*

District Judge of the Western District of Louisiana, sitting by designation.

1 Reinsurance refers to the practice of transferring all or part of the risk of one

insurance contract to another contract issued by a different insurance company. United States Court of Appeals

Fifth Circuit



## FILED

June 17, 2003

Charles R. Fulbruge III

Clerk Revised July 14, 2003

IN THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

__________________________

No. 02-11239

__________________________

GUY CARPENTER & COMPANY, INC.,

Plaintiff - Appellant,

v.

ANTHONY PROVENZALE,

Defendant - Appellee.

___________________________________________________

Appeal from the United States District Court

For the Northern District of Texas

___________________________________________________

Before WIENER and CLEMENT, Circuit Judges, and LITTLE, * District Judge.

EDITH BROWN CLEMENT, Circuit Judge:

I. FACTS AND PROCEEDINGS

Anthony Provenzale (“Provenzale”) began his career as a reinsurance broker in 1984. 1

In 1993, P rovenzale signed an employment agreement (the “1993 Agreement”) with

Se dgwick Payne Co. The 1993 Agreement named Provenzale Senior Vice President-Branch2

Manager, and contained a provision labeled “Non-Disclosure/Non-Competition.” That

provision included both non-disclosure and non-solicitation covenants:

6. Non-Disclos

ure/Non-Competition

. Employee acknowledges that

during the course of his employment, whether voluntarily or involuntarily,

he will have access to confide ntial information, proprietary information

and/or trade secrets. This information may include, without limitation,

technic a l know-how; lists of clients or customers; contract terms and

conditions; rates; loss st atistics; financial information; methods of marketing;

research activ ities and data; computer software and other aspects of the

affairs an d business operations of Employer (collectively referred to as

“Confidential Information”). Employee agrees that all Confidential

Information is the sole property of Employer, and its successors and assigns,

and that both during and after the t erm of this Agreement no such

information will be

disclosed, except as may be required by law, to any

person for any reason or purpose whatsoeve r, without the express prior

written consent of Employer.

Employee agrees that for a period of one (1) year after the termination of his

employment, whether voluntary or involuntary, he will not direct ly or

indirectly call upon, solicit, divert, accept, or take away from Employer any

individual, account, customer, company, partnership or any other entity

(collectively referred to as “Clients”) to whom Employer rendered

intermediary, consulting or broking [sic] services, either on a fee for services

or commission basis, during the course of his employment with Employer.

In May or June 1999, Sedgwick Payne’s successor merged with Guy Carpenter & Co.,

Inc. (“Guy Carpenter”). Presumably in conjunction with the impending merger with Guy

Carpenter, the parties amended the employment agreement (the “1999 Agreement”). The

changes included: (1) adding an arbitration provision (not implicated here); (2) amending

the compensation and term-of-employment provisions of the 1993 Agreement; (3) and

reducing Provenzale’s severance in the event o f a not-for-cause discharge, from an3

automatic three years of salary to one year of salary if Provenzale were discharged prior

to a sp ecified date. The 1999 Agreement otherwise incorporated the terms of the 1993

Agreement, including the non-disclosure and non-solicitation covenants. Sedgwick paid

Provenzale $35,000 to execute the 1999 Agreement.

On July 13, 2001, Provenzale voluntarily ended his employment with Guy Carpenter

and began working for Benfield Blanc h. On August 3, 2001, Guy Carpenter sued

Provenzale, asserting breach of contract and misappropriation of trade secrets. Guy

Carpenter alleged Provenzale began contacting and soliciting its clients in an attempt to

get them to transfer their business to Benfield Blanch in violation of the 1999 Agreement’s

non-solicitation covenant. Provenzale admits soliciting clients. Guy Carpenter also

alleged Provenzale disclosed its confidential and proprietary information in violation of

the 1999 Agreement’s non-disclosure covenant and of the common law duty to not

misappropriate trade secrets.

The district court granted a temporary restraining order (“TRO”) on September 5, 2001.

The district court held a preliminary injunction hearing in early October and dissolved the

TRO on October 19, 2001. The district court held Guy Carpenter did not have a substantial

likeliho od of success on its breach of contract claims because the non-competition

covenants were unenforceable under Texas law, or on its misappropriation of trade secrets

claim because it had not fully developed what constituted confidential information.

