coast. Therefore, the evidence supports the trial
court’s finding that Intrepid established a probable right to the relief sought on its claims that Vaughn
had breached his agreement not to compete. The evidence also supports the trial court’s findings
that, in the absence of an injunction, Intrepid would suffer irreparable injury and that Intrepid’s
damages could not be measured by any certain pecuniary standard. Intrepid established the three
elements necessary to obtain a temporary injunction.
Vaughn and East Coast contend that Sections III(b), (c), and (e) of the temporary injunction
are unenforceable because they do not comply with the requirements of Section 15.50(a) of the
Business and Commerce Code. Sections (III)(b) and (c) are based on Paragraph 3(a) of Vaughn’s
agreement not to compete; Section III(e) is based on Paragraph 3(c) of Vaughn’s agreement not to
compete. Vaughn and East Coast also assert that the trial court erred in finding that no reformation
of Vaughn’s agreement not to compete was necessary.
The legal issues before a trial court at a temporary injunction hearing are whether the
applicant showed a probability of success and irreparable injury; the underlying merits of the
controversy are not presented. Loye v. Travelhost, Inc., 156 S.W.3d 615, 619 (Tex. App.—Dallas
2004, no pet.); Tom James of Dallas, Inc. v. Cobb, 109 S.W.3d 877, 882 (Tex. App.—Dallas 2003,
no pet.). At a temporary injunction hearing, a trial court does not address the ultimate issue of
whether a covenant not to compete is enforceable under Section 15.50 of the Business and
Commerce Code. Tom James, 109 S.W.3d at 885. Rather, a determination of “[t]hat issue awaits
a final judgment on the merits, such as a final judgment entered after a jury or bench trial or a
hearing on a motion for summary judgment.” Id. Thus, by granting a temporary injunction, a trial
court does not declare that a covenant not to compete is valid. Likewise, an appeal from an order
granting or denying a temporary injunction based on a covenant not to compete does not present for
appellate review the ultimate issue of whether the covenant is enforceable under Section 15.50 of
the Business and Commerce Code. Loye, 156 S.W.3d at 619; Tom James, 109 S.W.3d at 882-83.
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A determination of the issues of whether the covenants in Vaughn’s agreement not to compete are
enforceable and whether they must be reformed must await a final judgment on the merits.
Vaughn and East Coast argue that Section III(c) of the temporary injunction is based on the
trial court’s improper interpretation of Paragraph 3(a) of Vaughn’s agreement not to compete. In
Paragraph 3(a), Vaughn agreed, among other things, not to “otherwise interfere, directly or indirectly,
in any manner with any relationship between [VGS] and/or Intrepid and such customers within the
Restricted Territory.” In Section III(c), the trial court ordered Vaughn and East Coast to “[c]ease,
desist and refrain from any other interference with any INTREPID customer within the Restricted
Territory for directional drilling or measurement while drilling outside the Restricted Territory.”
Vaughn and East Coast contend that the trial court improperly interpreted Paragraph 3(a) to include
drilling “outside the Restricted Territory.” However, the language in Paragraph 3(a) provides
support for the trial court’s interpretation. Paragraph 3(a) prohibits interference with any relationship
between Intrepid and its customers within the restricted territory. For Paragraph 3(a) to apply, the
customer must be located in the restricted territory. However, Paragraph 3(a) does not contain a
requirement that the drilling occur within the restricted territory. Based on the language in
Paragraph 3(a) and the evidence at the temporary injunction hearing, we cannot say that the trial
court’s interpretation of Paragraph 3(a) constituted an abuse of discretion. See Simon Prop. Group
(Tex.) L.P. v. May Dep’t Stores Co., 943 S.W.2d 64, 73-74 (Tex. App.—Corpus Christi 1997, no
writ) (The trial court did not abuse its discretion because a substantial difference of opinion existed
as to the proper construction of a legal document.); 183/620 Group Joint Venture v. SPF Joint
Venture, 765 S.W.2d 901, 904 (Tex. App.—Austin 1989, writ dism’d w.o.j.) (The trial court
reasonably concluded that a party had shown a probable right of recovery where a bona fide dispute
existed as to the construction of contract documents.).
The trial court did not abuse its discretion in granting the temporary injunction. We overrule
Vaughn and East Coast’s first issue.
In their second issue, Vaughn and East Coast assert that the temporary injunction fails to
comply with Rule 683. Rule 683 provides, in relevant part, that orders granting injunctions “shall
be specific in terms” and “shall describe in reasonable detail and not by reference to the complaint
or other document, the act or acts sought to be restrained.” Vaughn and East Coast contend that
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Sections III(b), (c), and (e) contain inadequate descriptions of “customers” and that, therefore, they
are vague, ambiguous, and overly broad. They also contend that the descriptions of the conduct to
be restrained in Sections III(c) and (e) of the order – “any other interference” and “any conduct
calculated to interfere with, impair or disparage INTREPID’s business relationships” – are vague,
ambiguous, overly broad, and insufficient to apprise them of the restrained activities. Sections III(c)
and (e) of the order require Vaughn and East Coast not to interfere with Intrepid’s customers and
Intrepid’s business relationships with its customers that are located within the five-state restricted
territory. Section III(b) also relates to Intrepid’s customers in the restricted territory.
The trial court’s order identified Chesapeake as Intrepid’s customer. Although the trial
court’s order did not identify Intrepid’s other customers that were located within the five-state
restricted territory, Vaughn’s testimony demonstrated that he either knew or could easily determine
the identity of the other customers. Under these circumstances, the trial court’s order sufficiently
identified Intrepid’s customers for the purposes of Rule 683. See Amalgamated ACME Affiliates,
Inc. v. Minton, 33 S.W.3d 387, 397-98 (Tex. App.—Austin 2000, no pet.) (A temporary injunction
that did not specifically name the applicant’s customers and advertisers complied with Rule 683
where the party enjoined admitted it could identify the customers and advertisers.); Safeguard Bus.
Sys., Inc. v. Schaffer, 822 S.W.2d 640, 644 (Tex. App.—Dallas 1991, no writ) (In reviewing a
permanent injunction, the court stated that “[o]rders generally restraining solicitation of customers
and not specifically listing the individual customers have not been found to be overbroad.”).
Vaughn’s knowledge of Intrepid’s customer base will allow him and East Coast to avoid violating
the temporary injunction. The trial court’s order described in reasonable detail the acts sought to be
restrained and, therefore, complied with Rule 683. We overrule Vaughn and East Coast’s second
issue.
This Court’s Ruling
We affirm the trial court’s order granting the temporary injunction.
April 30, 2009 TERRY McCALL
Panel consists of: Wright, C.J., JUSTICE
McCall, J., and Strange, J.
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