TENS Rx, Inc. v. Randi M. Hanis ( 2019 )

In The
Court of Appeals
Ninth District of Texas at Beaumont
____________________
NO. 09-18-00217-CV
_______________________
TENS RX, INC., Appellant
V.
RANDI M. HANIS, Appellee
On Appeal from the 284th District Court
Montgomery County, Texas
Trial Cause No. 16-11-13495-CV
MEMORANDUM OPINION
Appellant TENS Rx, Inc. (TENS) appeals the trial court’s order granting
Appellee Randi M. Hanis (Hanis) summary judgment in its suit against Hanis for
breach of contract and tortious interference with prospective relations. In granting
the take-nothing summary judgment in favor of Hanis, the trial court found the
covenant not to compete unenforceable. In one appellate issue, TENS argues the trial
court erred in granting summary judgment in favor of Hanis because the covenant
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not to compete is enforceable and meets the requirements of the Covenants Not to
Compete Act (CNCA). See Tex. Bus. & Com. Code Ann. § 15.50-.52. We affirm
the trial court’s judgment.
Background
On November 21, 2016, TENS filed suit against Hanis. According to TENS’s
First Amended Original Petition, in 2013 Hanis obtained employment with TENS
and executed an employment contract with the company. 1 The employment contract
contained the following non-competition clause:
6.07 Covenant – Restriction of Competition. During the one year period
following Employee’s termination of the employment relationship
Employee agrees that he shall not compete, either directly or indirectly,
either as an employee, employer, consultant, agent, principal, partner,
stockholder, corporate officer, director, or in any other individual or
representative capacity, engage or participate in any business that is in
1
The employment agreement states that
. . . Employer is engaged and has been engaged for many years in the
business of providing a wide range of electro-therapy products and
services to the general public, and in particular, goods and devices such
as TENS, Muscle Stim, Interferential, Microcurrent, and High-Volt
Pulsed Galvanic therapies for home use by the patients of medical
practitioners, including but not limited [to] those patients of medical
doctors, clinics, chiropractors, and other individuals and entities
engaged in the practice of medicine, chiropractic science, physical
therapy and other practitioners of the healing arts in similar fields of
practice (hereinafter referred to as “Employer’s Customers”). The
patients and other individuals and entities which actually purchase the
Employer’s goods and services by and through the relationship of the
Employer with the Employer’s Customers, are hereby referred to as the
“Ultimate Customers”.
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competition in any manner whatsoever with the business of Employer
in any state or geographical territory in which Employer is conducting,
has conducted or anticipates conducting its business, nor shall
Employee solicit for employment or encourage current employees of
Employer to terminate their employment with Employer. Employee
represents to Employer that the enforcement of the restriction against
non-competition would not be unduly burdensome to Employee and
that in order to induce Employer to employ the Employee and provide
the Employee with training and disclose highly confidential
information is sufficient consideration given by the Employer to
Employee for the covenant not to compete and that this covenant is
necessary to protect Employer’s interests which the Employee agrees
are worthy of protection. Employee further represents and
acknowledges that Employee is willing and able to compete in other
geographical areas not prohibited by the non-compete covenant. In the
event that a court of competent jurisdiction determines that the non-
compete covenant does not meet the requirements of §15.50 of the
Texas Business & Commerce Code (“TBCC”), then Employer and
Employee agree that Employer is deemed to have requested
reformation by such court pursuant to §15.51(c) of the TBCC.
Employee agrees that a breach or violation of the covenant not to
compete by Employee shall entitle Employer, as a matter of right, to an
injunction issued by any court of competent jurisdiction, restraining any
further or continued breach or violation of this covenant. Such right to
an injunction shall be cumulative and in addition to, and not in lieu of,
any other remedies to which Employer may show itself justly entitled.
Further, during any period in which Employee is in breach of this
covenant not to compete, the time period of this covenant shall be
extended for an amount of time that Employee is in breach hereof.
The representations and covenants contained in this Paragraph 6.07 on
the part of Employee will be construed as ancillary to and independent
of any other provision of this Agreement, and the existence of any claim
or cause of action of Employee against Employer or any officer,
director, or shareholder of Employer, whether predicated on this
Agreement or otherwise, shall not constitute a defense to the
enforcement by Employer of the covenants of Employee contained in
this paragraph. In addition, the provisions of this paragraph shall
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continue to be binding upon Employee in accordance with its terms,
notwithstanding the termination of Employee’s employment.
