Court Opinion

ID: 4046533
Source: CourtListenerOpinion
Date Created: 2016-09-29 00:12:03.115655+00
Date Added: 2024-06-11T09:26:52.904940
License: Public Domain

ACCEPTED
                                                                                   04-14-00606-CV
                                                                         FOURTH COURT OF APPEALS
                                                                              SAN ANTONIO, TEXAS
                                                                               3/11/2015 2:43:35 PM
                                                                                      KEITH HOTTLE
                                                                                             CLERK

                                      NO. 04-14-00606-CV

                                                                  FILED IN
                                                           4th COURT OF APPEALS
                           IN   THE COURT OF APPEALS FOR THESAN ANTONIO, TEXAS
                                 FOURTH DISTRICT OF TEXAS 03/11/2015 2:43:35 PM
                                    SAN ANTONIO, TEXAS         KEITH E. HOTTLE
                                                                    Clerk

  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 FINANCIAL GROUP, INC.,
    GUILFORD SPECIALTY GROUP, INC., GUILFORD INSURANCE
     COMPANY, AND THE BURLINGTON INSURANCE COMPANY,

                                          Appellees.

       Appeal from the 221st Judicial District Court, Bexar County, Texas
                     Trial Court Cause No. 2014-CI-09550
                       Hon. Antonia Arteaga, Presiding

         RESPONSE TO APPELLANTS’ MOTION FOR REHEARING

        Pursuant to Texas Rule of Appellate Procedure 49.2 and this Court’s Order

of February 25, 2015, Appellees Louis D. Levinson, International Financial Group,

Inc., Guilford Specialty Group, Inc., Guilford Insurance Company, and The

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Burlington Insurance Company (collectively “Appellees”) hereby respond in

opposition to Appellants’ Motion for Rehearing and state as follows:

        Pointing to the fact that they tried and failed below to obtain an injunction

ordering “equitable tolling” of the noncompete agreement with Louis Levinson,

Appellants seek rehearing of this Court’s determination that their appeal is moot.

To be sure, Appellants argued below that the noncompete clause should be

“equitably extended.” But the settled Texas case law—including the Supreme

Court’s decision in Weatherford Oil—makes clear that this appeal is nonetheless

moot.      Appellants’ effort to upset the status quo and obtain an affirmative

injunction ordering IFG to fire Levinson, its president—more than six months after

the expiration of his noncompete—is moot and must fail.1 Appellants fail to

1
  Even if this appeal were not moot, there is no legal or factual basis for equitable
tolling in this case, as the trial court properly concluded following a three-day
evidentiary hearing on the merits. See Merits Brief of Appellees at 45-50. The
trial court’s ruling denying Appellants’ request for a temporary injunction was an
exercise of its “sound discretion,” Butnaru v. Ford Motor Co., 84 S.W.3d 198, 204
(Tex. 2002), and this Court can reverse the trial court’s decision only if it was “so
arbitrary that it exceeded the bounds of reasonable discretion.” Id. Moreover, this
Court must affirm the judgment of the trial court if it is supported by any basis
appearing in the record. Davis v. Huey, 571 S.W.2d 859, 862 (Tex. 1978). As
detailed in Appellees’ merits briefing, there are at least three such independent
bases, in addition to mootness: (1) Appellants did not demonstrate a probable,
imminent, and irreparable injury, see Br. for Appellees at 20-33, (2) Appellants did
not establish a probable right to relief, see id. at 34-44, and (3) Appellants did not
show that Levinson had “continuously and persistently” breached his restrictive
covenants, see id. at 49-51.

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identify any court, anywhere, that has entered such an extraordinary order

upsetting the status quo.

                                    ARGUMENT
         This case is controlled by Weatherford Oil. As Appellees explained in their

merits briefing, Texas law on mootness in the context of restrictive covenants is

clear:    because “the period during which the restraint was to exist has now

expired,” the “injunction feature of [this] case is now moot.” Weatherford Oil Tool

Co. v. A.G. Campbell, 340 S.W.2d 950, 953 (Tex. 1960) (emphasis added).

         Appellants do not dispute, because they cannot, that the contractually-

specified term of Levinson’s restrictive covenants expired on August 25, 2014.

