793 S.W.2d 670 (Tex. 1990)
In June 1981, Edward DeSantis, then employed by R.J. Reynolds Industries in North Carolina, interviewed with Wackenhut Corporation at its Florida offices for a position as Houston area manager.1 Wackenhut, chartered and headquartered in Florida and the third largest company furnishing security guards nationwide, hired DeSantis immediately.2
At Wackenhut’s request, DeSantis signed a noncompetition agreement on August 13, 1981, in Texas, although the document recited that it was made and entered into in Florida.3 The agreement restricted DeSantis from competing with Wackenhut in any way in a forty-county south Texas area for two years after his employment ended, acknowledged Wackenhut’s client list as a valuable asset, prohibited disclosure of confidential information, and provided that Florida law would govern interpretation or enforcement.4
DeSantis managed Wackenhut’s Houston office for nearly three years until March 1984, when he resigned under threat of termination amid disagreements with senior management over the office’s profitability and alleged unethical solicitation of business.5 After resigning, DeSantis invested in a company marketing security electronics and formed Risk Deterrence, Inc. (RDI) to provide security consulting services and guards to a limited clientele.6
The month following termination of his employment with Wackenhut, DeSantis sent out letters announcing his new ventures to twenty or thirty businesses, about half of which were Wackenhut clients.7 Within six months, however, one of Wackenhut’s clients, Marathon Oil Company, had terminated its contract with Wackenhut and signed a five-year contract with RDI, and a second Wackenhut client, TRW-Mission Drilling Products, was considering doing the same.8
In October 1984, Wackenhut sued DeSantis and RDI in Texas state court to enjoin violations of the noncompetition agreement and to recover damages for breach and tortious interference with business relations, alleging use of confidential client and pricing information.9 The trial court issued an ex parte temporary restraining order against DeSantis and RDI upon a $5,000 bond filed by Wackenhut and later issued a temporary injunction upon a $75,000 bond.10 DeSantis and RDI counterclaimed alleging fraudulent inducement of the agreement, violation of state antitrust laws, wrongful temporary injunction, and tortious interference with contract and business relationships, seeking actual damages, statutory damages under the Texas Free Enterprise and Antitrust Act, and exemplary damages.11
At trial the jury found that DeSantis breached the agreement but failed to find irreparable harm to Wackenhut or any damages to DeSantis, while finding RDI lost $9,000 in past and future profits from the Marathon and TRW business.12 The trial court granted Wackenhut summary judgment on the tortious interference claim and directed a verdict against DeSantis and RDI on fraud.13 The trial court applied Florida law, narrowed the restricted territory to thirteen counties, issued a permanent injunction, and denied all relief to DeSantis and RDI.14 The court of appeals affirmed the judgment in all respects.15
Whether the law of the state chosen by the parties to govern their noncompetition agreement should be applied?16
Under section 187(2) of the Restatement (Second) of Conflict of Laws, the law of the state chosen by the parties will be applied even if the particular issue is one which the parties could not have resolved by an explicit provision in their agreement.17 This rule applies unless either the chosen state has no substantial relationship to the parties or the transaction and there is no other reasonable basis for the choice, or application of the chosen law 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 would be the state of the applicable law under section 188 in the absence of an effective choice of law.