The parties to this Agreement agree that the limitations contained in
this paragraph with respect to geographic area, duration, and scope of
activity are reasonable. However, if any court shall determine that the
geographic area, duration, or scope of activity of any restriction
contained in this paragraph is unenforceable, it is the intention of the
parties that such restrictive covenant set forth herein shall not thereby
be terminated but shall be deemed amended to the extent required to
render it valid and enforceable.
The amended petition further alleges that Hanis terminated her employment
with TENS on October 3, 2016, and immediately sought employment with, and
continues to be employed by, a direct competitor of TENS in violation of the
employment contract. In its amended petition, TENS asserted causes of action for
breach of contract and tortious interference with prospective relations. TENS also
pleaded specific performance and requested that the trial court order Hanis to
immediately cease competition with TENS.
Hanis filed an answer and a traditional motion for summary judgment. In her
motion for summary judgment, Hanis stated that she has worked in portable durable
medical equipment sales since 2002, and she argued that the non-competition
agreement is unenforceable because it does not have a reasonable limitation as to
geographic area and does not have a reasonable limitation on the scope of activity to
be restrained.
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Hanis argued that Paragraph 6.07’s overly broad prohibition of competition
“in any state or geographical territory in which Employer is conducting, has
conducted or anticipates conducting its business[]” is based only on the activities of
TENS and bears no relation to her activities. Hanis also argued that this restriction
is not limited to a defined territory or even a geographic area in which TENS did
business while Hanis was employed with TENS.
As to Paragraph 6.07’s restriction on scope of activity, Hanis argued it
amounts to an unenforceable industry-wide prohibition. According to Hanis,
Paragraph 6.07’s language that she “agrees that [s]he shall not compete, either
directly or indirectly, either as an employee, employer, consultant, agent, principal,
partner, stockholder, corporate officer, director, or in any other individual or
representative capacity, engage or participate in any business that is in competition
in any manner whatsoever with the business of Employer” is based on TENS’s
activities not Hanis’s, restricts her ability to contact TENS’s customers whether she
has worked with them or not, and prohibits her from selling goods or providing
services to ultimate customers TENS would not, did not, or could not service. Hanis
attached her affidavit to the motion and averred that when presented with the
employment contract, she had serious reservations about signing the contract
because it included a non-competition agreement, but she was informed by a TENS
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employee that the non-competition portion of the contract was a mere formality, not
material to the contract, and would not be enforced. According to Hanis’s affidavit,
she signed the agreement based on these assurances. Hanis averred that she
terminated her employment with TENS on October 3, 2016, and she went to work
with Analgesic Health Care in Florida, with whom she had previously been
employed.
TENS filed a response to the motion for summary judgment and argued that
by executing the agreement, Hanis agreed with the language of Paragraph 6.07 that
states the covenant not to compete is not unduly burdensome, the geographic
restrictions were reasonable, and acknowledges that TENS conducted sales on a
nationwide basis with a significant amount of business in Texas and Florida.
According to TENS, “[i]t is disingenuous for Hanis to now assert the contrary.”
TENS argued in the alternative that if the trial court found the terms of the covenant
not to compete unreasonable, that the trial court should not grant summary judgment
but instead reform the covenant not to compete to the extent necessary pursuant to
section 15.51(c) of the Texas Business and Commerce Code and in accordance with
the terms of the employment contract Hanis signed.
After submission, the trial court issued a written order granting summary
judgment in favor of Hanis. The trial court found that the “non-competition
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agreement is not reasonable in geographic scope or scope of activity to be restrained
and is therefore unenforceable.” TENS filed a motion for new trial and motion for
reconsideration, which the trial court denied. TENS appealed.
Issue on Appeal
In its sole issue on appeal, TENS argues that the trial court erred in granting
summary judgment in favor of Hanis by finding the covenant not to compete was
not reasonable in geographic scope or scope of activity to be restrained and was
therefore unenforceable. TENS asserts that the terms of the covenant not to compete
are reasonable, the covenant states that the terms are reasonable, and that Hanis
“admits” the “fact” that the terms are reasonable by executing the agreement.
Furthermore, TENS maintains that if the trial court believed the covenant not to
compete was unreasonable, it should have reformed the covenant not to compete
instead of finding it unenforceable.
Standard of Review and Applicable Law
In a traditional motion for summary judgment, the movant has the burden of
showing, with competent proof, that no genuine issue of material fact exists, and that
it is entitled to judgment as a matter of law. See Tex. R. Civ. P. 166a; Nixon v. Mr.
Prop. Mgmt. Co., 690 S.W.2d 546, 548 (Tex. 1985). When a defendant is the movant
for summary judgment, it has the burden to conclusively negate at least one essential
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element of the plaintiff’s cause of action, or conclusively establish each element of
an affirmative defense. See Doe v. Boys Clubs of Greater Dallas, Inc., 907 S.W.2d
472, 476-77 (Tex. 1995); Montgomery v. Kennedy, 669 S.W.2d 309, 310-11 (Tex.
