Court Opinion

ID: 2808146
Source: CourtListenerOpinion
Date Created: 2015-06-13 06:19:17.530174+00
Date Added: 2024-06-11T12:11:06.013610
License: Public Domain

Fourth Court of Appeals
                                     San Antonio, Texas
                                            OPINION
                                        No. 04-14-00606-CV

  ARGO GROUP US, INC., Colony Management Services, Inc., Colony Insurance Company,
  Colony National Insurance Company, Colony Specialty Insurance Company, Colony Agency
                 Services, Inc., and Argo Group International Holdings, Ltd.,
                                          Appellants

                                              v.
     Louis D. Levinson, International Specialty Group, Inc., Guilford Insurance Company,
   Louis D. LEVINSON, International Financial Group, Inc., Guilford Specialty Group, Inc.,
            Guilford Insurance Company, and The Burlington Insurance Company,
                                          Appellees

                     From the 224th Judicial District Court, Bexar County, Texas
                                  Trial Court No. 2014-CI-09550
                            Honorable Antonia Arteaga, Judge Presiding

                                    OPINION ON REHEARING
Opinion by:       Sandee Bryan Marion, Chief Justice

Sitting:          Sandee Bryan Marion, Chief Justice
                  Karen Angelini, Justice
                  Patricia O. Alvarez, Justice

Delivered and Filed: June 10, 2015

AFFIRMED

           This is an appeal from the trial court’s denial of appellants’ request for a temporary

injunction. On January 14, 2015, we dismissed the appeal as moot. Appellants filed a motion for

rehearing. In an order dated April 27, 2015, this court granted the motion for rehearing, withdrew

our opinion and judgment of January 14, 2015, and submitted the appeal for oral arguments. After
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considering the merits of the appeal, we cannot conclude the trial court abused its discretion;

therefore, we affirm.

                                        BACKGROUND

        Argo Group US, Inc. and other entities wholly-owned by Argo Group US, Inc.

(collectively, “Argo”) are in the business of underwriting excess and surplus lines insurance, as

well as other types of insurance. Argo employed Louis Levinson as president of Argo’s excess

and surplus division. Levinson’s employment agreement with Argo contained a restrictive

covenant that prohibited him from being employed, engaged, or otherwise interested in the

business of a competing insurance company for one year after leaving Argo. Levinson resigned

from Argo effective August 25, 2013.

        The day after Levinson left Argo, International Financial Group, Inc. (“IFG”), which

competes with Argo in the excess and surplus market, issued a press release stating Levinson

agreed to become president of an IFG affiliate upon expiration of Levinson’s noncompetition

period. On June 16, 2014, Argo sued Levinson and others asserting Levinson violated the

restrictive covenant, raising several causes of action, and requesting temporary and permanent

injunctive relief. Following a hearing on Argo’s request for a temporary injunction, the trial court

denied the request for injunctive relief on August 18, 2014. The one-year restriction contained in

the covenant not to compete expired on August 25, 2014, the same day appellants filed their notice

of appeal in this court.

        In a single issue on appeal, Argo asserts the trial court erred in denying its request for a

temporary injunction.

                                   STANDARD OF REVIEW

        In this interlocutory appeal, our review is limited to determining whether the trial court

abused its discretion in denying Argo’s request for a temporary injunction. Davis v. Huey, 571
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S.W.2d 859, 861-62 (Tex. 1978). The merits of the underlying litigation are not presented for our

review. Id. at 861. A clear abuse of discretion occurs when the trial court’s decision is so arbitrary

and capricious that it amounts to clear error. Walker v. Packer, 827 S.W.2d 833, 839 (Tex. 1992)

(orig. proceeding). Because a trial court has no discretion in determining what the law is or

applying the law to the facts of the case, the failure to analyze or apply the law correctly constitutes

an abuse of discretion. Id. at 840.

