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Yorsch v. Morel

Court of Appeals of Louisiana, Fifth Circuit

July 26, 2017

FREDERICK E. YORSCH
v.
STEPHEN D. MOREL

         ON APPEAL FROM THE TWENTY-FOURTH JUDICIAL DISTRICT COURT PARISH OF JEFFERSON, STATE OF LOUISIANA NO. 763-663, DIVISION "K" HONORABLE ELLEN SHIRER KOVACH, JUDGE PRESIDING

          COUNSEL FOR PLAINTIFF/APPELLANT, FREDERICK E. YORSCH Randall A. Smith, J. Geoffrey Ormsby, Reagan Reynolds

          COUNSEL FOR DEFENDANT/APPELLEE, STEPHEN D. MOREL James M. Garner, David A. Freedman

          Panel composed of Judges Fredericka Homberg Wicker, Marc E. Johnson, and Hans J. Liljeberg

         AFFIRMED

         FHW MEJ

         CONCURS AND DISSENTS WITH REASONS

         HJL

          FREDERICKA HOMBERG WICKER, JUDGE

         This appeal arises out of a judgment of the district court denying plaintiff Frederick E. Yorsch's request for a preliminary injunction to restrain defendant, Stephen D. Morel, from undertaking various employment activities with several alleged competitors of Nola Title Company, L.L.C. and My Tax Sale Resources, L.L.C. (the "Companies, " collectively)-two member-managed limited liability companies of which Yorsch and Morel are the only two members-and from soliciting or targeting clients of the Companies. Through his "Verified Petition for Temporary Restraining Order, Preliminary Injunction and Permanent Injunction, " Yorsch sought enforcement of a "Non-Circumvention and Non-Competition Agreement" (the "Agreement") into which Yorsch and Morel entered as members of the Companies. As indicated by its title, the Agreement contained both a noncompetition clause and a non-circumvention clause. On the merits, Yorsch argues that each clause independently entitles him to injunctive relief. After a careful review of the Agreement and of the applicable law, we hold that both clauses are unenforceable on their face. Because we find the scope of the non-competition clause to be impermissibly broad and because we find that the non-circumvention agreement is not geographically bound as required by La. R.S. 23:921, we affirm the district court's judgment.

         FACTUAL AND PROCEDURAL BACKGROUND

         On April 19, 2006, Yorsch and Morel formed Nola Title Company, L.L.C. ("Nola Title"), a member-managed limited liability company, to offer closing and title insurance services for the sale of properties.[1] Yorsch and Morel are Nola Title's sole members. At the district court hearing on Yorsch's request for a preliminary injunction, Yorsch testified that, around 2008, Nola Title entered into the market of offering closing and title insurance services for tax sale properties. According to Yorsch, Nola Title dealt with "anything with tax sales in the chain of title" and offered these services to several municipalities, parishes, or jurisdictions. On August 1, 2014, Morel and Yorsch formed My Tax Sale Resources, L.L.C. ("MTSR"), a member-managed limited liability company, of which Morel and Yorsch are the sole members. According to Yorsch, "[MTSR] was set up…for research and vetting of tax-adjudicated properties for - to be able to issue title insurance."

         Due to the procedural posture of this case, the facts were not fully developed in the district court. It is not clear, and we decline to speculate as to, what precipitated the parties' decision to enter into the Agreement which Yorsch presently seeks to enforce by means of injunction. The record indicates that on July 10, 2015, Yorsch and Morel executed the following agreement:

