Down Time - South Texas, LLC v. Glen Roy Elps ( 2014 )

NUMBER 13-13-00495-CV
COURT OF APPEALS
THIRTEENTH DISTRICT OF TEXAS
CORPUS CHRISTI – EDINBURG
DOWN TIME-SOUTH
TEXAS, LLC, Appellant,
v.
GLEN ROY ELPS, Appellee.
On appeal from the County Court at Law No. 3
of Nueces County, Texas.
MEMORANDUM OPINION
Before Chief Justice Valdez and Justices Benavides and Longoria
Memorandum Opinion by Justice Longoria
This is an accelerated, interlocutory appeal of an order entered by County Court
at Law Number Three of Nueces County, Texas denying an application for a temporary
injunction filed by Down Time – South Texas, LLC (“Down Time”) in its suit against Glen
Roy Elps, a former employee and current member of Down Time. See TEX. CIV. PRAC. &
REM. CODE ANN. § 51.014(a)(4) (West 2008). For the reasons set forth below, we affirm
the trial court’s order.
I. BACKGROUND
In the underlying suit, Down Time is seeking to enforce the provisions of a non-
compete agreement. See TEX. BUS. & COM. CODE ANN. § 15.51(a) (West 2011). On
August 19, 2013, the trial court held a hearing on Down Time’s application for a temporary
injunction; however, only one exhibit was admitted into evidence. The exhibit consists of
eighteen pages of regulations applicable to Down Time’s members, including Mr. Elps.
Regulation 5.4 sets forth the non-compete agreement at issue in this case.
At the outset of the hearing, Mr. Elps’ attorney objected to Down Time’s request
for a temporary injunction on the grounds that the non-compete agreement is
unenforceable as a matter of law because the duration of the agreement is indefinite.
See TEX. BUS. & COM. CODE ANN. § 15.50(a) (West 2011) (providing that “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”) (emphasis added). In relevant part, the agreement states that
it will last “[f]or so long as a member shall own an interest in the Company and for a further
period of three (3) years from and after the date of redemption, sale or other disposition
of the member’s interest in the Company . . . .”
At the hearing, Mr. Elps’ attorney told the trial court the following:
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Your Honor, we understand that the temporary injunction requires -- it’s an
evidentiary hearing obviously. So, you know, if they intend to put on
evidence and if we get to that, we intend to put on evidence as well.
But we have some objections both procedural and substantive to . . . the
temporary injunction, because we think it’s a matter of law. . . . [A]s a matter
of law, they can’t get a temporary injunction, so even if they put on evidence,
they wouldn’t be able to solve this problem. . . .
[I]t’s our argument here that the non-compete agreement that’s sought to
be enforced is indefinite. It will last as long as my client owns his stock,
which is forever. They even in their pleadings [sic] they acknowledge that
it’s unclear when that may or may not be. . . .
So we’re faced then with the situation where on its face, the non-competition
agreement is . . . forever, so it’s unreasonable on its face. The only way to
possibly enforce it would be to reform it. That can’t be done at this time;
therefore, there is no need to put on any evidence in order to . . . try to
reform it. . . .
[T]hey simply put the cart before the horse, and . . . the reason I’m bringing
this up and spending time on this is because I think that it would be a waste
of the Court’s time to hear evidence when it’s just absolutely impossible as
a matter of law to enforce it, in a temporary injunction hearing. If this is
going to be done, it’s going to have to be done when we try this case. I
think that’s what the case law, that’s what the statutes all . . . hold.
Mr. Elps’ attorney also objected to the request for a temporary injunction based on
the fact that Mr. Elps’ current employer, Dresser-Rand Company, had not been made a
party to the suit. See Bays v. Wright, 132 S.W.2d 144, 145 (Tex. Civ. App.—Waco 1939,
no writ) (“All persons in whose favor or against whom there might be a recovery, however
partial, and all persons who are so interested that their rights or duties might be affected
by the decree, must be made parties in order that their rights may be adjudicated and
finally determined, and all parties bound by a single decree.”).