Guy Carpenter filed a motion for r e consideration which the district court denied almost

a full year later, on September 30, 2002. Guy Carpenter appeals this interlocutory order2

The district court has a pending motion from Provenzale for summary

judgment and a pending motion from Guy Carpenter for a stay of litigation pending a

ruling from this Court.

4 denying the motion to reconsider. 2 Provenzale responds to the merits of the appeal, and

also argues the appeal is moot.

II. STANDARD OF REVIEW

Mootness is a jurisdictional question, that this Court will determine de no vo

. N orth

Carolina v. Rice , 404 U.S. 244, 246 (1971).

A district court’s determinations as to each of the elements required for a preliminary

injunction are mixed questions of fact and law, the facts of which this Court leaves

undisturbed unless clearly erroneous. K ern River Gas Transmission, Co. v. Coastal Corp.

,

899 F.2d 1458, 1462 (5th Cir. 1990). Conclusions of law made with respect to the denial of

a preliminary injunction are reviewed de novo

. Id. The ultimate decision for or against

issuing a preliminary injunction is reviewed under an abuse of discretion standard. I d.

The trial court’s denial of the preliminary injunction was predicated on a determination

that the non-competition covenant is unenforceable. This is a legal question, L ight v.

Centel Cellular Co. of Texas, 883 S.W.2d 642, 644 (Tex. 1994), that this Court reviews de

novo

. S ee

, e.g.

, Blue Bell Bio-Medical v. Cin-bad, Inc.

, 864 F.2d 1253, 1256 (5th Cir. 1989).

III. DISCUSSION

A. Mootness

Provenzale argues that all questions regarding a preliminary injunction based on the5

non-solicitation claim are moot. To be cognizable in a federal court, a suit “must be

definite and concrete, touching the legal relations of parties having adverse legal interests.

. . . It must be a real and substantial controversy admitting of specific relief through a

decree of a conclusive character

. . . .” Rice

, 404 U.S. at 245-46. Provenzale’s employment

ended on July 13, 2001. By its own terms, the non-solicitation covenant expired one year

later, on July 13, 2002. Provenzale argues that the relief Guy Carpenter

seeks—enforcement of an expired non-solicitation agreement throu gh an injunction—is

not available under Texas law.

Guy Carpenter responds that injunctions are equitable in nature and that district courts

may impose injunctions that last beyond a contract provision’s expiration date. S ee

, e.g.

,

Premier Indus. Corp. v. Tex. Indus. Fastener Co.

, 450 F.2d 444 , 448 (5th Cir. 1971)

(applying Texas law and stating that “[an] argument that the trial judge exceeded his

discretion by enjoining the appellants beyond the time specified in the . . . contract is

without merit”). We agree with Guy Carpenter. The expiration of the one-year contract

limit does not make this issue moot. If this Court remands, the district court has the power

under Texas law to craft an injunction thatextends beyond the expiration of the nonsolicitation covenant. Exercising this equitable power might be particularly appropriate

given the district court’s year-long delay before ruling on the motion to reconsider.

We note that neither case Provenzale ci tes in support of his mootness argument is

relevant to the facts of this case. S ee Hi-Line Electric Co. v. Dowco Electrical Products

, 765

F.2d 1359, 1363 (5th Cir. 1985) (holding an appeal of injunction moot where the injunction6

expired three months before the appellate court heard arguments in the case); John R. Ray

& Sons, Inc. v. Stroman , 923 S.W.2d 80, 85 (Tex. App. 1996) (finding that reforming ( e.g.

,

shortening) the length of a non-competition co venant would be an exercise in futility

because the time limit in the sought-to-be-reformed covenant expired before the district

court entered judgment).

