Sec Alarm Financing v. Green

United States Court of Appeals
Fifth Circuit
F I L E D
UNITED STATES COURT OF APPEALS
For the Fifth Circuit March 2, 2007
Charles R. Fulbruge III
Clerk
No. 06-30332
SECURITY ALARM FINANCING ENTERPRISES, INC.
Plaintiff - Appellant
VERSUS
JANE GREEN
Defendant - Appellee
Appeal from the United States District Court
For the Western District of Louisiana, Monroe
3:05-CV-911
Before DAVIS and STEWART, Circuit Judges, and GODBEY*, District Judge.
PER CURIAM:**
The issue presented in this case is whether the district court
erred in granting summary judgment and in refusing to enforce a
non-compete agreement in a contract entered into between two
*
District Judge of the Northern District of Texas, sitting by
designation.
**
Pursuant to 5TH CIR. R. 47.5, the Court has determined that this
opinion should not be published and is not precedent except under
the limited circumstances set forth in 5TH CIR. R. 47.5.4.
corporations based on Louisiana Revised Statute Annotated § 23:921.
We agree with appellant that the district court erred in granting
summary judgment and vacate that judgment and remand the case for
further proceedings.
I.
Security Alarm Financing Enterprises, Inc. (“SAFE”) is a
national corporation engaged in the business of selling,
installing, and monitoring residential security systems. Central
Cellular, Inc. (“CCI”) is a local Louisiana corporation engaged in
providing security services in several north Louisiana parishes.
On October 29, 1999, SAFE and CCI entered into a contract in which
CCI sold a number of customer alarm monitoring accounts (the “RMR
Accounts”) to SAFE, including the right to receive monthly payments
for monitoring services under the RMR Accounts. The contract made
it clear that “one of the fundamental expectations of SAFE . . . is
that the RMR Accounts will be renewed by each Customer after
expiration of their current terms and . . . that RMR Accounts
customarily are so renewed.”
II.
To further these expectations that the RMR Accounts would be
renewed, the following clause was included in the contract:
. . . [N]either Seller nor any of Seller’s shareholders,
directors, officers, partners, employees, or agents will
in any manner, directly or indirectly, solicit, interfere
or compete with SAFE or take any other action which is
designed, intended, or might be reasonably anticipated to
have the effect of (i) adversely affecting SAFE’s
2
interest in any RMR Account, or the continued and
repeated renewals of the RMR Accounts, or (ii) in
discouraging any Customer from maintaining the same
business relationships with SAFE after the Closing Date
as were maintained with Seller prior to the Closing Date.
This paragraph applies to the Customer, as well as to the
monitored location; provided, however, that the covenant
not to compete described above shall be limited to the
city or cities, county or counties in which the monitored
location and/or the places of business of the Customer
are located and shall be effective so long as SAFE, or
any person deriving title to any or all of the RMR
Accounts, shall continue the business related to such RMR
Accounts . . . .
Jane Green, the defendant-appellee, signed the contract on behalf
of CCI, and a Vice President from SAFE also signed the contract.
In this suit, SAFE alleged that Green, as an officer and
shareholder of CCI, violated the covenant not to solicit the
accounts and compete with SAFE by contacting SAFE customers and
either (1) “solicit[ing] those customers to cancel the contracts
between the customers and SAFE;” or (2) “sign[ing] the name of the
customers to a cancellation notice.” SAFE also alleged that
Green’s son started his own company, Central Security, following
the purchase of some of CCI’s contracts and that Central Security
had in effect taken over CCI. SAFE sought a preliminary and
permanent injunction to prohibit Green from soliciting any type of
business or service from any customer of SAFE whose RMR Account CCI
had sold to SAFE.
Green then moved for summary judgment arguing that the non-
competition clause was invalid and unenforceable under Louisiana
Revised Statute Annotated § 23:921. The district court granted the
3
motion for summary judgment and dismissed SAFE’s suit for
injunction.1
III.
