Court Opinion

ID: 2885196
Source: CourtListenerOpinion
Date Created: 2015-09-07 18:31:27.024027+00
Date Added: 2024-06-11T11:36:20.344788
License: Public Domain

NO. 07-01-0117-CV

                             IN THE COURT OF APPEALS

                      FOR THE SEVENTH DISTRICT OF TEXAS

                                      AT AMARILLO

                                        PANEL D

                                  DECEMBER 14, 2001

                          ______________________________

        THE VARIABLE ANNUITY LIFE INSURANCE COMPANY, APPELLANT

                                            V.

                            MICHAEL J. MILLER, APPELLEE

                        _________________________________

            FROM THE 181ST DISTRICT COURT OF RANDALL COUNTY;

                NO. 49,285-B; HONORABLE JOHN B. BOARD, JUDGE

                         _______________________________

Before BOYD, C.J., and QUINN and REAVIS, JJ.

       In two issues, appellant, the Variable Annuity Life Insurance Company (VALIC),

challenges a temporary injunction granted in its lawsuit against appellee Michael J. Miller

(Miller) for injunctive and monetary relief for his alleged wrongful competition and use and

disclosure of VALIC’s trade secrets and confidential and proprietary information. VALIC

claims that (1) the scope of the injunction is too narrow as a matter of law, and (2) the
exceptions to the injunction are too vague and contrary to the law and the facts. We affirm

the order of the trial court.

       VALIC sells and services fixed and variable tax-deferred annuities to clients who

work for non-profit organizations such as colleges, public school systems, non-profit

healthcare organizations, and governmental entities. Miller was a sales agent who worked

for VALIC from April 15, 1991, until July 14, 2000, when he resigned to begin work for a

competitor, PMG/Kemper. Miller has accepted business from at least 32 former VALIC

clients since his resignation. It is the contention of VALIC that Miller wrongfully used

information obtained from VALIC to solicit VALIC’s clients and obtain their business on

behalf of PMG/Kemper.

       In the order on plaintiff’s petition for temporary injunction signed on March 12, 2001,

the court enjoined Miller as follows:

       (i). Mr. Miller is hereby enjoined and restrained, during the duration of this
       suit, from personally accessing, reviewing, using, or disclosing to any
       source, the trade secrets, confidential information, and proprietary
       information of VALIC, other than for the defense or prosecution of this suit.
       The terms “trade secrets,” “confidential information,” and “proprietary
       information” as used herein shall be defined in accordance with paragraph
       4.3(b)(1) and (2) of the Agreement, subject to the terms of this Order;

       (ii). Miller shall immediately return to VALIC any original trade secrets,
       confidential information, and proprietary information in his or his counsel’s
       possession. Copies of such trade secrets, confidential information, and
       proprietary information produced in discovery of this cause may be retained
       by Mr. Miller’s counsel only for the purposes of the on-going litigation in this
       cause and shall not be disclosed to any source other than Plaintiff and the
       Court, unless otherwise ordered by the Court or upon agreed order.

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The court further added two exceptions to the injunction as follows:

      b. This Order shall not prevent, restrain, or enjoin Mr. Miller from utilizing
      information about VALIC’s current or former customers actually received
      from any other source, e.g., the customer, the customer’s employer, faculty
      directories, the telephone book, Internet web sites or other information
      available to the general public or available to Mr. Miller as a result of his
      status or another company’s status as an approved vendor or provider of
      retirement products to the State of Texas;

      c. This Order shall not prevent, restrain, or enjoin Mr. Miller from utilizing his
      general knowledge, skill and experience obtained during his relationship with
      VALIC or prior thereto regarding any current or former VALIC customer’s
      identity, customer requirements and preferences, asset allocations, and
      account information.

VALIC argues that this order fails to adequately protect it and the injunction should have

prevented Miller from soliciting or accepting any business from VALIC clients he formerly

serviced during the pendency of the lawsuit.

      VALIC relies on Rugen v. Interactive Business Systems, Inc., 864 S.W.2d 548

(Tex.App.--Dallas 1993, no writ), in support of its argument. In that case, the court found

that even though a non-competition agreement was void, Sharon Rugen, a former

employee of Interactive Business Systems, Inc. (IBS), had confidential information of IBS

which deserved protection. Id. at 550. The trial court had entered a temporary injunction

prohibiting Rugen from calling on, soliciting, or transacting business with consultants

retained by IBS or IBS customers until a final judgment was rendered. Rugen complained

on appeal that the order was an abuse of discretion because it enjoined competition, the

information was not a trade secret, there was no showing she would wrongfully use the

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information, and the order did not describe in reasonable detail the acts to be enjoined.

