Court Opinion

ID: 4708296
Source: CourtListenerOpinion
Date Created: 2021-08-02 07:21:14.274682+00
Date Added: 2024-06-11T08:06:49.534295
License: Public Domain

Affirmed in Part, Reversed in Part, and Remanded, and Opinion filed July 27,
2021.

                                        In The

                     Fourteenth Court of Appeals

                                NO. 14-19-00670-CV

                           FRANK TRAINA, Appellant
                                          V.
               HARGROVE AND ASSOCIATES INC., Appellee

                    On Appeal from the 215th District Court
                            Harris County, Texas
                      Trial Court Cause No. 2018-56033

                                  O P I N I O N

      Appellant Frank Traina sought a declaratory judgment that a covenant not to
compete he entered into with his employer, appellee Hargrove and Associates, Inc.,
was unenforceable. The trial court ruled in Hargrove’s favor. Traina challenges the
trial court’s judgment, arguing in three issues that the trial court reversibly erred by
(1) determining the covenant not to compete was ancillary to or part of an
otherwise enforceable agreement, (2) determining that attorney’s fees under the
Uniform Declaratory Judgments Act (UDJA)1 were not available in this case, and
(3) reforming the covenant not to compete. We sustain issue 2 and remand for
further proceedings limited to attorney’s fees. We otherwise affirm the trial court’s
judgment as challenged on appeal.

                                   I.   BACKGROUND

      Traina joined Hargrove, an engineering firm, as an at-will employee. In
2015, he was made an associate in the company and signed a new employment
agreement. The agreement stated that (1) Hargrove could terminate his
employment at any time with 30-days notice and (2) Hargrove could terminate
Traina’s employment “with cause,” listing eight reasons that would support
termination for cause. The employment agreement also contained a covenant not to
compete, which provided:

      During the term of this Agreement and for a period of eighteen (18)
      months after the Employee’s termination of employment, for any
      reason, Employee agrees and covenants, as consideration for this
      Agreement, his employment and his compensation hereunder, that he
      shall not . . . engage or be interested . . . in any phase of an
      engineering business similar to the business of the Company in the
      Company’s trade area. The “trade area” shall mean the geographic
      area within the corporate limits of Mobile, Alabama, and the corporate
      limits of the city in which Employee’s principal office or station with
      the Company is located if other than Mobile, Alabama (collectively,
      the “Cities”), and within a 200-mile radius of each of said Cities.

      Traina resigned his employment in April 2018, effective May 2018. He then
filed this lawsuit seeking a declaration under the UDJA that the covenant not to
compete in his employment agreement was unenforceable. The parties filed
competing motions for summary judgment. The trial court granted Hargrove’s
motion in part, determining that the covenant was ancillary to and part of an

      1
          Tex. Civ. Prac. & Rem. Code Ann. §§ 37.001–.011.

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otherwise enforceable agreement at the time it was entered into and reasonable
with respect to time and geographic restrictions, but also determining that the
covenant was unreasonable as to limitations on the scope of activity. Accordingly,
the trial court reformed the covenant “to limit the scope of restricted activity to
employment performing downstream oil and gas work.” Finally, the trial court
declined to award attorney’s fees.2

                                    II.    ANALYSIS

       In three issues, Traina challenges the trial court’s judgment granting, in part,
Hargrove’s motion for traditional summary judgment, and implicitly denying
Traina’s motion for traditional summary judgment. Traditional summary judgment
is appropriate when, on the record presented to the court, there is no genuine issue
of material fact and the moving party is entitled to judgment as a matter of law.
Tex. R. Civ. P. 166a(c).

A. Otherwise enforceable agreement

       In issue 1, Traina argues the covenant not to compete is not enforceable
because it was not ancillary to or part of an otherwise enforceable agreement at the
time the agreement was made, as required by Business and Commerce Code
section 15.50(a).3 Tex. Bus. & Com. Code Ann. § 15.50(a) (to be enforceable,

       2
         The trial court’s judgment states that it “resolves all pending actions, issues and
requested remedies making this a FINAL judgment.” See Lehmann v. Har-Con Corp., 39
S.W.3d 191, 192–93 (Tex. 2001).
       3
         Hargrove agrees, as do we, that its mootness argument addressed in issue 3 does not
apply to this issue, as the enforceability of the covenant relates to Traina’s live claim for
attorney’s fees.
       We further note that, while the employment agreement states it is governed by Alabama
law, no party argues on appeal that Alabama law applies. “Choice of law issues can be waived if
not properly invoked.” Kubbernus v. ECAL Partners, Ltd., 574 S.W.3d 444, 473 (Tex. App.—
Houston [1st Dist.] 2018, pet. denied) (citing General Chem. Corp. v. De La Lastra, 852 S.W.2d
916, 919 (Tex. 1993) and collecting cases); see also Tex. R. App. P. 33.1(a).

