Cameron International Corporation v. Jeremy Guillory

Opinion issued September 25, 2014.
In The
Court of Appeals
For The
First District of Texas
————————————
NO. 01-14-00452-CV
———————————
CAMERON INTERNATIONAL CORPORATION, Appellant
V.
JEREMY GUILLORY, Appellee
On Appeal from the 151st District Court
Harris County, Texas
Trial Court Case No. 2014-05262
OPINION
This is an interlocutory appeal from the trial court’s temporary injunction
order, entered in an employment suit involving a covenant not to compete.
Cameron International Corporation, a Delaware corporation headquartered in
Houston, sues one of its former managerial employees, Jeremy Guillory.
Cameron sells oilfield service equipment. Guillory founded and grew
Cameron’s office in Colorado. Guillory and several other employees then left
Cameron to found an entity that competed against Cameron. Cameron alleges that
Guillory, in particular, breached noncompetition and confidentiality provisions that
he agreed to abide by in consideration for a distribution of restricted stock in
Cameron.
The trial court granted temporary injunctive relief, enforcing the
confidentiality agreement, but it denied enforcement relief on Cameron’s
noncompete claim. Cameron appeals, contending that the trial court erred in
refusing to enjoin Guillory from competing against it for the one-year duration of
the covenant not to compete. We reverse.
Background
Cameron is in the oilfield services business. It supplies flow production
equipment, products, and services to oil, gas, and processing industries. It does
business in more than 100 countries, and domestically, in most states where
significant oil and gas reserves are located. Guillory began his employment with
Cameron in Louisiana in 2005. That August, he signed a confidentiality
agreement, in which he agreed to refrain from disclosing Cameron’s confidential
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trade secrets, marketing, and sales data. Guillory was a successful Cameron
employee. As he worked his way up in the company, his promotions took him to
Wyoming and, in March 2011, to Colorado. There, he established Cameron’s new
office in Fort Collins, giving it a foothold in the development of the Niobrara
shale—a potentially rich source of oil and natural gas extractable through hydraulic
fracturing. Under Guillory’s management, the Fort Collins office grew rapidly;
after three years, Cameron employed more than 80 people there.
In recognition of Guillory’s exceptional performance, Cameron awarded
Guillory shares of its restricted stock. In a January 2013 letter, Cameron informed
Guillory that he had been awarded 283 restricted stock units through its Restricted
Stock Unit Program. A single-page enclosure, entitled “2013 Cameron RSU
Program FAQ,” accompanied the letter. Among other questions, it addressed:
“What happens if I leave Cameron?”
“There are different outcomes to how your RSUs will be treated upon
different types of terminations (voluntary, retirement, etc.) Please
review your RSU grant agreement carefully to better understand the
specific termination provisions.”
The FAQ enclosure also explained that, as a first-time RSU award recipient,
Guillory would “receive an e-mail from E-Trade by the end of January that
contains an authentication code and instructions on how to access your account
online.”
3
The e-mail Guillory received instructed him that “[t]he Notice of Grant of
Award and RSU Agreement . . . should be accepted online at www.etrade.com as
soon as possible.” Among the steps included in the instructions were the
following:
To accept your new award, click on Requires Acceptance under the
Status column.
a. You are required to open and review each document before you
can accept the award. You will not be able to accept the award
without opening each document.
b. To accept your award, enter your Login Password and click on the
Accept button. A Confirmation of Acceptance message will
appear.
c. Copies of the award documents and Confirmation of Acceptance
page may then be printed for your file.
The website activity history shows that Guillory opened the RSU agreement and
answered a prompt stating that he read and understood the agreement. An archived
screenshot of the page containing the Accept button contained:
• a notice above the button entitled “Message From Your
Company,” explaining: “By acceptance of this Award you agree
to be bound by the terms and conditions of the [RSU] Agreement.”
• A direction to review certain grant documents, and
• Appearing immediately above the Accept button, a statement
declaring “I acknowledge that I have reviewed and understood
the following grant document(s), followed by a list of download
links for each document.
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The RSU agreement included a noncompete provision, which provides:
Covenant not to Compete, Solicit or Disclose Confidential
Information. The Participant acknowledges that the Participant is in
possession of and has access to confidential information, including
material relating to the business products or services of the Company
or Employer and that he or she will continue to have such possession
and access during employment by the Company or Employer.