B. Substantive Arguments

Guy Carpenter seeks a preliminary injunction based on its contract claims for breach

of the non-solicitation and non-disclosure covenants and on its common law tort claim for

misappropriation of trade secrets. In order to prevail on a motion for preliminary

injunction, Guy Carpenter must establish that: (1) it has a subs t antial likelihood of

prevailing on the merits; (2) there is a substantial threat it will suffer irreparable injury if

the preliminary injunction is denied; (3) the threatened injury to Guy Carpenter outweighs

the potential injury posed by the injunction to Provenzale; and (4) granting the preliminary

injunction will not disserve the public interest. Canal Authority of Florida v. Callaway

,

489 F.2d 567, 572 (5th Cir. 1979). A preliminary injunction is an extraordinary remedy

which courts grant

only if the movant has clearly carried the burden as to all four

elements. Kern River , 899 F.2d at 1462.

The district court concluded Guy Carpenter was not likely to succeed on the merits

because the non-solicitation and the non-disclosure covenants were unenforceable. The

court a lso concluded Guy Carpenter was not likely to succeed on the merits of its

misappropriation of trade secrets claim.7

1. Breach of Contract Claims

Texas has a statute governing the enf orceability of covenants not to compete. It

provides:

§ 15.50 Criteria for Enforceability of Covenants Not to Compete

[A] covenant not to compete is enforceable if it is ancillary to or part of an

otherw ise 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.

T EX

. B US

. & C OM

. C ODE A NN

. § 15.50 (Vernon 2002) (emphasis removed). As a preliminary

matter, non-disclosure covenants do not restrain trade and competition in the same way

that non-solicitation covenants restrain trade and competition. As a result, § 15.50 does not

govern or impair the enforceability of non-disclosure covenants. S ee CRC-Evans Pipeline

Intern., Inc., v . Myers , 927 S.W.2d 256 (Tex. App. 1996) ; Zep Mfg. Co. v. Harthcock , 824

S.W.2d 654 (Tex. App. 1992). The district court’s assumption—that § 15.50 governs the

enforceability of the non-disclosure covenant—erroneously tain t ed its conclusion that Guy

Carpenter did not have a likelihood of success on the merits of this claim.

The Texas Supreme Court analyzed the requirements of § 15.50 in some detail in Light

v. Centel Cellular Co. of Texas

, 883 S.W.2d 642 (Tex. 1994). The court wrote that “[s]ection

15.50 requires

. . . two initial inquiries as to formation of the covenant not to compete: (1)

is there an otherwise enforceable agreement, to which (2) the covenant not to compete is

ancillary to or a part of at the time the agreement is made.” Light , 883 S.W.2d at 644.3

Provenzale contends this Court should not consider certain contract provisions,

including the arbitration and severance provisions, in its analysis. Provenzale does not

explain why these provisions should be ignored under this Court’s de novo review of

the contract’s enforceability.

8 The 1999 Agreement satisfies Light ’s “otherwise enforceable agreeme nt” test, which

requires promises to be non-illusory. I d. at 644-46. Some of Guy Carpenter’s promises,

including the promises to pay a cert ain salary and a bonus, are illusory because they

require continued employment to be fulfilled. However, Guy Carpenter also promised to

pay a designated severance if it termin ated Provenzale’s contract before May 1, 2002,

without “good cause.” 3 Moreover, it paid Provenzale $35,000 to execute the 1999

Agreement. This payment was part of the bargain, even though reference to the $35,000

figure was kept out of the 1999 Agreement document at Guy Carpenter’s request. S ee Ikon

Office Solutions, Inc. v. Eifert

, 2 S.W.3d 688, 693 (Tex. App. 1999) (treating two separate

documents as one where circumstances warranted). For his part, Provenzale agreed to,

inter alia

, mandatory arbitration, a reduction in severance, and the non-disclosure and

non-solicitation covenants of the 1993 Agreement. Because both parties made non-illusory

promises, the 1999 Agreement satisfies the “otherwise enforceable agreement” test.

The parties dispute whether the 1999 Agreement satisfies Light ’s “ancillary to or part

of” requirement. S ee § 15.50 (“[A] covenant not to compete is enforceable if it is ancillary

to or part of an otherwise enforceable agre ement at the time the agreement is made.”)

(emphasis added). L ight establishes a two-part test for satisfying the “ancillary to or part

of” requirement:9

(1) the consideration given by the employer in the otherwise enforceable

agreement must give

rise to the employer’s interest in restraining the

employee from competing; and

(2) the covenant must be designed to enforce the employee’s consideration

or return promise in the otherwise enforceable agreement.

