Louisiana Case Law
VARTECH SYSTEMS, INC. v. HAYDEN, 2005 CA 2499 (La.App. 1
Cir. 12-20-06) VARTECH SYSTEMS, INC. v. TODD HAYDEN, PETER
NEWMAN, JOEL TEDDER, AND DEEPSOUTH HARDWARE SOLUTIONS,
L.L.C. 2005 CA 2499. Court of Appeal of Louisiana, First
Circuit. Judgment rendered December 20, 2006.
On Appeal from the 19th Judicial District Court Parish of
East Baton Rouge, Louisiana, Docket No. 534,060, Division
“E,” Sec. 23, Honorable William A. Morvant, Judge
Presiding.
W. Steven Mannear, Poynter, Mannear & Colomb, Baton Rouge,
LA, Attorney for Plaintiff-Appellee, VarTech Systems, Inc.
H. Michael Bush, D. Scott Landry, Chaffe McCall, L.L.P.,
New Orleans, LA, Attorneys for Defendants-Appellants, Todd
Hayden, Peter Newman, Joel Tedder, and DeepSouth Hardware
Solutions, L.L.C.
BEFORE: PARRO, McDONALD, AND HUGHES, JJ.
PARRO, J.
The defendants appeal from a trial court judgment granting
a preliminary injunction in favor of the former employer of
the individual defendants, based in part on a
non-competition agreement and a non-disclosure agreement
signed by each of them. For the following reasons, the
judgment is reversed in part and affirmed in part.
FACTUAL BACKGROUND AND PROCEDURAL HISTORY
Todd D. Hayden (Hayden), Peter G. Newman (Newman), and Joel
D. Tedder (Tedder) were formerly employed by VarTech
Systems, Inc. (VarTech). While working for VarTech, each
signed a “Non-competition Agreement” containing the
following five provisions: (1) agreement not to compete;
(2) agreement not to solicit customers; (3) consent to
equitable relief; (4) savings clause; and (5) binding
effect/controlling law and venue clause. Execution of the
agreement by Hayden occurred on January 14, 2000, by Newman
on June 12, 2000, and by Tedder on July 25, 2001. Hayden,
Newman, and Tedder also signed a “Non-Disclosure
Agreement.” Hayden and Newman left their employment with
VarTech in March 2005 and April 2005, respectively, and on
May 11, 2005, they formed DeepSouth Hardware Solutions,
L.L.C. (DeepSouth). When Tedder left VarTech`s employment
in May 2005, he went to work for DeepSouth the next day,
and the following month became vice president of the
business.[fn1]
VarTech filed a petition for injunctive relief and damages
against Hayden, Newman, Tedder, and DeepSouth
(collectively, defendants) seeking to restrain and enjoin
them from operating their business. The nature of VarTech`s
business was identified in the petition, and allegedly
included sales, servicing, and repair of computers and
related hardware, as well as providing training, technical
services, and consulting concerning computer systems and
software. The petition alleged that Hayden, Newman, and
Tedder were in direct competition with VarTech, in
violation of their non-competition agreements. The petition
further alleged that Hayden, Newman, and Tedder took with
them when they left project worksheets containing client
information and contacted VarTech`s customers, making
negative and defamatory remarks about VarTech. VarTech
sought damages for defamation and for violations of the
non-compete and non-solicitation clauses of the
non-competition agreements, of the Louisiana Unfair Trade
Practices Act, and of the Louisiana Trade Secrets Act. A
temporary restraining order was issued in favor of VarTech
on July 5, 2005, and was renewed on July 14, 2005, pending
a determination of VarTech`s request for a preliminary
injunction.
The defendants opposed VarTech`s application for
preliminary injunctive relief on several grounds. They
claimed the non-compete agreements were invalid as a matter
of law, in that the non-compete clause contained an overly
broad description of VarTech`s business, contained an
overly broad geographical restriction, and prohibited
Hayden, Newman, and Tedder from taking any job with a
competitor of VarTech. In addition, the non-solicitation
clause in the non-competition agreements failed to specify
any geographical limitation. Finally, they argued that
VarTech had not shown that it would suffer irreparable
injury absent injunctive relief, and beyond its mere
allegations, had not demonstrated that there was a
substantial likelihood that it would succeed on the merits
of any of its claims.
Hayden, Newman, Tedder, and Carlton Wayne Prater (Prater),
who was VarTech`s president and chairman, testified at the
hearing on the request for a preliminary injunction.
