Court Opinion

ID: 18956
Source: CourtListenerOpinion
Date Created: 2010-04-25 07:20:07+00
Date Added: 2024-06-11T15:04:41.010428
License: Public Domain

UNITED STATES COURT OF APPEALS
                         FOR THE FIFTH CIRCUIT

                               No. 99-20041
                             Summary Calender

                      KADCO CONTRACT; ECT: ET AL,

                                                     Plaintiffs,

                 KADCO CONTRACT DESIGN CORPORATION,
                      NICHOLAS ENGINEERING INC.,

                                                  Plaintiffs-Appellants,

                                  VERSUS

                     THE DOW CHEMICAL CORPORATION;
                         KELLY SERVICES, INC.,

                                                    Defendants-Appellees.

             Appeal from the United States District Court
                  for the Southern District of Texas
                              (H-96-CV-3684)
                             October 4, 1999
Before DAVIS, EMILIO M. GARZA and DENNIS, Circuit Judges.

PER CURIAM:*

        Appellants, Kadco Contract Design Corporation and Nicholas

Engineering, Inc., appeal from the lower court’s order granting

summary judgment in favor of appellee, Kelly Services, Inc.

    *
     Pursuant to 5TH CIR. R. 47.5, the Court has determined that this opinion
should not be published and is not precedent except under the limited
circumstances set forth in 5TH CIR. R. 47.5.4.
I.    BACKGROUND

      Appellants   and   Appellees   are   both   temporary   employment

agencies.    Appellants had been engaged in a contract with Dow

Chemical Corporation (“Dow”) to supply temporary employees, such as

engineers.   The employees were employed by the Appellants, and not

by Dow directly, on a “per-hour” basis and were assigned to work at

Dow as a client of the Appellants.

      In 1996, in order to cut costs, Dow decided to hire all future

temporary employees from Appellees rather than the Appellants.

Appellees then hired several of the temporary employees who had

been employed by the Appellants and assigned to work at Dow in

order that they may continue working at Dow under the employ of

Appellees rather than the Appellants.

      Appellants filed suit in the 80th District Court of Harris

County   on September 30, 1996 alleging tortious interference of

contract on the part of Appellees and conspiracy to commit tortious

interference of contract on the part of the Appellees and Dow.

Kelly properly removed the case to the Southern District of Texas

on October 28, 1996 based on diversity jurisdiction at which time

the Appellees removed Dow as a named defendant. The District Court

granted summary judgment in favor of the Appellees on November 18,

1998.

II.   STANDARD OF REVIEW

      A district court's decision of a question of state law is

subject to de novo review by this court.       Salve Regina College v.
Russell, 499 U.S. 225, 231, 113 L. Ed. 2d 190, 111 S. Ct. 1217

(1991). A    summary    judgment   ruling   is    also      reviewed     de   novo,

applying the     same   criteria   employed      by   the    district     court.

Conkling v. Turner, 18 F.3d 1285, 1295 (5th Cir. 1994).

III. DISCUSSION

     A party is entitled to summary judgment if (1) there are no

genuine issues of material fact and (2) the moving party is

entitled to judgment as a matter of law.              Fed. R. Civ. P. 56(c).

The district court granted summary judgment to the Appellees.

Appellants argue on appeal that Appellees are not entitled to

judgment as a matter of law because:

     (1)   the   Appellants   made   a   prima    facie      case   of   tortious

     interference with an at-will employment contract;

     (2)   the   Appellants   made   a   prima    facie      case   of   tortious

     interference with a covenant not to compete; and

     (3) the Appellees have not met their burden of production with

     respect to the affirmative defense of justification.

     A.     Tortious Interference With At-Will Employment Contract

     Under Texas law, the elements of tortious interference of

contract are (1) a contract subject to interference exists; (2) the

alleged act of interference was willful and intentional (3) the

willful and intentional act proximately caused damage; and (4)

actual damage or loss occurred.          See Powell Indus. v. Allen, 985
S.W.2d 455 (Tex. 1998) (per curiam).        It appears clear that an at-
will    employment       contract   is     a    lawful   contract   subject    to

interference.          See Sterner v. Marathon Oil Co., 767 S.W.2d 686

(Tex. 1989).      Elements three and four are not disputed.           Thus, only

element (2) is discussed below.

       It   is    undisputed      that    the    alleged   interference       with

Appellants’ employment contracts was intentional. Appellees claim,

however, that element (2) requires that the willful or intentional

interference also be wrongful.            Appellee’s argument misstates the

law, however.          Relying on persuasive authority only, appellees

point to rulings in which interference which was not “wrongful” was

held not to constitute a tort.            See, e.g., C.E. Services, Inc. v.

Control Data Corp., 759 F.2d 1241 (5th Cir. 1985), Caller-Times

Publishing Co., Inc. v. Triad Communications, Inc., 855 S.W.2d 18

(Tex. App. - Corpus Christi 1993). This argument attempts to shift

the burden of proving the “wrongful” nature of the act to the

plaintiff as an element of the prima facie case.                Texas appears to

have rejected this approach, however, and has determined that

whether the act was wrongful or not (i.e., justified) is not an

element of       the    prima   facie    case   of   tortious   interference    of

contract, but rather an affirmative defense.                See ACS Investors

Inc. v. McLaughlin, 943 S.W.2d 426 (Tex. 1997).                 Thus, Appellants

have stated a prima facie case of tortious interference with

contract under Texas law.

       B.   Tortious Interference With Covenant Not to Compete

       In order to make a prima facie case of tortious interference
of contract, there must be a contract subject to interference.

