United States Court of Appeals,

Fifth Circuit.

No. 92-9590.

TEAM ENVIRONMENTAL SERVICES, INC., Formerly Leak Repairs, Inc., A Texas

Corporation, Plaintiff-Appellee,

v.

Rory K. ADDISON, Dwayne S. Dugas, Thomas C. Prestridge, and William H. Zimmerman,

Defendants-Appellants.

Sept. 17, 1993.

Appeal from the United States District Court for the Middle District of Louisiana.

Before POLITZ, Chief Judge, REYNALDO G. GARZA and JOLLY, Circuit Judges.

POLITZ, Chief Judge:

Former employees of Leak Repairs, Inc. (LRI), now Team E nviro nmental Services, Inc.,

appeal the grant of a preliminary injunction enforcing an agreement not to compete. Finding that the

agreement violates the co n trolling Louisiana statute and may not be reformed, we vacate the

injunction and render judgment for the defendants.

Background

LRI is a Texas corporati on specializing in the detection and repair of industrial piping system

leaks, including fugitive emissions repair. The four appellants herein, Rory K. Addison, Dwayne S.

Dugas, Thomas C. Prestridge, and William H. Zimmerman, worked in its Baton Rouge, Louisiana

branch office. Zimmerman was a sales representative who was discharged on February 7, 1992 for

poor performance. Within three weeks, he obtained employment as a sales representative and branch

manage r wit h Leak Stop, Inc., an LRI competitor. Addison and Dugas, assistant technicians,

resigned from LRI to accept employment as technicians with Leak Stop on March 8, 1992.

Prestridge, first an assistant technician and then a sales representative with LRI, resigned on

September 17, 1992 and also went to work for Leak Stop. All four worked in Leak Stop's Baton

Rouge office.

In the course of their employment with LRI each of the four signed employment agreements1 Although three of the four agreements call for application of Texas law, the defendants argue,

and LRI does not dispute, that Louisiana law controls in light of its strong public policy against

covenants not to compete. See La.Civ.Code articles 3537, 3540. The defendants raise for the

first time on appeal that the contractual choice of law should prevail if Louisiana law does not bar

enforcement.

2 Concise Oil & Gas Partnership v. Louisiana Intrastate Gas Corp., 986 F.2d 1463 (5th

Cir.1993). containing a covenant not to compete. The agreements provided in pertinent part:

[F]or a period of two (2) years following the voluntary or involuntary termination of

E m ployee's employment hereunder, Employee shall not

... act as an

... employee

... or

manager

... [of] any business activity which is competitive with any services offered by, or any

business activities pursued by Employer at the time of termination, wit hin a two hundred

(200) mile radius of Employee's base of operations at the time of termination....

The agreements also contained a savings clause, which stated:

Shoul d a co urt of competent jurisdiction declare any of the covenants contained in this

Paragraph unenforceable due to an unreasonable restriction of duration or geographical area,

such court shall have the express authority and consent of the parties to this Agreement to

reform these covenants to a reasonable restriction....

On November 2, 1992, LRI brought the instant action to enforce the agreements. Although

the contractual geographical term was broader than that permitted by statute, the district court issued

a preliminary injunction enforcing the agreements to the extent permitted by Louisiana law, enjoining

the defendants from working for a competitor for a period of two years within any of the 13

Louisiana parishes and 5 Mississippi counties in which LRI worked. It also enjoined Zimmerman and

Prestridge from soliciting LRI customers. This appeal timely followed.

Analysis

The sole issue presented for review is whether the covenants not to compete are enforceable.

The parties agree that the applicable law in this diversity case is that of Louisiana. 1 We review the

district court's determination that the agreements are enforceable under Louisiana law de novo, 2 and

conclude that they are not.

The instant noncompetition agreements are governed by La.R.S. 23:921 as amended in 1989

and 1990. The statute provides in pertinent part:

A. Every contract or agreement, or provision t hereo f, by which anyone is restrained from

exerci sing a lawful profession, trade, or business of any kind, except as provided in this

Section, shall be null and void.3 Orkin Exterminating Co. v. Foti, 302 So.2d 593 (La.1974).

4 A federal court sitting in diversity must follow decisions of the state's intermediate appellate

courts, unless convinced by persuasive data that the highest court would decide differently.

Exxon Co., U.S.A., a Div. of Exxon Corp. v. Banque De Paris Et Des Pays Bas, 889 F.2d 674

(5th Cir.1989), cert. denied, 496 U.S. 943, 110 S.Ct. 3230, 110 L.Ed.2d 676 (1990).

5 600 So.2d 85, 87 (La.App.), w rit denied, 604 So.2d 1002 (La.1992). ....

C. Any person

... who is employed as an agent, s ervant , 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 custom ers of the employer within a specified parish or parishes,

municipality or municipalities, or part s t hereof, so long as the employer carries on a like

business therein, not to exceed a period of two years from termination of employment.