Participant acknowledges that the Company’s business, products and
services are highly specialized and that it is essential that they be
protected, and, accordingly, the Participant agrees that as partial
consideration for the Award granted herein that should the participant
engage in any “Detrimental Activity” as defined below, at any time
during his or her employment or during a period of one year following
his or her termination the Company or Employer shall be entitled to:
(i) recover from the Participant the value of any portion of the
Award that has been paid; (ii) seek injunctive relief against the
Participant; (iii) recover all damages, court costs, and attorneys’ fees
incurred by the Company or Employer in enforcing the provisions of
this Award, and (iv) set-off any such sums to which the Company or
Employer is entitled hereunder against any sum which may be owed
the Participant by the Company or Employer.
(Emphasis and underlining in original). The provision defines “Detrimental
Activity” as including:
• “engaging directly or indirectly in any business, which is or becomes
competitive with [Cameron]”;
• “soliciting, interfering, inducing, or attempting to cause any employee
of [Cameron] to leave his or her employment”; and
• “directly or indirectly soliciting the trade or business of any customer
of [Cameron].”
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The RSU agreement also contains a “Governing Law” provision declaring
that Delaware law governs questions concerning the validity, construction and
effect of the agreement, “without reference to principles of conflicts of laws.”
Pertinent to this appeal is another provision, entitled “Electronic
Delivery/Acceptance,” which states:
The Company may, in its sole discretion, decide to deliver any
documents related to the RSUs by electronic means. The Participant
hereby consents to receive such documents by electronic delivery and
agrees to participate in the Plan through an on-line or electronic
system established and maintained by the Company or a third party
designated by the Company.
In January 2014, Guillory left his employment with Cameron to join a start-
up company that directly competes with Cameron for business in the Niobrara
shale. Several other Cameron employees from the Fort Collins office also joined
the competitor.
Trial court proceedings
Cameron sued several former Fort Collins employees, including Guillory, in
Harris County District Court, seeking a temporary restraining order, temporary
injunction, and a permanent injunction against them. Cameron based its suit
against Guillory on the confidentiality agreement he signed early in his
employment, and on the noncompetition provisions contained within the restricted
stock agreement. Guillory defended the suit, in part by averring that he did not
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recall reading or signing the stock agreement, and no Cameron employee had
alerted him to the noncompete provision, not even when Guillory made plain his
intentions to work with a competitor.
At the conclusion of a hearing on Cameron’s request for a temporary
injunction, the trial court entered findings of fact and conclusions of law, among
them:
On January 28, 2013, [Cameron] asserts that Guillory accepted and
agreed to the [RSU agreement] online through E*Trade. Guillory
allegedly opened the [RSU agreement] on-line and answered a prompt
stating that he read and understood the Restricted Stock Unit Award
Agreement. A record of Guillory’s alleged agreement to the terms of
the [RSU agreement] is set forth [in a hearing exhibit]. Upon his
acceptance, 283 RSU’s were deposited into this E*Trade account.
The Court is not persuaded that this necessarily or probably
constitutes a binding non-compete agreement under Texas law.
While the trial court enforced the confidentiality agreement, it declined to enforce
the noncompetition provision of the restricted stock agreement.
Discussion
Cameron challenges the trial court’s refusal to enforce the noncompetition
provision within Guillory’s restricted stock agreement. It first contends that the
trial court erred in applying Texas law, rather than Delaware law, to analyze the
formation and enforceability of the restricted stock agreement. Under Delaware
law, Cameron argues, the noncompetition provision in the restricted stock
7
agreement is valid and enforceable. Guillory responds that Cameron waived this
issue for appeal by failing to urge the applicability of Delaware law in the trial
court. We disagree.
I. Waiver
In its brief in support of temporary injunctive relief, filed on the day of the
hearing, Cameron contended that the agreement was enforceable under Texas,
Delaware, and Colorado law, but reiterated that “Delaware law should govern
construction of the Non-Compete Covenant per the contractual choice of law
provision in the Restricted Stock Unit Award Agreement.” Cameron cited
Delaware authority in support of its contention that the agreement was reasonable
in scope and duration.
