Petition for Writ of Certiorari — Blase Industries Industries Corp. Corp. v. Anorad Corp Corp. (No. 05-1514)

OFFICE OF BRE CLERK |

Fasano ERK |

——

In the

Supreme Court of the United States

BLASE INDUSTRIES CORPORATION

D/B/A WILSON SOLUTIONS,

Petitioner

V.

ANORAD CORPORATION,

Respondent

a

On Petition for Writ of Certiorari to the

United States Court of Appeals for the Fifth Circuit

PETITION FOR WRIT OF CERTIORARI

RECEIVED

MAY 31 2006

lee

Ruth E. Piller

Counsel of Record

Hays, McConn, Rice & Pickering

400 Two Allen Center

1200 Smith Street

Houston, Texas 77002

(713) 654-1111

QUESTION PRESENTED FOR REVIEW

Did the Fifth Circuit’s determination that it is

impossible for any employer of an at-will employee to

recover contract damages for lost profits contravene

established law and public policy that embraces the

execution of contracts and the punishment of breaching

parties?

DISCLOSURE STATEMENT

Pursuant to Rule 29.6 of the Rules of the Supreme

Court of the United States, Petitioner Blase Industries Corp.

d/b/a Wilson Solutions respectfully submits the following

disclosure statement:

Petitioner Blase Industries Corp. d/b/a Wilson Solutions

is the parent company; there are no related or subsidiary

entities. Further, no publicly held company owns 10 percent or

more of Blase Industries Corp. d/b/a Wilson Solutions’s stock.

i

TABLE OF CONTENTS

Page

QUESTION PRESENTED FOR RE Vee We v5 05 keer i

DISCLOSURE STATEMENT. .......----+-0 02s e0: i

TABLE OF CONTENTS.. .....----- eee ee errr rere 11!

TABLE OF AUTHORITIES. .......--------eee errr? iv

aie

OPINIONS BELOW... << os oc Sena ee eet creresss: l

FURISDICTION... 6 cc cs heres oes en te BSC ea eee 2

STATEMENT OF THE CASE. .....-------- e200 000' 3

A. Course of proceedings and

disposition in the court below... .....----- 3

B. Statement of Facts. .......----+++ee+e0> 4

REASONS FOR GRANTING THE PETITION........-- 6

A. The implications of the Fifth

Circuit’s holding. .......-----+s+e+e0 6

B. The solution afforded by contract law...... 9

COMICT LISTON 2 i ws SE eS EECA SE EEE 14

APOC WIIIN os Bo neh on Cee ee ws 6 EEE ES Ee? App |

iil

TABLE OF AUTHORITIES

CASES PAGE

Anvil Min. Co. v. Humble,

ine Me PM IGOR 5 i eh pee es 10

Crichfield v. Julia,

147 F. 65 (2nd Cir.), cert. denied 203 U.S. 593

(TN: S545, TEE ee eee eek ee eee 10

Eastman Kodak Co. y. Southern.Photo Materials Co.,

oS GEE Ee to 5) CAMO Oe ee een nea 10

Friedman vy. Greenberg,

2001-2 TRADE Cas. (CCH) P73

(Tex. App.—Houston [14"- Dist.] 2001, pet.

WN hau gcc en ee 11,12

Health Call v. Atrium Home & Health Care Servs.,

706 N.W.2d 843 (Mich. Ct. BRD. 2000); 2 Po 9

Keith v. Mendus,

661 N.E.2d 26 (Ind. Ct. Ape 199s ia 8

Kempfer v. Automated Finishing,

564 N.W.2d 692 (Wis. beg REPRE EEE WO ee 8

Lafarge Corp. v. Wolff. Inc.,

977 S.W.2d 181 (Tex. App.—Austin 1998, pet.

OUR ee re eee 1]

Lawrence v. CDB Servs., Inc.,

44 S.W.3d 544 (Tex. | Satay BURC RR ate Mea 13

iV

Printing and Numerical Registering Co. v. Sampson,

19 L.R.-Eq. 462 (1875). ...-- eee e reer 13

Riethmiller v Blue Cross & Blue Shield of Michigan,

390 NW2d 227 (1986)... . 2-62 c cree ert e tere 8

Robinson v. Perpetual Servs. Corp.,

A412 N.W.2d 562 (lowa 1987). ...---- eee errr 8

Shannon v. Shaffer Oil & Ref. Co.,

51 F. 2d 878 (10" Cir. 1931)... -.-- eee eee cee: 10

Smith v. Smithway Motor Xpress, Inc.;

464 N.W.2d 682 (lowa 1991). ..---- eee eee 8

Southwest Battery Corp. v. Owen,

131 Tex. 423 (Tex. 1938). ....----+-- resee 10, 11

Tadsen v. Praegitzer Indus.,

928 P.2d 980 (Or. 1996). ...---- seer rrr 8

Texas Instruments, Inc. v. Teletron Energy Memt., Inc.,

877 S.W.2d 276 (Tex. 1994).:...--- eee errr: 12

Texas Sanitation Co. v. Marek,

381 S.W.2d 710 (Tex. Civ. App.—Corpus

Christi 1964, no writ)......---- +e eee ere: 10, 11

Winter v. Fitness USA Health Spas Corp..

No. 188648.99 Mich. App. Lexis 2668

(Mich. Ct. App. Nov. 12, 1999)...-----+++2 2000: 8

Wood Motor Co. v. Nebel,

738 S.W.2d 181 (Tex. 1951). .--- eee eee eect: 13

STATUTES AND RULES

viglehiccitte boi, 1) Sout Oe on me

28 U.S.C. § 1441, SOMEN ha ecco

WILLISTON ON CONTRACTS. Vol. III, p. 2401.

Vi

rire

aa

Pe idad oes 10

No.

In the

Supreme Court of the United States

BLASE INDUSTRIES CORPORATION

D/B/A WILSON SOLUTIONS,

Petitioner

V.

ANORAD CORPORATION,

Respondent

On Petition for Writ of Certiorari to the

United States Court of Appeals for the Fifth Circuit

PETITION FOR WRIT OF CERTIORARI

Petitioner Blase Industries Corp. d/b/a Wilson Solutions

(“Petitioner”) respectfully petitions for a writ of certiorari to

review the judgment of the United States Court of Appeals for

the Fifth Circuit in this case.

OPINIONS BELOW

The opinion of the court of appeals is reported at 442

F.3d 235. (Pet. App. 2-9). The opinion of the district court is

unreported. (Pet. App. 10-38).

JURISDICTION

Following Rt» 1dent’s removal of Petitioner’s lawsuit

from state district Gourt in Harris County, Texas, the

jurisdiction of the trial court in the Southern District of Texas

was invoked pursuant to 28 U.S.C. § 1441, 1332(c\(1). The

court of appeals entered its judgment on March 1, 2006. The

jurisdiction of this Court is invoked pursuant to 28 U.S.C. §

1254(1).

ho

STATEMENT OF THE CASE

A. Course of proceedings and disposition in the court

below.

Petitioner filed the instant litigation in the 189th State

District Court of Harris County, Texas under Cause Number

2003-22871 on April 30, 2003. R 0008-0016). On July 1,

2003, Respondent removed the matter to the United States

District Court for the Southern District of Texas, where it was

assigned Cause Number H-03-2369. R 0021-0026). On July

14. 2003, Petitioner filed a motion to remand the case to the

state district court. R 0044-0048). The motion was denied on

September 15, 2003.

Both parties filed motions for summary judgment. R

0139-0178; 0288-0318). Petitioner's motion for summary

judgment was denied and Respondent's motion for summary

judgment was granted by the trial court's Memoranda and

Opinion dated September 28, 2004. (Pet. App. 10-38; R 0755-

0784). The trial court dismissed the case with prejudice on

September 28, 2004. R 0785). Petitioner's motion for

reconsideration and/or new trial was filed on October 4, 2004

and denied on December 3. 2004. (Pet. App. 39-41; R 0786-

0796; 0831-0833).

Petitioner filed its notice of appeal on December 17,

2004. (R 0834-0835). On March 1, 2006, the United States

Court of Appeals for the Fifth Circuit affirmed the judgment of

the District Court, holding that while Respondent had breached

the no-hire agreement, Petitioner had not adequately proved its

damages. (Pet. App. 2-9). Mandate issued on March 23, 2006.

Hence, this petition for writ of certiorari.

B. Statement of Facts.

The material facts of this suit, which essentially are

undisputed, are set forth in the trial court's opinion. R 0755-

0784). Petitioner company’s sole business was to provide

computer software consultants to its customers, one of which

was Respondent. In April 1997, Petitioner hired Jason

Schwartzman (“Schwartzman”) as an employee consuliunt. R

0783). Schwartzman earned consulting fees for Petitioner and

a salary based, in part, on those consulting fees. R 0652).

On April 9, 1998, Petitioner and Respondent entered

into a written agreement whereby Petitioner provided

Schwartzman as a consultant for Respondent. (Pet. App. 42-

46; R 0783; 0433-0435: 0659-0661 ). The agreement

contained a mutual no-hire provision:

Both parties agree to not, directly or indirectly,

during the period that Consultant [Wilson

Solutions] provides services for Client [Anorad]

and for a period of one year thereafter, solicit,

employ or hire or induce to hire any person who

is or has been an employee of either party

unless otherwise consented to in writing.

(Pet. App. 44; R 0782-0783: 0433-0435: 0659-066) (emphasis

added).

On April 19, 1999, Schwartzman sent a letter to

Petitioner evincing his intent to resign effective May 7, 1999.

(R 0657, 0782). On April 27, 1999, Respondent's

representative advised Respondent's employees _ that

Schwartzman had become an employee of Respondent. (R

0781-0782).

Contrary to Respondent's assertions, there has never

been any evidence that Petitioner waived the no-hire provision

or consented to Schwartzman’s hiring.’ Indeed, as the Fifth

Circuit Court of Appeals noted in its opinion:

It is undisputed . . . that Anorad provided no

proof of written consent to the district court and

that Schwartzman was hired within one year of

his resignation from Wilson Solutions.

Therefore, under the agreement's language,

Anorad breached the no-hire provision.

(Pet. App. 4) (emphasis added). Noting that Texas courts had

never considered the standard of proof required for an employer

to recover lost profit damages based on an at-will employee's

potential earnings, and despite its finding that Respondent had

breached its agreement with petitioner, the Fifth Circuit held

that Petitioner did not sufficiently prove its damages to a

reasonable certainty. /d. at 6.

i

The Agreement required that any such waiver or consent be in

writing. (R 0781)

A)

REASONS FOR GRANTING THE PETITION

Review by this Court is warranted to determine the

standard of proof required for an employer to recover contract

damages based on the potential profits that would have been

realized from an at-will employee’s future carnings if not for

the culpable conduct of another entity. In reviewing this

question of first impression in Texas, the Fifth Circuit Court of

Appeals improperly considered the measure of damages

available to an at-will employee who seeks lost-profit damages

after being unlawfully terminated. Consequently, in the

absence of an applicable liquidated damage agreement.

employers of at-will employees will never be able to recover

contract damages based on the profits those employees would

have earned for the employer, even when — in Situations such

as that at bar — the loss of the employees result from another

Party’s wrongful conduct. |

A. The implications of the Fifth Circuit’s holding

The Fifth Circuit correctly noted that Texas law requires

lost profit damages to be established with reasonable certain, ”

and that they may not be awarded based on speculative,

uncertain, contingent, or hypothetical evidence. App. Pet. A.

at 5. “A plaintiff must adduce evidence from which the_jury

can reasonably estimate the amount of loss.” /d. (emphasis

added).

However, the Fifth Circuit held that Petitioner's damage

claim was not sustainable because it required the court to

Inasmuch as the Fifth Circuit conceded in its opinion that a breach

had occurred, the issue of Whether the agreement Was valid, which was

briefed extensively in the trial and appellate courts. is moot for Purposes of

this petition.

indulge the presumption that Schwartzman, an_ at-will

employee, would have continued to work for Petitioner and

would have earned consulting fees for the year in question.” /d.