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covenant not to compete must be “ancillary to or part of an otherwise enforceable
agreement” and “reasonable”). We first address Traina’s argument that the
employment agreement, of which the covenant not to compete was part, is not an
“otherwise enforceable agreement” because it is based on at-will employment,
rendering its promises illusory and unenforceable. See Light v. Centel Cellular Co.
of Tex., 883 S.W.2d 642, 644–45 (Tex. 1994) (promise based on at-will
employment “would be illusory because it fails to bind the promisor who always
retains the option of discontinuing employment in lieu of performance”),
abrogated on other grounds by Marsh USA Inc. v. Cook, 354 S.W.3d 764 (Tex.
2011).

          In its motion for summary judgment, Hargrove argued that the employment
agreement was an “otherwise enforceable agreement” because it transformed
Traina’s employment from employment terminable at will to employment that
could only be terminated for cause. Paragraph 1 of the employment agreement
states that Traina’s employment with Hargrove “shall continue until terminated
under the provisions of Paragraph 8 of this Agreement (‘Term’).” Paragraph 8
states:

                8. Termination.
                (a) By Employee. Employee shall have the right to terminate
          this Agreement at any time by giving the Company 30 days prior
          written notice. Upon the effective date of such termination, all
          obligations of the Company to Employee hereunder shall be
          terminated and all rights of Employee hereunder shall be forfeited
          except that Employee shall be entitled to any obligations accruing to
          Employee prior to such date.
                 (b) By Company With Cause. The Company shall have the
          right to terminate this Agreement at any time “with cause,” as defined
          below, upon written notice to Employee. Upon the effective date of
          such termination, all obligations of the Company to Employee
          hereunder shall be terminated and all rights of Employee hereunder
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      shall be forfeited except that Employee shall be entitled to any
      obligations accruing to Employee prior to such date.
            “With Cause” shall be for any one or more of the following
      reasons:
                  (a) Upon the death of the Employee;
                   (b) In the event Employee is unable due to mental or
      physical illness or accident to perform substantially all of the duties
      customarily performed by Employee for a continuous period of six
      months;
                 (c) Employee’s failure to abide by the terms of this
      Agreement or any lawful directive of the Board of Directors;
                  (d) Employee’s conviction of a felony or a misdemeanor
      involving moral turpitude under the laws of any state or the United
      States of America;
                   (e) Willful conduct of the Employee, which does not
      conform to generally recognized and accepted professional standards
      or which materially affects or endangers a client relationship, the
      reputation, or the financial and professional standing of the Company;
                   (f) Addiction of the Employee to drugs, or habitual use of
      drugs which interferes with the Employee’s ability to perform his
      duties pursuant to this Agreement;
                  (g) Mental incompetency of the Employee;
                    (h) The refusal or failure to cooperate with other
      employees of the Company or others with whom Employee may come
      into contact in connection with his employment.
      Accordingly, the employment agreement states that Traina’s employment
shall continue until terminated in accordance with paragraph 8, and paragraph 8
contains two options: Traina could terminate the agreement with 30-days notice, or
the company could terminate Traina’s employment “with cause” as defined in the
agreement. The plain language of the agreement accordingly altered the at-will
employment relationship, such that the agreement’s promises were not illusory.
Queen v. RBG USA, Inc., 495 S.W.3d 316, 324 (Tex. App.—Houston [14th Dist.]

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2016, pet. denied) (“When an employment contract provides that an employer may
terminate an employee ‘for cause,’ the contract is not illusory.”). Accordingly, we
reject Traina’s contention that the employment agreement was not an “otherwise
enforceable agreement” under section 15.50(a) because it was supported by
illusory promises based on the at-will employment relationship. See id. (citing
Wood v. Reserve First Partners, Ltd., No. 09-06-217-CV, 2007 WL 2199901, at *3
(Tex. App.—Beaumont Aug. 2, 2007, no pet.) (mem. op.) (concluding
employment agreement was “otherwise enforceable agreement” under section
15.50(a) because it provided that employer could only terminate employee “for
cause” and “[t]hus, the employment relationship was not at will, and the promises
were not illusory”)).4

       We overrule issue 1.

B. Reformation

       In issue 3, in the alternative to issue 1, Traina argues that the trial court erred
by reforming the covenant not to compete. Traina, however, resigned his
employment with Hargrove effective May 2018; accordingly, the 18-month
covenant expired in November 2019, shortly before the parties filed their briefs in
this case. “[T]he issue of reformation becomes moot after the term of the
noncompetition covenant has expired.” Sadler Clinic Ass’n, P.A. v. Hart, 403
S.W.3d 891, 899 (Tex. App.—Beaumont 2013, pet. denied) (citing Weatherford
Oil Tool Co. v. Campbell, 340 S.W.2d 950, 952 (Tex. 1960)).

       We dismiss as moot issue 3.

       4
         Based on this conclusion, we need not address the parties’ arguments as to whether a
separate stock agreement between Traina and Hargrove met the requirements of section 15.50(a).
Tex. R. App. P. 47.1.