By timely presenting the question of the applicable governing law in its
briefing to the trial court; Cameron preserved the issue for appeal. See TEX. R.
APP. P. 33.1(a)(1)(A) (“As a prerequisite to presenting a complaint for appellate
review, the record must show that the complaint was made to the trial court by a
timely request, objection, or motion that stated the grounds for the ruling that the
complaining party sought . . . with sufficient specificity to make the trial court
aware of the complaint . . . .”). The trial court declined to find that Guillory had
agreed to the provisions within the restricted stock agreement; thus, although it
adopted Delaware authority as a general conclusion of law, it did not apply
8
Delaware principles of law to resolve whether the parties had entered into a valid
agreement.
Cameron again raised the choice-of-law issue in the hearing on its motion to
reconsider, where the following exchange occurred:
Cameron: We believe that the law that should be applied in this
case is Delaware law, the law chosen by the parties in
their contract and under the Newell case that we’ve cited
and provided to you that we believe that we have a
probable right to relief. We believe that Texas law is in
accord. Your honor has indicated that you disagree with
that. But we would just note that under the DeSantis
analysis, we do not believe that Texas law would apply in
this case principally because Texas’s connection to this
case is solely the fact that Cameron has its headquarters
here. Cameron’s a Delaware corporation. And we
believe that an agreement in this particular case, an
agreement that deals with the issue of some stock in a
Delaware corporation certainly has a reasonable
relationship to Delaware, such that Delaware law is
appropriate to apply.
Trial Court: And I understand what you’re saying. And then the layer
that’s above that, of course, is the elements of the
temporary injunction. And so the question then becomes
whether you are—you’re saying that Delaware law
applies to the enforceability of the contract—of the
noncompete itself.
Cameron: Yes, your Honor.
Trial Court: A separate issue is whether there’s a likelihood of
success on the merits because there was that additional
layer and because I’m not certain whether it’s Delaware
or Texas law. And I will—and I also do not—I haven’t
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made a ruling as to whether even if Delaware law
applies, it would allow for this agreement. And I know
you’ve shown me a case that suggests that it does. For
all of those reasons, I didn’t find a likelihood of success
on the merits that would entitle you to a temporary
injunction to enforce the noncompete, nonsolicitation.
Cameron: Understood. I just wanted the choice of law position to be
clear. We understood the Court’s ruling in the findings.
Following the hearing, the trial court denied Cameron’s motion to reconsider. The
record demonstrates that Cameron preserved the choice-of-law issue for appellate
review.
II. Injunctive Relief
Having held that Cameron did not waive its choice-of-law argument, we turn
to Guillory’s second response: that it is premature to analyze the applicable choice
of law in an appeal from a temporary injunction.
Standard of review and 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). To obtain a temporary injunction, an
applicant must show: (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.; Mattox v. Jackson, 336 S.W.3d 759, 762 (Tex. App.—Houston
10
[1st Dist.] 2011, no pet.). The temporary injunction applicant bears the burden of
production to offer some evidence of each of these elements. See In re Tex.
Natural Res. Conservation Comm’n, 85 S.W.3d 201, 204 (Tex. 2002) (quoting
Camp v. Shannon, 348 S.W.2d 517, 519 (Tex. 1961); Dallas Anesthesiology
Assocs., P.A. v. Tex. Anesthesia Group, P.A., 190 S.W.3d 891, 897 (Tex. App.—
Dallas 2006, no pet.). The applicant is not required to establish that it ultimately
will prevail at trial, only that it is entitled to preservation of the status quo pending
trial on the merits. Walling v.Metcalfe, 863 S.W.2d 56, 58 (Tex. 1993); Dallas
Anesthesiology Assocs., 190 S.W.3d at 897. The decision to grant or deny an
injunction rests within the trial court’s sound discretion. Butnaru, 84 S.W.3d at
204. We review the evidence submitted to the trial court in the light most
favorable to its ruling, drawing all legitimate inferences from the evidence, and
deferring to the trial court’s resolution of conflicting evidence. Id.; CRC–Evans
Pipeline Int’l, Inc. v. Myers, 927 S.W.2d 259, 262 (Tex. App.—Houston [1st Dist.]