        When reviewing the evidence in the context of an abuse-of-discretion standard, we engage

in a two-pronged inquiry: (1) whether the trial court had sufficient information on which to

exercise its discretion; and if so, (2) whether the trial court erred in the application of discretion;

that is, whether based on the evidence, the trial court made a decision that was neither arbitrary

nor unreasonable. In re Rogers, 370 S.W.3d 443, 445 (Tex. App.—Austin 2012, orig. proceeding);

see Zeifman v. Michels, 212 S.W.3d 582, 588 (Tex. App.—Austin 2006, pet. denied).

        With regard to factual matters, an abuse of discretion occurs if the record establishes that

the “trial court could reasonably have reached only one decision.” Walker, 827 S.W.2d at 840.

We review the evidence in the light most favorable to the trial court’s order and indulge all

reasonable inferences in favor of the decision. Center for Econ. Justice v. American Ins. Ass’n, 39
S.W.3d 337, 344 (Tex. App.—Austin 2001, no pet.). When, as here, the trial court does not file

findings of fact or conclusions of law, we will uphold the order on any legal theory supported by

the record. Universal Health Servs., Inc. v. Thompson, 24 S.W.3d 570, 577 (Tex. App.—Austin

2000, no pet.).

                                             ANALYSIS

        Ordinarily, to obtain a temporary injunction, a plaintiff must plead and prove (1) a cause

of action against the defendant; (2) a probable right to the relief sought; and (3) a probable,

imminent, and irreparable injury in the interim. See Butnaru v. Ford Motor Co., 84 S.W.3d 198,
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                                                                                       04-14-00606-CV

204 (Tex. 2002). On appeal, Argo asserts it was not required to show irreparable injury because

it showed a violation of a statute that authorizes injunctive relief.

       Argo sued pursuant to Texas Business and Commerce Code section 15.51, which provides

that “a court may award the promisee under a covenant not to compete damages, injunctive relief,

or both damages and injunctive relief for a breach by the promisor of the covenant.” TEX. BUS. &

COM. CODE ANN. § 15.51(a) (West 2011). The criteria for enforcing a covenant not to compete

are contained in section 15.50:

       Notwithstanding Section 15.05 of this code, and subject to any applicable provision
       of Subsection (b), a covenant not to compete is enforceable if it is ancillary to or
       part of an otherwise 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.

Id. § 15.50(a).

       The criteria for enforceability of a covenant not to compete provided by section 15.50 “and

the procedures and remedies in an action to enforce a covenant not to compete provided by Section

15.51 of this code are exclusive and preempt any other criteria for enforceability of a covenant not

to compete or procedures and remedies in an action to enforce a covenant not to compete under

common law or otherwise.” Id. § 15.52.

       Based on the preemption language contained in section 15.52, Argo asserts that to obtain

a temporary injunction it was only required to establish the criteria set forth in section 15.50(a),

which does not include a showing of irreparable harm. Argo relies on three opinions from the

Dallas Court of Appeals to support its argument that section 15.52 applies to both temporary and

permanent injunctions. See McNeilus Cos. Inc. v. Sams, 971 S.W.2d 507 (Tex. App.—Dallas

1997, no pet.); Hilb, Rogal & Hamilton Co. of Tex. v. Wurzman, 861 S.W.2d 30 (Tex. App.—

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                                                                                   04-14-00606-CV

Dallas 1993, no writ); Recon Exploration, Inc. v. Hodges, 798 S.W.2d 848 (Tex. App.—Dallas

1990, no writ).

       However, in 2012, the Dallas Court of Appeals noted that although these cases “do contain

dicta suggesting the Act’s enforceability requirements supercede those under the common law for

injunctive relief, we have never held the Act eliminates the requirement that an applicant show

irreparable harm to obtain a temporary injunction based on a covenant not to compete.” Primary

Health Physicians, P.A. v. Sarver, 390 S.W.3d 662, 664-65 (Tex. App.—Dallas 2012, no pet.).