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C. Attorney’s fees

       In issue 2, Traina argues the trial court erred by determining that UDJA
attorney’s fees are preempted by the Business and Commerce Code, which
provides exclusive remedies “in an action to enforce a covenant not to compete.”
Tex. Bus. & Com. Code Ann. § 15.52. Traina argues that his UDJA claim is not
“an action to enforce a covenant not to compete” and that his entitlement to
attorney’s fees should be determined under the UDJA.5

       The trial court stated in its judgment:

       3. Attorney fees are not recoverable in a covenant not to compete
       action under the Texas Civil Practice & Remedies Code § 37.009 and,
       in addition, none are available under the Texas Business & Commerce
       Code §§ 15.50-52. Therefore no attorney’s fees are awarded in this
       action.

       Regarding covenants not to compete, Business and Commerce Code section
15.52 states:

       The criteria for enforceability of a covenant not to compete provided
       by Section 15.50 of this code 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.
Tex. Bus. & Com. Code Ann. § 15.52. Hargrove argues that Traina’s claim for
attorney’s fees under the UDJA is preempted by section 15.52 because, when “the
employee asks for a declaratory judgment                    and the employer denies
unenforceability and moves for a summary judgment that the covenant is
       5
         The UDJA provides, “In any proceeding under this chapter, the court may award costs
and reasonable and necessary attorney’s fees as are equitable and just.” Tex. Civ. Prac. & Rem.
Code Ann. § 37.009. Traina does not argue he is entitled to attorney’s fees under the Business
and Commerce Code. See Tex. Bus. & Com. Code Ann. § 15.51(c).

                                              7
enforceable, the case is functionally equivalent to ‘an action to enforce a covenant’
as referenced in § 15.52, because the employer is in effect seeking to enforce the
covenant rather than allow the employee to avoid it.” We disagree. The only claim
brought in this case is Traina’s claim for a declaration that the covenant is
unenforceable. Under such circumstances, this case does not qualify as “an action
to enforce a covenant not to compete” under the plain meaning of the statute. Id.
(emphasis added); see Gage Van Horn & Assocs., Inc. v. Tatom, 26 S.W.3d 730,
732–33 (Tex. App.—Eastland 2000, pet. denied) (employee’s UDJA claim
“seeking court construction of the covenant not to compete” was not “an action to
enforce a covenant not to compete” under section 15.52).

      The cases Hargrove relies on are factually distinguishable. In Sadler, the
Beaumont Court of Appeals determined that UDJA attorney’s fees were
unavailable to intervening employees who had brought declaratory-judgment
claims, explaining that, “[i]n this proceeding, the exclusivity and preemption
provision of the Covenants Not To Compete Act precludes an award of attorney
fees under the Declaratory Judgments Act.” 403 S.W.3d at 900. In that case,
however, the first-filed claim was a claim by the employer seeking to enforce the
covenant at issue, leading the court to characterize the entire proceeding as “an
action to enforce a covenant not to compete.” See id. No such claim for
enforcement by the employer is present here. Hargrove also cites Justice Hecht’s
concurrence in Mann Frankfort Stein & Lipp Advisors, Inc. v. Fielding, in which
Justice Hecht opined that, when an employer brings a claim to enforce a covenant
not to compete and an employee brings a UDJA claim that the covenant is
unenforceable, attorney’s fees for both claims are governed by the exclusivity
provision in section 15.52. 289 S.W.3d 844, 854–56 (Tex. 2009) (Hecht, J.,
concurring). Again, in that example, an employer’s action to enforce a covenant

                                         8
and an employee’s UDJA action opposing enforcement are together determined to
be an “an action to enforce a covenant not to compete.” In the case before us,
however, there is no claim to enforce the covenant not to compete, and accordingly
we conclude that UDJA attorney’s fees are not preempted by section 15.52.

      We sustain issue 2.

                              III.   CONCLUSION

      Having sustained issue 2, we consider the proper remedy. The trial court’s
judgment indicates the trial court did not award attorney’s fees under the UDJA on
the grounds that an award of such fees was preempted. Accordingly, it does not
appear that the trial court considered the merits of whether Traina was entitled to
attorney’s fees under the UDJA. “Remand is appropriate when a case, for any
reason, has not been fully developed.” Abatecola v. 2 Savages Concrete Pumping,
LLC, No. 14-17-00678-CV, 2018 WL 3118601, at *14 (Tex. App.—Houston [14th
Dist.] June 26, 2018, pet. denied) (mem. op.) (citing United States Fire Ins. Co. v.
Carter, 473 S.W.2d 2, 3 (Tex. 1971) and collecting cases). Accordingly, we
reverse the portion of the trial court’s judgment stating that “Defendant’s request
that plaintiff receive no award of attorney fees be GRANTED” and remand the
case to the trial court for further proceedings limited to consideration of Traina’s
claim for attorney’s fees under the UDJA. Tex. R. App. P. 43.2(d), 43.3. We
otherwise affirm the trial court’s judgment as challenged on appeal.

                                      /s/       Charles A. Spain
                                                Justice

Panel consists of Justices Spain, Hassan, and Poissant.

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