1984). If the moving party produces evidence entitling it to summary judgment, the
burden shifts to the non-movant to raise a material fact issue sufficient to defeat
summary judgment. Centerpoint Builders GP, LLC v. Trussway Ltd., 436 S.W.3d
882, 885 (Tex. App.—Beaumont 2014), aff’d, 496 S.W.3d 33, 36 (Tex. 2016). In
deciding whether a disputed material fact issue exists precluding summary
judgment, we resolve every reasonable inference in favor of the non-movant and
take all evidence favorable to it as true. See Nixon, 690 S.W.2d at 548-49;
Centerpoint Builders, 436 S.W.3d at 885.
The enforceability of a covenant not to compete is a question of law. Light v.
Centel Cellular Co., 883 S.W.2d 642, 644 (Tex. 1994); Sadler Clinic Ass’n, P.A. v.
Hart, 403 S.W.3d 891, 895 (Tex. App.—Beaumont 2013, pet. denied). “The
hallmark of enforcement is whether or not the covenant is reasonable.” Marsh USA
Inc. v. Cook, 354 S.W.3d 764, 777 (Tex. 2011).
[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.
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Tex. Bus. & Com. Code Ann. § 15.50(a).
Because the covenant not to compete signed by Hanis relates to a provision
of personal services, TENS has the burden of proving that its terms comply with the
CNCA. See id. § 15.51(b) (“If the primary purpose of the agreement to which the
covenant is ancillary is to obligate the promisor to render personal services, for a
term or at will, the promisee has the burden of establishing that the covenant meets
the criteria specified by Section 15.50 of this code.”); Dickerson v. Acadian Cypress
& Hardwoods, Inc., No. 09-13-00299-CV, 2014 Tex. App. LEXIS 3889, at *21
(Tex. App.—Beaumont Apr. 10, 2014, no pet.) (mem. op.) (construing an
employment agreement by a sales employee as a personal services contract).
Geographic Limits and Scope of Activity
On appeal, TENS cites no authority to support the reasonableness of the
restrictions challenged in Hanis’s motion for summary judgment. Instead, TENS
merely states that Hanis “admits” that they are reasonable because she signed the
covenant stating that the restrictions were reasonable. In the trial court and now on
appeal Hanis argues Paragraph 6.07’s prohibition of her working “in any state or
geographical territory in which Employer is conducting, has conducted or anticipates
conducting its business[]” is overly broad and based only on the activities of TENS,
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bears no relation to her activities, and is not limited to a defined territory or even a
geographic area TENS did business in while Hanis was employed with TENS.
In determining the reasonableness of a covenant not to compete, we consider
whether the covenant contains limitations that are reasonable as to geographical area
and do not “impose a greater restraint than is necessary to protect the goodwill or
other business interest of the promisee.” Marsh, 354 S.W.3d at 777. A restraint is
unnecessary if it is broader than necessary to protect the legitimate interests of the
employer. DeSantis v. Wackenhut Corp., 793 S.W.2d 670, 682-84 (Tex. 1990).
Whether a covenant is a reasonable restraint on trade is a question of law for the
court. Emmons v. Stewart Glass & Mirror, Inc., No. 09-95-119-CV, 1996 Tex. App.
LEXIS 2892, at *7 (Tex. App.—Beaumont Jan. 25, 1996, no writ); John R. Ray &
Sons, Inc. v. Stroman, 923 S.W.2d 80, 85 (Tex. App.—Houston [14th Dist.] 1996,
writ denied); see also Peat Marwick Main & Co. v. Haass, 818 S.W.2d 381, 386-88
(Tex. 1991). The Texas Supreme Court has held that an industry-wide exclusion is
unreasonable. Haass, 818 S.W.2d at 386-88.
The territory in which the employee worked for an employer is generally
considered to be the benchmark of a reasonable geographical restriction. Butler v.
Arrow Mirror & Glass, Inc., 51 S.W.3d 787, 793 (Tex. App.—Houston [1st Dist.]
2001, no pet.); Zep Mfg. Co. v. Harthcock, 824 S.W.2d 654, 660 (Tex. App.—Dallas
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1992, no writ). “Noncompete covenants with broad geographical scopes have been
held unenforceable, particularly when no evidence establishes that the employee
actually worked in all areas covered by the covenant.” Zep Mfg. Co., 824 S.W.2d at
661. Here, there is no definite territory stated and no evidence that Hanis worked in
all areas covered by the covenant. It is also unreasonable to impose a condition upon
Hanis that would require her to know where TENS “anticipates doing its business.”