Although only the original agreements signed by Newman were
introduced at the hearing, Prater testified that Hayden and
Tedder had also signed similar non-competition agreements
and non-disclosure agreements.[fn2]
After taking the matter under advisement, the trial court
reformed the non-compete clause and found that the
non-competition agreement, as thus reformed, was valid and
enforceable against the defendants. The trial court granted
VarTech`s request for a preliminary injunction, enjoining
Hayden, Newman, Tedder, and DeepSouth (and their agents,
officers, or employees) from competing with VarTech in the
business of the corporation. Based on the description in
the petition and the non-compete clause of the
non-competition agreement, the trial court defined the
business of VarTech to include the following: (1) the
buying, selling, trading, exchanging, repairing and/or
servicing of new and used mainframe computer systems (such
as those made by Harris Corporation, Landis & Gyr, or
Telegyr), flat panel displays, industrial displays,
mini-systems or personal computer systems inclusive of all
related peripherals whether sold, repaired, or transferred
in the form of complete systems or individual components,
(2) the selling of computer-related training classes
accessed via the internet, (3) the selling of technical
services related to the implementation, repair, or
servicing of computer hardware, and (4) the selling of
consulting services related to the development of software,
whether created to meet specific criteria for a specialized
application or simply modifications of existing software
rendered to address customer preferences or needs. The
defendants were enjoined from doing any of these activities
in all 64 parishes in Louisiana for a period of two years
from the dates of their departure from VarTech.
Additionally, pursuant to the non-solicitation clause of
the non-competition agreements, Hayden, Newman, Tedder, and
DeepSouth (their agents, officers, and employees) were
enjoined from (1) soliciting any customers of VarTech for a
period of two years following the dates of the termination
of their employment and (2) soliciting, diverting, or
appropriating to themselves or to a competing business, or
attempting to solicit, divert, or appropriate to themselves
or to any competing business, any person or entity whose
account with VarTech was sold or serviced by Hayden,
Newman, or Tedder during their previous employment by
VarTech. In accordance with the non-disclosure agreements,
the defendants were also enjoined from disclosing any
confidential information that had been disclosed to them or
of which they had become aware while employed at VarTech,
including, but not limited to: (1) the business operations
or internal structures of VarTech, (2) the identities of
customers of the corporation, (3) past, present, or future
research done by VarTech respecting the business or
operations of the corporation, or customers or potential
customers of the corporation, or (4) releasing any method
or procedure relating or pertaining to projects developed
by VarTech or contemplated by VarTech to be developed. In
connection with VarTech`s claim for defamation, the
defendants were enjoined from making any untrue,
disparaging, or false comments or remarks concerning
VarTech to any person.
From the judgment granting VarTech`s request for a
preliminary injunction, Hayden, Newman, Tedder, and
DeepSouth appealed, urging that the non-compete and
non-solicitation clauses were void and unenforceable as a
matter of law and that the trial court erred in reforming
the non-compete clause and, after applying the savings
clause, finding the non-compete clause to be enforceable.
The defendants argue that the non-compete clause was
geographically overly broad and did not accurately describe
VarTech`s business, which was much more limited in scope.
Furthermore, they claim that the absence of any
geographical restriction in the non-solicitation clause
rendered it null and void. Additionally, the defendants
urge that VarTech failed to produce facts sufficient to
show that it had any likelihood of succeeding on its claim
for breach of the non-competition agreement or for
defamation, so as to warrant the issuance of a preliminary
injunction.[fn3]
ANALYSIS
Law Applicable to Non-competition Agreements
Over the years, Louisiana has had a strong public policy
disfavoring non-competition agreements between employers
and employees. SWAT 24 Shreveport Bossier, Inc. v. Bond,
00-1695 (La. 6/29/01), 808 So.2d 294, 298. This public
policy is expressed in LSA-R.S. 23:921(A)(1), which at the
time pertinent to this matter provided:[fn4]
Every contract or agreement, or provision thereof, by
which anyone is restrained from exercising a lawful
profession, trade, or business of any kind, except as
provided in this Section, shall be null and void.
Louisiana`s strong public policy restricting non-competition
agreements is based on an underlying state desire to
prevent an individual from contractually depriving himself
of the ability to support himself and consequently becoming
a public burden.[fn5] See McAlpine v. McAlpine, 94-1594
(La. 9/5/96), 679 So.2d 85, 91. Because such agreements are
in derogation of the common right, they must be strictly
construed against the party seeking their enforcement. SWAT
24, 808 So.2d at 298.
The exceptions to LSA-R.S. 23:921(A)(1) set forth in the
statute include employer/employee relationships,
corporation/shareholder relationships, partnership/ partner
relationships, and franchise/franchisee relationships. The
statute defines the limited circumstances under which a
non-competition clause may be valid in the context of each
of these relationships. Kimball v. Anesthesia Specialists
of Baton Rouge, Inc., 00-1954 (La.App. 1st Cir. 9/28/01),
809 So.2d 405, 410, writs denied, 01-3316 (La. 3/8/02), 811
So.2d 883, and 01-3355 (La. 3/8/02), 811 So.2d 886. The
exception at issue in the case before us is provided by
subsection C, which at the time pertinent to the matter
stated, in pertinent part:
Any person, including a corporation and the individual
shareholders of such corporation, who is employed as an
agent, servant, or employee may agree with his employer to
refrain from carrying on or engaging in a business similar
to that of the employer and/or from soliciting customers
of the employer within a specified parish or parishes,
municipality or municipalities, or parts thereof, so long
as the employer carries on a like business therein, not to
exceed a period of two years from termination of
employment.