1996, no pet.). Our review of the trial court’s decision is limited to the validity of
its temporary injunction order; we do not consider the merit of the underlying case.
Davis v. Huey, 571 S.W.2d 859, 861–62 (Tex. 1978).
Appropriateness of a choice of law determination
Guillory contends that, because we do not consider the ultimate merit of the
suit in reviewing the propriety of a temporary injunction, Cameron’s legal
11
challenge, based on the validity and enforcement of the underlying agreement, is
beyond our authority to review. According to Guillory, the choice-of-law
questions that Cameron raises are “legally improper and premature merits
questions that neither the trial court nor this Court could determine at the
temporary injunction stage as a matter of law.”
We disagree that a court must ignore a determinative choice of law issue in
deciding whether a temporary-injunction applicant has met its burden for relief. In
Southwest Refining Co. v. Bernal, 22 S.W.3d 425, 432 (Tex. 2000), the Texas
Supreme Court rejected the notion that a trial court could rule on a petition for
class certification without a thorough review of “the claims, defenses, relevant
facts, and applicable substantive law” simply because the determination was a
preliminary one. See id. at 435. In Compaq Computer Corp. v. LaPray, the Texas
Supreme Court later applied its holding in Bernal to a choice-of-law question: it
held that the trial court abused its discretion in failing to undertake a choice-of-law
analysis at the class-certification stage, because the differences in law applicable to
class members was critical to a proper evaluation of whether common issues would
predominate at trial. 135 S.W.3d 657, 672–73 (Tex. 2004).
Similarly, in considering the propriety of temporary injunctive relief, the
preliminary determination of whether an applicant has shown a probable right to
the relief it seeks—that is, whether the applicant furnished some evidence tending
12
to support at least one of the legal theories it will urge at trial—entails a thorough
review of the law applicable to the parties’ claims and defenses. See id.; see
generally Intercont’l Terminals Co., LLC v. Vopak N. Am., Inc., 354 S.W.3d 887,
897 (Tex. App.—Houston [1st Dist.] 2011, no pet.) (explaining difference between
analysis of “probable right to relief” for temporary injunction purposes and merits
determination). Thus, we will reverse a temporary injunction order if it reaches a
decision based on an inapplicable choice of law. See In re Olshan Found. Repair
Co., LLC, 328 S.W.3d 883, 890 (Tex. 2010) (holding that trial courts abused
discretion in applying Texas General Arbitration Act to deny arbitration where
Federal Arbitration Act, which properly applied to agreements, preempted TGAA
provisions that would otherwise render agreements unenforceable); see also In re
Prudential Ins. Co., 148 S.W.3d 124, 135 (Tex. 2000) (explaining that clear failure
to analyze or apply law correctly constitutes an abuse of discretion, even in new or
unsettled area) (citing Huie v. DeShazo, 922 S.W.2d 920, 927–28 (Tex. 1996)).
III. Delaware Law Applies
In answering the question whether Delaware law applies to determine the
existence and enforceability of the noncompete provision, the Texas Supreme
Court’s recent decision in Exxon Mobil Corp. v. Drennen is instructive. See No.
12-0621, 2014 WL 9600951 (Tex. Aug. 29, 2014). In Drennen, the Court
considered the choice of law applicable to a restricted-stock agreement between the
13
company and one of its former Texas executives. Id. at *1 The documents that
accompanied the restricted stock awards in Drennen contained termination
provisions that allowed ExxonMobil to terminate outstanding awards if a former
employee accepted employment with a competitor. Id. The documents expressly
provided that New York law applied. Id. at n.1.
To determine whether the choice-of-law provision was enforceable, the
Drennen Court conducted the familiar choice-of-law analysis set forth in section
187(2) of the Restatement (Second) of Conflict of Laws. See 2014 WL 9600951,
at *4. Section 187(2) provides:
The law of the state chosen by the parties to govern their contractual
rights and duties will be applied, even if the particular issue is one
which the parties could not have resolved by an explicit provision in
their agreement directed to that issue, unless either
(a) the chosen state has no substantial relationship to the parties or the
transaction and there is no other reasonable basis for the parties’
choice, or
(b) application of the law of the chosen state would be contrary to a
fundamental policy of a state which has a materially greater interest
than the chosen state in the determination of the particular issue and
which, under the rule of § 188, would be the state of applicable law in
the absence of an effective choice of law by the parties.
