Title: Howard v. Nitro-Lift Technologies, LLC
Citation: 2011 OK 98
Docket Number: 
State: Oklahoma
Issuer: Oklahoma Supreme Court
Date: November 22, 2011

Howard v. Nitro-Lift Technologies, LLC Annotate this Case Justia Opinion Summary Plaintiffs-Appellants Eddie Lee Howard and Shane Schneider (Employees) entered an employment contract with Defendant-Appellee Nitro-Lift Technologies, L.L.C. For two years following termination, the contract prohibited employees from: working for, leasing to, or selling equipment to competitors. The contract contained an arbitration agreement requiring application of Louisiana law with disputes to be resolved in Houston, Texas. After the employees terminated their employment with Nitro-Lift, they went to work for a competitor in Arkansas. The employer filed an arbitration proceeding in Houston. Howard and Schneider filed an application for a declaratory judgment and injunctive relief in Oklahoma asserting that the non-competition agreement violated public policy. The district court initially granted the employees a temporary injunction, prohibiting Nitro-Lift from continuing the arbitration proceedings in Texas. Thereafter, the employer filed a motion to dismiss. After considering the parties' briefs and arguments, the district court found the arbitration clause to be valid on its face and reasonable in its terms, lifted the temporary restraining order, and granted the motion to dismiss. Upon review, the Supreme Court held that: (1) the existence of an arbitration agreement in an employment contract did not prohibit judicial review of the underlying agreement; and as drafted, the non-competition covenants were void and unenforceable as against Oklahoma public policy. The Court reversed the district court's judgment and remanded the case for further proceedings. Read more Want to stay in the know about new opinions from the Oklahoma Supreme Court? Sign up for free summaries delivered directly to your inbox. Learn More › You already receive new opinion summaries from Oklahoma Supreme Court. Did you know we offer summary newsletters for even more practice areas and jurisdictions? Explore them here . HOWARD v. NITRO-LIFT TECHNOLOGIES 2011 OK 98 Case Number: 109003 Decided: 11/22/2011 THE SUPREME COURT OF THE STATE OF OKLAHOMA NOTICE: THIS OPINION HAS NOT BEEN RELEASED FOR PUBLICATION IN THE PERMANENT LAW REPORTS. UNTIL RELEASED, IT IS SUBJECT TO REVISION OR WITHDRAWAL. EDDIE LEE HOWARD and SHANE D. SCHNEIDER, Plaintiffs/Appellants, v. NITRO-LIFT TECHNOLOGIES, L.L.C., Defendant/Appellee. APPEAL FROM THE DISTRICT COURT OF JOHNSTON COUNTY ¶0 The plaintiffs/appellants, Eddie Lee Howard (Howard) and Shane D. Schneider (Schneider) (collectively, employees), both Oklahoma residents hired in Tishomingo, entered an employment contract with the defendant/appellee, Nitro-Lift Technologies, L.L.C. (Nitro-Lift/employer). For two years following termination, the contract prohibits the employees from: working for, leasing to, or selling equipment to competitors; canvassing, soliciting, approaching, or enticing away any past or present Nitro-Lift customer or supplier; and engaging, employing, soliciting, or contacting officers and employees of the employer with the intent to employ the same. The contract contains an arbitration agreement requiring application of Louisiana law with disputes to be resolved in Houston, Texas. After the employees terminated their employment with Nitro-Lift, they went to work for a competitor in Arkansas. The employer filed an arbitration proceeding in Houston. Howard and Schneider filed an application for a declaratory judgment and injunctive relief in Johnston County asserting that the non-competition agreement violated public policy. The district court initially granted the employees a temporary injunction, prohibiting the employers from continuing the arbitration proceedings in Texas. Thereafter, the employer filed a motion to dismiss. After considering the parties' briefs and arguments, the district court found the arbitration clause to be valid on its face and reasonable in its terms, lifted the temporary restraining order, and granted the motion to dismiss. We hold that: 1) in conformance with our prior jurisprudence, the existence of an arbitration agreement in an employment contract does not prohibit judicial review of the underlying agreement; 2) as drafted, the non-competition covenants are void and unenforceable as against Oklahoma's public policy expressed by the Legislature's enactment of 15 O.S. 2001 §219A; and 3) judicial modification of the covenant not to compete is inappropriate