DAVID ALAN EZRA, Senior District Judge.
Before the Court is (1) Plaintiff's Motion to Sever, Transfer, and Consolidate in Part Second-Filed Action Pending in the U.S. District Court for the District of Oregon (Dkt. # 4); (2) Defendant's Motion for Change of Venue (Dkt. # 15); (3) Plaintiff's Supplemental Application for Preliminary Injunction (Dkt. # 6); (4) Defendant's Motion to Partially Strike Declaration of Jason Sobey (Dkt. # 19); and (5) Plaintiff's Motion to Strike in Part Declaration of Jason Sparks (Dkt. # 22). The Court held a hearing on these motions on October 1, 2015. At the hearing, Christine Reinhard represented Plaintiff Sirius Computer Solutions, Inc., and Dawn Finlayson represented Defendant Jason Sparks.
Upon careful consideration of the arguments asserted in the supporting and opposing memoranda, as well as the arguments presented at the hearing, the Court finds that (1) Plaintiff's Motion to Sever, Transfer, and Consolidate in Part Second-Filed Action Pending in the U.S. District Court for the District of Oregon (Dkt. # 4) should be
Plaintiff Sirius Computer Solutions, Inc. ("Sirius") is a technology based solutions provider with headquarters in San Antonio, Texas. (Dkt. # 1-1 at 9.) Sirius maintains sales locations throughout the United States. (Id.) In June 2014, Defendant Jason Sparks ("Sparks") was hired as a Storage Solutions Sales Specialist in Sirius's Lake Oswego, Oregon office.
According to Sirius, all of its sales employees who receive a premium commission rate under its incentive plan, such as Sparks, are required to enter into a "Confidentiality, Protection of Customer Relationships and Non-Solicitation Agreement" (the "Agreement"). (Id. at 9.) The Agreement contains two sections entitled "Protection of Customer Relationships" and "Non-Solicitation of Employees," which discuss an employee's obligation not to disclose confidential information and not to solicit Sirius's customers and employees both during employment and for a period of one year after termination from employment. (Id.) The Agreement also contains
Sparks resigned from Sirius on May 8, 2015. (Dkt. # 14-2 at 3.) Thereafter, Sparks began employment with Nordisk Systems ("Nordisk"), located in the Portland, Oregon area. (Dkt. # 6-7 at 45.) Sirius contends that it is in direct competition for business solutions with Nordisk. (Id.) According to Sirius, Sparks, both prior to and since his resignation, solicited customers and fellow employees of Sirius in direct violation of the Agreement. (Id. at 12.)
On August 6, 2015, Sirius filed suit in the 438th Judicial District Court of Bexar County, Texas, alleging claims against Sparks for (1) breach of contract; (2) breach of fiduciary duty, including breach of the duties of confidentiality and loyalty; (3) tortious interference with contractual relations, prospective business advantage, and employment relations; and (4) injunctive relief, including a temporary restraining order, and a temporary and permanent injunction. (Dkt. # 1-1.) The same day, the state court granted Sirius's request for a temporary restraining order. (Id. at 28.) On August 17, 2015, Sparks removed the suit to this Court, in the Western District of Texas, invoking the Court's diversity jurisdiction. (Dkt. # 1.)
On August 14, 2015, eight days after Sirius filed suit against Sparks, Sparks and Nordisk filed suit against Sirius in the United States District Court for the District of Oregon, alleging claims for (1) declaratory judgment; (2) breach of contract; and (3) unfair competition (the "Oregon Litigation"). (Dkt. # 4-1.)
On August 24, 2015, Sirius filed a motion to consolidate, sever, and transfer the Oregon Litigation to this Court. (Dkt. # 4.) On September 8, 2015, Sparks filed his response to the motion to consolidate. (Dkt. # 14.) On September 15, 2015, Sirius filed its reply. (Dkt. # 21.) On August 26, 2015, Sirius also filed a motion for preliminary injunction. (Dkts. # 6, 16.) Sparks filed his response on September 23, 2015. (Dkt. # 28.) On September 8, 2015, Sparks filed a motion to change the venue of the case. (Dkt. # 15.) Sirius filed a response to that motion on September 15, 2015. (Dkt. # 23.) Sparks filed its reply on September 22, 2015. (Dkt. # 25.) Also pending are two motions to strike declarations. (Dkts. ## 19, 22.) All of the pending motions are addressed below.
Sirius contends in its motion to sever, transfer, and consolidate that the Oregon Litigation overwhelmingly overlaps with the legal questions and fact issues in this case. (Dkt. # 4.) It argues that the parties' contractual forum-selection clause and the first-to-file rule adopted by the Fifth Circuit, require that the Oregon Litigation be severed from that suit, transferred to this Court, and consolidated with the instant action. (Id.)