With the expiration of that restriction—and Appellants’ failure to obtain an

injunction—Levinson began working for Appellees the next day.2 Appellants

argue, however, that despite the expiration of the covenant and the fact that

Levinson has now been employed by Appellees for more than six months, the

courts have the power to “equitably extend” his expired covenant, to issue an order

removing Levinson from his job. Not so. Appellants point to no case in which any

court, in any jurisdiction, has entered an order removing an employee from his or

2
   Sworn court testimony of a senior executive of Appellants confirms their
understanding of an employee’s right to begin work for a competitor upon
expiration of a noncompete. See, e.g., RR Vol. 4 at 163:2-5 (Testimony of Argo’s
Excess & Surplus President Arthur Davis) (“Q. And at the end of [the noncompete,
an employee] would be free to go work for any company that competed with Argo,
right? A. I assume.”).

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her job following the expiration of a noncompete period for any reason, including

“equitable tolling” of the noncompete.

        Indeed, the fact that Appellants’ desired “extension” would require

removing Levinson from his employment with Appellees shows precisely why the

mootness doctrine applies. The purpose of a temporary injunction “is to preserve

the status quo of the litigation’s subject matter pending a trial on the merits.”

Butnaru v. Ford Motor Co., 84 S.W.3d 198, 204 (Tex. 2002) (emphasis added).

The status quo at the time that Argo sought a temporary injunction was that

Levinson was not yet working for IFG, and Argo’s petition sought to preserve that

state of affairs “pending a trial on the merits.” Id. But, following a three-day

evidentiary hearing, the trial court denied that request for temporary injunction,

and Levinson began work with IFG after the noncompete period expired by its

terms some 10 days later—before Appellants took this appeal from the trial court’s

ruling. Thus, the state of affairs that Appellants sought to preserve no longer

exists, and what Appellants seek now is to upset the status quo. But once the status

quo has been altered, such an effort to seek an injunction to preserve the status quo

becomes moot.

        Appellants have pointed to no case where a court has ruled that following

the denial of a temporary injunction, the act sought to be enjoined can be “undone”

by an appellate court once lawfully completed. To the contrary, Texas courts have

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refused such requests—on mootness grounds—in a variety of contexts. In Zuniga

v. U.S. Investors, Inc., 453 S.W.2d 811, 811-12 (Tex. 1970), for example, the

plaintiffs’ request for temporary injunction sought to prohibit the construction of a

nursing home in a residential area.      Following the trial court’s denial of the

temporary injunction, and while the appeal was pending, the nursing home was

built. The Texas Supreme Court concluded that because the nursing home had

been built, there was nothing left to enjoin, so “the subject matter of the application

for temporary injunction is moot.” Id. at 811. The courts of appeals—including

this Court—have reached precisely the same conclusion.           Toudouze v. Urban

Renewal Agency of San Antonio, 404 S.W.2d 821, 821 (Tex. Civ. App.—San

Antonio 1966, writ ref’d n.r.e.) (“It is now apparent that the relief sought by

appellants cannot be granted them, because it appears that the thing they were

trying to prevent from happening has already happened. This appeal is now

moot.”). See also Johnson v. Texas Parks and Wildlife Dept., No. 03-14-00085-

CV, 2014 WL 1432177, *2 (Tex. App.—Austin Apr. 8, 2014, no pet.) (“Because

the herd-reconciliation activities Johnson sought to enjoin have already occurred,

the subject matter of the application for temporary injunction . . . is moot.”);

Rawlings v. Gonzalez, 407 S.W.3d 420, 428 (Tex. App.—Dallas 2013, no pet.)

(“[T]he trial court can no longer enjoin the publication of the ordinance or prevent

the judges appointed by the ordinance from taking their oaths of office, because

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these events have already occurred.”); Young Trucking, Inc. v. Railroad Comm’n of

Texas, 781 S.W.2d 719, 720 (Tex. App.—Austin 1989, no writ) (“[W]hen an order

suspending a certificate or license expires by its own terms pending appeal, no

controversy remains and the case is moot.”).