where, as here, the contractual provisions would have to be substantially excised, leaving only a shell of the original agreement, and would require the addition of at least one material term. REVERSED AND REMANDED. Micah Knight, Durant, Oklahoma, for Plaintiffs/Appellants, Kelli M. Masters, Fellers, Snider, Blankenship, Bailey & Tippens, Oklahoma City, Oklahoma, for Defendant/Appellee. WATT, J.: ¶1 Three issues1 must be addressed to resolve this cause. They are whether: 1) the validity of the covenants not to compete should be resolved by the arbitrator or this Court; 2) the underlying covenant is void as against public policy pursuant to 15 O.S. 2001 §219A;2 and 3) if so, can it be modified judicially to conform with the controlling statutory provision.3 ¶2 We determine that the existence of an arbitration agreement in an employment contract does not prohibit judicial review of the underlying agreement. Our determination is supported by our prior jurisprudential pronouncements in: Wyatt-Doyle & Butler Engineers, Inc. v. City of Eufaula, 2000 OK 74, 13 P.3d 474 ; Cardiovascular Surgical Specialists, Corp. v. Mammana, 2002 OK 27, 61 P.3d 210 ; Thompson v. Bar-S Foods Co., 2007 OK 75, 174 P.3d 567; and Bruner v. Timberlane Manor Ltd. Partnership, 2006 OK 90, 155 P.3d 16 . ¶3 As drafted, we hold that the non-competition covenants are void and unenforceable as against Oklahoma's public policy expressed by the Legislature's enactment of 15 O.S. 2001 §219 A. 4 They contain provisions, for the period of two years, prohibiting: 1) employment with any oil or gas entity located in the United States and generating five percent (5%) of its gross revenues from nitrogen generation; 2) solicitation of any past or present Nitro-Lift customer or supplier; and 3) employing or soliciting employment of any Nitro-Lift officer or employee. Finally, we determine that judicial modification of the contractual provisions is inappropriate where, as here, the contractual provisions would have to be substantially rewritten to cure multiple defects.5 FACTS ¶4 Howard was hired by Nitro-Lift initially on August 18, 2008 at its offices in Tishomingo. At that time, Howard had approximately twenty (20) years' experience in the oil and gas industry. Due to a dispute over hours worked, compensation paid, and time off, Howard quit in November of 2009. Approximately a month later, Nitro-Lift rehired him. Based on similar concerns to those he had in 2009, Howard again resigned in April of 2010. ¶5 In July of 2009, Nitro-Lift hired Schneider at its office in Tishomingo. The employee had prior experience in the oil field with Halliburton. Harboring complaints similar to those of Howard, Schneider quit on June 11, 2010. ¶6 Both employees signed confidentiality/non-compete agreements with Nitro-Lift at their hiring.6 The agreements provide that neither employee, for a period of two (2) years following separation, will: be employed by any business involved in nitrogen generation7 in the United States; solicit any past or present customer or supplier of the employer; or engage, employ, solicit, or contact any Nitro-Lift officer or employee for the purpose of recruiting the officer or employee for employment. They also bar the employees from loaning money to a business engaging in nitrogen generation and selling or leasing equipment to any person or company of like kind. ¶7 After July 8, 2010, Nitro-Lift served the employees with a demand for arbitration alleging that the employees had breached the non-compete agreement and should be ordered to refrain: a) from disclosing or using Nitro-Lift's confidential information; b) from inducing its employees to leave their employment with the company; and c) from competing or interfering with the employer's business relationships or soliciting its customers.8 The agreement calls for the application of Louisiana law in an arbitration proceeding to be conducted in Houston, Texas.9 ¶8 The instant cause arises out of the employee's petition for declaratory judgment and injunctive relief filed in the District Court of Johnston County on October 14, 2010. The employees sought judgment declaring the non-compete agreement null and void and enjoining enforcement of the same. The district court granted the employees a temporary restraining order pending a hearing. On November 9, 2010, Nitro-Lift filed a motion to dismiss. The cause was heard on November 23, 2010. An order issued that same day in which the district court found the arbitration agreement to be valid on its face and reasonable in its terms and scope. Nitro-Lift's motion to dismiss