Louisiana Revised Statute Annotated § 23:921 provides in
relevant part:
A(1) Every contract or agreement, or provision thereof,
by which anyone is restrained from exercising a lawful
profession, trade, or business of any kind, except as
provided in this Section, shall be null and void . . .
B. Any person, including a corporation and the
individual shareholders of such corporation, who sells
the goodwill of a business may agree with the buyer that
the seller or other interested party in the transaction,
will refrain from carrying on or engaging in a business
similar to the business being sold within a specified
parish or parishes, or municipality or municipalities, or
parts thereof, so long as the buyer, or any person
deriving title to the goodwill from him, carries on a
like business therein, not to exceed a period of two
years from the date of sale.
The district court concluded that subsection (B) governed the sale
of the accounts from CCI to SAFE. The court reasoned that the non-
compete provision was void because the sale did not include a
sufficient geographic limitation or any time limitation on the
agreement not to compete.
Because this is a diversity action we sit as an Erie court and
must apply Louisiana law as a Louisiana court would if presented
with the same issues. Musser Davis Land Co. v. Union Pacific
Resources, 201 F.3d 561, 563 (5th Cir. 2000); see Erie v. Tompkins,
1
We reject SAFE’s argument that it asserted claims against Green
for damages in addition to injunctive relief.
4
304 U.S. 64, 79-80 (1938).
We are persuaded that the legal analysis of the Louisiana
Supreme Court in Louisiana Smoked Products, Inc. v. Savoie’s
Sausage and Food Products, Inc. controls this appeal. See The
Meadowcrest Center v. Tenet Health System Hospitals, Inc., 902 So.
2d 512, 515 (La. Ct. App. 5th Cir. 2005) (stating that even if the
servitude was in the nature of a non-competition clause, it would
not come under the provisions of Louisiana Revised Statute
Annotated § 23:921); The Times-Picayune Publishing Corp. v. New
Orleans Publishing Group, Inc., 814 So. 2d 34, 39-40 (La. Ct. App.
4th Cir. 2002) (feeling constrained by Savioe’s Sausage from
applying Louisiana Revised Statute Annotated § 23:921, but refusing
to enforce the non-competition clause on public policy grounds).
In Louisiana Smoked Products, Inc. v. Savoie’s Sausage and
Food Products, Inc., 696 So. 2d 1373 (La. 1997), the court
considered a non-compete clause in a contract between Savoie’s
Sausage and Food Products, Inc. (“Savoie”) and Louisiana Smoked
Products, Inc. (“LSP”). Savoie was a manufacturer and distributor
of meat products. LSP contracted with Savoie to furnish Savoie
with alligator and venison meat from which Savoie would process and
package the sausage products, and, in turn, LSP agreed to purchase
and process food products exclusively from or through Savoie. The
contract included a non-competition clause which “prohibited the
parties from engaging in any activity which directly competed with
5
the other party’s business activity for a period of three years
after the termination of the agreement.” Savoie’s Sausage, 859 So.
2d at 1375. The clause contained no geographic limitation.
After the 1991 contract terminated, Savoie continued to
manufacture and sell the smoked alligator and venison sausage under
its own label. LSP continued to market its own brand of those same
products, now being manufactured for LSP by another corporation.
After LSP became insolvent, it sued Savoie claiming it stole LSP’s
customers and undercut LSP’s prices, and, in doing so, violated the
non-compete provision in the contract.
The case was tried to a jury which rendered a verdict in favor
of Savoie. The intermediate court of appeals reversed the judgment
on the verdict and entered judgment for LSP.
On writ of certiorari, the Louisiana Supreme Court described
the issue before it as “whether the legislature intended to
prohibit non-competition clauses executed by two businesses with
its enactment of the 1989 amendments to Louisiana Revised Statute
Annotated § 23.921.” Id. at 1378. More specifically, the court
defined the question as “whether the prohibition of non-competition
agreements applies to contracts executed by two corporations on
equal footing.” Id. at 1379.