883 S.W.2d at 647.

The ar rangement between Guy Carpenter and Provenzale is the precise type of

arrangement that the Texas Supreme Court believes satisfies this test:

[I]f an employer gives an emp loyee confidential and proprietary information

or trade secrets in exchange for the employee’s promise not to disclose them,

and the parties enter into a covenant not to compete, the covenant is ancillary

to an otherwise enforceable agreement because:

(1) the consideration given by the employer [the trade secrets] in the

otherwise enforceable agreement [exchange of trade secrets for promise not

to disclose] must give rise to the e mployer’s interest in restraining the

employee from competing [employer has interest in restraining employee

with knowledge of employer’s trade secrets from competing] and

(2) the covenant must be designed to enforce the employee’s consideration

or return promise [the promise not to disclo se the trade secrets] in the

otherwise enforceable agreement.

883 S.W.2d at 647 n. 14 (all but first alteration in original). This is precisely the relationship

that the 1999 Agreement establishes. Guy Carpenter’s promise to provide confidential

information gives rise to its interest in restraining Provenzale from competing, and the

non-solicitation covenant is designed to enforce Provenzale’s non-disclosure covenant.

Provenzale argues Light supports his position that the no n-solicitation covenant is

unenforceable. To do so, Provenzale seizes language from a separate discussion in L ight10

considering the dangers of illusory promises i n at-will employment contracts. S ee 883

S.W.2d at 644-46. Provenzale emphasizes the specific text of this contract: “Employee

acknowledges that during the course of his employment

, whether voluntary or

i nvoluntary, he will have access to confidential information, proprietary information

and/or trade secrets.” (emphasis added). Provenzale argues this is an illusory promise:

had Guy Carpenter immediately terminated Provenzale’s employment, Guy Carpenter

would not have had a lingering promise to provide any information. Provenzale also

believes Light implies that (1) the exchange of trade secrets for a non-solicitation covenant

must itself be the “otherwise enforceable agreement” and (2) the promise to provide trade

secrets must itself be non-illusory consideration. I d. at 647 n.14 (“[T] he consideration

given by the employer [ the trade secrets ] in the otherwise enforceable agreement

[ exchange of trade secrets for promise not to disclose ] must give rise to th e employer’s

interest in restraining the employee from competing . . . .”) (emphasis added).

Provenzale asserts that, because Guy Carpenter’s promise to provide trade secrets is

illusory for purposes of an analysis of contractual consider ation, the agreement to

exchange trade secrets for a non-solicitation covenant fails Light ’s“ancillary to or part of”

test. We decline to adopt this construction of L ight ’s “ancillary to or part of” te st. C f.

Donahue v. Bowles, Troy, Donahue, Johnson, Inc.

, 949 S.W.2d 746, 755 (Tex. App. 1997)

(Moseley, J., concurring) (basing criticism of Light on the premise that the consideration

referred to in the “ancillary to or part of” test is measured by the same standards used to

measure illusory promises). To hold otherwise would pin the enforceability of non-4

The categories are: (1) customer lists; (2) potential customers; (3) terms of

existing contracts with customers, including renewal dates, premium information, loss

information, credit issues, and reinsurance rates; (4) marketing methods; (5) analytic

program structures; (6) research activities, data resources, and compilations; (7)

reference manuals, training aids, and brochures; (8) specialized computer software; (9)

11 solicitation agreements on whether an employer discloses confidential information at the

time the employe e signs an employment contract. This is not what L ight

, or § 15.50,

intends or requires.

Because the non-solicitation covenant incorpo rated in the 1999 Agreement is

enforceable, the district court erred as a matter of law by concluding the covenant’s

unenforceability precluded likely success on the merits. Denying a preliminary injunction

on this basis was an abuse of discretion.

2. Common Law Misappropriation of Trade Secrets Claim

To prevail on its claim for misappropriation of trade secrets, Guy Carpenter must show:

(1) the existence of a trade secret; (2) a breach of a confidential relationship or improper

discovery of the trade secret; and (3) use of the trade secret without authorization. See

Phillips v. Frey , 20 F.3d 623, 627 (5th Cir. 1994).