Down Time’s attorney responded that to the extent that the agreement is indefinite
in duration, the trial court is required to reform the agreement such that it is reasonable
and enforceable. Down Time’s counsel told the trial court the following:
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I see that the statute clearly anticipates that we’re allowed to do that and
the Court is allowed to do that. But what the Court can’t do is strike down
a non-compete, because one party claims that the duration or the
geographic region are too broad, the Court is required to -- it shall reform it
to become reasonable. And we’re entitled -- we’re able to put on the
evidence today to demonstrate that. And furthermore, we need to be able
to -- we need to put on our evidence, nonetheless, in order to preserve our
appeal.
Down Time’s attorney also argued that Mr. Elps’ current employer, Dresser-Rand
Company, is not a necessary party to the suit.
Mr. Elps’ attorney then conceded that the trial court had the ability to reform the
agreement, but he argued that the court could not reform the agreement until the final
hearing. According to Mr. Elps’ counsel, the trial court could not reform the agreement
on Down Time’s application for a temporary injunction. Again, Mr. Elps’ attorney told the
trial court that it was unnecessary for the court to hear additional evidence:
[I]t’s true that . . . there’s other aspects that they have to prove in addition
to probable right of recovery, but they can’t get across the first threshold,
which is probable right of recovery without changing the agreement, and the
Court can’t change the agreement at this juncture. It has to wait until the
end of the case.
The trial judge then recessed the hearing before Down Time could present any
further evidence:
THE COURT: All right. The Court is going to take a recess on
this hearing to go ahead and review everything
that’s been submitted. And when I make my
decision, I’ll let you know and we’ll go ahead and
reset the hearing for any evidence that you both
wish to present. But I agree, I need to make this
decision first.
[Mr. Elps’ attorney]: Do you want us to hang around here?
THE COURT: No, no. If you’ll just make sure you leave your
phone numbers with the court manager --
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[Mr. Elps’ attorney]: Okay.
THE COURT: -- then I’ll - - I’ll be able to call you and let you
know.
[Down Time’s attorney]: All right. In regard, if it goes -- if we’re not going
to have this hearing, we still need to be able to
put on our evidence where we can create a bill
of review.
THE COURT: All right. That’s fine.
[Down Time’s attorney]: Even if we do that, we can set that whenever it’s
convenient for the Court.
THE COURT: Okay, wonderful. Thank you. Thank you so
much.
The next day, August 20, 2013, Down Time filed a “brief on temporary injunctive
relief” in which it asserted, inter alia, that it “has a legal right to present evidence in support
of its application for temporary injunction, and the Court clearly has authority to determine
the issues required to support a temporary injunction.” Down Time also argued in relevant
part as follows:
Down Time is entitled to offer evidence of the goodwill and other business
interests it seeks to protect, the geographical area which it seeks to protect
from [Mr.] Elps’ competition, the reasonable duration in which protection is
needed, and evidence regarding the need for an injunction prohibiting [Mr.]
Elps from disclosing trade secrets and otherwise violating his fiduciary duty
to Down Time as a member of the LLC and key person who held the position
as Vice President of Operations.
Down Time’s brief concluded with the following prayer:
Down Time . . . prays that it be granted the right to a hearing and to present
its evidence in support of its application for temporary injunctive relief and
to all other and further relief to which it has or may hereafter show, deem,
or allege itself entitled to receive.
On September 4, 2013, Down Time’s counsel sent the judge of the trial court a
letter requesting an evidentiary hearing as follows:
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In this case, Down Time’s Application for Temporary Injunction came on for
hearing on the morning of August 19, 2013. Before Down Time could
present evidence to demonstrate its irreparable injury and right to relief, the
Court recessed the hearing to consider authorities from the parties on
whether Plaintiff was entitled to present evidence.
Plaintiff continues to suffer injury and is entitled to a hearing on its claim for
injunctive relief. Accordingly, Plaintiff respectfully (and urgently) asks the
Court to schedule a hearing so that Plaintiff may present its witnesses, and
the Court, having heard the evidence, can render an order granting or
denying Plaintiff’s prayer for injunctive relief. For the Court’s convenience, I
am enclosing an Order Setting Hearing.