Sterner, 767 S.W.2d at 689.          Under Texas Law, a covenant not to

compete is valid and enforceable only if it (1) is ancillary to an

otherwise enforceable contract and (2) does not impose any greater

restraint than necessary to protect the goodwill of the business

(i.e., limited by geography, time, etc.).            Texas Bus. & Com. Code

Ann. § 15.50 (Vernon Supp. 1998).          A covenant fails this test,

however, if   it    is   ancillary    solely   to    an   at-will    employment

agreement because any future consideration provided for in the

agreement is illusory.     See Light v. Centel Cellular Co. of Texas,

883 S.W.2d 642, 644 (Tex. 1994).

     Applying Light, the district court held that there was not an

enforceable covenant not to compete in the Appellants’ employment

contracts.    Analyzing     the    employment       contracts     used   by   the

Appellants,   the    district     court   found      only   one     element    of

consideration other than at-will employment -- a requirement to

return all uniforms and equipment to Dow.           The district court held

that this was not sufficient to make the covenant not to compete

“ancillary” to the contract and thus was invalid under Texas law.

We agree with this analysis and find that the covenant not to

compete was not enforceable under Texas law.           See Light, 883 S.W.2d

at 647.

     Appellants argue that despite the unenforceabilty of the

covenant not to compete, Appellees are still not entitled to

judgment as a matter of law, citing authority holding that there

can be tortious interference with an unenforceable contract.                  See,
e.g., Clements v. Withers, 437 S.W.2d 818 (Tex. 1969) (finding

tortious interference with a contract unenforceable due to the

statute of frauds).   However, the Texas Supreme Court and this

Circuit have rejected this argument in the past.        See Travel

Masters, Inc. v. Star Tours, Inc., 827 S.W.2d 830, 832 (Tex. 1991),

NCH Corp. v. Share Corp., 757 F.2d 1540 (5th Cir. 1985) (applying

Texas law). Accordingly, we agree with the district court and hold

that there has been no tortious interference with the covenant not

to compete because it was unenforceable under Texas law and thus

summary judgment was proper with respect to this claim.

C.   Affirmative Defense of Justification

     Efforts to induce someone to exercise their rights to dissolve

a contract do not constitute tortious interference of contract

because the efforts are justified.   See ACS Investors, Inc., 943
S.W.2d at 430.    Efforts are justified if (1) the relationship

concerns a matter involved in the competition between the actor and

the other (2) the actor does not employ wrongful means (3) his

action does not create or continue unlawful restraint of trade and

(4) his purpose is at least in part to advance his interest in

competing with the other.    See Caller-Times, 855 S.W.2d at 21

(citing Restatement (Second) of Torts § 768(1)).       Efforts are

wrongful if they involve physical violence, fraud, civil suits and

criminal prosecutions, but not limited economic pressure.      Id.

However, the mere fact that an employment contract is at-will is

not an absolute defense to the tort of interference with contract.
Sterner, 767 S.W.2d at 689.

     Appellants rely heavily on Sterner for the proposition that

merely inducing a party to terminate employment under an at-will

employment      contract        is   tortious        interference        of     contract.

Appellants overstate the scope of Sterner however.                            In applying

Texas law, this Circuit has held that Sterner stands for the

proposition that a third party (in this case Dow) could not force

a temporary employment agency (here the Appellants) to fire an

employee altogether rather than just have the employee reassigned;

the former constituting tortious interference of contract and the

latter not.      See DBI v. Amerada Hess, 907 F.2d 506 (5th Cir. 1990).

Sterner does not change the rule that mere economic inducement to

exercise    rights      under    a   contract        (i.e,   by     offering     superior

employment) does not constitute tortious interference of contract.

See C.E. Services, Inc., 759 F.2d at 1248.

     This court has recently addressed a case with strikingly

similar facts under an Erie guess as to Louisiana law, finding that

such acts do not constitute tortious interference of contract.

Huffmaster      v.    Exxon   Co.,    170 F.3d 499    (5th   Cir.   1999).       In

Huffmaster, a temporary agency had a contract with a client.                            The

client decided to change temporary agencies and the new agency

hired several of the employees of the old agency to continue

working    at   the    client.        This    court     held      that   the    offer   of

employment      by    the     new    agency     did    not     constitute        tortious

interference of contract because a competitive offer of employment

is justified competition and thus an affirmative defense to the
tort of interference with contract.                   Huffmaster is persuasive

authority with respect to this similar scenario under Texas law

because it was decided under the assumption that Louisiana law

would follow the Restatement and Texas has actually adopted the

Restatement definition of tortious interference of contract.               See,

e.g., Sterner, 767 S.W.2d at 689; Caller-Times, 855 S.W.2d at 23.

        In the present case, Appellees offered to hire the at-will

employees and assign them to the same positions at Dow they held

with Appellants.              If the employees did not accept this offer then

they would remain employed with the Appellants, be reassigned to

different clients and thus no longer work at Dow.              However, this is

not the Hobson’s choice Appellants make it out to be; the employees

were not faced with the choice of accepting Appellees’ offer or

becoming unemployed.                  Rather, they could have remained employed

with the Appellants and been reassigned to a different client.

Unlike Sterner, the Appellees were not attempting to force the

Appellants to fire their employees -- they merely induced the

employees to exercise their rights under the at-will employment

contracts.           Accordingly, we find that, as in Huffmaster, the

Appellees have met their burden in proving the affirmative defense

of justification and thus were entitled to judgment as a matter of

law.

IV.     CONCLUSION

        For the foregoing reasons, we AFFIRM the holding of the

district court.
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EMILIO M. GARZA, Circuit Judge, concurs as to the judgment only.

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