The court found no abuse of discretion because Rugen was not prevented from organizing

a competing firm and developing her own clients, Rugen herself considered the identity

of clients, prospective clients, potential projects, and pricing information to be confidential,

Rugen had such information and it was probable she would use it to IBS’s detriment, and

the information contained in exhibits referred to in the injunction explicitly defined the

prohibited conduct. Id. at 551-53.

       In the case before us, the court declined to enter as broad an injunction as the court

did in Rugen and included two exceptions to the prohibited use of certain materials. We

must therefore determine if the record shows a clear abuse of discretion on the part of the

trial court in doing so. In our review, we draw all legitimate inferences from the evidence

in the light most favorable to the trial court’s judgment. Miller Paper Co. v. Roberts Paper

Co., 901 S.W.2d 593, 598 (Tex.App.--Amarillo 1995, no writ); Bertotti v. C. E. Shepherd

Co., Inc., 752 S.W.2d 648, 651 (Tex.App.--Houston [14th Dist.] 1988, no writ). The trial

court abuses its discretion when it misapplies the law to the facts or when the evidence

does not reasonably support the findings of probable injury or probable recovery, which

are necessary to the granting of a temporary injunction. State v. Southwestern Bell Tel.

Co., 526 S.W.2d 526, 528 (Tex. 1975).

       Under the common law, an employee may not use confidential or proprietary

information acquired during the relationship adversely to his employer, and that obligation

                                               4
survives the termination of employment. Thus, while a former employee may use the

general knowledge, skill, and experience acquired during the employment relationship, he

may not utilize confidential information or trade secrets acquired during the course of

employment. American Derringer Corp. v. Bond, 924 S.W.2d 773, 777 (Tex.App.--Waco

1996, no writ); Miller, 901 S.W.2d at 600-01. Protected data includes compilations of

information which have a substantial element of secrecy and provide the employer with an

opportunity for advantage over competitors. Id. at 601; Rugen, 864 S.W.2d at 552.

Examples can include pricing information, customer lists, client information, customer

preferences, buyer contacts, and market strategies. Id. at 552; Bertotti, 752 S.W.2d at

644-45.

      Even if certain business information is confidential, the same information may be

capable of being obtained by observation, experimentation, inspection, analysis or general

inquiry. M. N. Dannenbaum, Inc. v. Brummerhop, 840 S.W.2d 624, 632 (Tex.App.--

Houston [14th Dist.] 1992, writ denied); Jeter v. Associated Rack Corp., 607 S.W.2d 272,

275 (Tex.Civ.App.--Texarkana 1980, writ ref’d n.r.e), cert. denied, 454 U.S. 965, 102 S. Ct.
507, 70 L. Ed. 2d 381 (1981). However, that information can still be protected if the

competitor gains the information through a breach of confidence without the efforts of

observation, experimentation, inspection, analysis or general inquiry. Dannenbaum, 840
S.W.2d at 632; Jeter, 607 S.W.2d at 275-76.

                                            5
       In its order, the court held that the covenant not to compete was an unreasonable

restraint of trade and was unenforceable. The court did find, however, that VALIC had

shown a probable right to recover on its common law claims for actual and probable use

and/or disclosure of its trade secrets, confidential and proprietary information and probable

injury from those actions.

The court also found as follows:

       Miller, after resigning from VALIC, maintained a laptop computer, software,
       forms, lists, and client information that he had promised to return and keep
       secret. Miller has returned some of this material, but may still have such
       information personally or in the possession of counsel. Miller personally
       accessed or reviewed at least some of this information and disclosed a client
       list to his new employer. If a temporary injunction is not granted based on
       these claims, VALIC will suffer imminent harm and irreparable injury and will
       have no adequate remedy at law because the threat is imminent that Miller
       will disclose VALIC’s trade secrets, confidential information, and/or
       proprietary information.