Thus. the Fifth Circuit held, it would be impossible for

Petitioner or any other employer of an at-will employee to ever

recover lost profit damages, even when a contract involving

that employee has been breached by another entity:

The damages request relies on the assumption

that Schwartzman would continue working for

Wilson Solutions, earning consulting fees for

the year in question. This type of contingency,

created by his at-will status, is impermissible in

Texas.

Id. at 6.

Other jurisdictions have grappled with similar issues,

holding that while the question of whether an at-will employee

would remain employed is an uncertainty, it need not preclude

the awarding of lost profit damages:

The biggest problem in awarding future

damages for the wrongful discharge of an at-

will employee is avoiding speculation. With no

contract for guidance, it is often difficult, if not

impossible, to know how long the employee

would have continued to work for the employer.

It is well established, however, that "while

recovery will be denied if it is speculative and

uncertain whether damage has been sustained,

recovery will not be denied merely because the

Petitioner only sought damages in connection with a year of

Schwartzman’s employment. (Pet. App. 4).

-

amount of damages is difficult to ascertain."

Smith vy. Smithway Motor Xpress, Inc., 464 N.W.2d 682, 688

(lowa 1991), quoting Robinson y. Perpetual Servs. Corp., 412

N.W.2d 562 (lowa 1987); Kempfer vy. Automated Finishing,

564 N.W.2d 692, 704 (Wis. 1997)(Abrahamson, Chief i

concurring) (same). See also Tadsen v. Praegitzer Indus., 928

P.2d 980, 983 (Or. 1996) (“The fact th +t at-will employment

may be terminated for any nondiscriminatory Purpose does not

necessarily mean that the likely duration of that employment is

incapable of proof to the required degree of certainty.””) and

Keith v. Mendus, 661 N.E.2d 26, 33 (Ind. Ct. App. 1996) (at-

will employee’s future employment is presumed for a

“reasonable time” in cases involving damages due the

employee) (citation omitted).

The Fifth Circuit’s holding releases contracting parties

such as Respondent from abiding by their contractual

obligations.’ That is, although Respondent Clearly breached its

contract with Petitioner — see Pet. App. 4 — it is excused from

the breach and even enjoys a windfall solely because of

Schwartzman’s status as an at-will employee.” Such a holding

. See Winter v. Fitness USA Health Spas Corp., No. 188648, 1999

Mich. App. Lexis 2668 (Mich. Ct. App. Nov. 12, 1999) at *9 (“[T]he mere

fact that future damages may be speculative should not exonerate a

wrongdoer from liability.”), citing Riethmiller v Blue Cross & Blue Shield

of Michigan, 390 NW2d 227. 201 (1986).

The Michigan Court of Appeals recently discussed the illogic in the

View of a dissenting justice who would treat at-will employment differently

from other employment when assessing damages in connection with future

employment:

If one subscribes to the dissent’s View regarding future

damages as always being speculative when they relate to

at-will employment contracts. one wonders whether the

8

flies in the face of public policy, which requires that contracting

parties fulfill the obligations within the contracts they execute.

B. The solution afforded by contract law

In its opinion, the Fifth Circuit analogized Petitioner's

damage claim with that asserted by at-will employees who seek

to_recover for their future lost salary after their (allegedly)

wrongful terminations. (Pet. App. 6-8). The court based its

holding that Petitioner cannot collect damages for

Schwartzman’s speculative future earnings on the notion that,

had Schwartzman been terminated by Petitioner, he would have

been precluded from collecting damages for his future earnings.

Id. at 8.

The Fifth Circuit failed, however, to note the critical

distinction between the instant scenario and the facts in the

cases upon which it relied: Respondent breached the no-hire

provision of its contract with Petitioner, a fact clearly set forth

dissent would reverse case law that allows for more than

— nominal future damages for at-will employees whose

employment is terminated in violation of various civil

rights statutes or, for that matter, future damages for a

wrongful death claim involving an at-will employee.

Future damages for lost wages have traditionally been

allowed in situations in which there is no dispute of fact

that the injured party was an at-will employee. Simply

because damages cannot be ascertained with

mathematical certainty does not make them unacceptably

speculative. It is for this reason that what damages may

reasonably be anticipated is an issuc better left for the

trier of fact.

Health Call v. Atrium Home & Health Care Servs., 706 N.W.2d 843, 857-

$8 (Mich. Ct. App. 2005).

by the Fifth Circuit in its opinion, whereas no such breach was

found in the cases cited by the appeals court. As such.

Petitioner was entitled to contract damages, even though the

specific amount of its damages may not be readily

ascertainable. Texas courts have embraced this principle of

contract law for decades:

It is impossible to announce with exact certainty

any rule measuring the profits the loss for which

recovery may be had. The courts draw a

distinction between uncertainty merely as to the

amount and uncertainty as to the fact of legal

damages. Cases may be cited which hold that

uncertainty as to the fact of legal damages is

fatal to recovery, but uncertainty as to the

amount will not defeat recovery. 4 party who

breaks his contract cannot escape liability

because it is impossible to state or prove a

perfect measure of damages.

Southwest Battery Corp. v. Owen, 131 Tex. 423, 427-428 (Tex.

1938) (emphasis added).° See also Texas Sanitation Co. vy.

Marek, 381 S.W.2d 710, 714-715 (Tex. Civ. App.—Corpus

Christi 1964, no writ)(same). Yet the Fifth Circuit’s opinion

would allow Respondent to escape liability for this very reason

— because it is difficult for Petitioner to prove damages with the

certainty the court contends is required, even though Petitioner

did present evidence of Schwartzman’s camings in his final

year of employment for Petitioner (and despite the court's

r Citing Eastman Kodak Co. v. Southern Photo Materials Co., 273

U.S. 359, 379 (1927): Anvil Min. Co. v. Humble, 153 U.S. $40 (1984);

Crichfield v. Julia, 147 F. 65, 71 (2nd Cir.), cert. denied 203 U.S. §93

(1906); Shannon vy. Shaffer Oil & Ref. Co., 51 F. 24 878 (10" Cir. 193] );

WILLISTON ON CONTRACTS, Vol. Ill, p. 2401.

10

finding that a breach did, in fact, occur). See Pet. App. 4 (“In

his final year at Wilsons solutions, Schwartzman earned

approximately $441,000 in consulting fees for Wilson

Solutions and received a salary of $99,000 for himself.”).

Texas courts have held that future profits, while

speculative, can be awarded on a fact-driven, case-by-case

basis, especially when the business that sustained the breach

had been turning a profit at the time of breach. See, ¢.g.,

Lafarge Corp. v. Wolff, Inc., 977 S.W.2d 181, 187 (Tex.

App.—Austin 1998, pet. denied), citing Southwest Battery Corp.

y. Owen, supra, at 1099 (holding that pre-existing profits and

the pertinent facts and circumstances regarding a business “may

be considered in arriving at a just estimate of the amount of

profit which would have been made if the defendant had not

breached the contract.”). See also Friedman v. Greenberg,

3001-2 TRADE CAs. (CCH) P73,510 (Tex. App.—-Houston 14"

Dist.] 2001, pet. denied) (giving finder of fact the discretion to

determine the amount of lost profit damages based on

speculative testimony from the plaintiff).

Friedman is illustrative. The Friedman plaintiff, a

commercial debt collection firm, sued the former employees

who breached their employment agreements’ non-compete and

non-solicitation clauses.’ 2001-2 TRADE Cas. (CCH) P73,510

at 1. The trial court found two of the former employees had

breached their employment agreemenits and that all three former

employees and the company they formed, which also had been

Cases involving breaches of non-compete clauses may be

instructive, as the amount of actual damages ts rarely certain in litigation

involving a breach of a covenant not to compete. Gilly. Guy Chipman Co., -

681 S.W.2d 264, 270 (Tex. App. San Antonio 1984, no writ) (citation

omitted). “In such cases, a party is not denied all right of recovery but the

amount of damages is fixed by the fact finder in the exercise of sound

discretion.” /d., citing Texas Sanitation Co., Inc. v. Marek, supra, at 715.

11

sued, had tortiously interfered with the plaintiff's prospective

contractual relationships. /d. at 5. The jury awarded the

plaintiff damages for the contract and tortious interference

claims. /d. In affirming the award, the Texas appellate court

discussed the standard for proving lost profit damages, noting

that the Texas Supreme Court has expressed a desire that proof

of lost profits be “flexible enough to accommodate the myriad

circumstances in which claims for lost profits arise.” /d. at 19-

20, citing Texas Instruments, Inc. vy. Teletron Energy Memt.,

Inc., 877 §.W.2d 276, 279 (Tex. 1994). The determination of

lost profits must be fact-intensive:

A jury may not arbitrarily assess an amount

neither authorized nor supported by the

evidence presented at trial. In other words, a

jury may not "pull figures out of a hat;" a

rational basis for the calculation must exist. A

jury, however, has the discretion to award

damages within the range of evidence presented

at trial.

Friedman, 2001-2 TRADE CAS. (CCH) P73,510 at 21 (internal

Citations omitted).

The Friedman jury awarded $162,500 in lost profits for

the contract and tortious interference claims, apparently

disregarding the plaintiff's testimony that its losses were

$865,408 for the employees’ breaches or, alternatively,

$950,374 based on the gross receints of the year the employees

left the plaintiff's employ. Jd. at 21-22. Although it was

unclear how the jury arrived at the $162,500 award, the court

noted the jury “has the discretion to award damages within the

range of the evidence presented at trial.” /d.* In the same vein,

the Fifth Circuit had the discretion to award damages to

Petitioner based on the range of evidence presented regarding

its expected profits if not for Respondent’s breach.

Finally, it is manifest that the Fifth Circuit’s opinion

contravenes Texas’ long-established public policy, which

embraces the creation and enforcement of contracts. "We have

long recognized a strong public policy in favor of preserving

the freedom of contract." Lawrence v. CDB Servs., Inc., 44

S.W.3d 544, 553 (Tex. 2001). See also Wood Motor Co. v.

Nebel, 238 S.W.2d 181, 185 (Tex. 1951):

If there is one thing which more than another

public policy requires it is that men of full age

and competent understanding shall have the

utmost liberty of contracting, and that their

contracts when entered into freely and

voluntarily shall be held sacred and shall be

enforced by Courts of justice. Therefore, you

have this paramount public policy to consider --

that you are not lightly to interfere with this

freedom of contract.

(quoting Printing and Numerical Registering Co. v. Sampson,

19 L.R.-Eq. 462. 465 (1875)).

In sum, the Fifth Circuit Court of Appeals’ opinion

unfairly rewards contracting parties that breach contracts

x os - . .

The damage analyses in cases involving covenants not to compete

and other contracts claims in which damages are speculative are analogous

to the case at bar, clearly more so than those cases brought by at-will

employees who seek to recover for their own termination. See supra, note

7.

13

involving at-will employees; provides a windfall to the

breaching parties; and contravenes established public policy

that encourages the formation of contracts by consenting

parties. Therefore, Petitioner asserts its petition for writ of

certiorari should be granted and briefing requested on the

merits.

CONCLUSION

The petition for writ of certiorari should be granted.

Respectfully submitted,

Ruth E. Piller

HAYS MCCONN RICE & PICKERING

400 Two Allen Center

1200 Smith Street

Houston, Texas

Telephone: (713) 654-1111]

Counsel for Petitioner

Blase Industries Corporation

d/b/a Wilson Solutions

14

tN

APPENDIX

Opinion issued by United States Court of Appeals for the

Fifth Circuit, Cause No. 04-21015, Blase Industries

Corp., d/b/a Wilson Solutions v. Anorad Corp. on

March 1, 2006.