The Texas Supreme Court defines a trade secret as “an y formula, pattern, device, or

compilation of information which is used in on e’s business, and which gives him an

opportunity to obtain an advantage over competitors who do not know or use it.” Hyde

Corp. v. Huffines , 314 S.W.2d 763, 766 (Tex. 1958).

Guy Carpenter asserts it has confidential information, divided into thirteen categories,

that qualifies for trade secret protection. 4 The district court analyzed the claim that Guyloss statistics; (10) copyrighted material; (11) private financial information; (12)

technical know-how; and (13) proprietary retention models, studies and actuarial

analyses.

12 Carpenter’s customer lists are trade secrets separately from the claim that the other twelve

categories of information are trade secrets.

a. Customer Lists

A customer list may be a trad e secret, H yde Corp.

, 314 S.W.2d at 766, but not all

customer lists are trade secrets under Texas law. The broader rule of trade secrets, that

they must be secret

, a pplies to customer lists. A customer list of readily ascertainable

names and addresses will not be protected as a trade secret. S ee Gaal v. BASF Wyandotte

Corp.

, 533 S.W.2d 152, 155 (Tex. App. 1976). Thus, Texas courts consistently consider three

factors when determining whether a customer list is a trade secret: (1) what steps, if any,

an employer has taken to maintain the confidentiality of a customer list; (2) whether a

departing employee acknowledges that the customer list is confidential; and (3) whether

the content of the list is readily ascertainable. C ompare Flake v. EGL Eagle Gl obal

Logistics

, 2002 Tex. App. LEXIS 6593 at *10-11 (Tex. App. 2002) (finding trade secret where

departing employee admitted information was confidential); Center for Economic Justice

v. Am. Ins. Assoc.

, 39 S.W.3d 337, 246 (Tex. App. 2001) (affirming trade secret status of a

quasi-customer list that insurance companies are required to submit to a Texas regulatory

agency, even though the insurance companies only took measures to protect the

confidentiality of the lists once they became aware of an “open-records request” to disclose

the lists); G ibson, et al. v. Canfield

, 2001 Tex. App. LEXIS 133 at *3-4 (Tex. App. 2001)13

(finding district court did not abuse its discretion in granting an injunction in the face of

conflicting testimony about whethe r an employer kept the list confidential—parties

disputed whether two entities that received employer’s c ustomer list were employer’s

subcontractors or employer’s competitors); Sauter, et al. v. The Comp Solutions Network,

Inc.

, 1998 Tex. App. LEXIS 7248 at *13 (Tex. App. 1998) (finding a trade secret where

employer testified a new entrant in this niche insurance market would initially book no,

or almost no, policies within the first couple of weeks of business because the new entrant

would have to determine which insurance agents participate in niche market, and where

employer testified it took 30 years to compile a list of 1,200 agents); Keystone Life Ins. Co.

v. Marketing Mgmt. Inc.

, 687 S.W.2d 89, 91 (Tex. App. 1985) (finding that a list of 900

names and addresses that were not generally available to persons in the business of selling

group life insurance was a trade secret); wi th Bandit Messenger of Austin, Inc. v.

Contreras

, 2000-2 Trade Cas. (CCH) ¶ 73,109 (Tex. App. 2000) (finding no trade secret

where employer did not show what specifi c steps were taken to maintain the

confidentiality of the customer lis t); Numed, Inc. v. McNutt , 724 S.W.2d 432, 435 (Tex.

App. 1987) (finding no trade secret where custom er list can be compiled by calling

hospitals and doctors and asking the identity of their supplier); Keystone Life

, 687 S.W.2d

89, 94 (Guillot, J. dissenting) (arguing that a list of 900 names and addresses that was not

generally available to persons in the business of selling group life insurance was n ot a

trade secret because there was no evidence of the confidential nature of the customer list,

no evidence that it was treated confidentially b y the partners, and no evidence that the14

employer told the employee to keep the list confidential).

Whether customer lists are trade secrets is a question of law reviewed de novo

. K ern

River Gas Transmission, Co. v. Coastal Corp. , 899 F.2d 1458, 1462. The first two factors

that a customer list is a trade secret are present in this case. First, the district court found,

in reference to customer trade lists and other items, that Guy Ca rpenter had “taken

reasonable precautions to prevent the unauthorized disclosure of such information.”