       A temporary injunction such as the one sought by VALIC, which would prohibit Miller

from contacting any customers and clients of VALIC prior to final judgment, has been found

not to be an abuse of discretion. See Rugen, 864 S.W.2d at 553; Stocks v. Banner

American Corp., 599 S.W.2d 665, 668 (Tex.Civ.App.--Texarkana 1980, no writ). However,

that does not mean that a less restrictive injunction automatically constitutes an abuse of

discretion. In Johnston v. American Speedreading Academy, Inc., 526 S.W.2d 163

(Tex.Civ.App.--Dallas 1975, no writ), a provision in a temporary injunction prohibiting the

defendants from “[c]ontacting, communicating or soliciting with any customer of Plaintiff

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derived from any customer list, customer lead, mail, printed material or other information

secured from Plaintiff or its present or past employees” was proper. Id. at 165-66. This

injunction did not prohibit all contact with the complainant’s customers, only that contact

derived from information obtained from the complainant.

       The testimony at the hearing on the temporary injunction showed that a number of

companies, including VALIC, were authorized to participate in the optional retirement

program offered by Amarillo College, West Texas A&M University (WTAMU), and other

higher education institutions. Therefore, the representative of VALIC agreed that the

potential pool of customers was not a trade secret. Miller had been both a student and a

teacher at WTAMU and had taught seminars at Amarillo College prior to going to work for

VALIC. He had also been a VALIC client. Miller testified he built up his initial business

based on the individuals he knew and friendships he had prior to working for VALIC. After

commencing work for VALIC, he built up his client base as a result of referrals from those

individuals and from having contact with human resource directors at institutions of higher

learning, who provided him with names of new faculty members whom he knew would

probably be eligible for the retirement program. Information as to faculty members was

available from a faculty directory, the internet, or the human resource department. That

same information would also be available to competitors of VALIC. The length of time an

individual had worked at a particular school and his title would indicate the relative size

of his investments. Once an individual was contacted, he could provide information as to

his particular investments. The evidence additionally indicated that Miller retained at least

                                             7
some information as to the names of his former clients, the relative size of their accounts,

the type of investments they made, and whether they were averse to risk or risk tolerant.

       The parties agree that Miller should not have access to information generated from

VALIC’s software programs. It is the information contained in Miller’s memory that is the

real issue of contention between the parties. Miller asserts that this information is not

protected because it is either part of his general knowledge or equally available to

competitors of VALIC while VALIC claims the information is proprietary.

       The court stated its intentions at a hearing to clarify the temporary injunction:

       Let me say with regard to my intentions to competing and contacting persons
       who he serviced during that previous year, it was my intent - - and I want to
       make it clear - - that I was not - - that he should not be prohibited from
       contacting those people. And that was my concern was that then there
       would be arguments well, you know, by contacting them, then you must have
       used confidential information. And that’s why I tried to say there are
       numerous sources from which he could have got that information, you know,
       not - - not from the [sic] his association with VALIC. But I wasn’t clear on
       what’s in his head. And the problem with that, and I think one of the cases
       I looked at pointed that out - - I don’t know how you would ever enforce that.
       To say that he can’t use the information that’s in his head. But I was trying
       to make clear that he shouldn’t refer to any proprietary software, or things
       that have been downloaded from that. But as far as my reading of the Miller
       Paper case, is that those kind of things that are in your head. You can’t
       make somebody download those things. And that seems to me just one of
       the risks you take when you hire people, is that they’re going to obtain some
       knowledge.

                                         *   *    *

       But on the other hand, the fact that somebody may be risk averse is
       something he’s going to know from years of service with them. And you can’t
       make him stop knowing that. And as a practical matter, all you’ve got to do

                                             8
       when you sit down with somebody is say are you risk averse, and they are
       going to tell you yes I am, or no I’m not. So I - - I understand your concern
       there, and I was concerned about that, too. And I didn’t want to, by my
       ruling, place Mr. Miller and VALIC in a position of having to come back and
       reargue that. So I would like the order to be specific about that. And it
       wasn’t - - it certainly - - again, unless I hear something different, it was my
       intent that certainly he would be able to use any information that he has in
       his brain, just because I don’t think there is any way to prevent it.

