Court finds broker’s noncompete agreement ‘unreasonable’
November 12, 2018
The Court of Appeals for the First District of Texas recently ruled in favor of a trucking company that was sued by a broker for breach of contract. Appellate judges found that a noncompete clause was not enforceable by way of being unreasonable.
On Nov. 1, the Texas appellate ruled on a case that was on appeal by both parties. A lower court ruled in favor of Central States Logistics, doing business as Diligent Delivery Systems, awarding the broker damages due to breach of contract by BOC Trucking. However, the lower court also granted BOC’s motion for judgment on Diligent’s tortious interference claim.
In a contract signed between the two companies in February 2013, BOC agreed not to attempt to divert the business of any client of Diligent’s to any competitor of Diligent for the duration of the contract and for two years after BOC’s last contact with any client of Diligent.
BOC began hauling for Ameriforge, a client of Diligent. Approximately 10 months after hauling for Ameriforge, BOC Trucking President Clarence Meyers formed a logistics company called BOC Logistics. That company signed on Ameriforge as a client, using BOC Trucking to haul its freight.
Consequently, Diligent filed a lawsuit against BOC Trucking and Meyers in April 2015, claiming breach of contract, tortious interference with the existing contract, and violations of the Texas Uniform Trade Secrets Act. Diligent claimed that BOC Trucking and Meyers obtained Diligent’s pricing information for Ameriforge and used that information for BOC Logistics to undercut Diligent’s pricing. The trial court disagreed with the assertion and entered a directed verdict, which essentially directs the jury to agree with the court’s judgment.
However, the jury did award Diligent more than $200,000 in damages for claims related to trade secrets. BOC Trucking’s motion to reform or void the verdict was denied.
The jury also found Meyers liable for tortious interference. Again, Meyers moved for the judge to enter a directed verdict regarding liability and damages for tortious interference.
For liability, Meyers argued that, because he was an agent of BOC Trucking, he could only be found to have interfered with BOC Trucking’s contract with Diligent if the logistics company established that his actions could only have been motivated by personal interests, according to court records. Meyers argued that there was no such evidence in the record. The trial court agreed.
In the appeal, BOC Trucking claimed the noncompete agreement was unenforceable. According to the appellate court opinion, if a noncompete agreement is not reasonable, the trial court must reform it to the extent necessary to make it reasonable. The appellate court found that the time period for the agreement was unreasonable.
According to court documents, the agreement would last “for two years after BOC Trucking’s last contact with any client of Diligent, regardless of whether BOC Trucking had had any previous interactions with them and regardless of whether the interaction was during or after the agreement.” Theoretically, the agreement would never end.
Furthermore, Diligent considered its client base a trade secret. With that said, BOC Trucking had no way of knowing when it had its last contact with any of Diligent’s clients.
“There is no discernible method for BOC Trucking to know when the two-year time period has expired because there is no means for BOC Trucking to know when it has had its ‘last contact with any client or client(s) of’ Diligent,” the appellate court opined. “Because BOC Trucking cannot determine when the time of the covenant not to compete has ended, it cannot be enforced as written.”
Diligent’s appeal of the tortious interference judgment in favor of BOC Trucking was denied. The appellate court also denied Diligent’s appeal of the directed verdict on it trade secretes misappropriation claim.
Accordingly, the appellate court reversed the trial court’s award of damages on Diligent’s breach of contract claim. The contract that formed the basis of Diligent’s breach of contract claim allowed the prevailing party in a suit to recover attorneys’ fees and costs. Because Diligent is no longer the prevailing party in the suit, the awards of attorneys’ fees and costs were also reversed.