The Sarver court then joined its sister courts in holding that “the Act does not preempt the

requirements for obtaining temporary injunctive relief.” Id. at 665 (citing EMSL Analytical, Inc.

v. Younker, 154 S.W.3d 693, 695 (Tex. App.—Houston [14th Dist.] 2004, no pet.); Cardinal

Health Staffing Network, Inc. v. Bowen, 106 S.W.3d 230, 239-40 (Tex. App.—Houston [1st Dist.]

2003, no pet.); NMTC Corp. v. Conarroe, 99 S.W.3d 865, 867-68 (Tex. App.—Beaumont 2003,

no pet.)). The Sarver court agreed “with the reasoning of these cases that the Act governs only

final remedies and does not supplant the common law requirements for a pretrial temporary

injunction.” Id. Since Sarver issued in 2012, other Texas courts of appeals have agreed that

evidence of a probable, imminent, and irreparable injury in the interim is a necessary element for

a temporary injunction. See Tranter, Inc. v. Liss, No. 02-13-00167-CV, 2014 WL 1257278, at *7

(Tex. App.—Fort Worth Mar. 27, 2014, no pet.) (mem. op.) (section 15.52 does not apply to

temporary injunctions); Down Time-South Texas, LLC v. Elps, 13-13-00495-CV, 2014 WL
1464320, at *7 (Tex. App.—Corpus Christi-Edinburg Mar. 20, 2014, no pet.) (mem. op.)

(requiring proof of injury). We join these courts and hold that a plaintiff seeking a temporary

injunction under section 15.51 must show a probable, imminent, and irreparable injury in the

interim before trial. Therefore, we next turn to an examination of the evidence in support of the

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trial court’s order, specifically whether Argo showed a probable, imminent, and irreparable injury

in the interim before trial.

        Argo points to a covenant contained in Levinson’s Executive Employment Agreement,

which states Argo has

        [t]he right and remedy to have such provisions [of the Agreement] specifically
        enforced by any court having equitable jurisdiction. The Employee specifically
        acknowledges and agrees that any breach or threatened breach of the provisions of
        Sections 8 or 9 hereof may cause irreparable injury to the Company and that money
        damages will not provide an adequate remedy to the Company.

        Section 8 of the Agreement concerns the use of confidential information, and Section 9

contains the restrictive covenant not to compete.

        Argo relies on Wright v. Sport Supply Group, Inc., 137 S.W.3d 289 (Tex. App.—Beaumont

2004, no pet.), to argue the above covenant is unrebutted evidence of irreparable harm. In Wright,

the court addressed an agreement that contained a provision that remedies at law for any breach or

attempted breach of the agreement would be inadequate and waived as a defense that either party

had an adequate remedy at law. Id. at 293-94. The court noted it was “unaware of any Texas case

holding that such agreements alone establish, for injunction purposes, that remedies at law will be

inadequate, [but] the Texas Supreme Court long has recognized ‘a strong public policy in favor of

preserving the freedom of contract.’” Id. at 294 (quoting Lawrence v. CDB Serv., Inc., 44 S.W.3d
544, 553 (Tex. 2001)). The court considered the language of the agreement together with other

evidence established by the record, including testimony that the plaintiff’s damages would have

been difficult to calculate. Id. at 293-94. The court concluded, after viewing the evidence in the

light most favorable to the trial court’s grant of the temporary injunction, that the trial court did

not abuse its discretion in determining the plaintiff had no adequate remedy at law. See id. at 294.

        We first note that Wright involved an appeal from the granting of a temporary injunction,

whereas here, we must view the evidence in the light most favorable to the trial court’s denial of
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the temporary injunction. Although the language in the agreement in this case may be some

evidence that Levinson’s violation of the noncompete clause “may cause irreparable injury,” we

must review the entire record, and we must do so in the light most favorable to the trial court’s

order denying the temporary injunction.