LSA-R.S. 23:921(C) is an exception to Louisiana public
policy against non-compete agreements and as such, must be
strictly construed. See Kimball, 809 So.2d at 411.
Preliminary Injunctive Relief
Generally, a party seeking the issuance of a preliminary
injunction [fn6] must show that he will suffer irreparable
injury [fn7] if the injunction does not issue and must show
entitlement to the relief sought; this must be done by a
prima facie showing that the party will prevail on the
merits of the case. [fn8] Jurisich v. Jenkins, 97-1870
(La.App. 1st Cir. 9/25/98), 722 So.2d 1008, 1011, reversed
on other grounds, 99-0076 (La. 10/19/99), 749 So.2d 597.
However, in the event an employee enters into an agreement
with his employer not to compete, pursuant to LSA-R.S.
23:921, and fails to perform his obligation under such an
agreement, the court shall order injunctive relief even
without a showing of irreparable harm, upon proof by the
employer of the employee`s breach of the non-compete
agreement. See Clear Channel Broadcasting, Inc. v. Brown,
04-0133 (La.App. 4th Cir. 3/30/05), 901 So.2d 553, 557; see
also LSA-R.S. 23:921(H), formerly LSA-R.S. 23:921(G).
In determining whether the employer has met his burden of
proof, the courts have been called on to consider the
validity and enforceability of the agreement sought to be
enforced by the employer. See SWAT 24, 808 So.2d 294; Clear
Channel, 901 So.2d at 558; Kimball, 809 So.2d 405. Even
though LSA-R.S. 23:921 mandates the court to issue
injunctive relief upon proof of the obligor`s failure to
perform, without the necessity of proving irreparable
injury, the employer must still establish that it is
entitled to relief. See Clear Channel, 901 So.2d at 558.
Where the actions sought to be enjoined pursuant to a
non-compete agreement do not fall within the exception
found in LSA-R.S. 23:921(C) or where the non-compete
agreement is found to be unenforceable for failure to
conform to LSA-R.S. 23:921, the employer is unable to
establish that it is entitled to the relief sought. See SWAT
24, 808 So.2d at 307; Clear Channel, 901 So.2d at 556-58;
Kimball, 809 So.2d at 411-12.
Typically, a trial court enjoys considerable discretion in
determining whether a preliminary injunction is warranted.
See State through Louisiana State Bd. of Examiners of
Psychologists of the Dep`t of Health and Human Services v.
Atterberry, 95-0391 (La.App. 1st Cir. 11/9/95), 664 So.2d
1216, 1220. The trial court`s issuance of a preliminary
injunction will not be disturbed on appeal absent a clear
abuse of discretion. Sorrento Companies, Inc. v. Honeywell
Int`l, Inc., 04-1884 (La.App. 1st Cir. 9/23/05), 916 So.2d
1156, 1163, writ denied, 05-2326 (La. 3/17/06), 925 So.2d
541.
Carrying on or Engaging in a Business Similar to that of
the Employer
The phrase “carrying on or engaging in a business similar
to that of the employer” means carrying on or engaging in
the employee`s own business similar to that of the
employer. [fn9] SWAT 24, 808 So.2d at 307. Thus, an
agreement that restrains an employee from carrying on or
engaging in a competing business as the employee of another
does not fall within the exception provided for by LSA-R.S.
23:921(C) and would be null and void, pursuant to
subsection (A). SWAT 24, 808 So.2d at 306.
The ex-employee defendant in SWAT 24 did not form his own
business to compete with SWAT. Rather, he accepted an
employment position with SWAT`s competitor. Finding that
the applicable provision went beyond the limited exception
of section 921(C) by preventing the defendant`s employment
in specified parishes in any capacity with any other
business in direct or indirect competition with SWAT, the
court found that such provision was unenforceable. SWAT 24,
808 So.2d at 308.
Nonetheless, the supreme court examined the impact of the
overly broad language on the validity of the entire
non-compete agreement. Recognizing that, pursuant to a
severability clause (sometimes also called a “savings
clause”), the court in AMCOM of Louisiana, Inc. v. Battson,
96-0319 (La. 3/29/96), 670 So.2d 1223, had allowed a trial
court`s reformation of overly broad language, the court in
SWAT 24 found that the severability clause in SWAT`s
agreement made it possible to excise the offending language
from the non-competition clause without doing undue damage
to the remainder of the agreement. SWAT 24, 808 So.2d at
308-09. [fn10] Thus, the court refused to declare the
agreement a nullity in its entirety. Rather, it concluded
that the overly broad language, which was null and void,
could be severed from the agreement. Id. at 309. Once the
offending portion of the agreement had been stricken,
however, the court found there was nothing in the remaining
language of the agreement that could be construed to
prohibit the conduct of which SWAT complained, as its
ex-employee had not formed his own business to compete with
SWAT. See Id.[fn11]
The pertinent language in the non-compete clause in the
VarTech agreements executed by Hayden, Newman, and Tedder
provided:
[Y]ou shall not (except with the prior written consent of
VarTech Systems Inc.), engage in the business of the
Corporation for yourself or others, either directly or
indirectly[.]