In response, Sparks agrees that the instant litigation should be consolidated with the Oregon Litigation; however, Sparks asserts that venue of the consolidated cases should be in Oregon, and not in this Court, as argued by Sirius. (Dkt. # 14 at
The Fifth Circuit adheres to the "first to file" rule, which provides that when related cases are pending in two district courts, the court with the later-filed action can refuse to hear the case if the issues raised by both cases "substantially overlap." Cadle Co. v. Whataburger of Alice, Inc., 174 F.3d 599, 603 (5th Cir. 1999). The first to file rule is a discretionary doctrine, the application of which is reviewed for abuse of discretion. Int'l Fidelity Ins. Co. v. Sweet Little Mex. Corp., 665 F.3d 671, 678 (5th Cir.2011). When deciding whether the issues raised in the two cases substantially overlap, the Fifth Circuit has looked to whether "the core issue was the same" or "if much of the proof adduced would likely be identical." Id. The cases in each district "should be more than merely related." Buckalew v. Celanese, Ltd., No. Civ. A. G-05-315, 2005 WL 2266619, at *2 (S.D.Tex. Sept. 16, 2005). However, substantial overlap between cases does not require that the parties and issues be identical. Save Power Ltd. v. Syntek Fin. Corp., 121 F.3d 947, 950 (5th Cir.1997). The two actions only need "involve closely related questions or common subject matter." Rooster Prods. Int'l, Inc. v. Custom Leathercraft Mfg. Co., No. SA-04-CA-864-XR, 2005 WL 357657, at *2 (W.D.Tex. Feb. 1, 2005); see also W. Gulf Mar. Ass'n v. ILA Deep Sea Local 24, 751 F.2d 721, 728-29 (5th Cir.1985).
The principles of comity and sound judicial administration underlie the first to file rule, the aim of which is "to avoid the waste of duplication, to avoid rulings which may trench upon the authority of sister courts, and to avoid piecemeal resolution of issues that call for a uniform result." Save Power, 121 F.3d at 950 (quoting W. Gulf Mar. Ass'n, 751 F.2d at 729). If the court in the later-filed action finds that the issues involved are likely to substantially overlap, it is up to the first-filed court to resolve the question of whether both cases should proceed. Mann Mfg., Inc. v. Hortex, Inc., 439 F.2d 403, 408 (5th Cir.1971); Cadle Co., 174 F.3d at 606 ("the `first to file rule' not only determines which court may decide the merits of substantially similar issues, but also establishes which court may decide whether the second suit filed must be dismissed, stayed, or transferred and consolidated"). Once housed in the first-filed court, the court is "entitled to determine which forum should hear [the] dispute"; the court may subsequently transfer the suit. Wells Fargo Bank, N.A. v. W. Coast Life Ins. Co., 631 F.Supp.2d 844, 847 (N.D.Tex.2009); Hortex, 439 F.2d at 407 ("Absent compelling circumstances, the court that initially obtains the controversy should be the one to decide whether it will try it.").
However, when "compelling circumstances" exist, the first-filed court may disregard the first-to-file rule. See Mann Mfg., Inc. v. Hortex, Inc., 439 F.2d 403, 407 (5th Cir.1971). Compelling circumstances exist "where a court determines that a party engaged in bad faith conduct, by inducing an opposing party to delay filing of a lawsuit, so that he could file a preemptive lawsuit." Chapa v. Mitchell, No. A-05-CV-769-JN, 2005 WL 2978396, at *2 (W.D.Tex. Nov. 4, 2005).
As previously stated, Sparks appears to concede that substantial overlap exists between the Oregon Litigation and the matters in this Court. (Dkt. # 14, at 6.) The Court agrees. The parties are
The second inquiry is which of the two courts should take the consolidated case. As discussed above, "[t]he Fifth Circuit adheres to the general rule that the court in which an action is first filed is the appropriate court to determine whether subsequently filed cases involving substantially similar issues should proceed." Save Power, 121 F.3d at 950. Here, there is no dispute that the instant suit was filed in state court on August 6, 2015, although it was not removed to federal court until August 17, 2015. (Dkt. # 1.) The Oregon litigation was filed on August 14, 2015. (Dkt. # 4-1.) Because courts in this district consider the date of filing in state court as the relevant benchmark for determining which suit was filed first, then the Court finds that the instant lawsuit, filed in state court and subsequently removed to this Court, was first-filed. See, e.g., Bank of Am. v. Berringer Harvard Lake Tahoe, No. 3:13-CV-0585-G, 2013 WL 2627085, at *3 (N.D.Tex. June 12, 2013); Poche v. Geo-Ram, Inc., No. 96-1437, 1996 WL 371679, at *2 (E.D.La. July 2, 1996); Igloo Products Corporation v. The Mounties, Inc., 735 F.Supp. 214, 217 (S.D.Tex. 1990) (citing Federal Deposit Insurance Corporation v. Taylor, 727 F.Supp. 326, 329 (S.D.Tex.1989)).
