United States Court of Appeals

Fifth Circuit



## FILED

March 1, 2006

Charles R. Fulbruge III

Clerk UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

No. 04-21015

BLASE INDUSTRIES CORPORATION, doing business as WILSON

SOLUTIONS,

Plaintiff - Appellant,

v.

ANORAD CORPORATION; ET AL.

Defendants

ANORAD CORPORATION

Defendant - Appellee.

Appeal from the United States District Court

for the Southern District of Texas, Houston

Before BENAVIDES, STEWART, and OWEN, Circuit Judges.

BENAVIDES, Circuit Judge:

This is an appeal from a grant of summary judgment. The

district court based its decision on its finding that a no-hire

agreement between the parties was unenforceable. The parties

principally present arguments to assist the court in predicting how

the Texas Supreme Court would analyze the no-hire provision at

issue. We, however, choose to affirm the district court on

alternative grounds argued by the Appellee. Because the Appellant1 A no-hire provision is an agreement between two employers

that prohibits one employer from hiring the other employer’s

employees.

2 did not prove its lost profit damages to a reasonable certainty, as

required in Texas, summar y judgment was appropriate, and the

district court is AFFIRMED.

I. FACTUAL AND PROCEDURAL BACKGROUND

The Appellant, Wilso n Solutions, is a computer software

c onsulting company, and the Appellee, Anorad, is a manufacturer.

Wilson Solutions hired Jason Schwartzman in April 1997 to work as

one of its consultants. One year later, it entered into a contract

with Anorad to provide consulting services at a daily fee of $2000.

The contract contained a no-hire provision. 1 It stated:

Both parties agree to not, directly or indirectly, during

the period that Consultant [Wilson Solutions] provides

services for Client [Anorad], and for a period of one

year thereafter, solicit, employ or hire or induce to

hire any person who is or has been an employee of either

party unless otherwise consented to in writing.

The parties also agreed that Texas law would govern the contract.

In April 1998, Wilson Solutions placed Schwartzman as a consultant

for Anorad. Schwartzman was not aware of the no-hire provision and

did not consent to it.

On April 19, 1 999, Schwartzman sent Wilson Solutions a

resignation letter. The letter stated that he wanted “to pursue

more stable positions

. . . with less travel” and “to move back

into the corporate world—with structure, guaranteed bonus,3

benefits, and pensi ons.” After Schwartzman resigned, Anorad’s

chief financial officer, Paul Rossi, spoke with Wilson Solutions to

ask if the company would object if Anorad hired Schwartzman.

Wilson Solutions did not provide consent. Nevertheless, on April

26, 1999, Anorad sent Schwartzman a letter offering him employment.

On April 27, 1999, Rossi announced to all Anorad employees that

Schwartzman had become the company’s new director of information

systems.

The parties dispute whether Ano r ad offered Schwartzman a

position before Schwartzman resigned from Wilson Solutions. They

also dispute whether Wilson Solutions agreed to a modification of

the no-hire agreement. It is undisputed, however, that Anorad

provided no proof of written consent to the district court and that

Schw artzman was hired within one year of his resignation from

Wilson Solutions. Therefore, under the agreement’s language,

Anorad breached the no-hire provision.

Wilson Solutions seeks lost profit damages for the first year

Schwartzman worked for Anorad. Wilson Solutions is seeking

$341,000. This figure comes from an estimate of what Schwartzman

would have earned in consulti ng fees ($450,000) minus his salary

($99,000) and overhead expenses (approximately 10%). In his final

year at Wilsons Solutions, Schwartzman earned approximately

$441,000 i n consulting fees for Wilson Solutions and received a

salary of $99,000 for himself.

Wilson Solutions filed this suit on April 30, 2003—four years4

after Anorad hired Schwartzman on April 26, 1999. Schwartzman left

Anorad on December 31, 2000. Wilson Solutions is only seeking

money damages because it could not seek injunctive relief due to

the date of its filing. The district court granted summary

judgment to Anorad on September 29, 200 4 on grounds that the nohire provision was unreasonable and, therefore, unenforceable.

