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Smith v. Commercial Flooring Gulf Coast, L.L.C.

Court of Appeals of Louisiana, Fourth Circuit

October 9, 2019

MARK J. SMITH
v.
COMMERCIAL FLOORING GULF COAST, L.L.C. D/B/A PRIORITY FLOORS

          APPEAL FROM ST. BERNARD 34TH JUDICIAL DISTRICT COURT NO. 18-0068, DIVISION "E" Honorable Jacques A. Sanborn, Judge

          Kenneth C. Bordes ATTORNEY AT LAW, LLC Alexandre E. Bonin BONIN LAW FIRM COUNSEL FOR PLAINTIFF/APPELLANT

          Edward F. Harold FISHER & PHILLIPS L.L.P.Eric Bopp Walter R. Woodruff, Jr. BOPP LAW FIRM Jason R. Anders ANDERS LAW FIRM COUNSEL FOR DEFENDANT/APPELLEE

          Court composed of Judge Roland L. Belsome, Judge Paula A. Brown, Judge Tiffany G. Chase

          PAULA A. BROWN JUDGE

         This matter arises out of a dispute involving a non-compete agreement executed between Appellant, Mark J. Smith, and Appellee, Commercial Flooring Gulf Coast, L.L.C. d/b/a Priority Floors ("Priority"), Mr. Smith's former employer. Mr. Smith resigned from Priority to work for another flooring company, RCC Flooring, LLC ("RCC"). Thereafter, Mr. Smith filed a petition for declaratory judgment to invalidate the non-compete agreement. Priority filed a reconventional demand seeking, in part, damages and injunctive relief to enjoin Mr. Smith from working with RCC. On March 27, 2018, the district court ruled in favor of Priority on the petition for declaratory judgment, finding that the non-compete agreement was valid. On March 19, 2019, the district court granted Priority's request for a preliminary injunction for a period not to exceed two years from the date of judgment. Mr. Smith appeals the March 19, 2019 judgment granting the preliminary injunction. For the reasons that follow, we find no manifest error in the district court's issuance of the preliminary injunction; however, the district court erred, as a matter of law, in the duration of the injunctive relief granted. Accordingly, we amend and affirm as amended the district court's judgment.

         FACTUAL AND PROCEDURAL HISTORY

         Priority is a commercial contractor flooring company headquartered in Jefferson Parish. Mr. Smith worked for Priority for approximately six and a half years. He was initially employed as an entry-level salesman and later promoted to manager of the multi-family division. Mr. Smith was again promoted in August 2015 to general sales manager, a position which required him to oversee the operations of both the multi-family and commercial business divisions. On October 6, 2015, Mr. Smith signed a non-disclosure and non-compete employee agreement (the "non-compete agreement") with Priority. The non-compete agreement prohibited Mr. Smith from working with Priority's competitors, owning a competing business, and soliciting customers of Priority in certain parishes listed in the agreement, including Jefferson Parish, for a period of two years from his termination date.

         In October 2017, Mr. Smith informed Priority that he intended to resign to accept an executive position with RCC, a commercial flooring company that also does business in Jefferson Parish. Following, Priority offered Mr. Smith an executive position and requested he sign another non-compete agreement. Mr. Smith declined. Mr. Smith remained with Priority until December 15, 2017.[1]

         On December 18, 2017, Priority sent Mr. Smith written notice that it intended to enforce the non-compete agreement. In response, on January 9, 2018, Mr. Smith filed a petition for declaratory judgment seeking a declaration to have the non-compete agreement invalidated. Mr. Smith alleged that the clauses of the non-compete agreement should be strictly construed against its enforceability, and the use of the conjunction "and" in identifying the behavior restrained meant that the agreement was only valid if he engaged in all three of the prohibited restraints: working at another flooring company, owning another flooring company, and soliciting Priority's customers. Mr. Smith further alleged the clear wording of the non-compete agreement required him to have an ownership interest in a competing business for a breach to occur. Considering that he had no ownership interest in RCC, Mr. Smith asserted the non-compete agreement was not enforceable.

         On February 8, 2018, Priority filed an answer denying the allegations of the petition for declaratory judgment and a reconventional demand seeking preliminary and permanent injunctive relief to enforce the non-compete agreement. Priority alleged Mr. Smith breached the non-compete agreement by accepting work at RCC and should be enjoined from working with RCC or any other competing commercial flooring businesses in the protected parishes.

         The parties consented to having Mr. Smith's petition for declaratory judgment and Priority's request for preliminary injunctive relief consolidated for consideration at a single evidentiary hearing, which took place on March 7, 2018. Both Kimberly Rooney, Priorty's CEO and co-owner, and Mr. Smith testified at the hearing.