Memorandum and Opinion issued by U.S. District Judge

Lee Rosenthal, Southern District of Texas, Cause No.

H-03-2369 on September 28, 2004.

Memorandum and Opinion issued by U.S. District Judge

Lee Rosenthal, Southern District of Texas, Cause No.

H-03-2369 on December 3, 2004.

Mutual Agreement containing, inter alia, no-hire clause,

executed on April 9, 1998 by Petitioner and Respondent.

UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

No. 02-21015

BLASE INDUSTRIES CORPORATION. doing business as

WILSON SOLUTIONS,

Plaintiff - Appellant,

¥,

ANORAD CORPORATION: ET AL.

Defendants

ANORAD CORPORATION

Defendant - Appellee.

Appeal from the United States District Court

for the Southern District of Texas, Houston

Before BENAVIDES, STEWART, andOWEN, Circuit Judges.

BENAVIDES, Circuit Judge:

App 2

This is an appeal from a grant of summary judgment.

The district court based its decision on its finding that a no-hire

agreement between the parties was unenforceable. The parties

principally present arguments to assist the court in predicting

how the Texas Supreme Court would analyze the no-hire

provision at issue. We, however, choose to affirm the district

court on alternative grounds argued by the Appellee. Because

the Appellant did not prove its lost profit damages to a

reasonable certainty, as required in Texas, summary judgment

was appropriate, and the district court is AFFIRMED.

|. FACTUAL AND PROCEDURAL BACKGROUND

The Appellant, Wilson Solutions, is acomputer software

consulting company, and the Appellee, Anorad, is a

manufacturer. Wilson Solutions hired Jason Schwartzman in

April 1997 to work as one of its consultants. One year later, it

entered into a contract with Anorad to provide consulting

services at a daily fee of $2000. The contract contained a

no-hire provision.” It stated:

Both parties agree to not, directly or indirectly,

during the period that Consultant [Wilson

Solutions] provides services for Client [Anorad],

and for a period of one year thereafter, solicit,

employ or hire or induce to hire any person who

is or has been an employee of either party unless

otherwise consented to in writing.

The parties also agreed that Texas law would govern the

contract. In April 1998, Wilson Solutions placed Schwartzman

as a consultant for Anorad. Schwartzman was not aware of the

no-hire provision and did not consent to it.

9 . ° .

A no-hire provision ts an agreement between two employers that prohibits

one employer from hiring the other employer's employees.

App 3

On April 19, 1999, Schwartzman sent Wilson Solutions

a resignation letter. The letter stated that he wanted "to pursue

more stable positions . . with less travel" and "to move back

into the corporate world—with structure, guaranteed bonus,

benefits, and pensions." A fter Schwartzman resi gned, Anorad's

chief financial officer, Paul Rossi, spoke with Wilson Solutions

to ask if the company would object if Anorad hired

Schwartzman. Wilson Solutions did not provide consent.

Nevertheless, on April 26, 1999, Anorad sent Schwartzman a

letter offering him employment. On April 27, 1999, Rossi

announced to all Anorad employees that Schwartzman had

become the company’s new director of information systems.

The parties dispute whether Anorad offered

Schwartzman a position before Schwartzman resigned from

Wilson Solutions. They also dispute whether Wilson Solutions

agreed to a modification of the no-hire agreement. It is

undisputed, however, that Anorad provided no proof of written

consent to the district court and that Schwartzman was hired

within one year of his resignation from Wilson Solutions.

Therefore, under the agreement's language, Anorad breached

the no-hire provision.

Wilson Solutions seeks lost profit damages for the first

year Schwartzman worked for Anorad. Wilson Solutions is

seeking $341,000. This figure comes from an estimate of what

Schwartzman would have earned in consulting fees ($450,000)

minus his salary ($99,000) and overhead expenses

(approximately 10t). In his final year at Wilsons Solutions,

Schwartzman earned approximately $441,000 in consulting

fees for Wilson Solutions and received a salary of $99,000 for

himself.

Wilson Solutions filed this suit on April 30, 2003—four

years after Anorad hired Schwartzman on April 26, 1999.

Schwartzman left Anorad on December 31, 2000. Wilson

Solutions is only seeking money damages because it could not

seek injunctive relief due to the date of its filing. The district

App 4

court granted summary judgment to Anorad on September 29,

2004 on grounds that the no-hire provision was unreasonable

and, therefore, unenforceable.

Il. STANDARD OF REVIEW

This Court reviews a district court's grant of summary

judgment de novo, applying the same standards as the district

court. Hirras v. Nat'l R.R. Passenger Corp., 95 F.3d 396, 399

(Sth Cir. 1996). The evidence should be viewed in the light

most favorable to the nonmoving party, and the record should

not indicate a genuine Issue as to any material fact. Am. Home

Assurance Co. y. United Space Alliance, 378 F.3d 482, 486

(Sth Cir. 2004). We may affirm the district court's summary

judgment ruling on any ground supported hy the record.

Lifecare Hosps., Inc. V, Health Plus of Louisiana, Inc., 418

F.3d 426, 439 (Sth Cir. 2005).

Ill. DISCUSSION

A federal court with diversity jurisdiction must apply the

law of the state in which it sits. See Erie R. Co. v. Tompkins,

304 U.S. 64, 79-80 (1938). No Texas court has examined a

damages calculation that exactly mirrors the one at issue, one

in which an employer is seeking lost profit damages based on

an at-will employee's potential earnings.'” Nonetheless, Texas

courts have examined the ability of an at-will employee, acting

on his own behalf, to seek damages based on future earnings.

These cases and the general rules for damages in Texas provide

sufficient guidance. They show that Wilson Solutions cannot

survive the summary judgment challenge.

"This could be a result of the scarcity of no-hire cases in Texas. See Hosp.

Consultants. Potyka, 531 S.W.2d 657, 665 (Tex.Civ. App. San Antonio

1975. writ ref'd n.r.e.) ("We know of no case involving a covenant similar

to that which we are now considering.”). Hospital Consultants is the only

no-hire case heard by a Texas court.

App 5

A. Damages Must Be Proven to a Reasonable Certainty

In Texas, lost profit damages must be established with

"reasonable certainty." Tex. Instruments Incorp. v. Teletron

Energy Mgmt., 877 §.W.2d 276, 281 (Tex. 1994). Lost profit

damages may not be based on evidence that is speculative,

uncertain, contingent, or hypothetical. Carter v. Steverson &

Co., 106 S.W.3d 161, 165-66 (Tex. App.-Houstor: [Ist Dist. ]

2003, pet, denied). A plaintiff must adduce evidence from

which the jury can reasonably estimate the amount of loss.

Davis v. Small Bus. Inv. Co. , 335 S.W.2d 740, 743 (Tex.

Civ. App.-Texarkana 1976, writ ref'd n.r,e.). While some

uncertainty as to the amount of damages is permissible,

uncertainty as to the fact of damages will defeat recovery. /d

No-hire agreemeats and covenants not to compete often

include a liquidated damages provision to avoid the difficulty

of calculating damages. See, e.g, H PI! Commercial Driver

Leasing, Inc. v. Fox Valley Containers, Inc., 805 N.E.2d 1177,

1184 (Ill. 2004) (no-hire agreement contained liquidated

damages clause). These provisions are valid when damages are

uncertain and the stipulated sum is reasonable. Mavhail v.

Proskowetz, 537 $.W.2d 320, 322 (Tex. Civ. App.-Austin

1976, writ ref'd n.r.e.). The no-hire provision at issue in the

present case did not have a liquidated damages clause.

Wilson Solutions cannot prove to a reasonable certainty

the fact that it was damaged by Anorad's breach. The damages

request relies on the assumption that Schwartzman would

continue working for Wilson Solutions. eaming consulting fees

for the year in question. This type of contingency, created by

his at-will status, is impermissible in Texas. Similarly, a jury

would have difficulty estimating the losses suffered by Wilson

Solutions. The purpose of lost profit damages it to put the

nonbreaching party in the position it would have been in had

the contract been performed. Csoba y. Bassichis, 679 S.W.2d

119, 122 (Tex. App.-Houston [14th Dist.] 1984, writ ref'd

n.r.c.). Here, because Schwartzman was an at-will employee, it

App 6

is impossible to determine that position with the amount of

certainty required by Texas law.

B. At Will Employees Cannot Collect, for Future Lost Salary

"Damages for anticipated lost salary are inappropriate

where employment is at will." Allied Vista, Inc. v. Holt, 987

S W.2d 138. 142 (Tex. App.-Houston [14th Dist.] 1999, pet.

denied); see also Ingram v, Fred Oakley Chrysler Dodge, 663

5. W.2d 561. 562 (Tex, App.-El Paso 1983, no writ) (‘When the

period of employment is left to the discretion of either party

_. the loss of wages that the employee would have earned

in the indefinite future is not a recoverable item of damages.").

In Allied Vista, the court reasoned that a lack of certainty in an

at-will employee's future work equated to a lack of reasonable

certainty in damages. /d. (overturning a jury award for lost

profits). Intermediate court decisions, like Allied Vista and

Ingram, guide federal courts applying state law. Herrmann

Holdings Ltd. v, Lucent Technologies Inc., 302 F.3d 552, 558

(Sth Cir. 2002) ("[W]e defer to intermediate state appellate

court decisions, unless convinced by other persuasive data that

the highest court of the state would decide otherwise.").

Texas courts have acknowledged exceptions to the

general rule that at-will employees have no cause of action for

termination and, therefore, cannot collect for future earnings.

in Winters v. Houston Chronicle Publishing Co., the Texas

Supreme Court outlined those exceptions, 795 §.W.2d 723, 724

(Tex. 1990) (refusing to make an exception for at-will

employees who are whistle blowers). The court acknowledged

several statutory exceptions and two common law exceptions.

Id. One of the common law exceptions is no longer good law,

making the only common law exception "where an employee

is terminated solely because he refused to perform an illegal

act." Thompson vy. El Centro del Barrio, 905 S.W.2d 356, 358

(Tex. App.-San Antonio 1995, writ denied). The court's

unwillingness to expand these exceptions and the lack of a

relevant statutory exception show that a Texas court would

App 7

likely find that Wilson Solutions cannot base its damages

calculation on the future earnings of an at-will employee.

This Court considered when an at-will employee can

collect damages for lost profits in Zenor v. EJ Paso Healthcare

System, Ltd., 176 F.3d 847, 866 (5th Cir, 1999). We held that

the plaintiff, an at-will employee, could not collect for future

wages. Id, ("[He] could not have proven that he was entitled to

any future earnings because he had no guarantee of future

employment."). /d. This uncertainty stems, in part, from the fact

that an at-will employee can be "terminated at any time for any

lawful reason." Id.

If Wilson Solutions had terminated Schwartzman, he

would not have been able to collect damages for his future

eamings. Likewise, Wilson Solutions cannot collect from

Anorad based on Schwartzman's speculative future earnings.

Schwartzman could have left Wilson Solutions at any point

during the year in question,and, in fact, did leave the

company.'' Therefore, any consulting fees Schwartzman would

have potentially received are too uncertain to serve as the basis

for Wilson Solution's request for damages.

C. No Disputed Facts Are Material

The record reveals two disputed facts relating to the

damages calculation: whether Wilson Solutions would have

had any work for Schwartzman had he stayed with the company

and whether Schwartzman resigned before or after Anorad

hired him. The district court found that these issues were

material and precluded summary judgment on damages

grounds. To the extent that the district court found the disputed

'’ Schwartzman himself was not precluded from seeking employment,

including employment fy Anorad, as he was not subfect to any type of

covenant not to compete. In addition, the record suggests that he

contemplated leaving Wilson Solutions for reasons independent of Anorad's

offer.

