Entries in Traps for the Unwary (2)


Non-Competes: It Can't Just be About the Money

At a Dallas Bar Association conference last fall, Michael Maslanka gave an excellent presentation on Texas Non-Compete Law.  His presentation was informative, topical, and entertaining.  He was also very gracious in speaking with various conference attendees afterwards.  As part of his presentation, he highlighted a legal point about non-competes that is generally misconstrued when he noted that non-compete provisions cannot be supported with monetary consideration.  While it is generally known that non-compete provisions require separate consideration to be enforceable, it is less well known that non-compete provisions also require a specific type of consideration to render the provision enforceable.  In general, Texas courts have required the consideration to be an interest in something worthy of limiting competition and enjoining an individual from making a living.  So, while Texas courts will allow a company to enforce a non-compete provision when the consideration is providing access to trade secrets or other confidential information, it will not enforce non-compete provisions when the consideration is monetary.  Monetary consideration is not a worthy enough interest to prohibit competition and to limit someone from making a living.  To illustrate this proposition, the Dallas Court of Appeals recently held that consideration consisting of stock options was insufficient to support an enforceable non-compete provision.  See Marsh USA v. Rex Cook, 287 S.W.3d 378 (Tex.App.--Dallas 2009) ("Financial benefits...do not give rise to an interest worthy of protection.").

As a practical matter, this rule requiring a specific type of consideration may present problems for some employers who want their employees to execute a non-compete after that employee already has access to the employer’s trade secrets and other confidential information.  For instance, when new owners purchase a company and want to implement non-compete agreements to protect their investment, they might have some trouble getting the newly acquired employees to lawfully enter non-compete agreements if the employees’ positions do not require access to new trade secrets or other new confidential information.  In resolving this issue, an attorney must remember that money will not solve the legal problem.


Be Wary of the Judge Switch

The Texas Supreme Court recently admonished a judge who entered, for all intents and purposes, a default judgment against an attorney’s client because the attorney was at trial in another court when the case was called.  At the docket call, the attorney had informed the court that he was preferentially set for trial in another court.  The judge told the parties to call it ready and to pick a jury, acknowledging that ‘I don’t ever object to people going to another Court.”  But the case was then transferred to another district court where the judge apparently did have an objection to an attorney going to another court.  After the jury was selected, the new judge ordered the matter to trial even though he knew that the other attorney was already in trial.  When the attorney failed to appear, he proceeded with the trial and entered a judgment against the attorney’s client. 

After the Appellate Court affirmed the trial court’s decision, the Texas Supreme Court reversed the decision, holding that the “default” judgment should be set aside because “(1) the failure to appear was not intentional or the result of conscious indifference, but was the result of an accident or mistake; (2) the motion for new trial sets up a meritorious defense, and (3) granting the motion will occasion no delay or otherwise injure the plaintiff.” 

What was significant about the case was the Supreme Court’s comment about the parties involved in the case:

“Finally, this record compels us to note that judges and lawyers should, and in most instances do, extend common and professional courtesies to other judges and lawyers.  Here, despite attempts by other judges to contact the trial judge and…counsel and the trial judge being aware of [attorney’s] counsel was in trial elsewhere, judgement was entered against a party that by neither word nor deed exhibited intention to abandon or frustrate the proceedings.  It is a credit to the trial bench and bar that this type of record rarely ends up before appellate courts.” 

So, while the Supreme Court admonished what had transpired, it took the attorney an appeal to the Supreme Court to reverse his decision to call a case ready when he knew that he had a conflict.