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Cardoni v. Prosperity Bank

United States District Court, S.D. Texas, Houston Division

April 6, 2017

Chris Cardoni, et al., Plaintiffs,
v.
Prosperity Bank, et al., Defendants.

          MEMORANDUM OPINION & ORDER

         Pending before the court is (1) the plaintiffs' motion for partial summary judgment (Dkt. 165), and (2) the plaintiffs' conditional motion for partial summary judgment regarding damages (Dkt. 166). Having considered the motions, response, reply, evidentiary record, and the applicable law, the court is of the opinion that (1) the plaintiffs' motion for partial summary judgment should be DENIED, and (2) the plaintiffs' conditional motion for partial summary judgment regarding damages should be GRANTED.

         I. Background

         A. Factual Background

         The plaintiffs, Chris Cardoni, Wesley Webb, Terry Blain, and Billy Shaffer, were employed at F&M Bank and Trust Company (“F&M Bank”) in Tulsa, Oklahoma. Dkt. 165. F&M Bank entered into an agreement to merge with defendant Prosperity Bank (“Prosperity”). Dkt. 168, Ex. B. In August 2013, in preparation for the merger, the plaintiffs signed employment agreements with F&M Bank and Prosperity (the “Agreements”) (Dkt. 165, Exs. A-1-A-4; Dkt. 168, Ex. E). Dkt. 168, Ex. D. Prosperity claims that the execution of the Agreements was a prerequisite to the merger and was necessary to effectuate the transfer of customer goodwill from F&M Bank to Prosperity. Dkt. 168 at 9-10, Ex. A. The merger took effect on April 1, 2014. Id.

         The Agreements included non-disclosure, non-competition, and non-solicitation provisions in exchange for a three-year term of employment post-merger, access to confidential information, and restricted stock.[1] Dkt. 165, Exs. A-1-A-4. Due to a deteriorating relationship between the plaintiffs and Prosperity, the parties agreed to terminate the plaintiffs' employment effective August 28, 2014.[2] Dkt. 168 at 13. On September 2, 2014, the plaintiffs went to work at CrossFirst Bank in Tulsa, Oklahoma. Id. Prosperity alleges that the plaintiffs breached the Agreements while working for CrossFirst Bank. Id.

         B. Procedural Background

         This case began with competing lawsuits in Oklahoma and Texas state courts. Dkts. 2, 60. Prosperity sought declaratory judgment on the enforceability of the Agreements in Texas, and the plaintiffs sought judgment declaring the Agreements void in Oklahoma. Id. Eventually both cases were removed to federal court, the Oklahoma case was transferred to the Southern District of Texas on the basis of the forum selection clause within the Agreements, and the two cases were consolidated.[3] Dkts. 14, 60.

         Then, the plaintiffs moved for the court to determine whether Oklahoma or Texas law should apply to this case and sought partial summary judgment declaring the Agreements were unenforceable under Oklahoma law. Dkt. 61. Prosperity sought a temporary restraining order and injunction to enforce the Agreements under Texas law. Dkt. 69. The court, performing a conflict of laws analysis, determinated that the Texas choice of law clause was only applicable to the nondisclosure provision of the Agreements, but that Oklahoma law governed the non-compete and non-solicitation provisions. Dkt. 93 (Cardoni v. Prosperity Bank, No. CIV.A. H-14-1946, 2014 WL 4982600 (S.D. Tex. 2014)). The court also held that the non-compete and non-solicitation provisions were likely unenforceable under Oklahoma law. Id. Because Prosperity did not demonstrate that there was a substantial likelihood of success on just the breach of the non-disclosure provision, its request for injunction was denied. Id. Prosperity appealed the decision. The Fifth Circuit affirmed the court's denial of injunctive relief, the applicability of Oklahoma law to the non-compete provision, and the applicability of the Texas choice of law clause to the non-disclosure provision. Cardoni v. Prosperity Bank, 805 F.3d 573 (5th Cir. 2015). However, the Fifth Circuit reversed the court's determination that Oklahoma law applied to the non-solicitation provision, and held that Texas law applied under the choice of law clause. Id. On the issue of the non-solicitation provision, the Fifth Circuit remanded the case for the district court to decide “. . . with the benefit of the full briefing, whether the agreement is enforceable under Texas law as is, or pursuant to modification . . . .” Id. at 589.

         The plaintiffs now file a motion for partial summary judgment requesting declaratory relief that the non-solicitation provision in the Agreements is unenforceable and that Prosperity's counterclaims based on the non-solicitation provision fail as a matter of law. Dkt. 165. The plaintiffs also file a conditional motion for partial summary judgment requesting a declaration that the non-solicitation provision requires reformation, which bars damages under Texas law.[4] Dkt. 166. Prosperity responded to both motions and the plaintiffs replied. Dkts. 168, 169. The plaintiffs also filed a supplement to their motion and Prosperity objected. Dkts. 170, 173.