Louisiana Revised Statute Annotated § 23.921 begins with a
general prohibition against all non-compete agreements: “Every
contract or agreement, or provision thereof, by which anyone is
6
restrained from exercising a lawful profession, trade, or business
of any kind, except as provided in this Section, shall be null and
void . . . .” La. Rev. Stat. Ann. § 23:921(A)(1) (emphasis added).
This provision is then followed by exceptions to the above general
prohibition.2
2
B. Any person, including a corporation and the individual
shareholders of such corporation, who sells the goodwill
of a business may agree with the buyer that the seller or
other interested party in the transaction, will refrain
from carrying on or engaging in a business similar to the
business being sold or from soliciting customers of the
business being sold within a specified parish or
parishes, or municipality or municipalities, or parts
thereof, so long as the buyer, or any person deriving
title to the goodwill from him, carries on a like
business therein, not to exceed a period of two years
from the date of sale.
C. Any person, including a corporation and the individual
shareholders of such corporation, who is employed as an
agent, servant, or employee may agree with his employer
to refrain from carrying on or engaging in a business
similar to that of the employer and/or from soliciting
customers of the employer within a specified parish or
parishes, municipality or municipalities, or parts
thereof, so long as the employer carries on a like
business therein, not to exceed a period of two years
from termination of employment. An independent
contractor, whose work is performed pursuant to a written
contract, may enter into an agreement to refrain from
carrying on or engaging in a business similar to the
business of the person with whom the independent
contractor has contracted, on the same basis as if the
independent contractor were an employee, for a period not
to exceed two years from the date of the last work
performed under the written contract.
. . . .
E. Upon or in anticipation of a dissolution of the
partnership, the partnership and the individual partners,
including a corporation and the individual shareholders
7
The Louisiana Supreme Court concluded that “none of the
exceptions in the statute apply to a business relationship between
two corporations . . . .” Savoie’s Sausage, 696 So. 2d at 1378.
After considering the jurisprudential and statutory history of the
enforceability of non-compete clauses in Louisiana, the court
stated that “[i]n light of this consideration, we conclude that
Title 23 was not drafted to encompass non-competition agreements by
two independent corporations on equal footing.” Id. at 1380
(emphasis added).
if the corporation is a partner, may agree that none of
the partners will carry on a similar business within the
same parish or parishes, or municipality or
municipalities, or within specified parts thereof, where
the partnership business has been transacted, not to
exceed a period of two years from the date of dissolution.
F. (1) Parties to a franchise may agree that:
(a) The franchisor shall refrain from selling,
distributing, or granting additional franchises to sell
or distribute, within defined geographic territory, those
products or services which are the subject of the franchise.
(b) The franchisee shall:
(i) During the term of the franchise, refrain from
competing with the franchisor or other franchisees of the
franchisor or engaging in any other business similar to
that which is the subject of the franchise.
(ii) For a period not to exceed two years following
severance of the franchise relationship, refrain from
engaging in any other business similar to that which is
the subject of the franchise and from competing with or
soliciting the customers of the franchisor or other
franchisees of the franchisor.
. . . .
8
In seeking summary judgment, Green presented no summary
judgment evidence from which a court could conclude that CCI was
anything other than on a equal footing with SAFE.3 Unless the
district court concludes that the corporations were not on an equal
footing, the district court should find that Louisiana Revised
Statute Annotated § 23:921 has no application and the contract
provision should be enforced.
The district court did not consider Savoie’s Sausage and held
that Louisiana Revised Statute Annotated § 23:921 applied to render
the non-competition clause unenforceable. Because we conclude that
the district court erred in granting summary judgment to Jane Green
under the legal standard established by the Louisiana Supreme Court
in Savoie’s Sausage, we vacate that judgment and remand this case
to the district court for further proceedings consistent with this
opinion.
3
The equal footing issue should be resolved based on the Savoie’s
Sausage court’s discussion of the issue in this context. See
Savoie’s Sausage, 696 So. 2d at 1380 (relying on the factors in
Winston v. Bourgeois, Bennett, Thokey and Hickey, 432 So. 2d 936,
940 (La. Ct. App. 4th Cir. 1983) to determine whether the
corporations were on an equal footing).
9