App 8

facts to be material, we disagree. Taking these facts in the li ght

most favorable to Wilson Solutions, the damages calculation

still fails to satisfy the Texas requirement that a plaintiff prove

damages to a reasonable certainty. Schwartzman's status as an

at-will employee is fatal under these facts and summary

judgment is, therefore, appropriate.

IV. CONCLUSION

For these reasons we AFFIRM the district court's

granting of summary judgment to Anorad. We do so on the

grounds that Wilson Solutions failed to prove its damages to a

reasonable certainty as required by Texas law.

App 9

IN THE UNITED STATES DISTRICT COURT

FOR THE SOUTHERN DISTRICT OF TEXAS

HOUSTON DIVISION

BLASE INDUSTRIES §

CORPORATION d/b/a §

WILSON SOLUTIONS, §

§

Plaintiff. §

VS. § CIVIL ACTION NO.

§ H-03-2369

ANORAD CORPORATION §

§

Defendant. §

MEMORANDUM AND OPINION

In this suit, Blase Industries d/b/a Wilson Solutions

alleges that Anorad Corporation breached a provision in a

contract to provide consulting services. Wilson Solutions

alleges that Anorad breached the clause prohibiting the

contracting parties from hiring the other's employees during the

period of the contract and for one year after it ended. The

parties have filed cross-motions for summary judgment as to

the breach of contract claim. (Docket Entry Nos. 18, 40). The

cross-motions turn on whether the no-hire contract provision is

enforceable and whether Wilson Solutions has provided

sufficient competent summary judgment evidence of damages.

Anorad recently deposed two additional witnesses and has

supplemented the summary judgment record and moved for

summary judgment as to Wilson Solutions's claims of quantum

meruit, unjust enrichment, and bad faith. (Docket Entry Nos.

50, 51, 52). Wilson Solutions responded. (Docket Entry No.

59).

Based on the pleadings; the motions and responses; and

_ the applicable law, this court grants Anorad's summary

judgment motion, finding that the no-hire contract provision is

App 10

overbroad and cannot be the basis of a damages award. In the

event that the contract could be enforced, the fact issues as to

whether the contract was modified to allow the hiring to occur,

and whether Wilson Solutions sustained any damages, would

preclude this court from granting Wilson Solutions's motion for

summary judgment. The reasons for these rulings are set out

below.

I. Background

In April 1997, Wilson Solutions, a computer software

consulting company, hired Jason Schwartzman as an at-will

employee. On April 9, 1998, Anorad, a manufacturing

company, and Wilson Solutions entered into an agreement

under which Wilson Solutions would provide computer

software consulting services to Anorad for a daily fee of

$2,000. (Docket Entry No. 18, Ex. B). The parties agreed that

their relationship was that of independent contractor. Under the

contract, the parties agreed not to disclose each others’

confidential information; that any ideas or methodologies

Wilson Solutions created were its property; that Anorad had the

right to use any ideas or methodologies Wilson Solutions

created; that Wilson Solutions would diligently perform its

consulting services, and that the contract would be construed

under Texas law. (/d). The contract also contained a "no-hire"

provision, which stated as follows:

Both parties agree to not, directly or indirectly,

during the period that Consultant [Wilson

Solutions] provides services for Client [Anorad],

and for a period of one year thereafter, solicit,

employ or hire or induce to hire any person who is

or has been an employee of either party unless

otherwise consented to in writing.

(Id). The agreement was signed by Paul Rossi, chief managing

officer for Anorad, and Gaynell Wilson, the chief executive

officer and presently the only officer or employee of Wilson

Solutions. In April 1998, Wilson Solutions placed Jason

App I1

Schwartzman at Anorad, to work under the consulting services

contract. (Gaynell Wilson Depo., Docket Entry No.41, Ex. A,

p. 64). Wilson Solutions had paid Schwartzman $99,000 in

annual salary and billed Anorad for his consulting services at

a rate of $2,000 per day.

On April 19, 1999, Schwartzman sent Wilson a

resignation letter. He cited as his reasons the desire "to pursue

more stable positions. . . with less travel" and "to move back

into the corporate world - with structure, guaranteed bonus,

benefits, and pensions."(Docket Entry No. 41, Ex. 2). In April

or May 1999, Rossi called Wilson to ask whether Wilson

Solutions would object if Anorad hired Schwartzman. (A ffid.

of Gaynell Wilson, Docket Entry No. 18, Ex. A; Wilson Depo.,

Docket Entry No. 41, Ex. A, pp. 76-77). Wilson declined to

consent. Instead, she told Rossi that Anorad would have to wait

one year to hire Schwartman or breach the agreement. (/d).

Rossi offered, and Wilson refused, a $25,000payment that

Rossi characterized as a "[finder's fee" to compensate Wilson

Solutions if Anorad hired Schwartzinan. (/ d.).

On April 26, 1999, Anorad sent Schwartzman a letter

offering him employment. (Docket Entry No. 18, Ex. C). On

April 27, 1999, Rossi announced to all Anorad employees that

Schwartzman had joined Anorad as its new director of

information systems. (/d). The parties dispute whether

Schwartzman had already left Wilson Solutions before Anorad

offered him a position. The parties have not been able to

produce written consent by Wilson Solutions to Anorad's

employment of Schwartzman. (Wilson Affid., Docket Entry

No. 18,Ex. A). It is undisputed that by hiring Schwartzman

within one year after Wilson Solutions provided services under

the contract, Anorad breached the contractual no-hire

provision. After the parties located and deposed Rossi and

Schwartzman, Anorad submitted supplementary summary

judgment evidence that Wilson Solutions had expressly agreed

to allow Anorad to hire Schwartzman, modifying the no-hire

provision. According to the recently filed summary judgment

evidence, Wilson Solutions agreed to modify the contract in

App 12

writing and waive the one-year hiring provision. Wilson

Solutions would allow Anorad to hire Schwartzman, but two to

four months later, during which time Anorad would continue

to pay Wilson Solutions the $2,000 daily consulting fee for

Schwartzman's services. There is a dispute between the

summary judgment evidence submitted by Wilson Solutions,

in the form of Wilson's affidavit, and the Rossi and

Schwartzman deposition excerpts. Wilson Solutions denies any

consent to Anorad's hiring Schwartzman: Anorad asserts and

presents summary judgment evidence that the parties expressly

modified the no-hire provision and obtained Wilson Solutions's

consent to the hiring.

Schwartzman worked directly for Anorad until

December 31, 2000. (Docket Entry No. 18, Ex. C). Anorad paid

Schwartzman $125,000 in annual salary as an employee, a —

considerable savings over what Anorad had paid Wilson

Solutions for Schwartzman's services as a consultant.

The threshold issue is the enforceability of the no-hire

provision as a basis for damages.

ll. The Legal Standard for Summary Judgment

Summary judgment is appropriate if no genuine issue of

material fact exists and the moving party is entitled to judgment

4s a matter of law. See FED. R. CIV. P. 56. Under Rule56(c),

the moving party bears the initial burden of "informing the

district court of the basis for its motion, and identifying those

portions of [the record] which it believes demonstrate the

absence of a genuine issue of material fact." Celotex Corp. Vv.

Catrett, 477 U.S. 317, 322.1986); Stahl v. Novartis P's rns.

Corp., 283 F.3d 254, 263 (Sth Cir. 2002). The party moving for

summary judgment must demonstrate the absence of a genuine

issue of material fact but need not negate the elements of the

nonmovant's case. Exxon Corp. v. Oxxford Clothes, Inc., 109

F 3d 1070, 1074 (Sth Cir. 1997). If the moving party fails to

meet its initial burden, the motion for summary judgment must

be denied, regardless of the nonmovant's response. Baton

App 13

Rouge Oil and Chem. Workers Union v. ExxonMobil C orp.,289

F.3d 373,375 (Sth Cir. 2002).

When the moving party has met its Rule 56( c) burden,

the nonmovant cannot survive a motion for summary judgment

by resting on the mere allegations of its pleadings. See Prejean

V. Foster, 227 F.3d 504,508 (Sth Cir. 2000). The nonmovant

must go beyond the pleadings and designate specific facts

Showing that there is a genuine issue for trial. See id The

nonmovant must "do more than simply show that there is some

metaphysical doubt as to the material facts." Webh v.

Cardiothoracic SurgervAssocs., 139 F.3d 532,536 (Sth Cir.

1998) (citing Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio

Corp., 475 U.S. 574, 586 (1986)). "The mere existence of a

scintilla of evidence in support of the plaintiffs position will be

insufficient; there must be evidence on which the jury could

reasonably find for the plaintiff." Anderson v. Liberty Lobby,

Inc., 477 U.S. 242, 253 (1986).

In deciding a summary judgment motion, the court

reviews the facts drawing all reasonable inferences in the |i ght

most favorable to the nonmovant. /d. at 255: Cabal v. Calendar

Oldsmobile, Inc., 288 F.3d 721,725 (SthCir. 2002). "RuleS6

‘mandates the entry of summary judgment, after adequate time

for discovery, and upon motion, against a party

who fails to make a showing sufficient to establish the

existence of an element essential to that party's case, and on

which that party will bear the burden of proof at trial." Little v.

Liquid Air Corp., 37 F.3d 1069, 1075 (Sth Cir. 1994) (quoting

Celotex, 477 U.S. at 322).

lil. The No-Hire Provision

A. A Covenant Not to Compete or an Agreement

Between Two Businesses?

Anorad contends that the no-hire provision is a covenant

not to compete and unenforceable under the Texas Covenant

Not to Compete Act. Wilson Solutions responds that the no-

hire provision is a contract between two businesses imposing

App 14

a limit that reasonably protects legitimate business interests.

The parties agree that the Texas courts have not addressed a

similar contract since Texas passed its Covenant Not to

Compete Act.

The only Texas case to address such a no-hire provision

is Hospital Consultants, Inc. v. Potyka, 531 S.W.2d 657 (Tex.

Civ. App.-San Antonio 1975, writ ref'dn.r.e.). In that case, the

defendant doctor and his corporation had a contract with the

defendant hospital to provide medical staff for the hospital's

emergency room. The contract provided that, during the term

of the staffing contract and for three years thereafter, the

hospital would not hire any emergency room physician who had

been supplied to the hospital under the staffing contract. Id at

659. The hospital elected not to renew the staffing contract with

the defendant doctor and entered into a new staffing contract

with a rival provider of emergency physician services: /d at

660. The new provider then hired the plaintiff emergency room

physicians, who were former employees of the defendant

doctor, so that they could continue to staff the defendant

hospital's emergency room. The defendant hospital, fearing

liability for violating the no-switching clause, refused to accept

the plaintiff physicians. /d These physicians sued both the

defendant doctor and the defendant hospital, attacking the

validity of the no-switching clause. The court noted that the

covenant was "quite different from the ordinary post-

employment restriction," because it was an agreement by an

employer, rather than on an employee. Id at 663. The court

noted its concern over upholding the restraint as reasonable

when it would affect someone who did not acquiesce and who

received no apparent benefit. /d. at 665. Using a reasonableness

analysis, the Texas court sided with the plaintiffs, holding that

the no-switching clause was unenforceable under the common

law of restraints of trade because it was more onerous than was

reasonably required to protect the parties’ legitimate business

interests. The court stated that because the plaintiff emergency

room physicians had no "customer contact" with the hospital's

management, there was no opportunity for them to pirate the

detendant doctor's customer (the hospital). Nor was there any

App 15

evidence that the emergency room physicians had access to

trade secrets or confidential information that could support

such a restriction. The restriction was overbroad because it was

not limited to restraining the defendant hospital from hiring a

physician under contract to the defendant doctor who had

worked in the hospital. Rather, the contract prevented the

defendant hospital from hiring any physician who had been

under contract with the defendant doctor, even if that physician

had not worked in the defendant hospital's emergency rooms.

id Because the restriction could not be justified by the need to

protect the contracting parties from losing a customer or from

losing trade secrets or confidential information, the only effect

was to insulate the defendant doctor from competition. Such a

justification made the restraint unreasonable. /d.