was granted. The district court denied the employees' motion for a stay pending appeal filed on December 2, 2010. We also declined to issue a stay. However, we granted the employees' motion to retain the cause on January 19, 2011. ¶9 On October 18, 2011, we issued a show cause order directing the parties to address the effect of 15 O.S. 2001 §219A on the cause. Briefs were filed on October 28th and October 31st by the employees and the employer, respectively. Standard of Review10 ¶10 In Oklahoma, the rules governing appellate review in regard to injunctive relief are settled. Matters involving the granting or denying of injunctive relief are of equitable concern.11 A judgment issuing or refusing to issue an injunction will not be disturbed on appeal unless the lower court has abused its discretion or the decision is clearly against the weight of the evidence.12 An abuse of discretion occurs when a decision is based on an erroneous conclusion of law or where there is no rational basis in evidence for the ruling.13 Nevertheless, this Court is not bound by the findings or reasoning of the lower court. Rather, we independently consider, weigh, and examine the evidence.14 ¶11 We remain mindful that injunctions are extraordinary remedies that should not be lightly granted.15 Entitlement to injunctive relief must be established by clear and convincing evidence and the nature of the complained of injury must not be nominal, theoretical, or speculative.16 Nevertheless, the question of the existence of a viable, enforceable agreement to arbitrate is a question of law which this Court reviews de novo.17 ¶12 a) Oklahoma case law supports a determination that the existence of an arbitration agreement in an employment contract does not prohibit judicial review of the underlying agreement. ¶13 Nitro-Lift argues that the issue of the validity of the covenants not to compete is for the arbitrator. In doing so, the employers rely upon United States Supreme Court jurisprudence. The employees assert that jurisdiction lies in this Court based on our pronouncements addressing the issue. We agree with the employees. ¶14 Our jurisprudence controls this issue.18 Wyatt-Doyle & Butler Engineers, Inc. v. City of Eufaula, 2000 OK 74, 13 P.3d 474 held that the Uniform Arbitration Act, 12 O.S. Supp. 2006 §1851, et seq.19 did not prohibit this Court from reviewing a contract submitted to arbitration where one party asserted that the underlying agreement was void and unenforceable. In Cardiovascular Surgical Specialists, Corp. v. Mammana, 2002 OK 27, 61 P.3d 210 , we relied on Wyatt-Doyle in determining that an arbitrator's review of a contract would not prevent this Court from considering the contract's validity. Furthermore, we re-emphasized a principle first enunciated in Wyatt-Doyle, that the public right to be free from restraint of trade "cannot be waived by the parties' agreement to submit the issue of the validity of a contract provision to arbitration. A void provision provides no legal basis for enforcement whether through arbitration or judicial pronouncement." We reviewed an underlying employment contract in Thompson v. Bar-S Foods Co., 2007 OK 75, 174 P.3d 567 and held that no arbitration was required where the agreement was not based on a valid contract. ¶15 Most instructive on Nitro-Lift's arguments is Bruner v. Timberlane Manor Ltd. Partnership, 2006 OK 90, 155 P.3d 16 . Bruner contains an exhaustive overview of the United States Supreme Court decisions construing the Federal Arbitration Act (Federal Act), 9 U.S.C. §§1, et seq. and state arbitration law.20 The Supreme Court decisions discussed therein, and relied upon by Nitro-Lift here, were found not to inhibit our review of the underlying contract's validity.21 ¶16 Nitro-Lift's attempts to distinguish the cases discussed above are unpersuasive. We hold that the existence of an arbitration agreement in an employment contract does not prohibit judicial review of the underlying agreement. Our determination is supported by our prior jurisprudential pronouncements in: Wyatt-Doyle & Butler Engineers, Inc. v. City of Eufaula, 2000 OK 74, 13 P.3d 474 ; Cardiovascular Surgical Specialists, Corp. v. Mammana, 2002 OK 27, 61 P.3d 210 ; Thompson v. Bar-S Foods Co., 2007 OK 75, 174 P.3d 567; and Bruner v. Timberlane Manor Ltd. Partnership, 2006 OK 90, 155 P.3d 16 .22 ¶17 b) As drafted, the covenants are void and unenforceable as against Oklahoma's public policy expressed through legislative mandate in 15 O.S. 2001 §219A. ¶18 Nitro-Lift argues that the covenants not to compete are reasonable and necessary to