        Likewise, as Appellees explained in their merits briefing, the case law—

including the Supreme Court’s decision in Weatherford Oil—also instructs that

where a restrictive covenant has expired, a court no longer has the power to

enforce it because the effort to obtain an injunction has become moot. Holiday

Hill Stone Prods., Inc. v. Peek, 387 S.W.2d 731, 732 (Tex. Civ. App.—San

Antonio 1965, no writ) (where the trial court shortened the injunction period from

three years to one year and that one-year period expired by the time of the appeal,

the appeal of the trial court’s decision had become moot); Rimes v. Club Corp. of

Am., 542 S.W.2d 909, 912 (Tex. Civ. App.—Dallas 1976, writ ref’d n.r.e.) (“Here,

the parties entered into a contract providing for a noncompetitive period following

cessation of employment and such period is now past which causes the issue to

become moot.”); Leon’s Fine Foods, Inc. v. McClearin, No. 05-97-01198-CV,

2000 WL 277135 at *1 (Tex. App.—Dallas, Mar. 15, 2000, pet. denied) (not

designated for publication) (“The two-year term of the covenant ended on

December 31, 1995. . . . Once the non-competition period ends, the trial court’s

ability to enforce the covenant by injunction becomes moot. . . . The statutory

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remedy of injunctive relief was not available to Leon’s since the term of the

covenant had expired, before the court issued any injunction.”) (citing Weatherford

Oil and Rimes).

        According to Appellants, this Court should ignore the Supreme Court’s

decision in Weatherford Oil and these many courts of appeals decisions because

they concern “reformation” and not “equitable extension.” See Mot. for Rehearing

at 4. The argument is specious.

        First, as noted above and in Appellees’ merits briefing, neither the Texas

Supreme Court nor this Court has held that restrictive covenants in employment

contracts can be “equitably extended.” There is, therefore, no basis for Appellants’

insistence that Texas courts have carefully distinguished the concepts of “equitable

extension” and “reformation.” Moreover, courts that have recognized equitable

extension as a possible remedy for violation of restrictive covenants frequently use

the term “reformation” to refer to the extension of noncompete and nonsolicitation

provisions—the relief that Appellants seek here. See, e.g., Staples, Inc. v. Sandler,

No. 07-CV-0928, 2008 WL 4107656 at *5 (N.D. Tex. Aug. 29, 2008) (“The Court

is unwilling to reform the agreement to extend its time restraint.”) (emphasis

added) (vacated after settlement, Staples, Inc. v. Sandler, 2009 WL 1285838 (N.D.

Tex. May 7, 2009)); Stonhard, Inc. v. Carolina Flooring Specialists, Inc., 621
S.E.2d 352, 354 (S.C. 2005) (rejecting a request for equitable extension by

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concluding that “[e]ven if the agreement could be reformed in this manner under

New Jersey law, the agreement would be unenforceable in South Carolina because

the very act of adding a term not negotiated and agreed upon by the parties violates

public policy”) (emphasis added); Southern Intermodal Logistics, Inc. v. Taylor

Maid Transp., Inc., 338 S.E.2d 678, 678 (Ga. 1986) (finding appeal moot where

“trial court refused to reform the contract to extend the period of non-

competition”) (emphasis added).

        Thus, Appellants’ contention that mootness can apply only where a court is

asked to consider “reformation,” limited, for example, to shortening the duration or

narrowing the geographic scope of a noncompete, rather than “equitable

extension,” extending a noncompete, is hardly the “crucial distinction reflected in

Texas common law” that Appellants assert. See Mot. for Reconsideration at 2. To

the contrary, it is a meaningless and nonsensical distinction—which has nothing

whatsoever to do with mootness—baldy asserted without citation by Appellants

and never recognized by any Texas court.

        Contrary to Appellants’ position that cases concerning restrictive covenants

are never moot so long as the petitioners pleaded a request for “extension” of the

covenant, Texas courts of appeals have recognized that Weatherford Oil stands for

the proposition that when a restrictive covenant expires while a denial of an

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injunction is on appeal, the appeal becomes moot. This Court should follow the

Texas Supreme Court in reaching the same conclusion here.

        Appellants’ citation to Guy Carpenter & Co., Inc. v. Provenzale, 334 F.3d
459 (5th Cir. 2003) does not compel a contrary conclusion. Not only is Guy

Carpenter a Fifth Circuit case not binding on this Court, but it is also grounded in

Ohio and not Texas law.3      Had the Guy Carpenter court applied Texas law, as

articulated in Weatherford Oil, it would have dismissed the case as moot.

Compare Guy Carpenter, 334 F.3d at 464 (“The expiration of the one-year

contract limit does not make this issue moot.”) with Weatherford Oil, 340 S.W.2d

at 953 (because one-year contractual limit expired, “the injunction feature of the

case is now moot”).