The court in Hospital Consultants did not discuss

whether the contract between the defendant doctor and the

defendant hospital was similar to a covenant restraining an

employee from competing with his employer following the end

of the employment. The court assumed that although the

physicians and the defendant doctor were in a contractor

subcontractor relationship, "the rule applicable to a

subcontractor's agreement not to compete are the same as those

applicable to an agreement by an employee not to complete

with his employer." /d. at 661. The court applied the rule that

"[a] covenant restraining an employee from competing with his

employer on termination of the employment is valid if it is

reasonable in view of the circumstances of the particular case."

Id. at 661. The court also applied a reasonableness analysis to

the no-hire provision in the contract between the hospital and

doctor, but did not equate that provision to an employee's

postemployment covenant not to compete."

" A similar arrangement was upheld in Webb v. West Side District

Hospital, 144 Cal. App.3d 9467(2d Dist. 1983). A doctor contracted with

a hospital to place physicians in the hospital's emergency room. The

contract restricted the hospital from hiring any physician provided by the

doctor who had worked at the hospital, unless the hospital paid a fee to the

App 16

Anorad cites Olander v. Compass Bank, 172 F.Supp.2d

846,851 (S.D. Tex. 2001); Miller Paper v. Roberts Paper Co.,

901 S.W.2d 593,599-600 (Tex. App. - Amarillo 1995, no pet.);

and La. Transp., Inc. v. Race, 2002 WL 32334400 (N.D. Tex.

2002), to support its contention that Texas courts would treat

a no-hire clause as a covenant not to compete. Each of the cases

Anorad cites, however, involves a covenant between an

employer and an employee, as opposed to a mutual no-hire

provision between two employers. See Olander, 172 F.Supp.2d

at 848; Miller Paper, 901 S.W.2d at 599-600; La. Transp.,

2002 WL at * I.

The courts of several states have considered the

enforceability of no-hire or no switching provisions similar to

that in the present case. These courts have reached divergent

results. In Heyde Coso Inc. v. Dove Healthcare, L.L.C., 654

N.W.2d 830 (2002), the Wisconsin Supreme Court held that a

no-hire provision agreed to between employers, without the

knowledge and consent of the affected employees, was an

unenforceable covenant not to compete subject to a Wisconsin

statute that codified the common-law test of reasonable time,

territory, and scope restraints generally applied to such

covenants.'? In that case, Dove Healthcare, a health care

doctor. The Webb case upheld this provision because it only applied to

physicians who had actually worked at the hospital. The contract provision

did not go beyond what was necessary to protect the doctor's economic

interest in preventing the physicians from “stealing” the hospital as a

customer.

” Wis. Stat. § 103.465 (1999-2000) provides as follows:

Restrictive covenants in employment contracts. A

covenant by an assistant, servant or agent not to compete

with his or her employer or principal during the term of

the employment or agency, or after the termination of that

employment or agency, within a specified territory and

during a specified time is lawful and enforceable only if

App 17

provider that operated nursing homes, and Greenbriar

Rehabilitation, which provided physical therapists to nursing

home facilities, entered into an agreement under which

Greenbriar would place physical therapists at one of Dove's

facilities. Heyde, 654 N.W.2d at 832. The physical therapists

placed at Dove remained at-will employees of Greenbriar. The

agreement prohibited Dove from hiring Greenbriar therapists

during the contract period and one year after it ended. Shortly

after Dove terminated the agreement, Dove hired one current

and three former Greenbriar employees. /d. Greenbriar sued for

breach of contract. The Wisconsin Supreme Court determined

that the no-hire provision between the two employers served as

a restrictive covenant on the affected employees:

While a covenant not to compete is typically made

between an employer and its employees, it is

possible, as illustrated in this case, that a

restrictive covenant may be made between

employers that acts as a covenant not to compete

on the employees. . .. [T]he fact that Greenbriar

attempts to restrict its employees through a no-

hire provision with Dove instead of a restrictive

covenant with its employees does not change the

underlying analysis. The effect of the no hire

provision is to restrict the employment of

Greenbrier's employees; it is inconsequential

whether the restriction is termed a 'no-hire'

provision between Dove and Greenbriar or a

‘covenant not to compete’ between Greenbriar and

its employees.

protection of the employer or principal. Any covenant,

described in this subsection, imposing an unreasonable

restraint is illegal. void and unenforceable even as to any

part of the covenant or performance that would be a

reasonable restraint.

App 18

Id at 834. The court noted two of the concerns identified in

Hospital Consultants, Inc. v. Potyka: the no-hire agreement

was not limited to forbidding former Greenbrier employees

who had worked at.a Dove facility from working directly for

Dove. Instead, the restriction extended to any former

Greenbriar employee, even if they had not worked at a Dove

location. /d at 836. The court found that this arguably amounted

to an unreasonable territorial restriction. The court also found

that the agreement was invalid as contrary to the Wisconsin

statute governing covenants not to compete, because it

restricted employees who neither knew of or consented to the

limit on their ability to work. "At the very least, [Wis.Stat.] §

103.465 requires that employees know that they are subject to

a restrictive covenant and that they consent to such a

restriction.” /d. A vigorous dissenting opinion rejected the

premise that the no-hire provision acted a restrictive covenant

on Greenbriar's employees:

Greenbriar's at-will employee therapists

were...perfectly free to leave Greenbriar at any

time and sell their services anywhere in the

marketplace, even in competition with Greenbriar,

and even to Greenbriar’s customers. Greenbriar's

customer, Dove, was contractually required to

obtain Greenbriar's consent should it wish to hire

any Greenbriar employee, and further required to

compensate Greenbriar according to the terms of

the contract if it did so. The no-hire provision

conferred rights and imposed obligations on

supplier and customer, not employer and

employee. It therefore cannot be construed to be -

or even to "act as" - an employee covenant not-to-

compete. ...

Id. at 840. The dissent concluded that the majority's analysis

would make all no-hire provisions unenforceable and failed to

recognize the need to protect "investments in employee

recruitment and training against poaching by their customers."

App 19

ld. at 843. The dissent recognized the similarities between a

nencompete agreement between businesses and a no-hire

agreement between a supplier and its customers and suggested

applying the same reasonableness analysis to determine

enforceability. /d. Under that approach, a court would ask

whether the agreement was reasonably necessary to protect the

beneficiary; whether it was reasonable as between the parties,

considering the time, space, purpose, and scope of the

agreement, and whether it was "specially injurious" to the

public. /d.

In Therapy Services, Inc. v. Crystal City Nursing Center,

Inc., 389 S.E.2d 710 (1990), the Virginia Supreme Court

upheld the validity of a similar no-hire provision, holding that

it did not constitute a covenant not to compete. The contract at

issue provided that Therapy Services would furnish personnel

for skilled rehabilitative services to Crystal City and prohibited

Crystal City from hiring Therapy Services employees during

the contract and for six months after it ended. Crystal C ity, 389

S.E.2d at 711. Crystal City terminated the agreement and

sought to hire Therapy Services employees. /d Ina subsequent

breach of contract suit, Crystal City challenged the no-hire

clause, contending that it was against public policy because it

was a covenant not to compete that restricted employees

without their consent or knowledge. The trial court found the

no-hire clause unenforceable. The Virginia Supreme Court

disagreed. The court found that the provision was a contract in

restraint of trade, rather than a covenant not to compete or

restrictive covenant:

Although the provision in question involves an

employee's ability to secure future employment, it

is neither a covenant not to compete nor a

restrictive covenant between employer and

employee. It is a contract between two businesses

wherein one business agrees to provide

rehabilitative services to patients of the other. As

part of the agreement, one party agrees to forego

the ability to hire certain people who are not

App 20

parties to the contract. As such, it is a contract in

restraint of trade and will be held void as against

public policy if it is unreasonable as between the

parties or is injurious to the public.

id. The court concluded that the restraint was not overly broad

because it restricted affected employees from seeking

employment only with Crystal City. /d. at 712. The court also

found that the provision afforded fair protection to Therapy

Service's legitimate interest in maintaining professional

personnel in its employ, noting that, without such a clause,

Therapy Services "would become an ‘involuntary and unpaid

employment agency’ for Crystal City."/d. at 711-1 2. The court

stated that the provision did not infringe the employees’ right to

earn a livelihood or adversely impact the public interest:

The right to earn a livelihood is embraced in the

constitutional concept of "liberty." However, this

right is conceptually and practically distinct from

a claim of a right to specific employment. Neither

Crystal City nor the trial court has cited any

authority for the proposition that individuals have

a right to employment by an employer of their

choice or by any specific employers. The evidence

indicated that in the Northern Virginia area,

therapists were in low supply and in high demand

and, thus, should they choose to leave Therapy

Services’ employ, they could secure like positions

in the area.

Similarly, there was no adverse impact on the

interest of the public at large. The availability of

therapists’ services was not diminished since the

affected therapists were not precluded from

working in Northern Virginia or any other area.

Under these circumstances we cannot conclude

that paragraph 13 deprived the affected therapists

of the "right to seek a livelihood" or that it

interfered "with the interest of the public."

App 21

/d (internal citations and quotations omitted).

The court in Hevde distinguished Crystal City on the grounds

that the agreement in Crystal City restricted employees from

working with only one employer.

Importantly, the {Crystal City] court concluded

that the "restriction is reasonable. . . because it

does not in any way inhibit the affected employees

from seeking employment as therapists with any

employer other than Crystal City." In this case, the

employment opportunities of the Greenbriar

employees are restricted with respect to ail of the

facilities that Greenbriar has a contract with, even

if an employee has never worked at any of the

other facilities except for Dove.

Heyde, 654 N. W.2d at 837 (internal citations and quotations

omitted) (emphasis in original).

Recently, in H & M Commercial Driver Leasing, Inc. v.

Fox Valley Containers, 805N .E.2d 1177 (Ill. 2004), the Illinois

Supreme Court upheld the validity of a no-hire provision

between employers, finding that it did not constitute a covenant

not to compete. In Fox Valley, a truck-driver lessor brought suit

against a truck-driver lessee for breach of a contract that

prohibited the lessee from hiring leased drivers for one year

following contract termination. The court found that the

provision was neither a covenant not to compete nor a

restrictive covenant between an employer and employee, but

rather a restraint of trade between employers, which would be

analyzed for reasonableness. The court explained as follows:

This is not a case where the employee is arguing

that he or she has been foreclosed from

employment. In our view, the provision at issue

restricted one employer's ability to hire former

employees of the other employer. Thus, as the

Virginia Supreme Court recognized [in Crvstal

App 22

City]. the contract provision acts as a restraint on

trade.

Fox Valley, 805 N.E.2d at 1183. The court concluded that the

employer was protecting its legitimate business interest in not

serving as "an involuntary and unpaid employment agency," id

at 1184 (quoting Crvstal City, 389 S.E.2d at 712), and that the

restriction on the affected employees was minimal:

[Plaintiff] argues that [the provision] 1s

reasonable, as it protects its sole business asset, its

drivers, from being hired away by its customers.

If customers could hire [plaintiff's] drivers on a

permanent basis, then they would no longer need

[plaintiff's] services. We agree that this is a

legitimate interest and that [the provision] affords

fair protection to that interest. It is important to

note that, under the provision, [plaintiffs] —

employees are not restricted from seeking

employment as drivers with any employer other

than [ defendant]. [Defendant] is not restricted

from hiring all [plaintiff's] employces, just those

who had been provided to [defendant] from

[plaintiff].

Id.""

