United States District Court, S.D. Texas, Houston Division
MEMORANDUM OPINION & ORDER
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.
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.
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. 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. 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.
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. Dkts. 14, 60.
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
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
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.
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).
Plaintiffs' Motion for Partial Summary Judgment (Dkt.
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.”)
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.
the time the agreement is made”
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.
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.
The Sheshunoff opinion
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 ...