Second, Provenzale acknowledged the customer lists were confidential when he executed

the 1993 Agreement. In regard to the third factor, the district court implicitly found the

customer lists were readily ascertainable. We agree. Evidence in the record indicates

part icipants in the reinsurance market freely disclose the identity of their reinsurance

broker and the nature of the reinsurance products they regularly consume. See Numed

,

724 S.W.2d at 435 (holding a customer list is readily ascertainable when businesses are

willing to disclose identity of a supplier when contacted by telephone). We also note that

Provenzale’s list of customers was relatively short—it included only those companies he

personal ly serviced while at Guy Carpenter. He could easily reconstitute this list even

without the aid of a trade publication. C f

. Sauter, 1 998 Tex. App. at *13 (finding a

customer list was not readily ascertainable where customer list excluded non-participants

in niche insurance market). Even though Guy Carpenter took steps to protect its customer

list and Provenzale sign ed a contract stating the customer list was confidential, we

conclude the customer list was not a trade secret because it was readily ascertainable.

Although Provenzale admits he used the customer list to solicit business on behalf of15

Benfield Blanch, the district court correctly found Guy Carpenter did not have a likelihood

of success on the merits of this claim because the customer list is not a trade secret.

b. Remaining Twelve Categories of Information

The district court found Guy Carpenter had proven that the other twelve categories of

confidential information qualified as trade secrets. The court held, however, that Guy

Carpenter failed to satisfy either the second or third elements of its misappropriation claim

because it failed to produce evidence Provenzale (1) breached a confidential relationship

or (2) used Guy Carpenter’s trade secrets.

Guy Carpenter asserts that a breach of the confidential relationship and the use of trade

secrets should be inferred because it was pr obable that Provenzale would use the trade

secrets. In Rugen v. Interactive Bus. Sys. , 864 S.W.2d 548, 552 (Tex.App. 1993), the court

inferred that a former employee’s possession of a trade secret and employment by a

competitor, where the former employee operated the competitor, made it probable that the

former employee would use the trade secrets for her benefit to the detriment of the former

empl oyer. S ee also T-N-T Motorsports

, 965 S.W.2d at 21-22. Provenzale responds that

there is no reason to infer he would use Guy Carpenter’s trade secrets for four reasons: (1)

Provenzale testified he had not taken any confidential information with him; (2) Guy

Carpenter admitted that employees it had hired away from Benfield Blanch were able to

service customers without using their former employer’s confidential inform ation; (3)

insofar as Guy Carpenter’s trade secrets covered analytic output of proprietary software,

Provenzale went to work for a competitor that had its own analytic tools already in place;16

and (4) the terrorist attacks on Septem ber 11, 2001, completely altered the reinsurance

market, such that any confidential information Provenzale might have left with in July

2001 is completely out-of-date.

The district court’s conclusion that success on the merits was unlikely is supported by

the four points raised by Provenzale. In the face of imprecise claims and undeveloped

evidence from Guy Carpenter, the district court did not abuse its discretion in denying a

preliminary injunction on Guy Carpenter’s misappropriation of trade secrets claim as it

relates to the twelve groups of trade secrets.

IV. CONCLUSION

In denying Guy Carpenter’s motion f or a preliminary injunction, the district court

rested its decision on the first of four factors governing preliminary injunctions—that Guy

Carpenter was not li k ely to succeed on the merits. We reverse the district court’s

determinations that the non-disclosure and non-solicitation covenants are unenforceable

and hold that Guy Carpenter demonstrated a likelih ood of success on the merits of its

claims for (1) breach of the non-solicitation covenant and (2) breach of the non-disclosure

covenant. We affirm the district court’s determination that Guy Carpenter did not

demonstrate a likelihood of success on the merits of its misappropriation of trade secrets

claim, based on e ither Provenzale’s customer list or the twelve other categories of

information. We remand for the district court to apply the other three factors governing

preliminary injunctions without regard to the lapse of time since Provenzale voluntarily

terminated his own employment, and ultimately for a trial on the merits.17

For the foregoing reasons, we AFFIRM IN PART, REVERSE IN PART and REMAND.