No. Florida has a substantial relationship to the parties and the transaction because Wackenhut's corporate offices are there and some of the negotiations between DeSantis and George Wackenhut occurred there.18 Texas has a more significant relationship to the transaction and the parties under section 188 because Wackenhut hired DeSantis to manage its business in the Houston area.19 The noncompetition agreement was finally executed by DeSantis in Houston.20 The place of performance for both parties was Texas where the subject matter of the contract was located.21
Texas has a materially greater interest than Florida in determining whether the noncompetition agreement is enforceable because at stake is whether a Texas resident can leave one Texas job to start a competing Texas business.22 This directly implicates Texas interests in DeSantis as an employee, Wackenhut as an employer doing business in the state, RDI as a new competitive business, and consumers of services in Texas.23 Application of Florida law would be contrary to a fundamental policy of Texas because the law governing enforcement of noncompetition agreements is fundamental policy in Texas to ensure a uniform rule for enforcement and to avoid disruption of orderly employer-employee relations and competition in the marketplace.24
Texas law applies to determine the enforceability of the noncompetition agreement rather than Florida law.25
Whether the noncompetition agreement is enforceable?26
Under Texas law an agreement not to compete is in restraint of trade and therefore unenforceable on grounds of public policy unless it is reasonable.27 An agreement not to compete is not a reasonable restraint of trade unless it meets each of three criteria.28 First, the agreement not to compete must be ancillary to an otherwise valid transaction or relationship.29 Second, the restraint created by the agreement not to compete must not be greater than necessary to protect the promisee's legitimate interest.30 Third, the promisee's need for the protection afforded by the agreement not to compete must not be outweighed by either the hardship to the promisor or any injury likely to the public.31
No. The agreement was ancillary to the valid employment relationship between Wackenhut and DeSantis.32 Wackenhut failed to show that the agreement was necessary to protect any legitimate interest because the evidence that DeSantis developed business goodwill for Wackenhut is exceedingly slight and there is no showing that he could divert that goodwill to himself. The jury found only that DeSantis competed but made no finding that he appropriated goodwill developed for Wackenhut.33 Wackenhut also failed to show a need to protect confidential information because it did not demonstrate that customer identities or needs could not be readily ascertained outside its employ or that its pricing policies and bidding strategies were uniquely developed and could not be obtained from customers themselves.34
Because Wackenhut has not shown that the agreement is necessary to protect any legitimate business interest or that any such necessity outweighs the hardship on DeSantis, the agreement is unreasonable and unenforceable.35
The noncompetition agreement is unenforceable under Texas law.36
Related opinions on this issue
Joined by Spears, J.
Justice Mauzy concurs in the judgment that the noncompetition agreement is unenforceable but states that the court's discussion of the common calling doctrine is unnecessary, gratuitous and ill-advised because the agreement is unenforceable without regard to whether it restricts the right to engage in a common calling. He disagrees with the court's conclusion that the legislature has rejected common calling as a test, arguing that the scope of activity language in section 15.50 leaves adequate room for the continued vitality of the doctrine. Mauzy notes that reasonably precise definitions of common calling have been formulated and that it is the genius of the common law that it evolves slowly in the light of reason and experience on a case-by-case basis.
Whether damages for attempted enforcement of the agreement are recoverable under the Texas Free Enterprise and Antitrust Act of 1983 or for wrongful injunction, fraud, or tortious interference with contract?37
Recovery for wrongful injunction requires either a bond action showing the injunction was issued when it should not have been and later dissolved or a malicious prosecution action showing malice, lack of probable cause, and termination in the claimant's favor.38 Recovery under the Texas Free Enterprise and Antitrust Act requires proof that the agreement violates the rule of reason by having an adverse effect on competition in the relevant market.39 Recovery for fraud requires proof of a material false misrepresentation known to be false or made without knowledge of the truth, intended to be acted upon, and relied upon causing injury.40 Recovery for tortious interference requires proof that the defendant was not entitled to judgment as a matter of law on a complete summary judgment record.
No. DeSantis and RDI cannot recover on the injunction bond because the temporary restraining order and temporary injunction were never dissolved.41 They waived the malicious prosecution claim by failing to request jury findings and presented no evidence that Wackenhut acted maliciously and without probable cause.42 DeSantis and RDI offered no evidence of relevant market or anticompetitive effect and requested no jury findings on those issues, so they failed to establish a violation of the antitrust act under the rule of reason.43 DeSantis produced no evidence that George Wackenhut's statements about an executive position were false when made or known to be false, so the directed verdict on fraud was proper.44
DeSantis and RDI failed to bring forward the complete record of the summary judgment hearing on tortious interference, so the court must assume the omitted affidavit supports the judgment.45
DeSantis and RDI are not entitled to recover damages under the Texas Free Enterprise and Antitrust Act or for wrongful injunction, fraud, or tortious interference with contract.46