The defendants urge that VarTech`s inclusion of the phrase
“or others” exceeded the limited exception of LSA-R.S.
23:921(C), thus rendering the non-compete clauses null and
void as a matter of law. The defendants assert that it is
irrelevant that the facts of the matter before us seemingly
fit into what was enforceable under the substantive law.
They propose that the non-compete clauses are either
enforceable or not, regardless of the actual facts.
We disagree. Indeed, the scope of the prohibition in the
VarTech non-compete clause exceeded the exception provided
by LSA-R.S. 23:921(C), in that it purported to preclude
Hayden, Newman, and Tedder`s employment in any capacity
with a competitor of VarTech. Accordingly, the language at
issue went beyond that which is allowed by the statute. See
SWAT 24, 808 So.2d at 307-08. Nonetheless, the
non-competition agreements also contained a “Savings
Clause” which provided:
To the extent that any provision or portion to this
agreement shall be held, found, or deemed to be
unreasonable, unlawful, or unenforceable, then any such
provision or portion thereof shall be modified to the
extent necessary to be legally enforceable to the fullest
extent permitted by applicable law. You hereby expressly
authorize any court of competent jurisdiction to enforce
any such provision or any portion thereof to make any such
modification.
This language, like the severability clause in SWAT 24,
makes it possible to excise the offending language from the
non-compete clause without doing undue damage to the
remainder of the provision. Thus, we conclude that the
trial court did not err as a matter of law in severing the
null clause from the agreements. Without the offending
language, the agreements validly restricted Hayden, Newman,
and Tedder from carrying on or engaging in their own
competing business, which fits within the limited exception
in LSA-R.S. 23:921(C). Under the facts of this case, their
activities fell within that prohibition, and the
non-compete clause, as reformed, was potentially
enforceable. However, we must also consider whether other
provisions of LSA-R.S. 23:921 might yet invalidate the
VarTech non-compete agreement.
Geographical Limitation of the Non-Compete Agreement
Section 921(C) provides that a non-compete agreement must
specify the parish(es) or municipality(ies) in which the
employer operates. [fn12] The trial court found that the
non-compete agreements in question specified the parishes
to which it would apply. Nonetheless, the defendants urged
that the geographical restriction in the non-compete
agreement was overly broad.
A non-compete agreement must specifically name the parishes
or municipalities in which the agreement is to have effect.
See Turner Professional Services, Ltd. v. Broussard,
99-2838 (La.App. 1st Cir. 5/12/00), 762 So.2d 184, 186,
writ denied, 00-1717 (La. 9/29/00), 770 So.2d 356. [fn13]
What is important is that the geographic limitation be
express and clearly discernable. Hose Specialty & Supply
Mgmt. Co., Inc. v. Guccione, 03-823 (La.App. 5th Cir.
12/30/03), 865 So.2d 183, 194. The VarTech agreements
specifically listed all 64 parishes in the state as those
to which the agreements apply. However, the statute
contemplates that the parishes specified in the agreement
must be parishes where the ex-employer actually has a
location or customers. Employers are not permitted to lock
former employees out of markets in which the employer does
not operate. See Cellular One, Inc. v. Boyd, 94-1783
(La.App. 1st Cir. 3/3/95), 653 So.2d 30, 33, writ denied,
95-1367 (La. 9/15/95), 660 So.2d 449.
The VarTech non-compete clauses specified the parishes to
which they would apply as required by the statute. The
listing of all 64 parishes does not automatically render
the specification overly broad. See Hose Specialty, 865
So.2d at 188-89, 194. The defendants asserted this
specification was overly broad, in that it included parishes
in which VarTech did not do business, but they failed to
offer any proof to show that the specification made by
VarTech in its agreements was invalid. According to the
defendants` argument, VarTech`s only place of business in
Louisiana is in East Baton Rouge Parish. Although Hayden,
Newman, and Tedder were questioned about their contacts
with a few of VarTech`s customers, no evidence was offered
to establish where VarTech actually had a location or had
customers. Like the fifth circuit in the Hose Specialty
case, in the absence of such evidence in connection with
VarTech`s request for a preliminary injunction, we find no
error in the trial court`s enforcement of the geographic
bounds stated in the agreements. See Id. [fn14]
Defining of Employer`s Business
Section 921 does not require a definition of an employer`s
business for the agreement to be valid. Baton Rouge
Computer Sales, Inc. v. Miller-Conrad, 99-1200 (La.App. 1st
Cir. 5/23/00), 767 So.2d 763, 764. However, if the
agreement contains a definition of the employer`s business,
it cannot be overly broad, such that it prevents former
employees from engaging in more activities than were
performed for the former employer. Baton Rouge Computer
Sales, Inc., 767 So.2d at 765. [fn15] None of the cases
decided after SWAT 24 have addressed the issue of whether a
severability or savings clause in a non-competition
agreement can be used to reform an overly broad definition
of the ex-employer`s business.