Thereafter, on September 10, 2013, the trial court entered an order denying Down
Time’s application for a temporary injunction. Although the court stated that it would allow
the parties to present evidence after it made its decision, the record indicates that after
the trial court made its decision, Down Time did not make any further attempt to request
an evidentiary hearing or to make an offer of proof.
At Down Time’s request, the trial court entered findings of fact and conclusions of
law. See TEX. R. CIV. P. 296. The court gave six basic reasons for its ruling, which we
summarize as follows.
First, the trial court concluded that the non-compete agreement is unenforceable
because its duration is not “definite.” See Marsh USA Inc. v. Cook, 354 S.W.3d 764, 777
(Tex. 2011) (holding that “[t]he hallmark of enforcement is whether or not the covenant is
reasonable” and stating that “the statute’s core inquiry is whether the covenant” contains
reasonable limitations). The trial court found that the time limitation contained in the non-
compete agreement was “three (3) years.” However, the trial court also found that the
limitation “does not go into effect until after the member redeems, sells, or otherwise
disposes of his interest in Down Time.” In addition, the trial court found that Down Time
had conceded in its pleadings that “it is unclear when Mr. Elps’ . . . ownership interest will
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conclude.” The trial court observed that Down Time’s regulations do “not contain any
provisions that would provide for any acquired sale, redemption, or disposition of an
interest in Down Time that would provide any limitation of time.” Based on the foregoing,
the court concluded that the non-compete agreement has an “indefinite limitation of time”
and therefore “is unenforceable as written.” See Gomez v. Zamora, 814 S.W.2d 114, 118
(Tex. App.—Corpus Christi 1991, no writ) (“Indefinite descriptions of the area covered by
a non-competition covenant render them unenforceable as written.”).
Second, the trial court concluded that reformation is not available to Down Time
because Down Time has not pled a request for reformation. See id. (“We have previously
stated that the failure to request reformation in the trial court operates as a waiver of the
right of reformation.”).
Third, the trial court noted that Down Time does not seek enforcement of the non-
compete agreement as written. According to the trial court, Down Time “has requested
that [the] . . . court ‘enforce the noncompetition agreement for three years from the date
on which [Mr.] Elps begins to actually comply . . . with this covenant not to compete.’” The
trial court ruled that Down Time is not entitled to request relief that is narrower in scope
than the non-compete agreement without reformation of the covenant. See id. at 119
(“The fact that the temporary injunction entered by the trial court was geographically
narrower in scope than the covenant not to compete is irrelevant since appellee failed to
request reformation of the covenant in the trial court.”).
Fourth, the trial court concluded that even if Down Time had requested it,
“[r]eformation is not available in the temporary injunction phase of the case, as Section
15.51 applies to final trials on the merits and final injunctions, and not temporary
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injunctions.” See Gray Wireline Serv., Inc. v. Cavanna, 374 S.W.3d 464, 470 (Tex. App.—
Waco 2011, no pet.) (“[W]e agree that reformation pursuant to section 15.51(c) of the
Business and Commerce Code is a remedy to be granted at a final hearing, whether on
the merits or by summary judgment, not as interim relief.”); Cardinal Health Staffing
Network, Inc. v. Bowen, 106 S.W.3d 230, 238–39 (Tex. App.—Houston [1st Dist.] 2003,
no pet.) (en banc) (“Reformation is generally a final remedy.”).
Fifth, the trial court ruled that even if reformation were available during the
temporary injunction phase of the case, the non-compete agreement would still be
unenforceable because the “full extent” of the court’s “discretionary powers” would be to
remove the limitation of time of “three (3) years,” which would still leave the duration of
the agreement “indefinite.”
Sixth, and finally, the trial court concluded that preliminary injunctive relief is not
available for the additional reason that Mr. Elps’ employer, Dresser-Rand Company, has
not been made a party to the proceeding.
II. ISSUES ON APPEAL
Down Time now raises five issues on appeal in which it contends as follows: (1)
“[t]he trial court erred in denying Down Time’s application for [a] temporary injunction
based on any theories upon which the court denied the temporary injunction and on any
theory argued by Mr. Elps”; (2) “[t]he trial court erred in denying the requested temporary
injunction for any reason related to Chapter 15 of the Texas Business and Commerce
Code”; (3) “[t]he trial court erred in denying the requested temporary injunction based on
its conclusion that preliminary injunction relief is not available because Mr. Elps’ new
employer has not been joined and has a justiciable interest”; (4) “[t]he trial court erred in
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denying the requested temporary injunction based on its finding that Down Time’s
Regulations do not contain provisions for ‘acquired redemption, sale, or disposition’ of Mr.