                                          *    *   *

       . . . [L]et’s assume for a minute that Mr. Miller just came off the street and
       became a Kemper representative. He could easily go to any VALIC or any
       other representative, go to any other current VALIC client and say: What’s
       your account balance? And: What’s your risk aversion? And more than
       likely they would tell him. And so to somehow handicap him because of a
       prior relationship he had with VALIC seems to me to be patently unfair. And
       especially in light of the fact I have found the anti-competition clause is
       ineffective. My feeling about the proprietary information was mainly the
       computer software VALIC had developed, and it wouldn’t be fair for him to
       give that to Kemper. But with respect to whether or not a client is - - is risk
       averse - - I mean, it could easily be said that VALIC wouldn’t have had that
       client had it not been for Mr. Miller getting them for him in the first place. So
       to say he wouldn’t have known that except for us, he could easily say you
       wouldn’t have known it except for me. And to somehow say well, obviously
       if he contacts one of our customers, it’s because of information we gave to
       him - - based on the evidence and testimony he knew those people from
       working - - a lot of them from working at the college . . . .

       VALIC claims that, based on Rugen, the only type of injunction that will adequately

protect it is the type of injunction entered by that court. However, in Rugen, it was

stipulated by the parties that customer and pricing information, the identity of consultants

and the pricing of those consultants was confidential information. Rugen, 864 S.W.2d at

552. In the case at bar, the parties hotly dispute, based on the particular facts of this case,

                                              9
whether similar information is confidential. Moreover, the Rugen court did not specifically

address the matter of information retained in the memory of a former employee.

       In Miller Paper, employees of Roberts Paper Company, which sold and distributed

paper, janitorial and chemical products, left the company to form a competing business and

began soliciting Roberts’s clients. We found the trial court was within its discretion to

enjoin the use of any of the documents, records, files and hard copy taken by former

employees of Roberts Paper Company, which those employees asserted was not

confidential information. Those documents included a customer list and a document

known as “the book,” which contained customers’ names, addresses, special billing

information, delivery sites, information regarding the need for purchase orders, cash on

delivery data, and phone numbers. Miller Paper, 901 S.W.2d at 597.              The former

employees were free to compete, but not with materials developed by or on behalf of

Roberts. Id. There was no mention that the former employees had retained any of this

information by memory.

       VALIC argues that Miller is precluded by contract from providing the type of

information excepted from the injunction. The contract between VALIC and Miller provides

that Miller may not disclose trade secrets during or after termination of his contract. Trade

secrets are defined as materials, processes, documentation, and knowledge embodied in

4SIGHT and other licensed software described in attached schedules, as well as customer

identities and account information. Miller is also precluded by contract from disclosing

                                             10
other confidential and proprietary information during the term of the contract and for two

years thereafter. Other confidential and proprietary information is defined as customer

requirements, other VALIC software, and marketing plans whether maintained

electronically or otherwise.   In the temporary injunction, the court tied the prohibited

activity to these contractual provisions. The exceptions under the temporary injunction are

information about customers actually received from other sources or available to Miller as

a result of his or his new employer’s status as an approved vendor of retirement products

to the State of Texas and general knowledge, skill, and experience obtained during his

relationship with VALIC or prior to that relationship. The court showed its intent to

preclude the use or disclosure of written information, information downloaded from

computers, or computer software, but not information retained by Miller or which was

generally available to the general public or competitors of VALIC. Thus, Miller is free to

compete, but not with materials developed by or on behalf of VALIC.

       It is argued by VALIC in reliance on Dannenbaum that Texas courts do not

distinguish between written and memorized information. See Dannenbaum, 840 S.W.2d

at 632. In noting that the Restatement of Agency makes such a distinction, that court

explicated that Texas courts either analyze the difficulty in obtaining the information and

whether it is readily accessible by industry inquiry or focus on the method used to obtain

the information. Id. at 632-33. The evidence in the record that much of Miller’s client base

was established through friendships and relationships existing prior to his employment with

VALIC and through human resources personnel and directories available to other

                                            11
competitors reasonably supports the trial court’s decision in this regard. To issue the sort

of injunction requested by VALIC would bar Miller from selling products even to former

clients who initiate contact with him and whose needs and financial status may have

changed since he last sold them any products. We find no abuse of discretion on the part

of the trial court with respect to the temporary injunction.

       Thus, VALIC’s issues are overruled, and the judgment of the trial court is affirmed.

                                                  John T. Boyd
                                                   Chief Justice

Do not publish.

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