       On appeal, Argo relies on the testimony of two witnesses to establish a probable, imminent,

and irreparable injury before trial. Arthur Davis, Argo’s current President of Excess and Surplus

lines business, named several key Argo employees who left to work for IFG. When asked whether

he “observed any harm . . . that has occurred to Argo’s E&S division” since Levinson left, Davis

answered “absolutely.” When asked to describe the harm he observed, Davis replied as follows:

       I think the - - the immediate harm is the departure of the employees themselves.
       These are talented, experienced people, which are difficult to acquire, who have a
       lot of industry and institutional knowledge that - - that they left - - that they took
       with them.

       Reputationally, it creates some dissidence in the entire marketplace when a large
       number of people leave an individual market. And in that marketplace, I would say
       our retailers become concerned, retailers become concerned about placing business
       with us. Ultimately, policyholders become concerned, and our reinsurers are
       concerned. They’re all concerned because there’s a talent drain that happens.

       ...

       When asked if business had been lost, Davis replied, “yes.” On voir dire, Davis was asked

the following:

       Q. Mr. Davis, name one customer that Argo has lost as a result of the so-called
       dissidence in the market?
       A. I think by customer I’m referring to policyholders and we have significantly
       less business now than we did before they left.
       ...
       [The trial court asked:] Do you know the name of any policyholders?
       A. I do not.

       The trial court asked Davis to list the harms he observed so that the attorneys could then

“delve into” them. Davis responded: loss of people, reputation, and confidential information;

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concern and anxiety among Argo employees; and loss of business and potential loss of business.

As to the loss of key employees, Davis said five senior managers left to work for IFG within the

last twelve months, all during Levinson’s noncompete period. The loss of the employees caused

harm to Argo’s reputation; a loss of experience, talent and institutional knowledge; a potential loss

of confidential information; and loss of revenue, with premiums in the property department

dropping by twenty to thirty percent. However, Davis admitted he did not know definitively

whether the drop in revenue was due to the loss of a key employee. Davis said Argo has been

unable to replace some of the employees, despite working with recruiters. He said this has caused

the company to be more “inwardly focused,” instead of interacting with clients. In terms of Argo’s

reputation, Davis stated customers, both wholesalers and reinsurance intermediaries, have become

“alarmed at the significant number of departures wondering if there’s something underlying and

causing these things to happen.” Davis testified the employee departures caused dissidence in the

market because doubts about a company’s continued stability can result when large numbers of

people leave an organization. Davis did not know whether any of the employees that left Argo

had noncompete agreements with Argo, with the exception of one employee who had only a six-

month noncompete agreement.

        Regarding the harm from loss of confidential information, Davis admitted he was not aware

of any specific confidential Argo information being provided to IFG. However, he testified that

some of the employees who left and were now working for IFG had access to “the highest levels

of confidential information, to the highest levels of a [sic] strategic plans and initiatives.” Davis

said that because IFG is a competitor “transferring our confidential information into theirs would

appear to be relatively straightforward.” Davis characterized the type of confidential information

as the type of business Argo tries to attract or not attract, how it prices its business, and how it uses

reinsurance relationships to mitigate potential losses.
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       As evidence of Levinson using Argo’s confidential information in presentations with third

parties in the past, Argo presented the testimony of Oleg Ilichev, the chief financial officer of

Argo’s US Operations. Ilichev said that, in the fall of 2012, he attended a meeting with Levinson

and a partner with the investment firm, Pine Brook Partners. The purpose of the meeting was to

discuss a possible partnership with Pine Brook to start or acquire an insurance company. At the

meeting, Levinson made a presentation to Pine Brook that included information about Argo’s E&S

business. A chart prepared as part of the presentation showed various Argo employees—by their

titles and not their names—to whom Levinson would look for the purpose of starting a new

venture. Ilichev testified a similar meeting was held in May 2013 with another investment

company named Crestview Partners.