         II. Legal Standard

         A court shall grant summary judgment when a “movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(c). “[A] fact is genuinely in dispute only if a reasonable jury could return a verdict for the non-moving party.” Fordoche, Inc. v. Texaco, Inc., 463 F.3d 388, 392 (5th Cir. 2006). The moving party bears the initial burden of demonstrating the absence of a genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548 (1986). If the party meets its burden, the burden shifts to the non-moving party to set forth specific facts showing a genuine issue for trial. Fed.R.Civ.P. 56(e). The court must view the evidence in the light most favorable to the non-movant and draw all justifiable inferences in favor of the non-movant. Envtl. Conservation Org. v. City of Dall., Tex., 529 F.3d 519, 524 (5th Cir. 2008).

         III. Plaintiffs' Motion for Partial Summary Judgment (Dkt. 165)

         The plaintiffs have filed a motion for partial summary judgment for declaratory relief that the non-solicitation provision in the Agreements is unenforceable, and thus, Prosperity's counterclaims based on the breach of the non-solicitation provision also fail. Dkt. 165 (citing Exs. A-1-A-4 at § 6.3). Under Texas law, a covenant not to compete is enforceable if (1) “it is ancillary to or part of an otherwise enforceable agreement at the time the agreement is made, ” and (2) “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.” Ray Mart Inc. v. Stock Bldg. Supply of Tex. LP, 302 F. App'x 232, 236 (5th Cir. 2008) (citing Tex. Bus. & Com. Code Ann. § 15.50(a) (“the Act”)). The Act's requirements also apply to the enforcement of non-solicitation agreements. Marsh USA Inc. v. Cook, 354 S.W.3d 764, 768 (Tex. 2011) (“Covenants that place limits on former employees' professional mobility or restrict their solicitation of the former employers' customers and employees are restraints on trade and are governed by the Act.”)

         The plaintiffs challenge the non-solicitation provision by arguing that the Agreements were not enforceable “at the time the agreement [was] made.” Dkt. 165 at 5 (citing to § 15.50(a)). Further, the plaintiffs make another attempt to challenge the applicability of the Texas choice of law clause to the non-solicitation provision, arguing Texas law was inapplicable at the time the Agreements were executed. Dkt. 165 at 13.

         A.At the time the agreement is made”

         The court will review the nature of the Agreements generally before turning to each of the plaintiffs' arguments that the Agreements are unenforceable. The Agreements were made among three parties, each of the plaintiffs, Prosperity, and F&M Bank. Dkt. 165, Exs. A-1-A-4. Under the Agreements, F&M Bank and Prosperity offered consideration in the form of restricted stock, expanded access to confidential information, training, and information regarding Prosperity's customers and other business contacts. Id. at § 6.6. Additionally, the Agreements included bonuses, salary, and a three-year employment agreement after the effective date of the merger. Id. at § 4. In return, the plaintiffs made non-disclosure, non-compete, and non-solicitation promises. Id. at § 6.

         “The enforceability of a covenant not to compete is a question of law.” Mann Frankfort Stein & Lipp Advisors, Inc. v. Fielding, 289 S.W.3d 844, 848 (Tex. 2009). The plaintiffs argue that the Agreements were not enforceable “at the time the agreement [was] made” as required by Texas law because: (1) the Sheshunoff concurring opinion treats future promises in agreements as illusory, (2) there was no employer-employee relationship at the time the Agreements were made, (3) the Agreements are non-competitive because the plaintiffs were at-will employees, making their promises illusory, and (4) Prosperity cannot meet its burden of proving that the non-solicitation provision is ancillary. Dkt. 165 (Alex Sheshunoff Mgmt. Servs., L.P. v. Johnson, 209 S.W.3d 644, 657-63 (Tex. 2006) (Jefferson, C.J., O'Neill, J. Medina, J. concurring)).

         1. The Sheshunoff opinion

         The plaintiffs argue that Prosperity's promises were contingent on the future merger of the banks, making them illusory at the time the Agreements were made, and rendering the Agreements unenforceable at the time. Dkt. 165 at 9-11 (citing Sheshunoff, 209 S.W.3d at 657-63 (Jefferson, C.J., O'Neill, J. Medina, J. concurring)). In Sheshunoff, the Texas Supreme Court considered the meaning of the phrase “at the time the agreement is made, ” by clarifying a footnote from a previous opinion. Sheshunoff, 209 S.W.3d at 651 (citing Light v. Centel Cellular Co. of Texas, 883 S.W.2d 642, 645 n.6 (Tex. 1994), abrogated by Marsh, 354 S.W.3d 764). The five justice majority held that the phrase “at the time the agreement is made” does not modify “otherwise enforceable agreement, ” but rather it modifies that the restrictive covenant is “ancillary to or part of.” Id. In other words, the restrictive covenant must be ancillary to the agreement at the time the agreement is made, however the agreement need not ...


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