“s In Club Properties, Inc. v. Atlanta Offic es-Perimeter, Inc., 348

S E.2d 919 (1986), the contractual provision at issue was 4 liquidated

damages clause in a lease, which provided for a monetary payment if the

lessee should hire any of the lessor's skilled employees. The court struck

down the no-hiring clause under the common law of restraints of trade, after

examining it under the same test of reasonableness with respect to time,

territory, and scope as it would have applied to an employee covenant not

to compete. The court reasoned that there ts "no meaningful difference”

between a no-hiring ban and a covenant not to compete. Id at 921... see also

4L. Williams & Associates v. Stalk, 960 F.2d 942 (11th Cir. 1992), vacated

hy consent of parties, 984 F.2d 391 (Lith Cir, 1993),

App 23

This court's task is to determine whether the Texas

Supreme Court would enforce the mutual no-hire provision in

the contract at issue. The no-hire provision is an agreement

between businesses that are not in a competitive relationship,

but instead in a relationship of customer and supplier of

Services, not to hire each other's employees. Wilson Solutions

argues that by definition, the no-hire agreement cannot be a

covenant not to compete because Anorad and Wilson Solutions

are not competitors, but customer and supplier. That argument

understates the restraint on competition that is present and the

breadth of the Texas statute governing covenants not to

compete. When Anorad agreed not to hire a Wilson Solutions

software consultant as a direct employee, Anorad agreed not to

compete with Wilson Solutions in providing such software

services by hiring a Wilson Solutions employee. Conversely,

when Wilson Solutions agreed that it will not hire an Anorad

employee, Wilson Solutions agreed not to compete with

Aborad's in-house provision of software related services and

expertise by hiring away an Aborad employee.

A no-hire provision in an agreement between businesses

is Clearly different than a covenant between an employer and

employee not to compete or not to solicit customers or other

former employees after the period of employment ends. But the

Texas Covenants Not to Compete Act is not limited to such

promises between an employer and an employee. Unlike the

Wisconsin statute at issue in Heyde, the Texas statute is not

limited to "restrictive covenants in employment contracts," or

limits on agreements to provide personal services, but instead

covers a broad range of covenants not to compete. Tex. Bus. &

Com. Code Ann.§ 15.50 (Vernon 2004) (providing criteria for

enforceability of "covenants not to compete"under common law

or otherwise); Norlyn Enterprises, Inc. v. APDP. Inc.. 95

S.W.3d 578(Tex. App.-Houston [1 Dist.], 2002, no

pet.)(franchise agreement); Natal C, afe Services, Ltd v.

Pederast, 2004 WL 1746884 (Tex.App.-Waco, pet. filed)

(partnership agreement); Vail Arms, Inc. v. Vail. 2004 WL.

1903255 (Sth Cir. 2004) (buy-sell agreement).

App 24

Even the cases that dispute characterizing a no-hire

provision as an indirect restriction on an employee's ability to

work recognize such a provision as a restraint on trade. See

Therapy Services, Inc. v. Crystal City Nursing Center, Inc., 389

S.E.2d at 712 (recognizing that no-hire provision is an

agreement not to hire certain people who are not parties to the

contract and, as such, a contract in restraint of trade that is

enforceable only if reasonable and not injurious to public);

Heyde Coso v. Dove Healthcare, 654 N.W.2d at 839-41

(dissenting opinion disputes application of the narrow

Wisconsin statute relating to employment contracts with

covenants not to compete and would apply common law on

restraint of trade); H & M v. Fox Valley, 805 N.E.2d 1177 (no-

hire provision is a restraint on trade, not a general covenant not

to compete or restrictive covenant between employer and

employee)."”

14

In Dyson Conveyor Main. Inc. v. Young & Vanned Supply Co., 529

So.2d 212 (Ala. 1988), a six-month no-switching agreement between two

competing employers was ancillary to negotiations between them in

contemplation of a possible acquisition. The agreement was held invalid

under an Alabama statute, but would have been upheld if the switching

employee himself had agreed to a postemployment restriction. The dissent

emphasized that the agreement protected the legitimate interests of the two

companies while they were divulging to each other the confidential

information necessary to enable one to evaluate the business of the other for

potential acquisition purposes. In Communication Technical Systems, Inc.

v. Dinsmore. 583 N.W.2d 125 (S.D. 1998), the plaintiff hired out skilled

computer programmers on a temporary basis to its customers. The plaintiff

entered into an agreement with a customer that during the time the plaintuff

was providing services for the customer, and for a period of one year

following the termination of such services, the customer would not hire,

solicit. or recruit any employee of the plaintiff. The South Dakota Supreme

Court ruled that this agreement was invalid because of a broad statutory

prohibition against any “contract restraining exercise of a lawful profession,

trade. or business” /d. at 127. The statute contained an exception for an

employee's covenant not to compete with his employer, but the court held

that exception to be inapplicable because here the agreement not to recrutt

was entered into between the plaintiff and its customer, not between the

plaintiff and its employee. Both a concurring and dissenting opinion

App 25

This court analyzes the provision both under the Texas

Statute governing covenants not to compete and under the

Texas common law used to measure the validity of contractual

restraints on trade. Under either, it fails to pass muster as the

basis for a damages award.

The Texas Covenants Not to Compete Act added

sections 15.50 and 15.51 to the Texas Business and Commerce

Code. See Light v. Cental Cellular Co. of Texas, 883

S.W.2d642,643 (Tex. 1994). Under the current version of the

Act, noncompetition agreements are enforceable as long as the

restraints imposed are reasonable as to time, geographical area,

and scope of activity restrained, and the agreement is ancillary

to or part of an otherwise enforceable agreement. Tex. Bus. &

Com. Code Ann. § 15.50(a)'® The Texas Legislature amended

the Act in 1993 and added section 15.52, which provides:

The criteria for enforceability of a covenant not to

compete... and the procedures and remedies

provided... are exclusive and preempt any other

criteria for enforceability of a covenant not to

compete...

recognized that the holding ignored the companies' valid interest in

“preventing their employees from being raided.”

5 Section 15.50 of the Texas Business and Commerce Code provides:

[A] covenant not to compete is enforceable if it is

ancillary to or part of an otherwise enforceable agreement

at the time the agreement is made to the extent that it

contains limitations as to time, geographical area, and

scope of activity to be restrained that are reasonable and

do not impose a greater restraint than is necessary to

protect the goodwill or other business interest of the

promisee.

Tex. Bus. & Com. CoDE ANN. § 15.50(a) (Vernon 2004).

App 26

id. § 15.52; see also Light, 883 S.W.2d at 643-44. The Texas

Supreme Court has interpreted this provision as a clear signal

that the Texas Legislature intended the Act to "largely supplant

the common law" relating to the enforcement of covenants not

to compete. Light, 883 S.W.2d at 644. The Act recognizes that

restraints should be no greater than "necessary to protect the

goodwill or other business interest of the promisee." See Tex.

Bus. & Com. Code Ann. §§ 15.50(a), 15.51(c). Under the Act,

Texas law enforces reasonable restraints on competition that

protect legitimate business interests. Enforceability is a

question of law for the court. To determine the enforceability

of anoncompetition agreement, the court must ask whether the

covenant is ancillary to an otherwise enforceable agreement and

examine whether the limitations imposed by the noncompete

are reasonable and no more restrictive than necessary. See Light

v. Cental Cellular Co., 883 S.W.2d at 643.

The parties vigorously dispute whether the no-hire

provision is ancillary to, or part of, an otherwise enforceable

agreement. Standing alone, an at-will employment relationship

does not constitute an otherwise enforceable agreement because

it is not binding. Martin v. Credit Proto Assen, Inc., 793 S.W.2d

667,669 (Tex. 1990); Alex Sheshunoff Mgmt.. Servs. v..Johnson,

124 S. W.3d 678, 684 (Tex. App. - Austin 2003, pet. filed). An

at-will employment relationship may give rise to an otherwise

enforceable agreement if it contains independent consideration

that is not dependent on the illusory promise of continued

employment. Light,883 S.W.2d at 645-46; Alex Sheshunoj[,

124 $.W.3d at 684. The point in time relevant to this

determination "is the moment the agreement is made; the issue

is whether, ‘at the time the agreement is made,’ there exists

other mutually binding promises to which the covenant not to

compete is ancillary or part and parcel." CRC-Evans Pipeline

Int'l, Inc. v. Myers, 972S8.W.2d 259,263 (Tex. App. - Houston

[ lst Dist.] 1996, no pet.) (emphasis in original); see also Light,

App 27

883 S.W.2d at 645 n. 6; Alex Sheshunoff, 124 S.W.3d at 688.

The parties agree that the no-hire provision as applied in this

case satisfies the temporal requirements of the Texas Covenant

Not to Compete Act, bev suse the contract term is limited to one

year after the contract term ends.

The contract is, however, overbroad in a critical respect.

The contract is not limited to precluding Anorad from hiring a

Wilson Solutions employee who worked at Anorad. Rather, the

contract precludes Anorad from hiring any Wilson Solutions

employee, including an employee who provided consulting

services to a different customer. Similarly, the contract does not

merely preclude Wilson Solutions from hiring an Anorad

employee who had worked with Wilson Solutions on Anorad'

s behalf, but precludes Wilson Solutions from hiring any

Anorad employee. Under the cases addressing similar contracts,

whether as a covenant not to compete or as a more limited

restraint on trade, a provision so broad as to cover all

employees, rather than those who actually worked for the other

contracting party, is unenforceable. See, e.g., Hospital

Consultants v. Potyka, 531 S.W.2d at 657 (holding that the no-

hire provision was overbroad because it prohibited the hospital

from hiring all physicians formerly employed by the doctor,

regardless of whether those physicians had ever actually

worked at that hospital); H & M Commercial Driver Leasing,

Inc. v. Fox Valley Containers, Inc., 805 N.E. 2d at 1184:

Crystal City, 380 S.E.2d at 712. Such a clause imposes a

greater restraint than is necessary to protect the business

interest of the promisee.

Wilson Solutions, whose livelihood depended on its

consulting projects, had a legitimate business interest in not

becoming an "involuntary and unpaid employment agency" for

Anorad. /d. at 711-12. Wilson Solutions's brief and Gaynelle

Wilson's affidavit state that the risk addressed by the no-hire

App 28

provision was that the customer, Anorad, would hire the

Wilson Solutions employees working at Anorad on a consulting

basis and employ them (at a lower cost) to do the same

work. If that occurred, Wilson Solutions would lose the

employee and lose the customer. The business interest of

Wilson Solutions protected by the no-hire provision is the risk

of losing an employee to a particular customer for whom that

employee had worked as a consultant. Wilson Solutions asserts

that it was also at risk of having Anorad hire other Wilson

Solutions employees, all of whom performed the same type of

work as Schwartzman. This argument ignores the fact that

Anorad had no greater, or different, relationship with other

Wilson Solutions employees than any other prospective

employer. By contrast, once a consultant has worked at Anorad

and developed relationships with Anorad employees and

knowledge about Anorad's computer software, both the

consultant and Anorad had a relationship that could threaten

Wilson Solutions's ability to maintain the consultant as an

employee and Anorad as a client. The no validly protect Wilson

Solutions's interest if it was limited to the employees of Wilson

Solutions who actually worked at Anorad. In April 1998, when

the parties entered the contract with the no-hire provision,

Wilson Solutions had over fifty employees. Under the broad

provision, Anorad could not have hired any of them, even

though Schwartzman was the only consultant who worked at

Anorad.

Even if a broader provision might be enforceable as a

basis for injunctive relief if reformed and applied as limited,

such a provision could not be the basis of a damages recovery.

In this case, Wilson Solutions waited four years after

Schwartzman went to work for Anorad and sought no

injunction. Wilson Solutions seeks only damages. See Butler v.

Arrow Mirrow & Glass, Inc., 51 S.W.3d 787 (Tex. App.-

Houston [Ist Dist.] 2001, no pet.);Gen. Devices, Inc. v. Bacon,

App 29

888 S.W.2d 497 (Tex. App.-Dallas, writ denied); Perez v. Tex.

Disposal Systs., Inc., 103 S.W.3d 591,593 (Tex.App.-San

Antonio 2003, writ denied) ("If the covenant not to compete

does not meet the Section 15.50 criteria and the trial court

reforms the covenant, a court may award an employer

injunctive relief only. . . ."). .