         Ms. Rooney testified that the purpose of the non-compete agreement was "to prohibit any activity that involved the sale and/or installation of floor preparation and/or materials, but the agreement did not prohibit employees from working at a business, such as Home Depot.[2] Ms. Rooney said since 2015, all nineteen of

         Priority's employees signed non-compete agreements. She said RCC was a direct competitor of Priority, as RCC and Priority bid on a number of the same contracts and competed for labor.[3] She believed Mr. Smith had already approached one of Priority's primary sub-contractors to work for RCC. She said without the non-compete agreement, Mr. Smith could leverage the information and the relationships he developed at Priority to benefit RCC, emphasizing that Mr. Smith previously had access to a written list of all of Priority's sub-contractors.

         Mr. Smith testified that he understood the non-compete agreement to mean that he could not "take ownership or part ownership, solicit customers and take priority information to a new company." Mr. Smith denied taking proprietary information to RCC or soliciting Priority's clients. He testified that he did not need anything he learned at Priority to do his job at RCC and that the only entities he called at RCC were already a part of RCC's contact lists. Mr. Smith testified he had immediate oversight of Priority's multi-family and commercial division, with duties that included training, cultivating employees, bid review, and resolution of contract issues on job sites. His work at Priority was sixty percent multi-family and forty percent commercial. In contrast, he described his job at RCC as more of "an administrative role, oversight of the accounting aspect."

         On cross-examination, Mr. Smith identified his signature on the Priority non-compete agreement. He acknowledged the position he applied for at RCC was vice-president of operations. Mr. Smith verified that he initially signed a non-compete agreement with RCC; however, RCC and he agreed to disregard the non-compete agreement. Mr. Smith admitted that RCC and he discussed changing his job responsibilities in order to avoid a conflict with Priority's non-compete agreement and that RCC agreed to help him with attorney's fees in the event he was sued over the agreement. Mr. Smith reiterated that he understood he would not be in violation of Priority's non-compete agreement as long as he did not own a part of a competitor's business. Mr. Smith confirmed that a person's reputation in the commercial flooring business and the quality of the work performed play a role in the development of relationships. He testified his position at Priority required him to develop relationships with contractors and customers; and if something went wrong, to act as the "escalation point" in solving the problem. Mr. Smith verified that the names of some of the general contractors who worked for Priority are also the names of contractors who work for RCC. Mr. Smith admitted that he discussed the scope of his commercial flooring experience acquired at Priority with RCC before he accepted RCC's position.

         At the conclusion of the hearing, the parties submitted post-trial memoranda; thereafter, the district court rendered separate judgments. As to the petition for declaratory judgment, on March 27, 2018, the district court found a valid non-compete agreement existed between the parties, writing that the use of the verbiage "and"' as opposed to 'and/or' did not vitiate or reduce the effectiveness of this contract'" with reference to the listing of the restrained behaviors. Mr. Smith appealed. This Court dismissed the appeal, holding that the appeal of the declaratory judgment was not a final, appealable judgment, and accordingly, remanded the matter back to the district court.[4]

         On March 13, 2019, the district court granted Priority's request for preliminary injunctive relief. The district court found Mr. Smith had violated the terms of the non-compete agreement; a valid non-compete agreement existed between the parties; and the non-compete agreement provided for a reasonable, two-year non-compete period. The district court preliminarily enjoined Mr. Smith from working with RCC or any other Priority business competitor until such time as Priority's request for permanent injunction could be adjudicated, "but in no event for longer than two years from the date of this Judgment."[5]

         Mr. Smith devolutively appeals the March 13, 2019 judgment.[6]

         DISCUSSION

         Mr. Smith contends the district court erred in granting Priority's motion for preliminary injunction in three respects: (1) the district court effectively added the disjunctive "or" to the non-compete clauses, thereby significantly broadening the language of a strictly construed restrictive covenant; (2) the district court erred in finding a valid non-compete/non-solicitation agreement between the parties despite the overly broad language contained in the contract; and (3) the district court erred by granting judgment unlawfully restraining Mr. Smith from his trade beyond a period of two years from termination of employment, contrary to Louisiana law.

         We will first review assigned errors one and two as both errors question the validity of the non-compete agreement.

         Validity of the Non-Compete Agreement

         Historically, Louisiana jurisprudence has had a strong public policy against non-compete agreements between employers and employees, strictly construing such agreements against the party seeking enforcement. See Clear Channel Broadcasting, Inc., v. Brown, 2004-0133, p. 4 (La.App. 4 Cir. 3/30/05), 901 So.2d 553, 555-56 (citations omitted). This public policy is premised upon the state's interest in preventing an ...


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