The business of VarTech was defined in the non-compete
clauses as including, but not limited to:
the buying, selling, trading, exchanging, repairing
and/or servicing of new and used mainframe computer
systems (such as those made by Harris Corporation, Landis
& Gyr or Telegyr), flat panel displays, industrial
displays, mini-systems or personal computer systems
inclusive of all components; the selling of computer
related training classes accessed via the internet; the
selling of technical services related to the
implementation, repairing or servicing of computer
hardware; and the selling of consulting services related
to the development of software, whether created to meet
specific criteria of a specialized application or simply
modifications of existing software rendered to address
customer preferences or needs.
The trial court found that the non-compete clauses
adequately described VarTech`s business. The defendants
disputed this finding, urging that the definition of
VarTech`s business is overly broad, in that the non-compete
clauses attempted to improperly restrain Hayden, Newman,
and Tedder from engaging in a far broader spectrum of
business than VarTech itself actually performed.
According to Tedder, while working as a sales manager for
VarTech, he called on customers, generating sales of
industrial LCD displays, CRT displays, and military-grade
type displays. While employed by VarTech, Hayden sold
Westinghouse control systems, along with many other types
of equipment. Hayden testified that VarTech provided many
types of “fringe services.” At Hayden`s request, Prater
authorized Hayden and Newman to handle most of the sales of
Westinghouse and Bailey products while at VarTech.
According to Hayden, this authorization was granted,
because that phase of VarTech`s business differed from that
involved with the manufacturing and repairing of industrial
monitors that were primarily being handled by other VarTech
workers.
In the fall of 2004, Hayden assisted VarTech in bringing a
large quantity of Westinghouse inventory to its new
location. According to Hayden, he was the driving force for
VarTech`s purchase and sale of Westinghouse inventory.
Hayden left VarTech because Prater had led him to believe
that VarTech intended to focus on the sales and repairs of
industrial monitors manufactured by it, and did not intend
to continue the Westinghouse business after the existing
inventory had been sold. He believed that in his absence,
VarTech would not have anyone to go out and buy
Westinghouse inventory and assist with sales, thus, that
phase of VarTech`s business would fade away. Hayden was
admittedly performing these same functions for DeepSouth.
Prater testified that although VarTech had not purchased
any more Westinghouse hardware since Hayden`s departure in
February 2005, it still maintained an inventory of these
products and continued to sell and actively solicit this
type of equipment. Prater explained that VarTech still sold
Westinghouse control systems and Bailey equipment. During
the thirteen months prior to the hearing on VarTech`s
request for a preliminary injunction, VarTech had sold
$439,000 in Westinghouse equipment, $90,000 in Bailey
equipment, and $76,000 of Landis & Gyr equipment.
After considering this testimony, we are unable to conclude
that the trial court erred in failing to find that the
defendants showed that the definition of VarTech`s business
was overly broad, so as to raise a question as to the
enforceability of the non-compete clause.
Non-Solicitation Agreements
A non-solicitation agreement is separate and apart from a
non-compete agreement. The requirements of LSA-R.S. 23:921
apply to non-solicitation agreements, as well as
non-compete agreements. Creative Risk Controls, Inc. v.
Brechtel, 01-1150 (La.App. 5th Cir. 4/29/03), 847 So.2d 20,
25, writ denied, 03-1769 (La. 10/10/03), 855 So.2d 353.
Thus, to be valid, a non-solicitation agreement must also
meet the requirements of LSA-R.S. 23:921.
The defendants contended that the non-solicitation clauses
are unenforceable, in that they are missing a geographical
restriction of any kind. [fn16] The defendants cite
Kimball, where this court declined to reform a non-compete
clause that did not include the specified parish or
municipality for non-competition, even though the
geographical limits for the non-compete clause could be
inferred from other provisions of the agreement in which
the non-compete clause appeared. See Kimball, 809 So.2d at
412.
Section 921(C) requires that the restricted parish or
parishes, municipality or municipalities, or parts thereof
be “specified.” When this requirement is combined with the
principle of strictly construing exceptions to the
longstanding public policy of this state disfavoring
agreements not to compete, we are obligated to find that
the non-solicitation clauses at issue in this case are
unenforceable, because they failed to conform to LSA-R.S.
23:921(C). [fn17] See Id. While geographical limits may be
inferred from the limits of the non-compete clauses in the
non-competition agreements, we decline to reform the
non-solicitation clauses pursuant to the savings clauses in
favor of VarTech. See Id. at 411-12; see also Aon Risk
Services of Louisiana, Inc. v. Ryan, 01-0614 (La.App. 4th
Cir. 1/23/02), 807 So.2d 1058, 1060-62; Water Processing
Technologies, Inc. v. Ridgeway, 618 So.2d 533, 536 (La.App.