If the contract is analyzed as imposing some restraints on

competition between businesses which do not directly compete,

it is unenforceable because the restraints are greater than

necessary to protect a legitimate business interest. The restraint

was designed to protect the consulting firm from its client

evading the business arrangement and directly hiring

consultants at a lower price. The contract imposed a greater

restraint than necessary to protect that interest. See Freund v.

E.D. & F Man Int 'Inc.., 199 F.3d 382,385 (7th Cir.1999)

(holding that under Illinois law, an employer can enforce a

promise by another employer not to hire away certain

employees, provided that the contract does not unreasonably

restrain competition between the two employers and survives

the"reasonableness" scrutiny of restrictive covenants).

Anorad's motion for summary judgment that the contract

is unenforceable is granted.

B. Wilson Solutions's Cross-Motion for Summary

Judgment

Wilson Solutions moved for summary judgment. The over

breadth of the contract makes it unenforceable and requires that

this court deny Wilson Solutions's motion for summary

judgment as to the contract claim. In addition, there are

disputed fact issues as to whether the contract was modified

and whether Wilson Solutions can prove any damages as a

App 30

result of Anorad's employment of Schwartzman. Both would

require this court to deny Wilson Solutions's cross-motion.

Wilson Solutions argues that because Schwartzman

worked for Anorad for more than one year after the termination

of the contract between Wilson Solutions and Anorad, Wilson

Solutions is entitled to damages, in the form of lost profits, for

the entire year. Anorad argues that it is entitled to summary

judgment because Wilson Solutions cannot prove damages with

a reasonable degree of certainty, or a fact question exists

regarding damages.

In his final year with Wilson Solutions, Schwartzman

earned his employer income of approximately $441,000

working as a consultant for Anorad (at a rate of $2,000 per

day), with a yearly salary of $99,000 and approximately 10

percent overhead. (Docket Entry No. 18, Ex. A). Wilson

Solutions contends that if Schwartzman had remained its

employee during the following year, Wilson Solutions would

have received $450,000 in consulting fees from Anorad, less

$99.000 for Schwartzman's salary and ten percent overhead.

resulting in a net profit of$34 1.000. (See Docket Entry No. 18,

Ex. A,:C).

Under Texas law, the standard for calculating damages

in breach of contract cases 1s

the amount necessary to put the party in the same

economic position in which it would have been

had the contract not been breached. Generally the

measure of damages meeting this standard is net

profit. Specifically, the gross amount the

nonbreaching party would have received if the

contract had been fulfilled should normally be

reduced by any unpaid costs the non-breaching

App 31

party would have to incur to complete

performance of the contract.

DP Solutions, Inc. v. Rollins, Inc., 353 F.3d 421.428-29 (Sth

Cir. 2003) (internal citations and quotations omitted). This

standard is commonly referred to as “lost profit" damages. See,

e.g., Texas Instruments, Inc. v. Teletron Energy Memt., Inc.,

877 S.W.2d276, 279 (Tex.1994); Szezepanik v. First S. Trust

Co., 883 S.W.2d 648,650 (Tex. 1994).

Under Texas law, "lost profits" must be proved with

"reasonable certainty." nfo. Communication Corp. v. Unisys

Corp., 181 F.3d 629, 633 (5th Cir. 1999); Teletron, 877S.W.2d

at 279. "[W]hether lost profits have been proved with

reasonable certainty is a fact intensive determination dependent

upon the circumstances of the particular case." Formosa

Plastics Corp. USA v. Presidio Eng'rs & Contractors, Inc., 960

S.W.2d 41,50 n. 3 (Tex.1998). Lost profits may not be

recovered where the damages are "too uncertain or speculative.

"Unisys, 181 F.3d at 633 (quoting Teletron, 877 S.W.2d at

279); see Szczepanik, 883 S.W.2d at 650 ( denying recovery of

lost profits where evidence was too speculative): Holt Atherton

Vv. Heine, 835 S.W.2d 80, 85-86 (Tex. 1992) (same). Factors

such as changing market conditions, changing business

Opportunities, and entry in to unknown or unviable markets

may preclude the recovery of lost profits. The determination of

“reasonable certainty" is intended t. be "flexible enough to

accommodate the myriad circumstences in which claims for

lost profits arise." Teletron, 877 S.W.2d at 279. "At a

minimum, opinions or estimates of lost profits must be based

on objective facts, figures or data from which the amount of

lost profits may be ascertained." Szczepanik, 883 S.W.2d at649:

see a/so Holt Atherton Indus., Inc. v. Heine, 835 S.W.2d 80, 84

(Tex. 1992)."When a review of the surrounding circumstances

establishes that the profits are not reasonably certain, there is no

App 32

evidence to support the lost profits award." Formosa, 960

S.W.2d at 50n.3.Anorad argues that Wilson Solutions cannot

prove lost profits with reasonable certainty because there is

evidence showing that Schwartzman, an at-will employee, had

already decided to leave Wilson Solutions before he agreed to

work for Anorad. In addition, Wilson Solutions provides no

evidence that it could have placed Schwartzman with other

clients in the year following the termination of the contract

between Anorad and Wilson Solutions. Anorad cites

Schwartzman's resignation letter, written before he was hired

by Anorad, stating that he was leaving the consulting business

in order to "pursue more stable positions," have "less travel,"

"move back into the corporate world," and act in the

"interestsof [his] family." (Docket Entry No. 18, Ex. A).

Anorad also cites Wilson's deposition testimony as evidence

that Wilson Solutions had no place to assign Schwartzman

other than Aborad:

Q: Had Schwartzman not gone to work at Aborad, did

you have another available open contract for him

to work on? No, not that I recall.

No, not that I recall.

Okay.

| should change that to "I don't know."

None that you recall?

Well, the answer would really be - do | know if |

had another contract to place him on? The answer

is "1 don't know.”

Q: As you sit here today, are you able to recall a

single one?

A: As I sit here today, | cannot tell you on any

particular date which contracts | had requiring

resources.

Q: Would it be fair to say, then, that as you sit here

today, you can't point to a specific contract that

Po POF

App 33

says "if I did not have Jason Schwartzman working

at Aborad, I know I could have placed him at this

other customer doing this work for that period of

time," you can't say that, is that fair?

I can't say that I could or could not. | don't recall.

You have no specific memory of a particular

contract that was out there that he could have filled

is that true?

A: I don't recall.

Q>

(Wilson Depo., Docket Entry No. 41, Ex. A, pp. 83-84).

Anorad suggests that Wilson Solutions would have lost money

if it were paying Schwartzman's salary and overhead with no

work for him to do.

Wilson Solutions responds that the circumstantial

evidence in this case supports a finding that Anorad terminated

the relationship with Wilson Solutions because it hired

Schwartzman. Wilson Solutions notes that Aborad presents no

evidence that it ever formally terminated the contract and

asserts that Aborad did not need Wilson Solutions because it

hired Schwartzman - precisely what the no-hire provision was

intended to prevent. Wilson Solutions argues that

Schwartzman's high skill, as demonstrated by the summary

judgment evidence, would have enabled Wilson Solutions to

place Schwartzman on another consulting project. Noting the

one-week lag time between Schwartzman's letter of resignation

and Anorad’s offer letter, Wilson Solutions contends that the

facts support a finding that Schwartzman left Wilson Solutions

because he was solicited by Aborad to become a direct

employee.

The disputed fact issues as to whether Schwartzman

would have remained a Wilson Solutions employee had he not

gone to work for Aborad, whether Wilson Solutions would

App 34

have had any work for him had he stayed, and whether Wilson

Solutions agreed to allow Aborad to hire Schwartzman,

preclude summary judgment as to whether Wilson Solutions

is entitled to damages and, if so, in what amount. Wilson

Solutions's motion for summary judgment as to its contract

claim is denied.

1V. Anorad's Motion for Summary Judgment as to the

Extracontractual Claims

Anorad has moved for summary judgment dismissing

Wilson Solution's extracontractual claims for breach of an

implied contract, breach of the duty of good faith and fair

dealing, and quantum meruit.

An implied-in-fact contract “arises from the acts and

conduct of the parties, it being implied from the facts and

circumstances that there was a mutual intention to

contract."Haws & Garrett Gen. Contractors, Inc. v. Gorbett

Bros. Welding Co., 480 S.W.2d 607 ,609(Tex. 1972). A meeting

of the minds is an essential element of an implied-in-fact

contract. Texas Ass'n of Counties County Gov't Risk Mgmt.

Pool v. Matagorda County, 52 §.W.3d128, 133 (Tex.2000). In

an express contract, mutual agreement is expressly stated; in an

implied contract, mutual agreement must be inferred from the

circumstances of the transaction. Buxani v. Nussbaum, 940

S.W.2d 350, 352 (Tex.App.-San Antonio 1997, no writ). The

court "must look to the conduct of the parties to determine the

tenus of the contract on which the minds of the parties met."

Williford Energy Co. v. Submergible Cable Servs., Inc., 895

S.W.2d 379, 385 (Tex.App.-Amarillo 1994, no writ). The

conduct and circumstances surrounding the transaction are to

be viewed from a reasonable person's interpretation at that

particular point in time. Bank of El Paso v. T.O. Stanlev Boot

Co., 809 S.W.2d 279, 284 (Tex.App.EI Paso-1991 rev'd 0.g.),

App 35

(citing Haws & Garrett Gen. Contractors, Inc., 480 S.W.2d at

609); Wal-Mart Stores, Inc. v. Lopez, 93 S.W.3d 548, 557 -558

(Tex. App.-Houston [14 Dist.] 2002, no writ).

There is no evidence in the summary judgment record

that would permit this court to find an enforceable implied

contract that Anorad breached. As a rule, a party may recover

under an implied contract only when no express contract exists

covering the subject matter. See Threadgill v. Farmers Ins.

Exchange, 912 S.W.2d 264,268 (Tex.App.-Dallas 1995, no

writ). The implied contract Wilson Solutions asserts cannot be

the basis for a recovery because an express contract exists

covering the same subject matter.

Wilson Solutions cannot recover for breach of an implied

duty of good faith and fair dealing, as a matter of law. In

addition to the overbreadth that makes the contract

unenforceable as a basis for a damages award, Texas does not

generally imply such a duty in all contracts. The Texas

Supreme Court has imposed an actionable duty of good faith

and tair dealing only when there is a special relationship, such

as that between an insured and his or her insurance carrier.

SeeArnold v. National County Mut. Fire Ins. Co., 725 S.W.2d

165, 167 (Tex. 1987). There is no general duty of good faith

and fair dealing in employment contracts. See City of Midland

v. O'Bryant, 18 S.W.3d 209,215 (Tex. 2000).

Wilson Solutions also asserts an implied in law contract,

under quantum meruit, asserting that Wilson Solutions is

entitled to be paid because it "located and placed a highly

qualified computer technician" with Anorad. (Docket Entry No.

58, p. 7). Quantum meruit is an equitable, quasi-contractual

remedy that does not arise out of a contract, but is based on the

promise implied by law to pay for beneficial services rendered

and knowingly accepted. Vortt Exploration Co. v. Chevron

App 36

U.S.A., 787 S.W.2d 942,944 (Tex. 1990). A contract implied in

law may be imposed to avoid unjust enrichment. Riverside, Inc.

v. Gulf States Utilities Co., 289 S.W.2d 945,949 (Tex.

Civ.App. - Beaumont 1956, writ refd n.r.e.).To establish a

claim for quantum meruit, plaintiffs must show (1) they

rendered valuable services to the individual sought to be

charged, (2) who accepted the services and materials to his

benefit, (3 Hinder such circumstances that he would reasonably

know that the plaintiffs expected to be paid for the services.