NON-CIRCUMVENTION AND NON-COMPETITION AGREEMENT
This agreement, effective as of July 10, 2015 (the "Effective Date"), is by and between Stephen D. Morel and Frederick E. Yorsch. The parties hereto are hereinafter at times collectively referred to as the "Members" and each referred to as a "Member". [sic]
RECITALS
WHEREAS, the Members are the members of Nola Title Company, LLC ("Nola Title") and My Tax Sale Resources, LLC ("MTSR") hereinafter, the "Companies";
WHEREAS, the Companies have entered into a business arrangement with Archon Information Systems/Civic Source ("Civic Source"), whereby the Companies shall handle the issuance of the policies and the closing for tax adjudicated real estate for Orleans Parish, St. Landry Parish, St. Mary Parish, St. Bernard Parish, Tangipahoa Parish, City of Gretna, City of Bogalusa, Morehouse Parish, East Carroll Parish, Point Coupee Parish and City of New Iberia, as well as have right of first refusal to conduct and/or, within a reasonable period of time establish to CivicSource [sic] the Companies' ability to perform such professional services in any other location. The Companies also intend to provide title insurance for secondary sales and/or refinances of adjudicated properties (hereinafter, the "Business");
WHEREAS, the Companies intend to enter into an agreement with Civic Source regarding both the Business and the exploration and pursuit of the Business in other parishes of Louisiana or other states with respect to the handling of the sales, closings and title policy issuances for tax adjudicated real estate (the "Opportunity");
WHEREAS the Members agree to not circumvent or compete against the Companies with respect to the Business or the Opportunity.
NOW THEREFORE, in consideration of the mutual promises set forth herein, the Parties hereto agree as follows:
1. Non-Circumvention: Both Members hereby agree not to circumvent the Companies in any dealings regarding the Business or the Opportunity with any title insurance companies, including without limitation WFG National Title Insurance Company, or with any government municipalities, parishes, or counties; and each of the Members will not in any manner, except on behalf of the Companies, access, contact, solicit and/or communicate with such parties or accept any business, support, investment, or involvement from such parties or enter into any arrangement or transaction with such parties with respect to such matters, without the other Member's express written consent or other Member's direct involvement.
2. Non-Competition. [sic] Except with the express written consent of the other Member, neither Member shall directly or indirectly perform any of the following activities: work for, manage, operate, control, engage or participate in (whether as a principal, agent, representative, proprietor, member, consultant, partner or employee), or engage or invest in, own, manage, operate, finance, control or participate in the ownership, management, operation, financing or control of, be employed by or associated with, or render services or advice or other aid to, or guarantee any obligation of, any person or entity engaged in any business whose activities compete in any way with the Business or the Opportunity. Each of the Members acknowledges that the Companies conduct the Business in the following parishes in the State of Louisiana: Orleans Parish, St. Landry Parish, St. Mary Parish, St. Bernard Parish, Tangipahoa Parish, City of Gretna, City of Bogalusa, Morehouse Parish, East Carroll Parish, Point Coupee Parish and City of New Iberia (collectively, the "Covered Parishes"), and accordingly, the restrictions contained herein shall apply to the Covered Parishes. Members shall amend the Covered Parishes, as needed, to include the Business in other parishes and counties obtained by the Opportunity.
3. Period of Effectiveness: The term of this agreement will commence on the Effective Date and continue with respect to each Member for as long as such Member holds an ownership interest in either of the Companies and for a period of two years thereafter.
4. Remedies: Damages, Injunctions and Specific Performance: The Members expressly understand and agree that the covenants and agreements to be rendered and performed under this agreement are special, unique and are extraordinary in character, and in the event of any default, breach or threatened breach by a Member of this agreement, the other Member shall have the following rights and remedies, each of which shall be independent of the other and severally enforceable, and all of which shall be in addition to and not in lieu of any other rights and remedies available to such Member: (a) such Member shall have the right to have any of [sic] any covenant or agreement specifically enforced without the necessity of proving irreparable injury and without the necessity to post bond or other security; (b) such Member shall have the right to recover direct damages (but not any indirect, punitive, special or consequential damages or loss of profit); and (c) such Member shall have the right to enjoin the breach of such covenants and agreements.
5. Applicable Law: This agreement will be governed by and construed in accordance with the laws of the State of Louisiana.
6. Miscellaneous: If any term or provision of the agreement, or the application thereof to any person or circumstance, shall at any time or to any extent be invalid, illegal or unenforceable in any respect as written, the Members intend for any court construing this agreement to modify or limit such provision temporally, spatially or otherwise so as to render it valid and enforceable to the fullest extent allowed by law. Any such provision which is not susceptible of such reformation shall be ignored so as to not affect any other term or provision hereof, and the remainder of this agreement, or the application of such term or provision to persons or circumstances other than those as to which it is held invalid, illegal or unenforceable, shall not be affected thereby and each term and provision of this agreement shall be valid and enforced to the fullest extent permitted by law. All terms, conditions, covenants, warranties, representations, agreements, undertakings and obligations hereunder (and under all documents executed herewith) are binding upon and inure to the benefit of the Members hereto and their legal representatives, successors and permitted assigns. No Member may assign or transfer any interest in or obligation under this agreement without the prior written consent of the other Member. No consent or waiver, express or implied, by either Member to or of any breach of default by the other Member in the performance of this agreement may be construed as consent or waiver to or for any subsequent breach or default in the performance by such other party of the same or any other obligations hereunder. This agreement supersedes any other agreement between the Members prior to the date hereof regarding the subject matter hereof. This agreement may be executed in counterparts and all will be considered part of one agreement on all parties hereto. Delivery of an executed counterpart of this agreement by telefacsimile or electronic mail shall be equally as effective as delivery of the original executed counterpart of this agreement.
IN WITNESS WHEREOF, the Members have caused this Agreement to be executed as of the Effective Date.