RESTATEMENT (SECOND) OF CONFLICT OF LAWS § 187(2). ExxonMobil showed
that New York law provided consistency its administration of the incentive awards
it made to employees in many states and countries. See Drennen, 2014 WL
14
9600951, at *4. Also, ExxonMobil explained that New York has a well-developed
body of law regarding financial transactions—securities and securities-related
transactions generally, and employee stock and incentive programs specifically.
Id. Based on that evidence, the Court held that section 187(2)(a) did not preclude
application of New York law to the incentive program documents. Id.
In determining whether Texas had a materially greater interest in the
enforcement of its laws under section 187(2)(b), the Court observed that
ExxonMobil was a multinational corporation with a presence in New York and is
listed on the New York stock exchange, and Drennen spent three years of his
career with ExxonMobil in New York. Id. at *3. But, the Court concluded, Texas
had a materially greater interest than New York in the determination because
Drennen resided in Houston, ExxonMobil was headquartered in Texas, and the
incentive program documents were executed in Texas. Id.
The Court observed that the Texas public policy against restriction on
competition did not factor into its analysis because Exxon’s incentive program did
not contain a covenant not to compete. See id. at *7. The Court nevertheless
revisited its prior position, announced in DeSantis v. Wackenhut Corp., 793
S.W.2d 670 (Tex. 1990), that noncompete provisions implicate Texas’s
fundamental public policy concerns, observing that “the policy concerns regarding
15
uniformity of law raised in DeSantis have changed in the past twenty-four years.”
Drennen, 2014 WL 9600951, at *8. Specifically, the Court noted that:
With Texas now hosting many of the world’s largest corporations, our
public policy has shifted from a patriarchal one in which we valued
uniform treatment of Texas employees from one employer to the next
above all else, to one in which we also value the ability of a company
to maintain uniformity in its employment contracts across all
employees, whether the individual employees reside in Texas or New
York. This prevents the “disruption of orderly employer–employee
relations” within those multistate companies and avoids disruption to
“competition in the marketplace.”
Id. (quoting DeSantis, 793 S.W.2d at 680). The Court determined that
enforcement of the contractual choice of New York law did not contravene any
fundamental public policy of Texas and held that New York law applied. Id. at *9.
Mindful of the Supreme Court’s pronouncements in Drennen, we analyze
the choice-of-law question posed in this case. The first determination of
Restatement section 187(2)(b) is “whether there is a state the law of which would
apply under section 188 of the Restatement absent an effective choice of law by
the parties.” Drennen, 2014 WL 9600951, at *5 (quoting DeSantis, 793 S.W.2d at
678). Under the Restatement, if Texas does not have a materially greater interest
than Delaware in the application of the RSU agreement’s noncompete provision to
Guillory’s circumstances, it is immaterial whether the application of Delaware law
here would be contrary to a fundamental policy of Texas. See id. (citing DeSantis,
793 S.W.2d at 679). The record shows that Guillory is not, and never has been, an
16
employee of Cameron in Texas; that the transaction at issue occurred over the
Internet; and any alleged representations involving that transaction took place in
Colorado, where Guillory was employed.
Texas has no overriding interest in protecting an employment relationship
between a multinational corporation and a resident of another state. “The drafters
of the Restatement explained the rationale for section 187 by stating that ‘[p]rime
objectives of contract law are to protect the justified expectations of the parties and
to make it possible for them to foretell with accuracy what will be their rights and
liabilities.’” Drennen, 2014 WL 9600951, at * 9 (quoting RESTATEMENT (SECOND)
OF CONFLICT OF LAWS § 187 cmt. e). Because Texas has no materially greater
interest in this dispute, we hold that the trial court was required to apply Delaware
law as specified in the parties’ agreement in determining whether Cameron
demonstrated a probable right to relief.
IV. Probable Recovery
The trial court’s findings of fact and conclusions of law declined to find that
Cameron demonstrated a probable right to relief on its claim for breach of the
noncompete agreement. Guillory contends that the parties had not formed an
enforceable agreement by his electronic acceptance of the provisions of the
restricted stock agreement.
