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Brand Energy Solutions LLC v. Gilley

United States District Court, W.D. Louisiana, Lake Charles Division

January 18, 2017


          KAY MAG. JUDGE.



         Before the court is "Defendant Cody Gilley's Rule 12(C) Motion for Judgment on the Pleadings" (R. #21) wherein Mr. Gilley moves the Court to dismiss all claims asserted by Brand Energy Solutions, LLC, et al, with prejudice, pursuant to Rule 12(c) of the Federal Rules of Civil Procedure. Mr. Gilley maintains that the instant lawsuit must be dismissed because the noncompete Agreement is unenforceable. Mr. Gilley alleges the Agreement between Brand Energy Solutions ("Brand"), et al and defendant, which Mr. Gilley allegedly breached, violates Louisiana's strong public policy on restrictions on trade.


         In their complaint, Brand, et al alleges that upon termination of his employment with Brand, Mr. Gilley began working for Apache Industrial Services, ("Apache"), a direct competitor of Brand. Mr. Gilley allegedly solicited and obtained work from Brand's customers on behalf of Apache in violation of the Confidentiality, Non-Competition, Non-Solicitation and Invention Assignment Agreement ("Agreement").


         Rule 12(c) provides that "[a]fter the pleadings are closed - but early enough not to delay trial - a party may move for judgment on the pleadings."[1] Rule 12(c) motions are evaluated in the same manner as motions filed under Rule 12(b)(6) in that the plaintiffs allegations are to be accepted as true, and the court construes all reasonable inferences in a light most favorable to the nonmoving party.[2] Judgment on the pleadings is granted where it is beyond doubt that the movant can prove no set of facts in support of his claim that would entitle him to relief, or where material facts are not in dispute, and the movant is entitled to judgment as a matter of law based on the content of the pleadings.[3] Mr. Gilley asserts that he is entitled to judgment on the pleadings as a matter of law.

         Louisiana's law as to non-compete agreements

         In Louisiana, non-compete agreements are deemed to be against public policy. Louisiana Revised Statute 23:921 provides the limited circumstances under which a non-compete clause may be valid:

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. However, every contract or agreement, or provision thereof, which meets the exceptions as provided in this Section, shall be enforceable.

         Subsections C provides the exception(s):

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.

         To be valid, a non-compete agreement may limit competition only in a business similar to that of the employer, in a specified geographic area, and for up to two (2) years from termination of employment.[4] "Non-competition clauses are not favored in the law and are strictly construed against the person attempting to limit the competition."[5]

         Geographical restriction

         Mr. Gilley argues that the Agreement fails to fit into the exception because it does not identify with reasonable certainty those areas in which the employer may lawfully prohibit competition. Thus, Mr. Gilley maintains that the Agreement is unenforceable on its face. The Agreement defines the "Restricted Area" by naming and/or identifying 35 Louisiana parishes, 41 Texas counties, 23 Mississippi counties, 21 Alabama counties and 2 Florida counties.

         Mr. Gilley relies on WaRuespack v. Medtronic, Inc., [6] which held that a geographic limitation in an employer-employee non-competition agreement was not "clearly discernible." In Waguespack, Judge James Brady noted that there are two independent requirements as to the geographical limitation: (a) the parishes where competition is restrained must be "specified" within the agreement itself; and (b) a substantive limit requiring non-competition agreements to be "limited in enforcement to parishes where the first employer actually carries on a like business therein."[7] "What is important is that the geographic limitation be express and clearly discernible."[8] The limitation must allow the employee to "know on the front end what his potential restrictions might be and exactly what price he was being called upon to pay in exchange for employment."[9]

         In Waguespack, the Employment Agreements restricted the geographic scope of the noncompetition clause to (1) "the Louisiana Parishes and/or Municipalities that are included within [Employee's identified Medtronic sales territory ... during the last one (1) year of [his] employment with Medtronic, " and (2) "the Louisiana Parishes and/or Municipalities that Medtronic engaged in business within and that [Employee's] services ... supported during the last one (1) year of [his] employment."[10]

         Judge Brady found the geographic limitations to be invalid because they were not "express"; the Employment Agreements did not list or otherwise identify the parishes in which plaintiffs were prohibited from competing. Thus, the geographical limitations were not "clearly discernible" because there was no way for plaintiffs to determine what their potential restrictions would be if they decided to leave their employer in the future. In the instant suit, Brand has specifically identified each parish and county to be included in the Restricted Area.

         In Aon, [11] the geographic scope of the agreement provided "whatever parishes, counties and municipalities the Company or Hall carries on such parish, county or municipality" in which the employer conducted business. The court held the geographic limitation invalid because it failed to inform the employee on the front end (when he signed the agreement) to know exactly what his restrictions would be and what price he would be called upon to pay in exchange for employment.