II. STANDARD OF REVIEW

This Court reviews a district court’s grant of summary

judgment d e novo , applying the same standards as the district

court. H irras v. Nat’l R.R. Passenger Corp

., 95 F.3d 396, 399 (5th

Cir. 1996). The evidence should be viewed in the light most

favorable to the nonmoving party, and the record should not

indicate a genuine issue a s to any material fact. A m. Home

Assurance Co. v. United Space Alliance

, 378 F.3d 482, 486 (5th Cir.

2004). We may affirm the district court’s summary judgment ruling

on any ground supported by the record. L ifecare Hosps., I nc. v.

Health Plus of Louisiana, Inc.

, 418 F.3d 426, 439 (5th Cir. 2005).

III. DISCUSSION

A federal court with diversity jurisdiction must apply the law

of the state in which it sits. S ee Erie R. Co. v. Tompkins

, 304

U.S. 64, 79–80 (1938). No Texas court has examined a damages

calculation that exactly mirrors the one at issue, one in which an2 This could be a result of the scarcity of no-hire cases in

Texas. See Hosp. Consultants v. Potyka , 531 S.W.2d 657, 665

(Tex. Civ. App.—San Antonio 1975, writ ref’d n.r.e.) (“We know of

no case involving a covenant similar to that which we are now

considering.”). Hospital Consultants is the only no-hire case

heard by a Texas court.

5 employer is seeking lost profit damages based on an at-will

employee’s potential earnings. 2 Nonetheless, Texas courts have

examined the ability of an at-will employee, acting on his own

behalf, to seek damages based on future earnings. These cases and

the general rules for damages in Texas provide sufficient guidance.

They show that Wilson Solutions cannot survive the summary judgment

challenge.

A. Damages Must Be Proven to a Reasonable Certainty

In Texas, lost profit damages must be established with

“reasonabl e certainty.” T ex. Instruments Incorp. v. Teletron

Energy Mgmt.

, 877 S.W.2d 276, 281 (Tex. 1994). Lost profit damages

may not be based on evidence that is speculative, uncertain,

contingent, or hypothetical. C arter v. Steverson & Co.

, 106 S.W.3d

161, 165–66 (Tex. App.–Houston [1st Dist.] 2003, pet. denied). A

plaintiff must adduce evidence from which the jury can reasonably

estimate the amount of loss. D avis v. Small Bus. Inv. Co.

, 535

S.W.2d 740, 743 (Tex. Civ. App.–Texarkana 1976, writ ref’d n.r.e.).

While some uncertainty as to the amount of damages is permissible,

uncertainty as to the fact of damages will defeat recovery. Id.

No-hire agreements and covenants not to compete often include6

a liquidated damages provision to avoid the difficulty of

calculating damages. See, e.g.

, H & M Commercial Driver Leasing,

Inc. v. Fox Valley Containers, Inc., 805 N.E.2d 1177, 1184 (Ill.

2004) (no-hire agreement contained liquidated damages clause).

These provisions are valid when damage s are uncertain and the

stipulated sum is reasonable. Mayhall v. Proskowetz , 537 S.W.2d

320, 322 (Tex. Civ. App.–Austin 1976, writ ref’d n.r.e.). The nohire pr o vision at issue in the present case did not have a

liquidated damages clause.

Wilson Solutions c annot prove to a reasonable certainty the

fact that it was damaged by Anorad’s breach. The damages request

relies on the assumption that S chwartzman would continue working

for Wilson Solutions, earning consulti ng fees for the year in

question. This type of contingency, created by his at-will status,

is impermissible in Texas. Similarly, a jury would have difficulty

estimating the losses suffered by Wilson Solutions. The purpose of

lost profit damages it to put the nonbreaching party in the

position it would have been in had the contract been performed.

Osoba v. Bassichis , 679 S.W.2d 119, 122 (Tex. App.–Houston [14th

Dist.] 1984, writ ref’d n.r.e.). Here, because Schwartzman was an

at-will employee, it is impossible to determine that position with

the amount of certainty required by Texas law.