Sourignavong v. Methodist Healthcare Sys. of San Antonio,

Ltd., 977 S. W.2d 382, 385 (Tex.App - Amarillo 1998, pet.

denied) (citing Bayshore v. Baptist Mammal Hosp. SYS., 685

S.W.2d 307,310 (Tex. 1985)).

In the present case, there is no evidence that Wilson

Solutions provided a valuable service to Anorad for which

Anorad did not pay. It is undisputed that Wilson Solutions

charged Anorad $2,000 for each day Wilson Solutions provided

Schwartzman as a consultant, and that Anorad paid in full.

There is no evidence that when Anorad hired Schwartzman to

work as an employee, it did so under circumstances that would

support an inference that Wilson Solutions expected to have to

continue to pay Anorad the full consulting fee, or some

undefined lesser amount as a "finder's fee." To the contrary, as

Anorad points out, Wilson Solutions alleges that it expressly

refused to accept such a fee in lieu of having Anorad continue

to obtain Schwartzman's services as a Wilson Solutions

consultant. Wilson Solutions's motion for summary judgment

on the extracontractual claims is denied.

IV. Conclusion

Based on the pleadings; the motions and responses, and

the applicable law. this court grants Anorad's motion for

summary judgment and denies Wilson Solutions’s cross-motion

App 37

for summary judgment and, by separate order, enters final

judgment.

SIGNED on September 28, 2004, at Houston, Texas.

Loe FY Resenthal

Lee H. Rosenthal

United States District Judge

App 38

IN THE UNITED STATES DISTRICT COURT

FOR THE SOUTHERN DISTRICT OF TEXAS

HOUSTON DIVISION

BLASE INDUSTRIES

CORPORATION d/b/a

WILSON SOLUTIONS,

§

§

§

§

Plaintiff, §

VS. § CIVIL ACTION NO.

§ H-03-2369

ANORAD CORPORATION §

§

§

Defendant.

MEMORANDUM AND OPINION

Blase Industries d/b/a Wilson Solutions sued Anorad

Corporation, alleging a breach of a contract to provide

consulting services. Wilson Solutions alleged that Anorad

breached the clause prohibiting the contracting parties from

hiring the other's employees during the period of the contract

and for one year after it ended. The parties filed cross-motions

for summary judgment as to the breach of contract claim.

(Docket Entry Nos. 18, 40). The cross-motions. turned on

whether the no-hire contract provision was enforceable;

whether Wilson Solutions provided sufficient «ompetent

summary judgment evidence of damages; and whether Wilson

Solutions had specifically agreed to waive the no-hire provision

App 39

and allow Anorad to employ a Wilson Solutions consultant.

This court granted Anorad' s motion for summary judgment,

denied Wilson Solutions's motion, and entered final judgment.

Within ten days, Anorad moved for reconsideration or, in the

alternative, a new trial.

"A motion to reconsider an order granting summary’

judgment is appropriate when the court is presented with

newly-discovered evidence, when the court committed clear

error, when there is an intervening change in controlling law,

or when other highly unusual circumstances exist." Becerra v.

Asher, 921 F. Supp. 1538, 1548 (S.D. Tex. 1996), aff'd, 105

F.3d 1042 (Sth Cir.), cert. denied sub nom. Becerra v. Houston

Indep. Sch. Dist., 118 S. Ct. 82 (1997).' None of these

circumstances is present here. Wilson Solutions either restates

the arguments previously addressed to this court or presents

evidence that it did not submit before the entry of judgment,

despite the earlier availability of the evidence. Wilson

Solutions has not stated any grounds for the amendment or

alteration of the judgment. See id.; see also WG. Pettigrew

Distrib. Co. v. Borden, Inc., 976 F. Supp. 1043, 1062 (S.D.

Wilson Solutions classifies its motion as seeking reconsideration

ora new trial. "As no trial was held in the district court, it cannot logically

be called a motion for new trial." St. Paul Mercury Ins. Co. v. Fair Grounds

Corp., 123 F.3d 336,339 (Sth Cir. 1997). The motion is correctly entitled a

Rule 59( €) motion to alter or amend judgment. See id: Patin v. Allied

Signal, Inc., 77 F. 3d 782, 785 n.t (Sth Cir. 1996); Lupo vy. Wyeth-Ayerst

Labs., 4 F. Supp. 2d 642, 643 (E.D. Tex. 1997) ("[T]en days after the entry

of. . . judgment, [plaintiff] filed a Motion for New Trial. . .. In doing so, he

essentially sought reconsideration of the summary judgment ruling on that

cause of action pursuant to Federal Rule of Civil Procedure 59(e)."),

App 40

Tex. 1996), aff'd 127 F.3d 34 (Sth Cir. 1997).*> Moreover, this

court finds that the evidence that Wilson Solutions now

submits would not create a genuine factual dispute on any

material issue. Accordingly, Wilson Solutions's motion for

reconsideration or a new trial is DENIED.

SIGNED on December 3,2004, at Houston, Texas.

Lee SA Rosenthal

Lee H. Rosenthal

United States District Judge

Wilson Solutions emphasizes the need for an enforceable no-hire

provision. This court did not hold that the no-hire provision in the contract

was unenforceable. Rather, this court held that on the basis of the summary

judgment record, the no-hire provision was overbroad and could not be the

basis of a damages award. The opinion did not address whether, on different

summary judgment evidence, the no-hire provision could have been applied

as Wilson Solutions argued, or whether the provision could have been used

to obtain an injunctive relief to protect the interests Wilson Solution has

identified.

App 41

Anorad Corporation

April 9, 1998

Page |

WILSON SOLUTIONS

7037 HIGHWAY 6 NORTH, SUITE 260

HOUSTON, TEXAS 77095

April 9, 1998

Paul Possi

Anorad Coporation

110 Oster Avenue

Hauppauge, NY 11788

Re: Confidentiality

Dear Mr. Rossi:

The purpose of this letter is to set forth our respective

obligations as to out working relationship, and to supplement

certain separate agreements that we shall enter into as to

individual projects (the “Services”). Both parties acknowledge

that the relationship between the parties is one of an

independent contractor. The parties to this agreement are

Anorad Corporation hereinafter referred to as “Client” and

Wilson Solutions hereinafter referred to as “Consultant”.

Consultant specifically acknowledges that both parties

shall maintain our own information and that of consultants’

customers, suppliers and investors in confidence. In

performing services for Client, each party may gain access to

various confidential information pertaining to the other, the

other’s customers, suppliers and investors. In such event,

App 42

Consultant agrees to maintain all such confidential information

that Consultant may learn or acquire in the strictest confidence

and that Consultant will not at any time, during the period of

the parties’ relationship thereafter, use such information or

disclose it to another, except as authorized by the other. This

obligation of confidence shall continue during the period that

Consultant provides services for Client and for a period of three

years thereafter. Both parties agree that confidential

information does not include information which (i) is 6r

becomes generally available to the public other than as a result

of a disclosure by either of the parties, (11) was within the other

party's possession prior to its being finished to such party, or

(111) becomes available to the other on a non-confidential basis

from a source other than the disclosing party, provided that

such source is not known by us to be bound by a confidentiality

agreement or other contractual, legal or fiduciary obligation of

confidentiality to such disclosing party.

In connection with providing services to Client.

Consultant will be involved in activities which may result in

the creation of (i) ideas protected under state law (contract law

and laws protecting trade secrets) and the federal patent system,

and (ii) forms of expression of ideas covered by the federal

copyright laws. It is agreed that Client will have the

unrestricted right to use, improve or modify such property 1

connection with Client’s business provided that Client does not

separately exploit same. However, all of the work that

Consultant creates or develops, solely or jointly with other,

relating to the work assigned to Consultant by Client (whether

created on Clients premises or at Consultant’s offices and

whether or not using Client’s equipment) will not constitute a

“work made for hire” and that Consultant will be the owner of

all rights, title and interest in and to such ideas and the forms of

expression of ideas, including all rights of copyright therein.

App 43

Further, Client acknowledges that the methodologies that

Consultant utilizes in performing Consultant’s services are

proprietary to: Consultant, which methodologies include

without limitation, design specifications, program maintenance

documents, platforms and program structures. Client agrees to

not disclose such proprietary information to any parties that

may be competitors of Consultant without Consultant’s prior

written consent absent an uncured default under the terms of

this agreement. This provision shall remain in force during the

period that Consultant provides services for Client’s benefit

and for a period of three years thereafter.

Both parties agree to not, directly or indirectly, during

the period that Consultant provides services for Client, and for

a period of one year thereafter, solicit, employ or hire or induce

to hire any person who is or had been an employee of either

party unless otherwise consented to in writing.

Client agrees that Consultant shall be compensated for

our services on a time and materials basis based on the rates set

our in Schedule A, page 4, along with reimbursement for any

out-of-pocket travel expenses. In connection thereto, Client

agrees to pay such invoices within thirty (30) days after receipt

of same. In the event that such invoices are not paid by their

due date, same shall accrue interest until paid at the less or

eighteen percent (18%) per annum or the maximum rate

allowed by applicable law. In the event that it 1s necessary for

Consultant to retain the services of an attorney to collect said

amounts, Client agrees to pay the reasonable costs incurred by

Consultant for such attorney’s fees.

Consultant represents and warrants to exercise

reasonable efforts and diligence to perform the Services.

Except for the express warranty in the preceding sentence, all

Services provided by Consultant under such _ separate

App 44

agreements are provided without any express or implied

warranty in fact or in law whatsoever. Consultant specifically

disclaims all warranties regarding such Services, including any

warranties of merchantability or fitness for a particular purpose.

Notwithstanding any provision herein to the contrary,

Consultant shall not be liable for any indirect, incidental or

consequential damages, including lost profits, sustained or

incurred in connection with any act or omission related to

Consultant’s performance regardless of the form of action,

whether in contract or tort or otherwise (including negligence,

strict liability or otherwise) and whether or not such damages

are foreseen or unforeseen. In the event that this provision fails

of its essential purpose, Consultant’s liability hereunder shall

not exceed the total of the fees paid to Consultant by Client as

to any separate project provided, however, in no event shall

such amount be in excess of $25,000.00 (USD) in the

aggregate. Any action arising from or in connection with

Services provided by Consultant must be brought within (1)

year after the cause of the action arises.

No provision of this letter agreement shall be construed

to apply to be enforced in any case where its application would

be void under any applicable rule against perpetuities, rule

limiting suspension of the power of alienation, or other similar.

This letter agreement shall be construed under an in

accordance with the laws of the State of Texas, and all

obligations of the parties created hereunder are performable in

Harris County, Texas.

In case any one or more of the provisions contained in

this letter agreement shall for any reason be held to be invalid,

illegal or unenforceable in any respect, such invalidity,

illegality or unenforceability shall not affect any other provision

thereof and this letter agreement shall be construed as if such

App 45

invalid, illegal or unenforceable provision had never been

contained herein.

Each party hereto acknowledges that a remedy at law for

any breach or attempted breach of this letter agreement will be

inadequate, agrees that each party hereto shall be entitled to

specific performance and injunctive and other equitable relief

in case of any such breach or attempted breach and further

agrees that any bon required for the securing of such injunctive

or other equitable relief shall be in the nominal amount of

$1,000.00 (USD). Provided, however, that this provision shall

not be construed to deny the recovery of damages caused by a

breach hereof.

This letter agreement shall be binding upon and, where

allowed pursuant hereto, issue to the benefit of the parties

hereto and their respective heirs, executors, administrators,

legal representatives, successors and assigns.

BLASE INDUSTRIES CORPORATION

Doing business as WILSON SOLUTIONS

BY: Gaynell Wilson

TITLE: CEO

ACKNOWLEDGED AND AGREED TO

This 9" day of April, 1998

Anorad Corporation

BY:Paul V. Rossi

TITLE: CFO