         Gilley argues that the Agreement he signed would restrict him from having (1) virtually any affiliation with any company that (2) carries on a business similar to Brand or any of the 29 Affiliate-Plaintiffs (3) anywhere in the world. Gilley suggests that listing and/or naming the specific counties and parishes "seems to be every locality that a Manager could possibly be involved with, either through actions of the Company, the Manager himself, or even personnel reporting to the manager which would require the Court to undertake an analysis on the type of business of each of the thirty Plaintiffs in this case, the areas where such business took place, and the areas that were within Gilley's "management, operational or sales responsibility or within the responsibility of personnel directly reporting to"[12] Gilley. Gilley insists that the form Agreement could be used on any employee working in any of its locations, and if enforced, Brand and/or any of the Affiliate-Plaintiffs could require any employee to execute this Agreement regardless of the employee's specific job responsibilities and seek to enforce the Agreement against each employee as it applies to each individual situation in the event of an alleged breach, even despite the fact that the geographic reach of the corporate umbrella was and remains unknown. To summarize, Gilley asserts that the geographical limitation is nothing more than a generic provision prohibiting employment in areas where the employer does business which is contrary to the intent of § 921(c).

         Brand maintains that the geographic limitation is valid and enforceable and that Louisiana law requires that the severability clause[13] of the present Agreement be applied by the court to strike the phrase "every county, city, municipality, parish or other locality within Canada or the United States, or any other country, including" from the defined Restricted Area applicable to the Non-Solicitation Agreement.[14][15] However, Brand argues that the counties and parishes identified as within the restricted area are valid and enforceable. Brand relies on Vartech Systems, Inc. v. Haven, [16] wherein the court held that "[t]he listing of all 64 parishes does not automatically render the specification overly broad."[17]

         Brand further points out that the geographic scope goes beyond the requirements of § 921(C) because it limits the geographic area to the parishes that were within the management, operation or sales responsibility of Defendant or his direct reports during the last year of his employment.[18] Brand cites several cases, wherein the Louisiana Supreme Court has directed the courts to use savings and severability clauses agreed to by the parties interpreting noncompetition contracts, and to strike overbroad language when doing so can result in an enforceable agreement.[19]

         Brand suggests that to the extent the Court finds that the Agreement is overbroad due to the presence of the 29 Affiliate Plaintiffs, the Court can strike said Plaintiffs from the Agreement and enforce the Agreement only as to Brand. Gilley takes issues with Brand's reliance on SWAT 24 and argues that the case only dealt with former employees going on to start their own competing business with that of the former employer, not employees who went to work for other employers.

         In Swat 24, the Louisiana Supreme Court granted certiorari to resolve a split among the circuits as to the proper interpretation of Louisiana Revised Statute 921(C) and the limited exception. Some circuits applied § 921(C) only to those agreements in which the employee agrees to refrain from carrying on or engaging in his own competing business to that of the former employer, while other circuits also applied the exception to agreements that prohibit employment as an employee in an existing competing business.[20] Resolving the split, the Louisiana Supreme Court ruled that § 921(C) only dealt with former employees going on to start their own competing business with that of the former employer.[21] However, the SWAT 24 court decided to sever the offending portions of the agreement instead of declaring it entirely null further noting "the state of uncertainty in the law of the issue that was created by the split in the circuits concerning the proper interpretation to be given to § 921(C)."[22] As noted by Gilley, Swat 24 was legislatively overruled by Act 2003, No. 428 effective August 15, 2003.[23] Thus, the court's reasoning behind being "especially inclined" to sever the provisions was based upon an interpretation that has been legislatively overruled. Gilley argues that Louisiana courts may rely on Savings and Severability Clauses and strike overbroad language in an otherwise enforceable agreement noting that the enforceability of non-competition agreements in Louisiana is the exception, not the rule.[24]

         Gilley agrees that Louisiana courts may rely on Savings and Severability clauses and have the authority to strike overbroad language in an otherwise enforceable agreement, however, that enforceability depends on the agreement meeting the exception(s) set forth in the statute. Additionally, "every court must strictly construe statutory exceptions, such as § 921(C) because of the 'longstanding public policy of this state disfavoring agreements not to compete.'"[25] Because non-compete agreements are in "derogation of the common right, they must be strictly construed against the party seeking their enforcement."[26] Thus, Gilley argues that the Agreement does not meet the limited exception(s) delineated by Louisiana Revised Statute 23:921 and therefore is unenforceable.

         The issue for this Court to decide is whether or not the Agreement fits into an exception to the general rule that covenants not to compete agreements shall be null and void; said Agreement must strictly comply with the requirements contained in ยง 23:921(C). The parties generally agree that the Agreement cannot be saved through reformation. Brand, et al suggests that the Court strike the overbroad language and enforce the Agreement only as to the parishes and counties identified in the Agreement and strike all of the plaintiffs other than Brand. In other words, reform the Agreement. In order for the Agreement to comply with Louisiana ...

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