protect the confidential information and technical knowledge imparted to the employees during training. The employer asserts that the covenants should be enforced as a necessary step in protecting Nitro-Lift in the marketplace. The employees contend that they received no confidential information during their employment with Nitro-Lift and that the non-compete provisions of the employment contract are void23 as a matter of law pursuant to 15 O.S. 2001 §217.24 Based on the Legislature's more precise statement on the matter of the enforceable parameters of a contract between an employer and an employee containing a covenant not to complete in 12 O.S. Supp. 2006 §219A,25 we agree.26 ¶19 The primary goal of statutory interpretation is to ascertain and, if possible, give effect to the intention and purpose of the Legislature as expressed by the statutory language.27 Intent is ascertained from the whole act in light of its general purpose and objective28 considering relevant provisions together to give full force and effect to each.29 The Court presumes that the Legislature expressed its intent and that it intended what it expressed.30 Statutes are interpreted to attain that purpose and end31 championing the broad public policy purposes underlying them.32 Only where the legislative intent cannot be ascertained from the statutory language, i.e. in cases of ambiguity or conflict, are rules of statutory construction employed.33 If the language is plain and clearly expresses the legislative will, further inquiry is unnecessary.34 ¶20 Title 15 O.S. 2001 §219A is the Legislature's pronouncement on Oklahoma's public policy35 regarding covenants not to compete. It provides that where an employee has executed a covenant not to compete with an employer, the employee "shall be permitted to engage in the same business as that conducted by the former employer or in a similar business as that conducted by the former employer as long as the former employee does not directly solicit the sale of goods, services or a combination of goods and services from the established customers of the former employer." The statute goes on to provide that any provision in a contract between an employer and an employee in conflict with the provisions of the section "shall be void and unenforceable."36 ¶21 Subsection A utilizes the mandatory term, "shall,"37 in association with the employee's right to engage in the same or similar business as that of the employer while subsection B provides that "any" provision in a contract between the employer and employee conflicting with those terms "shall be void and unenforceable." The term "any" is all-embracing and means nothing less than "every" and "all."38 The plain, clear, unmistakable, unambiguous, and unequivocal language of 15 O.S. 2001 §219A prohibits employers from binding employees to agreements which bar their ability to find gainful employment in the same business or industry as that of the employer.39 The only exception allowed by the statutory provision is that the employee may be barred from soliciting goods or services from the employer's established customers. ¶22 The covenants not to compete contain provisions, for the period of two years, prohibiting the employees from accepting employment with any oil or gas entity located in the United States which generates five percent (5%) of its gross revenues from nitrogen generation. The same clause prevents the employees from: "owning, managing, operating, joining, controlling or participating" in a similar business; being a director, officer, representative, partner, or consultant in any business engaging in nitrogen generation; loaning money to a like enterprise; or selling or leasing equipment to any person or business which has any significant portion of its business as nitrogen generation, whether or not the equipment is related to that particular portion of the business. The covenant conceivably could be interpreted to prevent the employees from taking jobs in any capacity from a competing business, even one not directly related to the nitrogen generation process. The agreement not only bars active solicitation of current customers or suppliers of Nitro-Lift, it also forbids the employees from approaching past customers and suppliers. Furthermore, it operates to inhibit the employees from employing or engaging any Nitro-Lift officer or employee even where those individuals might seek employment on their own initiative rather than from any intervention by the employees. ¶23 The non-competition contracts go well beyond the bounds of what is allowable under §219A and