         There is no dispute that both Morel and Yorsch signed this Agreement.

         Just over a year later, on August 9, 2016, Yorsch filed a "Verified Petition for Temporary Restraining Order, Preliminary Injunction and Permanent Injunction" in the Twenty-Fourth Judicial District Court, [2] petitioning the district court to

enjoin, restrain and/or prevent defendant Stephen Morel through a temporary restraining order, preliminary injunction and permanent injunction from (1) engaging in any business or activity for Archon/CivicSource, CivicSource Title, LLC, U.S. National Title Insurance Company, and any and all affiliated companies; (2) soliciting and/or targeting NOLA Title's clients with whom Mr. Morel did business and/or whom he may have solicited while actively engaged in NOLA Title business activities; (3) soliciting, inducing, recruiting, or causing another person in the employ of NOLA Title and/or MTSR to work for Archon/CivicSource, CivicSource Title, LLC, U.S. National Title Insurance Company, and any and all affiliated companies; and (4) divulging any of NOLA Title's confidential and trade secret information, including but not limited, to the MTSR vetting process utilized by NOLA Title.

         On August 26, 2016, the district court held a hearing on Yorsch's request for a preliminary injunction. Yorsch testified about the merits of his request for injunctive relief, alleging his entitlement to a preliminary injunction because Morel, in violation of the Agreement, has become employed by CivicSource- which Yorsch maintains is currently a direct competitor of the Companies. In response, Morel's counsel argued that the Agreement was not enforceable as a matter of law because it is overly broad and violates Louisiana's strong public policy disfavoring agreements not to compete.

          After ruling from the bench as a matter of law that the Agreement was not enforceable, the district court issued a written judgment on August 30, 2016. On September 7, 2016, the Court issued written reasons for judgment, finding the language of the Agreement to be "impermissibly broad":

The Non-Circumvention and the Non-Competition paragraphs attempt to prohibit the defendant from performing any type of work imaginable for any other business whose activities compete in any way with the "Business" or "Opportunity." The Agreement does not just limit the prohibition to defendant's work that he actually performed for NOLA Title. It prohibits him from working in any capacity for certain persons and entities. Furthermore, it does not just prohibit the defendant from working to issue title policies in certain parishes. It prohibits him from doing anything for any person or entity that competes in any way with the handling of title insurance and closings for tax adjudicated real estate by NOLA Title and MTSR.

         The district court further found that the Agreement also effectively contained no territorial restrictions as required by La. R.S. 23:921:

[T]he definition of "Opportunity" clearly fails to comply with La. R.S. 23:921 in that it fails to specify parishes or municipalities. Moreover, while the definition of "Business" specifies certain parishes and municipalities, after specifying these locations, it continues to define the "Business" as a right of first refusal to conduct such professional services "in any other location." Thus, it essence [sic], the Agreement at issue contains no territorial limitation. It prohibits the defendant from doing any type work for any person or company that competes in any way with the right of first refusal held by NOLA Title and MTSR to handle the title insurance and closings for tax adjudicated real estate in any location. This type of prohibition is not valid under La. R.S. 23:921(C).

         Finally, the district court declined to reform the Agreement. Citing Summit Inst. for Pulmonary Med. & Rehabilitation v. Prouty, 29, 829 (La.App. 2 Cir. 4/9/97), 691 So.2d 1384, the district court emphasized that courts have declined to reform non-competition agreements to comply with the statute when reformation would involve amending an ambiguously broad provision to the outer limits of the law. Moreover, the court found that reformation is at odds with the jurisprudential rule that such agreements must be strictly construed against the party attempting to enforce the prohibition.

          On September 9, 2016, Yorsch timely filed a notice of devolutive appeal, and the district court signed an order granting him a devolutive appeal on the same day.

         DISCUSSION

         Yorsch raises three assignments of error before this Court. First, he argues that the district court erred in finding the non-competition clause invalid on the basis that the language of the clause is impermissibly broad. Next, Yorsch contends that the district court erred when it declined to reform the noncompetition clause pursuant to an apparent severability clause contained in the Agreement. Finally, Yorsch maintains that the district court erred when it ...


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