Sparks argues however that this action falls within an exception to the first to file rule.
Sirius, on the other hand, argues that while the parties do not dispute that Nordisk is not a party to the Texas Litigation and was not a party to the Agreement in question in this case, Nordisk's involvement in this case is not necessary to resolve its claims against Sparks or vice versa, and that therefore Nordisk's claims should be severed from Sparks's claims. (See Dkt. # 21 at 5.) Sirius also contends that, while it may be more efficient to dispose of the entire case, including Nordisk's claims, in one forum, Sparks cannot ignore that he agreed to the forum selection clause in the Agreement. (Id.) The Court agrees.
Summarized above, the forum-selection clause in the Agreement entitled "Applicable Law and Venue," signed by Sparks, states that:
(Dkt. # 21-1 at 14.) As more fully discussed below in Sparks's motion to transfer venue, the Court agrees with Sirius that the mandatory venue language in the Agreement dictates that Sparks's claims arising under the Agreement be heard in San Antonio, Texas.
Still, in support of his contention regarding the inconvenience to Nordisk if the case remains in this Court, Sparks cites a district court case from Nebraska, Sirius Computer Solutions, Inc. v. Evans, No. 8:11-CV-439 (D.Neb. Apr. 23, 2012), with similar facts to the present suit. (Dkt. # 25 at 4.) The Nebraska court held, in denying Sirius's motion to retain venue in Nebraska in opposition to a forum-selection clause and the first-filed rule, that the convenience of the parties in having all claims heard in one forum, among other concerns, would promote the interests of justice. Evans, No. 8:11-CV-439, at 24.
Evans is distinguishable from the facts of this case. Most importantly, the forum-selection clause at issue in Evans was permissive, not mandatory. Additionally, neither Sirius nor the plaintiff in that case were located in Sirius's desired forum, as Sirius had moved its headquarters to Texas subsequent to the agreement at issue in that case. As such, the holding in Evans is not persuasive to the instant action where a mandatory forum-selection clause was signed by both parties, and where Sirius maintains its headquarters in San Antonio, Texas.
As previously noted, when there are "compelling circumstances," the court may disregard the first to file rule. See Mann Mfg., 439 F.2d at 407. Sparks has not provided sufficiently compelling circumstances that would warrant an exception to the first-filed rule. He has not provided any evidence of Sirius's bad faith in filing the first suit in state court, nor has he demonstrated that Sirius filed it in a preemptive attempt to avoid Sparks's filing suit in a different forum. See Chapa, 2005 WL 2978396, at *2. On the contrary, Sirius filed suit in accordance with the mandatory forum-selection clause in the Agreement. Additionally, while Nordisk's claims certainly relate to and to some extent overlap with the claims in this case, Sparks has not shown sufficient justification for overcoming the forum-selection provision as applied to his claims against Sirius.
Accordingly, the Court finds that (1) the first to file rule applies, (2) this Court received the first filing, and (3) this Court should decide whether venue is proper in this district. The Court concludes that Sparks's claims should be severed from Nordisk's claims in the Oregon Litigation; Sparks's claims in the Oregon Litigation should be transferred and consolidated with the instant case.
For the foregoing reasons, Plaintiff's Motion to Sever, Transfer, and Consolidate in Part Second-Filed Action Pending in the U.S. District Court for the District of Oregon (Dkt. # 4) is
Subsequent to Sirius's motion to sever, transfer, and consolidate, Sparks filed his own motion to transfer venue of the case from this Court. (Dkt. # 15.) Sparks argues in his motion that the "only way to avoid risk of prejudice to all parties, both in the Texas and Oregon matters is to transfer venue to Oregon." (Dkt. # 15 at 6.) In support, Sparks contends that Oregon is the best location because it is where the performance and relevant activities of the Agreement occurred. (Id. at 7.) He also asserts that he is not a resident of Texas, and that Nordisk maintains its offices in Oregon. (Id. at 8.) Additionally, Sparks contends that Oregon law will apply, and that Sirius's basis of venue solely on the forum selection clause in the Agreement is inappropriate because the relevant factors pertaining to venue weigh in favor of the transfer of venue to Oregon. (Id. at 8.)
In response, Sirius argues that there is no dispute that Sparks signed the Agreement, and therefore that he agreed to its mandatory forum-selection clause. (Dkt. # 23 at 2.) As such, Sirius asserts that Sparks is bound by the terms of the Agreement concerning forum selection in San Antonio, Texas. (Id. at 5.) Additionally, Sirius contends that Texas law, and not Oregon law, governs this case. (Id. at 3.) Finally, Sirius again argues that Nordisk's involvement in this case is irrelevant to enforcement of venue in this Court. (Id. at 10.)