See Cobb v. Caye Publ’g Grp., Inc., 322 S.W.3d 780, 785 (Tex. App.—Fort Worth
2010, no pet.) (“The parties have not cited, and we have not found, a case in which
a geographical limitation including areas where an employer does not currently
operate but has targeted for future potential expansion, standing alone, is
reasonable.”). We conclude the geographic restriction in the covenant not to compete
here is significantly broader than the geographic scope of Hanis’s employment with
TENS. The covenant is broader than is reasonably necessary to protect the interests
of TENS. See Marsh, 354 S.W.3d at 777; see also Zep Mfg. Co., 824 S.W.2d at 661.
As to the restriction on the scope of activity, Hanis argues that the language
in Paragraph 6.07 that “[s]he shall not compete, either directly or indirectly, either
as an employee, employer, consultant, agent, principal, partner, stockholder,
corporate officer, director, or in any other individual or representative capacity,
engage or participate in any business that is in competition in any manner whatsoever
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with the business of Employer” is based on TENS’s activities not Hanis’s, restricts
her ability to contact TENS’s customers whether she has worked with them or not,
and prohibits her from selling goods or providing services to ultimate customers
TENS would not, did not, or could not service. Hanis argues this provision amounts
to an unenforceable industry-wide prohibition.
The law is well settled that “[i]n the case of covenants applied to a personal
services occupation, such as that of a salesman, a restraint on client solicitation is
overbroad and unreasonable when it extends to clients with whom the employee had
no dealings during his [or her] employment.” Stroman, 923 S.W.2d at 85 (citing
Haass, 818 S.W.2d at 386-88; Daytona Grp. of Tex., Inc. v. Smith, 800 S.W.2d 285,
288 (Tex. App.—Corpus Christi 1990, writ denied)). We conclude that the scope of
activity contained in the non-competition provision is unreasonable in that it
prohibits Hanis from soliciting clients that she had no dealings with when employed
by TENS. See id. Furthermore, the overly-broad language prohibits Hanis from
directly or indirectly competing, engaging, or participating in any business that is in
competition in any manner with TENS’s business. Because this restriction is not
limited to the type of work Hanis performed for TENS, it also unreasonably limits
the scope of activity to be restrained. See id.
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TENS also contends that the trial court erred in not reforming the covenant
not to compete to the extent necessary. The CNCA provides in pertinent part:
If the covenant is found to be ancillary to or part of an otherwise
enforceable agreement but contains limitations as to time, geographical
area, or scope of activity to be restrained that are not reasonable and
impose a greater restraint than is necessary to protect the goodwill or
other business interest of the promisee, the court shall reform the
covenant to the extent necessary to cause the limitations contained in
the covenant as to time, geographical area, and scope of activity to be
restrained to be reasonable and to impose a restraint that is not greater
than necessary to protect the goodwill or other business interest of the
promisee and enforce the covenant as reformed[.]
Tex. Bus. & Com. Code Ann. § 15.51(c). Assuming without deciding that the
covenant is ancillary to or part of an otherwise enforceable agreement, we conclude
that the exercise of reformation in this case would be futile as the covenant not to
compete expired by its own terms on October 3, 2017, one year from the date of
termination of Hanis’s employment. See Stroman, 923 S.W.2d at 85 (explaining
covenant expired so “any reformation of that provision by the trial court would have
been an exercise in futility.”). Because the covenant not to compete is unenforceable
as written, TENS is precluded from recovering damages on its claims. See Tex. Bus.
& Com. Code Ann. 15.51(c) (stating court must reform unreasonable covenant and
enforce it as reformed “except that the court may not award the promisee damages
for a breach of the covenant before its reformation and the relief granted to the
promisee shall be limited to injunctive relief[]”); see also Haass, 818 S.W.2d at 388
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(“Since [plaintiff] obtained no reformation of the covenant before [defendant’s]
actions for which it sought damages, the act would prohibit [plaintiff] from obtaining
damages.”).
In summary, the trial court did not err in granting summary judgment on the
basis that the covenant not to compete was unenforceable because it was
unreasonable in its geographic restriction and scope of activity to be restrained. And,
the trial court did not err in not reforming the covenant because the term of the
covenant had already expired and any reformation by the trial court would have been
an exercise in futility.
We overrule Appellant’s issue on appeal and affirm the trial court’s judgment.
AFFIRMED.
_________________________
LEANNE JOHNSON
Justice
Submitted on October 25, 2019
Opinion Delivered December 5, 2019
Before McKeithen, C.J., Horton and Johnson, JJ.
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