4th Cir. 1993). Because LSA-R.S. 23:921 requires
specificity regarding geographical limitations, the
non-solicitation clauses must be able to stand on their own.
Preliminary Injunction
The non-compete clauses at hand, as reformed, are prima
facie valid non-compete agreements. The testimony
established that Hayden, Newman, and Tedder left the employ
of VarTech and started their own company, which was in
direct competition with some aspects of VarTech`s business.
The defendants acknowledged that DeepSouth`s main business
is the same as a portion of VarTech`s business that was
formerly conducted by Hayden and Newman. Based on this
evidence, we are unable to find error in the trial court`s
apparent finding that VarTech satisfied its burden of a
prima facie showing that it was substantially likely to
succeed in proving that the defendants breached the terms
of the non-compete clauses. Accordingly, based on the trial
court`s finding, VarTech was entitled to a preliminary
injunction prohibiting the defendants from carrying on or
engaging in a business similar to that of VarTech in all 64
parishes of this state. [fn18]
Although the evidence reasonably supports the trial court`s
finding that Hayden, Newman, and Tedder were soliciting
business from customers with whom they had dealt during
their employment with VarTech, our finding that the
non-solicitation clauses were invalid precludes the
enforcement of these clauses. Accordingly, the trial court`s
enforcement of the non-solicitation clauses by issuance of
a preliminary injunction was improper.
Defamation
In addition to enjoining the defendants from competing
against VarTech and soliciting VarTech customers, the trial
court enjoined the defendants from making any untrue,
disparaging, or false comments or remarks concerning
VarTech to any person. The defendants denied ever making
such statements, and there was no evidence of such conduct
at the hearing on the preliminary injunction. Therefore,
the defendants contend it was improper for the trial court
to preliminarily enjoin them from engaging in such conduct,
in light of VarTech`s failure to submit proof that they had
made any untrue or defamatory statements about VarTech.
To succeed in a defamation action, the plaintiff must prove
defamatory words, publication, falsity, malice (actual or
implied), and resulting injury. Clark v. Wilcox, 04-2254
(La.App. 1st Cir. 12/22/05), 928 So.2d 104, 111, writ
denied, 06-0185 (La. 6/2/06), 929 So.2d 1252. If even one
of these elements is absent, the cause of action fails.
Kosmitis v. Bailey, 28,585 (La.App. 2nd Cir. 12/20/96), 685
So.2d 1177, 1180.
Courts are generally reluctant to issue an injunction to
restrain torts such as defamation or harassment. Greenburg
v. DeSalvo, 254 La. 1019, 229 So.2d 83, 86 (1969), cert.
denied, 397 U.S. 1075, 90 S.Ct. 1521, 25 L.Ed.2d 809
(1970); Lassalle v. Daniels, 96-0176 (La.App. 1st Cir.
5/10/96), 673 So.2d 704, 709, writ denied, 96-1463 (La.
9/20/96), 679 So.2d 435, cert. denied, 519 U.S. 1117, 117
S.Ct. 963, 136 L.Ed.2d 848 (1997). An injunction is a
harsh, drastic, and extraordinary remedy and is only issued
where the plaintiff is threatened with irreparable loss or
injury without an adequate remedy at law. [fn19]
Irreparable injury is considered to be a loss sustained by
an injured party which cannot be adequately compensated in
money damages or for which such damages cannot be measured
by a pecuniary standard. Terrebonne Parish Police Jury v.
Matherne, 405 So.2d 314 (La. 1981); Lassalle, 673 So.2d at
709. To justify a preliminary injunction, the applicant
must establish the likelihood of irreparable injury by
clear and convincing evidence. Lighthouse Life Ins. Co.,
Inc. v. Rich, 343 So.2d 444, 446 (La.App. 3rd Cir. 1977).
We conclude that we must reverse the injunction as to
VarTech`s claim for defamation, because should such
activities occur, it would have an adequate remedy at law,
i.e., a civil action in tort for damages. Indeed, even if
the defendants` words were defamatory, an injunction would
not be a proper remedy. See Lassalle, 673 So.2d at 709.
Furthermore, a claim for loss of income does not justify
injunctive relief. [fn20] Although such damages may be
difficult to calculate, they can be measured by pecuniary
standards and compensated in money. See Musser v. Mercy
Acad., 389 So.2d 76, 78 (La.App. 4th Cir. 1980). VarTech`s
opportunity to recover compensatory damages affords it an
adequate remedy at law in tort, which may be pursued in
seeking redress, should any such injuries be established.
See Prakasam v. Popowski, 566 So.2d 189, 191-92 (La.App.
2nd Cir.), writ denied, 569 So.2d 986 (La. 1990).
Moreover, the evidence offered at the hearing failed to
show each element necessary to prevail in a defamation
action. Hayden testified that he communicated his reasons
for leaving VarTech to a third party, [fn21] but denied
stating that VarTech was no longer selling or supporting
Westinghouse equipment. Hayden denied telling a co-worker`s
spouse that VarTech was going under. His testimony was not
contradicted by other evidence offered by VarTech.