On their face, LRI's agreements do not conform to the statutory requirements because they prohibit

competition within 200 miles of the employees' base of operations rather than specifying the parishes

or municipalit ies in which LRI does busi ness. LRI, however, advances two arguments that the

agreements nonetheless should be e nfo rced: (1) the statutory provisions describing permitted

noncompetition agreements should be broadly construed because the 1989 amendment represents a

reversal in public policy; and (2) the inconsistency is merely a technical deficiency which does not

justify discarding the agreements, especially where, as here, the agreements contain a savings clause

expressly providing for reformation. Louisiana jurisprudence, albeit nascent in this area, is to the

contrary.

Louisiana's longstanding policy against covenants not to compete was codified in 1934. In

1962 the legislature exempted from its blanket bar those situations in which the em p loyer had

invested substantial amounts in the training or the advertising of the particular employee. 3 In 1989

the legislature redrafted the statute to broaden the exceptions. The amended statute, however, retains

the general proscription; the first subsection proclaims that every agreement not to compete shall be

null and void, except for those explicitly sheltered. We do not perceive this as a reversal in public

policy, nor have those Louisiana intermediate appellate courts which have addressed the issue. 4 "As

the statut e itself so plainly says," the Second Circuit stated in C omet Industries, Inc. v. Lawrence,

"these contracts are against public policy...." 5 The Fourth and Fifth Circuits expressly or implicitly6 Medivision, Inc. v. Germer, 617 So.2d 69 (La.App.), w rit denied, 619 So.2d 549 (La.1993);

Daiquiri's III on Bourbon, Ltd. v. Wandfluh, 608 So.2d 222 (La.App.1992), w rit denied, 610

So.2d 801 (La.1993).

7 Comet, 600 So.2d at 88 (emphasis in original), cited in Medivision and Daiquiri's III.

8 618 So.2d 533 (La.App. 4th Cir.1993); see also Daiquiri's III (court invalidates a

noncompetition agreement without a territorial limitation).

9 LRI also engaged in emissions monitoring, a different service, in seven additional Louisiana

parishes, all in the southeast corner of the state. Because Leak Stop did not offer a competing

service, the district court did not include these parishes in the injunction. have held the same. 6 Therefore, "a contract seeking to fit into an e xception to this rule must strictly

comply with the requirements contained in the statute." 7 LRI's contracts do not.

Nor can these contracts be saved through reformation. In C omet, the Second Circuit refused

to reform and thereby validate a contract proscribing co mpet ition in the continental United States

despite a savings clause similar to that incorporated in LRI's contracts. Similarly in W ater Processing

Technologies, Inc. v. Ridgew ay, 8 the Fourth Circuit declined to save by reformation a noncompetition

c lause in a distributorship agreement in which the geographic term was omitted, even though the

limit s of the clause could be inferred from the distributorshi p agreement. LRI maintains that its

geographic term comes much closer to the statutory requirement and hence should be reformed and

enforced. We are not persuaded. Finding the locational limitation too uncertain, the Fourth Circuit

in Medivision, supra, invalidated an agreement prohibiting competitive employment within ten miles

of any of the employer's offices in the Greater New Orleans area. The LRI agreements s ub judice

inform with far less certainty the area in which its employees are precluded from accepting competing

employment.

La.R.S. 23:921 permits noncompetition agreements only in parishes or municipalit ies where

the employer "carries on a like business"; LRI's agreements barred competition in a far larger area.

As the district court found, LRI engaged in leak detection and repair services in a 13-parish area in

the vicinit y of the petrochemical corridor along the Mississippi River between Baton Rouge and New

Orleans, as well as in five counties in Mississippi. 9 The agreements, however, covered a 200-mile

radius area around Baton Rouge, including most of Louisiana, a substantial portion of Mississippi,10 At oral argument, LRI's counsel sought to justify the 200-mile figure by noting that LRI had

a Mississippi customer 194 miles from Baton Rouge. To the contrary, this argument highlights

the pitfall of describing the covered area by miles radius; there is no justification in preventing an

employee from pursuing his occupation throughout virtually the entire State of Louisiana in order

to protect the employer's relationship with one distant customer. and small parts of Texas and Arkansas. 10

An employee barred from plying his trade within 200 miles of his home would be far more

hesitant to leave his job than if the proscription affected a substantially smaller area. This increased

hesitancy obviously impacts the bargaining relationship with the current employer. Were courts to

reform and en fo rce agreements like those at bar, employers would be free routinely to present

employees with grossly overbroad co venants not to compete. While the employer presumptively

would know that the agreement would be enforced only to the limit of the law, the employee likely

would not. The result would be an impact on the employer-employee relationship not intended by

the legislature when it enacted the 1989 amendments. That t ype expansion is a matter better

addressed to the Louisiana Legislature.

By invalidating the L RI agreements, we do not require employers to use "magic words."

Rather, consistent with Louisiana jurisprudence, we require a geographic term which substantially

conforms to the statute by ident ifying with reasonable certainty those a r eas in which the employer

lawfully may prohibit competition. The instant LRI agreements do not satisfy this standard and

therefore cannot be enforced.

The preliminary injunction is VACATED and judgment is RENDERED in favor of the

defendants.