Elps’ interest in Down Time”; and (5) “[t]he trial court erred in denying Down Time’s
application for temporary injunction without affording Down Time the opportunity to
present evidence on any of its several causes of action against Mr. Elps, or on Down
Time’s probable right of recovery on the merits of each, or on Down Time’s probable
irreparable injury prior to trial in the absence of a temporary injunction.”
III. ANALYSIS
The question presented in this appeal is whether the trial court erred in denying
Down Time’s application for a temporary injunction.
A. Applicable Law
“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). “A temporary injunction is an extraordinary remedy and does not issue
as a matter of right.” Id. “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.
B. Standard of Review
“Whether to grant or deny a temporary injunction is within the trial court’s sound
discretion.” Id. “A reviewing court should reverse an order granting [or denying
temporary] injunctive relief only if the trial court abused that discretion.” Id. “The
reviewing court must not substitute its judgment for the trial court’s judgment unless the
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trial court’s action was so arbitrary that it exceeded the bounds of reasonable discretion.”
Id. “[T]he trial court’s failure to properly apply the law to the undisputed facts is an abuse
of discretion for which the judgment of the trial court may be reversed.” Dresser Indus.,
Inc. v. Forscan Corp., 641 S.W.2d 311, 317 (Tex. App.—Houston [14th Dist.] 1982, no
writ); see also Walker v. Packer, 827 S.W.2d 833, 840 (Tex. 1992) (“A trial court has no
‘discretion’ in determining what the law is or applying the law to the facts. Thus, a clear
failure by the trial court to analyze or apply the law correctly will constitute an abuse of
discretion, and may result in appellate reversal by extraordinary writ.”).
C. Discussion
As set forth above, the trial court’s findings and conclusions indicate that its denial
of Down Time’s application for a temporary injunction was based on Down Time’s failure
to establish a probable right to the relief sought. See Butnaru, 84 S.W.3d at 204. Our
analysis therefore begins with this element. See id.
Initially, we must address the threshold issue: in a suit to enforce a noncompetition
agreement, is the defendant’s current employer a necessary party such that the absence
of Dresser-Rand from the instant suit precluded Down Time from establishing a probable
right to the relief sought? We begin by noting that in one unpublished opinion, the Fort
Worth Court of Appeals held that the trial court did not err by failing to require the joinder
of all necessary parties before issuing a temporary injunction. See Whittier Heights Maint.
Ass’n v. Colleyville Home Owners’ Rights Ass’n, No. 02–10–00351–CV, 2011 WL
2185699, at *4 (Tex. App.—Fort Worth June 2, 2011, no pet.) (mem. op.). The Beaumont
Court of Appeals has taken a similar position. See Winslow v. Duval County Ranch Co.,
519 S.W.2d 217, 226 (Tex. Civ. App.—Beaumont 1975, writ ref’d n.r.e.) (“[W]e were not
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impressed with defendants’ claim of non-joinder of necessary parties as a condition
precedent to the issuance of the temporary injunction. In the ordinary case, such joinder
is not required . . . .”).
Yet, quite some time ago, the Texas Supreme Court held “that the refusal of a
temporary injunction when there is an absence of necessary parties, who might readily
be joined in the suit, cannot be deemed an abuse of discretion.” Scott v. Graham, 292
S.W.2d 324, 325 (Tex. 1956). Likewise, the San Antonio Court of Appeals has explained
that “parties [who] have contract rights, which would be affected by such an injunction, . .