violate the legislatively expressed public policy. Therefore, we hold that, pursuant to 15 O.S. 2001 §219A, the covenants not to compete are void and unenforceable as against Oklahoma's public policy expressed through legislative mandate. ¶24 c) Judicial modification of the covenant not to compete is inappropriate where, as here, the contractual provisions would have to be substantially excised, leaving only a shell of the original agreement, and would require the addition of at least one material term. ¶25 To bring the non-competition agreement within the bounds of what is allowable under 15 O.S. 2001 §219A, we would have to decimate its provisions. Essentially, subsections (k)(i) and (k)(iii) would have to be stricken in their entirety, leaving only subsection (k)(ii) relating to solicitation of past or present customers or suppliers of Nitro-Lift. However, that subsection also suffers shortcomings and infirmities. ¶26 Subsection (k)(ii) prohibits the employee from canvassing, soliciting, approaching or enticing away Nitro-Lift's past or present customers or suppliers. Section 219A allows an employer to prohibit solicitation by an employee of "established customers," but it says nothing about barring purchases from an employer's suppliers. Undoubtedly, the Legislature, in utilizing the term "established customer," had in mind those businesses and customers wherein a relationship was ongoing and anticipated to continue into the future.40 However, the non-competition agreement does not define what is a "present customer"41 which might stretch to encompass temporary or single-event relationships. ¶27 The covenant not to compete contains a severability provision. Judicial modification is justified if the contractual defect can be cured by imposition of reasonable limitations concerning the activities embraced, time, or geographical limitations. Nevertheless, "there is more amiss here than can be reformed effectively."42 Two of the three provisions of the contract would require delineation in their entirety. To conform with the restrictions of 15 O.S. 2001 §219A, we would have to determine whether the phrase "present customers" within the agreement conformed to the Legislature's term "established customer," thereby supplying a material term of the contract. We would also be required to excise the portion of this subsection (k)(ii) relating to past customers and suppliers. ¶28 We will not reform a covenant not to compete so offensive that it would require us to supply material terms.43 We hold that the breadth of the delineation required to bring the non-competition agreements into conformance44 and the necessity of adding at least one material term to the contract prevents judicial modification. CONCLUSION ¶29 Through the enactment of 15 O.S. 2001 §219A, the Legislature has expressed its intent with relation to the viability of covenants not to compete in the employment context. This Court does not extend its auspices, in determining the validity of a statute, to consider its propriety, desirability, wisdom or practicability. These matters are left to the legislative department.45 To do so here would be especially egregious. The Legislature used mandatory directives in 15 O.S. 2001 §219A regarding the boundaries of any non-competition agreement extracted as a condition of employment. In doing so, it utilized plain, clear, unmistakable, unambiguous, and unequivocal language leaving no room for judicial interpretation. ¶30 In conformance with our prior jurisprudence, we hold that the existence of an arbitration agreement in an employment contract does not prohibit judicial review of the underlying agreement. As drafted, we determine that the non-competition covenants are void and unenforceable as against Oklahoma's public policy as expressed by the Legislature's enactment of 15 O.S. 2001 §219A. Finally, because judicial modification cannot be accomplished without rewriting the agreement to cure multiple defects, leaving only a shell of the original agreement, and would require the addition of at least one material term, it is inappropriate. ¶31 Discretion is abused, so as to warrant reversal, when a trial judge makes a clearly erroneous conclusion and judgment, against reason and the evidence.46 On this record, we are constrained to hold that the lifting of the temporary injunction and the failure to grant the employees permanent relief was without a basis in law, reason, or evidence and an abuse of discretion. The cause is reversed and remanded for proceedings consistent with this opinion. REVERSED AND REMANDED. ALL JUSTICES CONCUR. FOOT