After reviewing the record, we conclude the trial court
abused its discretion in granting the preliminary
injunction relative to the making of untrue, disparaging,
or false comments or remarks concerning VarTech, since
VarTech failed to present evidence sufficient to make out a
prima facie case as to its claim for defamation and did not
show that it would suffer irreparable injury if injunctive
relief were not granted.[fn22]
DECREE
For the foregoing reasons, the following portion of the
trial court judgment is reversed:
IT IS HEREBY FURTHER ORDERED, ADJUDGED AND DECREED that
VarTech Systems Inc. is granted a Preliminary Injunction
restraining, enjoining, and prohibiting Todd Hayden, Peter
Newman, Joel Tedder, and Deepsouth Hardware Solutions,
L.L.C., their agents, officers, or employees from
soliciting any customers of VarTech Systems Inc. for a
period of two years following the date of the termination
of their employment, and restraining, enjoining, and
prohibiting them from soliciting, diverting, or
appropriating to themselves, or to a competing business,
or to attempt to solicit, divert, or appropriate to
themselves or to any competing business, any person or
entity whose account with VarTech Systems Inc. was sold or
serviced by Todd Hayden, Peter Newman, or Joel Tedder
during their previous employment by VarTech Systems Inc.,
. . . . Todd Hayden, Peter Newman, Joel Tedder, and
Deepsouth Hardware Solutions, L.L.C., and their agents,
officers, or employees are further restrained, enjoined,
and prohibited from making any untrue, disparaging, or
false comments or remarks concerning VarTech Systems Inc.
to any person.
Accordingly, the preliminary injunction relative to
VarTech`s enforcement of the non-solicitation clauses and
its claim for defamation is vacated. Otherwise, the
remainder of the judgment granting the preliminary
injunction is affirmed. Costs of this appeal are assessed
seventy-five percent to VarTech and twenty-five percent to
the defendants.
REVERSED AND VACATED IN PART AND AFFIRMED IN PART.
[fn1] Tedder testified that he, Harden, and Newman were the
owners of DeepSouth.
[fn2] Pursuant to a motion to supplement the records,
VarTech also provided the trial court with the agreements
that had been executed by Tedder. We note also that copies
of the non-competition agreements signed by Hayden, Newman,
and Tedder were attached to affidavits they filed in the
record. The parties stipulated that, in addition to their
in-court testimony, Hayden, Newman, and Tedder would each
testify in accord with their statements in the affidavits
that were presented to the court.
[fn3] The defendants claimed they had not ever violated, nor
did they intend to violate, the non-disclosure agreements;
they did not assign error to that portion of the trial
court judgment pertaining to the non-disclosure agreements.
Thus, we render no opinion as to the propriety of the trial
court`s granting of the preliminary injunction relative to
those agreements.
[fn4] Subsection D (formerly subsection H) relating to a
former employee who becomes employed by a competing
business was added to LSA-R.S. 23:921 by 2003 La. Acts, No.
428, § 1. Since the addition of this subsection
resulted in a substantive change in the law, it has
prospective application only. Clear Channel Broadcasting,
Inc. v. Brown, 04-0133 (La.App. 4th Cir. 3/30/05), 901
So.2d 553, 556-57; Hose Specialty & Supply Mgmt. Co., Inc.
v. Guccione, 03-823 (La.App. 5th Cir. 12/30/03), 865 So.2d
183, 193 n. 1. The agreements in question were executed by
Hayden, Newman, and Tedder prior to the effective date of
this revision. Therefore, this case will be governed by the
provisions of the statute that were in effect at the time of
the execution of the agreements, which are the same
provisions of LSA-R.S. 23:921 that were applicable in SWAT
24. See Louisiana Smoked Products, Inc. v. Savoie`s Sausage
& Food Products. Inc., 96-1716 (La. 7/1/97), 696 So.2d
1373, 1377-78.
[fn5] Additionally, the basic premise underlying the
prohibition stems from the fundamental right of individuals
to seek success in our free-enterprise society. Kimball v.
Anesthesia Specialists of Baton Rouge, Inc., 00-1954
(La.App. 1st Cir. 9/28/01), 809 So.2d 405, 411 n. 9, writs
denied, 01-3316 (La. 3/8/02), 811 So.2d 883, and 01-3355
(La. 3/8/02), 811 So.2d 886.
[fn6] A preliminary injunction may be granted pending a
trial on the merits of a permanent injunction in order to
preserve the pre-existing status of the parties. Broadmoor,
L.L.C. v. Ernest N. Morial New Orleans Exhibition Hall,
04-0211 (La. 3/18/04), 867 So.2d 651, 655.
[fn7] Generally, irreparable injury means that the party
seeking the preliminary injunction cannot be adequately
compensated in money damages for its injury or suffers
injuries which cannot be measured by pecuniary standards.