. are necessary parties without whose presence the injunction is unauthorized.” Bourland
v. City of San Antonio, 347 S.W.2d 660, 661 (Tex. Civ. App.—San Antonio 1961, no writ);
see also Davis v. Turner, 145 S.W.2d 258, 260 (Tex. Civ. App.—Galveston 1940, no writ)
(reversing order granting temporary injunction because only four of forty-six officers were
joined in suit). Finally, the Waco Court of Appeals issued a decision cited by Mr. Elps
and the trial court in support of the proposition that Dresser-Rand is a necessary party
whose absence from this suit precluded Down Time from establishing its entitlement to a
temporary injunction. See Bays, 132 S.W.2d at 144. In Bays, the Waco Court of Appeals
articulated the “well settled rule that in a suit of this kind to cancel a contract or to restrain
the enforcement thereof, all parties to such contract are necessary parties to the suit.” Id.
at 145. The court noted that a suit for temporary injunctive relief is “an equitable suit and
the primary object of equity is to grant full relief and to adjust in one suit the rights and
duties of all interested parties that grow out of or are connected with the subject matter of
the suit.” Id. For this reason, the court held as follows:
All persons in whose favor or against whom there might be a recovery,
however partial, and all persons who are so interested that their rights or
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duties might be affected by the decree, must be made parties in order that
their rights may be adjudicated and finally determined, and all parties bound
by a single decree.
Id.
With the foregoing in mind, we return to the pleadings. In its application for
temporary injunction and original petition, Down Time provides the following description
of the relief it seeks in this suit:
Down Time seeks a temporary, then permanent, injunction against Mr. Elps
prohibiting his continued employment by Dresser-Rand, as well as
employment with any other company that provides machining and
mechanical services to industrial customers like those in the petrochemical,
refining or power generation fields. This injunctive relief is requested to
extend for three years from the date on which Mr. Elps actually begins to
comply with the covenant not to compete he agreed to in the Purchase
Option Agreement.
Clearly, Down Time seeks injunctive relief that would affect, and in fact, terminate,
Dresser-Rand’s employment relationship with Mr. Elps. Although Down Time has not
named Dresser-Rand as a party to this suit, the relief requested by Down Time, if it were
granted, would have the direct effect of enjoining both Dresser-Rand and Mr. Elps from
performing under their existing employment contract. Thus, in our view, Down Time has
requested relief against both Dresser-Rand and Mr. Elps. Under these circumstances,
we conclude that the trial court did not abuse its discretion in ruling that Dresser-Rand is
a necessary party whose absence from the case precluded Down Time from establishing
its entitlement to the preservation of the status quo pending final judgment. See id.
Accordingly, we overrule Down Time’s third issue in which it contends that the trial court
erred in denying its application for a temporary injunction based on the absence of
Dresser-Rand from the suit. Furthermore, because “the refusal of a temporary injunction
when there is an absence of necessary parties. . . cannot be deemed an abuse of
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discretion,” Down Time cannot establish an abuse of discretion in connection with any of
its other issues. Scott, 292 S.W.2d at 325.
Finally, we note that Down Time cannot establish an abuse of discretion for the
additional reason that there is no evidence of “a probable, imminent, and irreparable injury
in the interim,” which is a necessary element for a temporary injunction. Butnaru, 84
S.W.3d at 204. We reject the assertion made by Down Time in its fifth issue that the trial
court erred in ruling on its application for a temporary injunction without giving Down Time
an opportunity to present evidence. As set forth above, the trial judge stated on the record
that she would allow Down Time to make an offer of proof even after she made her
decision. However, nothing in the record indicates that Down Time requested to make
an offer of proof after the judge denied its application for a temporary injunction. Yet, at
the hearing, Down Time’s attorney acknowledged that “we need to put on our evidence .
. . in order to preserve our appeal.” See Langley v. Comm'n for Lawyer Discipline, 191
S.W.3d 913, 915 (Tex. App.—Dallas 2006, no pet.) (“[A]ppellant made no bills of
exceptions, formal or informal. No offer of proof was made of the excluded evidence in
any form. The excluded evidence is not in the record. Thus, appellant waived his
complaint by failing to properly preserve error.”). Given that there is no evidence of an
irreparable injury, we cannot conclude that Down Time established its entitlement to a
temporary injunction. See Butnaru, 84 S.W.3d at 204. Accordingly, we overrule Down
Time’s remaining issues.
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IV. CONCLUSION
We affirm the trial court’s order.
NORA L. LONGORIA
Justice
Delivered and filed the
20th day of March, 2014.
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