shutterstock_526574593On October 27, 2016, the Fort Worth Court of Appeals affirmed a lower court’s order denying an application for temporary injunction seeking to enjoin Thomas Musgrave, the former president of Henry F. Coffeen III Management, Inc., d/b/a Coffeen Management Company (“CMC”), from competing with and soliciting its business. By doing so, the court emphasized the importance of carefully drafting noncompete and nonsolicitation provisions in employment agreements to ensure that an employee’s post-termination activities remain subject to the restrictive covenants.

CMC is an insurance agency that sells insurance products to car dealerships. Musgrave began working for CMC in 2011 as an independent contractor and, as its president, was responsible for managing CMC’s day-to-day operations. Musgrave signed a “Non-Compete Agreement” barring him from competing with CMC or soliciting its customers for a specified term. In August 2015, Musgrave began travelling to New Mexico to visit Tate Branch Automotive (“TBA”), a CMC client that owns several car dealerships. A short time later, Musgrave started assisting TBA with acquiring car dealerships. In December 2015, Musgrave resigned from CMC, but he continued to advise TBA on the acquisition of car dealerships.

On the heels of Musgrave’s resignation, CMC filed a lawsuit against him in Texas state court for, among other things, breach of contract based on the noncompete and nonsolicitation provisions he signed, and sought a temporary restraining order and temporary and permanent injunctions. The trial court granted CMC a temporary restraining order, blocking Musgrave from soliciting or marketing any products or services that comprise part of CMC’s business to specified clients of CMC, including TBA. Shortly thereafter, the trial court, following a hearing, denied CMC’s application for a temporary injunction, finding, inter alia, that the Non-Compete Agreement was unsupported by consideration and lacked geographical boundaries.

On interlocutory appeal, CMC maintained that the term of the restrictive covenants applied for two years from the date of Musgrave’s resignation in December 2015; therefore, it established a likelihood of success on the merits of its breach-of-contract claim. The court of appeals began its analysis by reciting the text of the Non-Compete Agreement, which provided that Musgrave would remain subject to the restrictive covenants “[d]uring the Term of this Agreement and for a period of two (2) years after the ‘CMC Account Development Sub Agent Agreement’ is terminated.” Despite being capitalized, the word “Term” from the Non-Compete Agreement was undefined. The court reasoned that because the covenants specify the restrictions expire two years after the termination of the “CMC Account Development Sub Agent Agreement,” and it was undisputed that Musgrave, as an independent contractor and president of CMC, was not a subagent or sales representative, the noncompete period was inapplicable, so the provisions at issue never restricted Musgrave’s post-termination conduct. Accordingly, CMC did not show a probable right to recovery on its contract claim, and thus, the trial court did not abuse its discretion in denying CMC’s application for temporary injunction.

The court reached this result even though the findings of fact supporting the trial court’s order did not rest on the ground that the noncompete period was inapplicable. According to the court, it was unconstrained by the lower court’s findings because “[t]he trial court’s stated reasons for denying CMC’s application for temporary injunction do not meet the requirements of civil procedure rule 299a [which requires that findings of fact be separately filed from the judgment or order] and do not control the outcome of this case.” Thus, the court effectively reviewed the trial court’s order based on the legal fiction that no findings of fact were made, such that it was free to uphold the trial court’s decision on any legal theory supported by the record—even one not embraced by the lower court’s findings.

This opinion underscores the importance of the requirement that findings be filed separate and apart from the judgment or order they support. Otherwise, as CMC learned, litigants will face an uphill battle obtaining reversal on appeal. Ist-termination activities, and to properly define their terms.

Henry F. Coffeen III Mgmt., Inc. v. Musgrave, 02-16-00070-CV, 2016 WL 6277375 (Tex. App.—Fort Worth Oct. 27, 2016, no. pet. h.)