In a recent Texas federal court ruling, a competitor closely aligned with, and seemingly assisted by, a signatory of a non-compete covenant narrowly avoided a preliminary injunction because the assistance was not shown to have been substantial.
Summary of the case. In connection with the purchase and sale of a partnership’s assets, a partner of the seller signed a covenant which provided that, for five years, he would not participate in a business competitive with the seller anywhere in or adjacent to the county where the seller’s business was located. Shortly thereafter, a company owned by the signatory’s wife commenced competition in that territory. Alleging that the signatory was aiding and abetting the competitor, the assets purchaser sued the signatory, the signatory’s wife, and others. The purchaser’s motion for entry of a preliminary injunction was granted solely against the signatory. It was denied as to the remaining defendants because the purchaser was held to have failed to meet its burden of demonstrating that the signatory significantly aided and abetted competition. Henson Patriot Ltd. Co., LLC v. Medina, Civ. Ac. No. SA-14-CV-534-NB (W.D. Tex., Sept. 11, 2014) (Rodriguez, J.).
The defendants. Andrew Medina was a partner of, and the signatory for, the seller. For 15 months after the transaction, he was employed by the purchaser Henson Patriot Ltd. in production and then in sales. His wife Clara and her future business partner were lower level employees there. They were not signatories. The three of them — Andrew, Clara and her future partner — resigned from Henson more-or-less simultaneously, and almost immediately Clara (with her partner) set up a company within the territory of the non-compete. Both Henson and Clara’s company were specialty commercial printers. When Clara’s company took several good Henson customers who Andrew had serviced, Henson sued Clara’s company and the three individuals for violating the non-compete. The defendants maintained that Andrew played no role in Clara’s company. However, messages found on his phone at Henson after he left, various emails, and other evidence strongly suggested that he had been involved with “the launch and conduct” of that company.
The covenant. In addition to the provisions relating to its duration and territory, the covenant stated that Andrew “shall not either directly or indirectly . . . engage, [consult] with, advise or otherwise participate in any business that is in competition” with the seller.
The court’s ruling on plaintiff’s motion for a preliminary injunction. The defendants contended that the length of the term, the breadth of the area encompassed by the non-compete, and the activities prohibition were unreasonable, but the court disagreed. Previous Texas decisions in asset sales cases upheld similar provisions. Concluding that “The facts are approaching enough to show Andrew Medina significantly aided, abetted, and consulted with the other defendants,” Judge Rodriguez entered the injunction against Andrew, the signatory. More problematic was Henson’s effort to enforce the non-compete against the non-signatory defendants.
The judge stated that Texas law would “allow an extension of Andrew Medina’s non-compete to entities or persons he significantly aided, abetted, consulted, or advised to compete with Plaintiff.” Clara, her company, and her partner insisted that Andrew’s involvement was inconsequential. Judge Rodriguez responded that he was “not convinced Andrew Medina did not aid, consult, or advise [Clara’s company and its principals, but] the Court exercises caution at this time due to the extraordinary nature of a preliminary injunction.” The Court added that Henson “has not shown enough for the Court to conclude Andrew Medina significantly aided, consulted, or advised the other defendants.” Emphasis the court’s. Therefore, as to those defendants, the court held that “Plaintiff, at this time, has failed to establish a substantial likelihood of success on the merits.”
Takeaways. Henson teaches that, in order to obtain a preliminary injunction against an alleged violator of a non-compete covenant, an employer may have to prove that the violation but, in addition, that the violation was not trivial, at least in this Texas court. The hard evidence presented by the plaintiff, rebutted only by the defendants’ denials, seems to have indicated that Andrew did what the non-compete prohibited. But almost every time Judge Rodriguez referred to the covenant’s prohibition against “aiding, abetting, consulting, and advising,” he added the modifier “significantly” (once in italics) although that word is not found there. Thus, he construed the covenant as implicitly precluding only extensive violations. Perhaps he was influenced by the legal principle set forth in a few cases — none of which were cited — that aiding and abetting the commission of a tort is actionable only if the assistance is “substantial.”