       Levinson admitted he was provided with confidential information while employed by

Argo. He also admitted he understood he was prohibited from providing any services to IFG that

were of the same or similar type that he provided to Argo for a period of one year after leaving

Argo’s employment. He acknowledged that Argo would pay him $400,000 in exchange for his

concessions under the agreement. Levinson denied he participated in hiring decisions at IFG after

he left Argo or in preparing for the operation of IFG once he began his employment with IFG.

Brett Reynolds, President of David Brooke Executive Search Firm, testified that in late 2013, Bob

Linton, Chairman of IFG, retained him to recruit people to fill certain positions at IFG. He said

he was first asked to call “someone at IFG property and communicate the fact that [Michael]

Denton had [left Argo and] gone to IFG.” He testified he spoke to Greg Roblek, Dennis Doyle,

and Tom Poland—all Argo employees—about an opportunity for a senior position in the property

business of an unidentified company. He stated IFG did not tell him to call Roblek or Doyle.

Linton later hired all three men to work for IFG. Reynolds said he was aware that Janice Coe,

who had never been an Argo employee, had met with Levinson before she accepted a position with
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IFG, but he did not set up her interview with Linton. Reynolds stated his only contact with

Levinson was a brief exchange as he was leaving Linton’s apartment and Levinson was entering

the apartment with several other IFG employees. Reynolds denied he sent Levinson to Linton’s

apartment.

       Argo also asserts an employee’s breach of a noncompetition covenant creates a rebuttable

presumption that the plaintiff will suffer irreparable injury. Proof of a continued breach of a

noncompetition agreement by a highly trained employee constitutes prima facia evidence of

probable injury. Martin v. Linen Sys. for Hosp., Inc., 671 S.W.2d 706, 709 (Tex. App.—Houston

[1st Dist.] 1984, no writ); Hartwell’s Office World, Inc. v. Systex Corp., 598 S.W.2d 636, 639

(Tex. Civ. App.—Houston [14th Dist.] 1980, writ ref’d n.r.e.); Beasley v. Hub City Tex., L.P., No.

01-03-00287-CV, 2003 WL 22254692, at *7-8 (Tex. App.—Houston [1st Dist.] Sept. 29, 2003,

no pet.) (mem. op.). Here, the trial court was aware that, at the time of the hearing, which ended

on August 18, 2014, the covenant not to compete would expire on August 25, 2014. Thus, the trial

court was entitled to draw a reasonable inference that any alleged “breach of a noncompetition

agreement by a highly trained employee” would continue for only another seven days.

Nevertheless, at the hearing and on appeal, Argo asserts the trial court should have granted an

equitable extension of the covenant not to compete.

       Even if Texas law allows a court to equitably extend the time period of a covenant not to

compete, the plaintiff must still establish the elements necessary to obtain the temporary

injunction. We believe the entirety of the evidence, viewed in a light most favorable to the trial

court’s order, supports the trial court’s denial of Argo’s request for a temporary injunction based

on Argo’s failure to establish a probable, imminent, and irreparable injury before trial.

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                                                  CONCLUSION

           When reviewing a trial court’s ruling for an abuse of discretion, we may not substitute the

trial court’s judgment for our own. Schlager v. Clements, 939 S.W.2d 183, 191 (Tex. App.—

Houston [14th Dist.] 1996, writ denied). We are limited to determining whether the trial court

abused its discretion by acting arbitrarily and unreasonably, without reference to guiding rules or

principles, or misapplying the law to the established facts of the case. Id. In this case, we must

conclude the trial court did not abuse its discretion in denying Argo’s request for a temporary

injunction.       Accordingly, we affirm the trial court’s denial of the request for a temporary

injunction. 1

                                                                  Sandee Bryan Marion, Chief Justice

1
    The merits of appellants’ underlying causes of action remain pending.

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