B. At Will Employees Cannot Collect for Future Lost Salary

“Damages for anticipated lost salary are inappropriate where7

employment i s at will.” A llied Vista, Inc. v. Holt

, 987 S.W.2d

138, 142 (Tex. App.–Houston [14th Dist.] 1999, pet . denied); s ee

also Ingram v. Fred Oakley Chrysler Dodge

, 663 S.W.2d 561, 562

(Tex. App.–El Paso 1983, no writ) (“When the period of employment

is left to the discretion of either party . . . the loss of wages

that the employee would have earned in the indefinite future is not

a recoverable item of damages.”). In A llied Vista

, the court

reasoned that a lack of certainty in an at-will employee’s future

wo rk equated to a lack of reasonable certainty in damages. I d.

(overturning a jury awa rd for lost profits). Intermediate court

decisions, like Allied Vista and Ingram

, guide federal courts

applying state law. H errmann Holdings Ltd

. v. Lucent Technologies

Inc.

, 302 F.3d 552, 558 (5th Cir. 2002) (“[W]e defer to

intermediate state appellate court decisions, unless convinced by

other persuasive data that the highest court of the state would

decide otherwise.”).

Texas courts have acknowledged exceptions to the general rule

that at-will employees have no cause of action for termination and,

therefore, cannot collect for future earnings. In W inters v.

Houston Chronicle Publishing Co.

, the Texas Supreme Court outlined

those exceptions. 795 S.W.2d 723, 724 (Tex. 1990) (refusing to

make an exception for at-will employees who a re whistleblowers).

The court acknowledged several statutory exceptions and two common

law exceptions. I d

. O ne of the common law exceptions is no longer8

good law, making the only common law exception “where an employee

is terminated solely because he refused to perform an illegal act.”

Thompson v. El Centro del Barrio

, 905 S.W.2d 356, 358 (Tex.

App.–San Antonio 1995, writ denied). The court’s unwillingness to

expand these exceptions and the lack of a relevan t statutory

exception show that a Texas court would likely find that Wilson

Solutions cannot base its damages calculat ion on the future

earnings of an at-will employee.

This Court considered when an at-will emplo yee can collect

damages for lost profits in Zenor v. El Paso Healthcare System,

Ltd.

, 176 F.3d 847, 866 (5th Cir . 1999). We held that the

plaintiff, an at-will employee, could not collect for future wages.

Id. (“[He] could not have proven that he was entitled to any future

earnings because he had no guarantee of future employment.”). I d.

This uncertainty stems, in part, from the fact that an at-will

employee can be “terminated at any time for any lawful reason.”

Id.

If Wilson Solutions had terminated Schwartzman, he would not

have been able to collect damag es for his future earnings.

Likewise, Wilson Soluti ons cannot collect from Anorad based on

Schwartzman’s speculative future earnings. Schwartzman could have

left Wilson Solutions at any point during the year in question,3 Schwartzman himself was not precluded from seeking

employment, including employment by Anorad, as he was not subject

to any type of covenant not to compete. In addition, the record

suggests that he contemplated leaving Wilson Solutions for

reasons independent of Anorad’s offer.

9 a nd, in fact, did leave the company. 3 Therefore, any consulting

fees Schwartzman would have potentially received are too uncertain

to serve as the basis for Wilson Solution’s request for damages.

C. No Disputed Facts Are Material

The record reveals two disputed facts relating to the damages

calculation: whether Wilson Solutions would have had any work for

Schwartzman had he stayed with the company and whether Schwartzman

resigned before or after Anorad hired him. The district court

found that t hese issues were material and precluded summary

judgment on damages grounds. To the extent that the district court

found the disputed facts to be material, we disagree. Taking these

facts in the light most favorable to Wilson Solutions, the damages

calculation still fai ls to satisfy the Texas requirement that a

plaintiff prove damages to a reasonable certainty. Schwartzman’s

status as an at-will employee is fatal under these facts and

summary judgment is, therefore, appropriate.

IV. CONCLUSION

For these reasons we AFFIRM the district court’s granting of

summary judgment to Anorad. We do so on the grounds that Wilson

Solutions failed to prove its damages to a reasonable certainty as10

required by Texas law.