        Moreover, the only restrictive covenant at issue in Guy Carpenter was a

nonsolicitation covenant—and, unlike the covenant not to compete at issue here, its

extension would not have compelled the firing of an employee from his job. 334
F.3d at 463 (“Guy Carpenter alleged Provenzale began contacting and soliciting its

clients . . . in violation of the 1999 Agreement’s non-solicitation covenant.”).

3
 While the Fifth Circuit purported to base its holding on Premier Indus. Corp. v.
Tex. Indus. Fastener Co., 450 F.2d 444, 448 (5th Cir. 1971), which the Guy
Carpenter court claimed “appl[ied] Texas law,” 334 F.3d at 464, Premier did
nothing of the sort. In fact, Ohio law governed the Premier case. See id., 450 F.2d
at 447 (“There does not appear to be any dispute . . . as to the state whose law
governs these covenants. . . . The contract provides that the laws of the State of
Ohio shall govern both as to interpretation and performance.”).

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Thus, there is no case identified by Appellants—including Guy Carpenter—where

a court issued an order that forced an employee to be terminated from his or her

job after the noncompete expired. See Marsh USA v. Cook, 354 S.W.3d 764, 776

(Tex. 2011) (one’s “right to use his own labor” in seeking lawful employment is

“one of the first and highest of civil rights”). See also Gaylord Broadcasting Co.

v. Cosmos Broadcasting Corp., 746 F.2d 251, 252 (5th Cir. 1984) (“Since Gansar

terminated her employment with Gaylord on September 30, 1983, Gaylord’s right

to enforce specifically the covenant not to compete ceased as of September 30,

1984, one year after Gansar’s employment with Gaylord ended.”); id. at 253 n. 2

(rejecting equitable extension after the expiration of a noncompete term,

“consistent with the rationale offered in every case addressing this issue which this

Court has discovered”) (collecting cases).

                                  CONCLUSION
        The fact that Appellants asked the trial court to equitably extend Levinson’s

restrictive covenant has no bearing on the mootness of their appeal. As this Court

correctly held in its January 14, 2015 Memorandum Opinion and Order,

Appellants’ appeal is moot because Levinson’s restrictive covenants expired even

before this appeal was filed. Appellants’ Motion for Rehearing should therefore be

denied.

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                                 Respectfully submitted,

                                 /s/ Julia W. Mann________________
Lawrence Morales, II             Julia W. Mann
State Bar No. 24051077           State Bar No. 00791171
The Morales Law Firm, P.C.       Jackson Walker L.L.P.
115 E. Travis, Suite 1530        112 E. Pecan Street, Suite 2400
San Antonio, Texas 78205         San Antonio, Texas 78205
(210) 225-0811                   (210) 978-7700
(210) 501-0786 – Fax             (210) 978-7790 – Fax
lawrence@themoralesfirm.com      jmann@jw.com

Attorney for Louis D. Levinson   Anthony Herman
                                 Pro Hac Vice
                                 Covington & Burling LLP
                                 One CityCenter
                                 850 Tenth Street NW
                                 Washington, DC 20001
                                 (202) 662-5280
                                 (202) 778-5280 – Fax
                                 aherman@cov.com

                                 Attorneys for Appellees International
                                 Financial Group, Inc., Guilford
                                 Specialty Group, Inc., Guilford
                                 Insurance Company, and The
                                 Burlington Insurance Company

                                  -11-
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                           CERTIFICATE OF COMPLIANCE
             The undersigned counsel certifies that this document contains 2,666
words (counting all parts of the document). The body text is in 14 point font and
footnotes are in 14 point font.

                                        /s/ Julia W. Mann
                                        Julia W. Mann

                            CERTIFICATE OF SERVICE
       This is to certify that on this 11th day of March, 2015, a true and correct copy
of the RESPONSE TO APPELLANTS’ MOTION FOR REHEARING was served
certified mail, return receipt requested, email or facsimile, upon:

        Jonathan D. Pauerstein
        Stephen K. Lecholop II
        Rosenthal Pauerstein
        Sandoloski Agather LLP
        755 E. Mulberry, Suite 200
        San Antonio, Texas 78212
        (210) 225-5000
        (210) 354-4034 – Fax
        ATTORNEY FOR APPELLANTS
        Steven L. Manchel
        Michael G. Donovan
        100 River Ridge Drive, Suite 308
        Norwood, Massachusetts 02062
        (617) 796-8920
        (617) 796-8921 – Fax
        OF COUNSEL FOR APPELLANTS

                                        /s/ Julia W. Mann
                                        Julia W. Mann

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