Shaw v. Hingle, 94-1579 (La. 1/17/95), 648 So.2d 903, 905.
[fn8] In making a prima facie showing, the plaintiff is
required to offer less proof than is necessary in an
ordinary proceeding for permanent injunction. State through
Louisiana State Bd. of Examiners of Psychologists of the
Dep`t of Health and Human Services v. Atterberry, 95-0391
(La.App. 1st Cir. 11/9/95), 664 So.2d 1216, 1220.
[fn9] SWAT 24 allows the enforcement of non-competition and
non-solicitation agreements when the ex-employee operates a
business on his own in competition with his ex-employer.
See John Jay Esthetic Salon, Inc. v. Preskitt, 04-1378
(La.App. 4th Cir. 2/23/05), 898 So.2d 538, 541, writ
denied, 05-1109 (La. 6/24/05), 904 So.2d 743.
[fn10] Prior to SWAT 24, Louisiana courts had allowed
reformation of non-compete agreements that were overly
broad, but only those that were unreasonable as to
territory or time. See Turner Prof. Services, Ltd. v.
Broussard, 99-2838 (La.App. 1st Cir. 5/12/00), 762 So.2d
184, 185-86, writ denied, 00-1717 (La. 9/29/00), 770 So.2d
356; Allied Bruce Terminix Companies, Inc. v. Ferrier,
93-0561 (La.App. 1st Cir. 3/11/94), 634 So.2d 44, 45. The
decision in SWAT 24 indicates a more expansive use of
severability or savings clauses to reform and enforce
non-compete agreements.
[fn11] Following SWAT 24, the court in Hose Specialty, 865
So.2d at 193, similarly found that since the ex-employee
had not started his own business, but was working as an
employee of a competing business, the contractual language
prohibiting his employment in any capacity with any other
business similar to that conducted by his former employer
was overly broad and unenforceable.
[fn12] In particular, section 921(C) provides that an
employee may agree with his employer not to compete within
a specified parish(es) or municipality(ies) “so long as the
employer carries on a like business therein.”
[fn13] The agreement in Turner sought to prevent the
defendant from competing with or soliciting customers of
the plaintiff within the state of Louisiana, without
specifying parishes or municipalities in which the
plaintiff operated. Although the defendant`s testimony
showed that the plaintiff operated in only nine parishes,
this court refused to reform the contract, since the
agreement did not contain a severability or savings clause.
Therefore, the agreement was not enforceable. Turner, 762
So.2d at 186.
[fn14] We note also that a finding that the non-compete
clauses in question contained an invalid overly broad
geographic limitation would not automatically render the
non-compete clauses unenforceable in this case, as the
savings clause in the non-competition agreements could be
used to strike portions of the non-compete clauses which
were overly broad and make the geographic limitation
conform to those parishes where VarTech actually has a
location or customers. See Kimball, 809 So.2d at 413,
citing AMCOM of Louisiana, Inc., 670 So.2d 1223. Such
evidence could still be introduced at a hearing seeking a
permanent injunction.
[fn15] The employer is only entitled to keep ex-employees
from competing with the employer`s actual business, not
some overblown contractual definition of business designed
to cover the proverbial waterfront and keep ex-employees
from being able to make a living in any segment of the
ex-employer`s industry. See Baton Rouge Computer Sales,
Inc., 767 So.2d at 765.
[fn16] The non-solicitation clauses do not include any
listing of parishes or municipalities in which Hayden,
Newman, and Tedder were supposed to refrain from soliciting
VarTech`s customers.
[fn17] Although the court in Petroleum Helicopters, Inc. v.
Untereker, 98-1816 (La.App. 3rd Cir. 3/31/99), 731 So.2d
965, writ denied, 99-1739 (La. 8/5/99), 747 So.2d 40,
approved a non-compete clause where the affected parishes
were identifiable, although not specified, in the clause,
this court declined to follow Petroleum Helicopters, Inc.
in Turner Professional Services, Ltd., 762 So.2d at 186.
Kimball, 809 So.2d at 412-13.
[fn18] We note, however, that the defendants claimed in
their affidavits that all of DeepSouth`s customers were
located outside the state of Louisiana.
[fn19] See LSA-C.C.P. arts. 3601, 3602.
[fn20] The granting of injunctive relief is merely an
interlocutory judgment calculated to prevent a party from
suffering irreparable injury pending a final determination
on the merits of its rights, and in such cases, to
generally maintain and preserve the existing status pending
a trial or a hearing on the ultimate issues. Haughton
Elevator Div. v. State, through the Div. of Admin., 367
So.2d 1161, 1169 n. 6 (La. 1979).
[fn21] Hayden testified that he left VarTech because there
were many indications that the Westinghouse business did
not have a future at VarTech, and he thought this could be
a “niche” business for DeepSouth.
[fn22] VarTech still has the right to obtain money damages,
after a trial on the merits, if it can provide sufficient
evidence to prove damages were actually incurred. In
addition to damages, the remedy of a permanent injunction
is also available after a trial on the merits.