17
As to contract formation, both Texas and Delaware have adopted state
versions of the Uniform Electronic Transactions Act, which provides that, as long
as the parties have agreed to conduct a transaction by electronic means, “[a] record
or signature may not be denied legal effect or enforceability solely because it is in
electronic form,” or “because an electronic record was used in its formation.” DEL.
CODE ANN. tit. 6, subtit. II, §§ 12A–107(a), B, 12A–108; accord TEX. BUS. &
COM. CODE ANN. §§ 322.007, 322.008 (West 2009); see Newell Rubbermaid, Inc.
v. Storm, C.A. No. 9398-VCN, 2014 WL 1266827 (Del. Ch. Mar. 27, 2014)
(holding that noncompete provisions in clickwrap agreements are enforceable).1
The RSU agreement contains an “Electronic Delivery/Acceptance”
provision, which expressly memorializes Guillory’s agreement to conduct the
transaction by electronic means. Under Delaware law, Guillory’s failure to
carefully read the agreement before electronically accepting it does not render the
agreement unenforceable. “A party to a contract cannot silently accept its benefits,
and then object to its perceived disadvantages, nor can a party’s failure to read a
contract justify its avoidance.” Pellaton v. Bank of N.Y., 592 A.2d 473, 477 (Del.
1991) (internal quotation omitted), quoted in Scion Breckenridge Managing
Member, LLC v. ASB Allegiance Real Estate Fund, 68 A.2d 665, 677 (Del. 2013).
1
Delaware courts view unpublished opinions as having precedential value.
See DEL. SUP. CT. R. 14(b)(4).
18
At the temporary injunction hearing, Guillory did not point to any occasion in
which Cameron misrepresented the contents of the agreement. The record
therefore contains no evidence to support Guillory’s effort to avoid the
noncompete provision based on a lack of mutual assent to its terms.
The trial court entered appropriate conclusions of law concerning the general
rules for enforceability of a noncompete agreement under Delaware law. They
provide:
• Under Delaware law, restrictive covenants with employees are generally
valid and enforceable. See Knowles–Zeswitz Music, Inc. v. Cara, 260
A.2d 171, 174–75 (Del. Ch. 1969) (“[I]t is now too well settled to be
disputed that an agreement by an employee not to follow his trade or
business for a limited time and during a limited period is not void as
against public policy . . . .” (quoting Capitol Bakers, Inc. v. Leahy, 178
A. 648 (Del. Ch. 1935))).
• Restrictive covenants are enforced when they “(1) meet general contract
law requirements, (2) [are] reasonable in scope and duration, (3) advance
a legitimate economic interest of the party enforcing the covenant, and
(4) survive a balance of the equities.” TriState Courier & Carriage,Inc.
v. Berryman, Civ. A. No. 20574-NC, 2004 WL 835886, at *10 (Del. Ch.
Apr. 14, 2004) (citing Del. Express Shuttle, Inc. v. Older, Civ. A. No.
19596, 2002 WL 31458243, at *11 (Del. Ch. Oct. 23, 2002); Research &
Trading Corp. v. Pfuhl, Civ. A. No. 12527, 1992 WL 345465, at *12
(Del. Ch. Nov. 18, 1992)).
Applying these rules to the evidence proffered by Cameron concerning the
noncompete provision applicable to Guillory, we conclude that Cameron showed a
probable right to relief on its breach-of-contract claim. The noncompete provision
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has a one-year duration precluding employment with a direct competitor against
Cameron. Although undefined in geographic scope, Guillory did not present
countering evidence requesting reformation of the covenant. We therefore hold
that the trial court erred in denying temporary relief enjoining Guillory from
activities that violate the agreement’s noncompete provision.
Conclusion
We hold that Cameron showed a probable right to relief on its claim against
Guillory for breach of the noncompete provision of their restricted stock
agreement. We therefore reverse the portion of the trial court’s order that denies
such relief and remand with instructions to grant temporary relief enjoining
Guillory from violating the noncompete provision’s terms. We leave undisturbed
the remainder of the trial court’s temporary injunction.
Jane Bland
Justice
Panel consists of Justices Higley, Bland, and Sharp.
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