Where jurisdiction and venue are proper, transfer of venue is governed by 28 U.S.C. § 1404. Under the plain language of § 1404(a), a venue transfer may be made to either any district where the action might have been brought, or to any other district to which all parties have consented. 28 U.S.C. § 1404(a). A court is not limited to these factors, but must consider all relevant factors and examine the particular circumstances in the case at hand. Generally, a court weighs "the relevant factors and decide[s] whether, on balance, a transfer would serve `the convenience of parties and witnesses' and otherwise promote `the interest of justice.'" Atl. Marine Constr. Co., Inc. v. U.S. Dist. Court for W. Dist. of Tex., ___ U.S. ___, 134 S.Ct. 568, 579, 187 L.Ed.2d 487 (2013) (quoting § 1404(a)).
"The calculus changes, however, when the parties' contract contains a valid forum-selection clause, which `represents the parties' agreement as to the most proper forum.'" Id. (quoting Stewart Org., Inc. v. Ricoh Corp., 487 U.S. 22, 31, 108 S.Ct. 2239, 101 L.Ed.2d 22 (1988)). The "enforcement of valid forum-selection clauses, bargained for by the parties, protects their legitimate expectations and furthers vital interests of the justice system." Stewart, 487 U.S. at 33, 108 S.Ct. 2239. As such, "when the parties have agreed to a valid forum-selection clause, a district court should ordinarily transfer [or retain] the case to the forum specified in that clause," and a proper application of § 1404(a) mandates that the forum-selection clause be "given controlling weight in all but the most exceptional cases" unrelated to the convenience of the parties. Atlantic Marine, 134 S.Ct. at 581. Therefore, "[t]he presence of a valid forum-selection clause requires district courts to adjust their usual § 1404(a) analysis." Id. at 581.
The Supreme Court has held that one of the ways a court must adjust the § 1404(a) analysis in forum-selection clause cases is not to consider arguments
When determining whether extraordinary circumstances exist that warrant transfer, or denial of transfer, only the public-interest factors of a traditional § 1404(a) analysis may be considered, including: (1) the administrative difficulties flowing from court congestion; (2) the local interest in having localized interests decided at home; (3) the familiarity of the forum with the law that will govern the case; and (4) the avoidance of unnecessary problems of conflict of law of the application of foreign law. Id. at 581-82. "[T]he party acting in violation of the forum-selection clause ... must bear the burden of showing that public-interest factors overwhelmingly disfavor a transfer." Id. at 583.
As an initial matter, Sparks does not appear to challenge the validity of the forum-selection clause in the Agreement nor does he dispute that its language concerning venue is mandatory. (See Dkt. # 15 at 3, Dkt. # 25 at 1-2.) See, e.g., First Nat'l of N. Am., LLC v. Peavy, No. 3-02-CV-0033BD(R), 2002 WL 449582, at *1 (N.D.Tex. Mar. 21, 2002) (noting that when an agreement contains clear language showing that jurisdiction is appropriate only in a designated forum, the clause is mandatory). Additionally, he does not appear to disagree that he contractually agreed to that provision when he signed the Agreement. (Dkt. # 15 at 3.) Instead, Sparks contends that this case warrants an exception to the mandatory forum selection provision. Because the Court may consider only the public-interest factors, and not Sparks's private interests in having venue transferred to Oregon,
The speed with which a case can come to trial and be resolved quickly is a factor in the transfer analysis. A proposed transferee court's "less congested docket" and "[ability] to resolve this dispute more quickly" is a factor to be considered. In re Hoffmann-LaRoche, 587 F.3d 1333, 1336 (Fed.Cir.2009). This factor is very speculative, and in situations where other relevant factors weigh in favor of transfer and others are neutral, then the speed of the transferring district should not by itself outweigh the other factors. Id.
This factor considers the interest of the locality of the chosen venue in having the case resolved there. In re Volkswagen AG, 371 F.3d 201, 205 (5th Cir.2004). This consideration is based on the principle that "[j]ury duty is a burden that ought not to be imposed upon the people of a community [that] has no relation to the litigation." Id.
In its brief discussion of this factor, Sparks argues that there are "a number of Pacific Northwest customers that Sparks is alleged to have had business dealings with and solicited" business, as well as "a number of former employees of Sirius [living in Oregon] that Sparks is alleged to have solicited for work at Nordisk." (Dkt. # 15 at 8-9.) He contends that "Oregon would be vastly more accessible for all involved." (Id.)
Sparks does not demonstrate a sufficient local interest in having the case decided in Oregon. Instead, his arguments in favor of this factor appear to weigh more in favor of his private-interests in having venue of the case in Oregon. Aside from the fact that there is no argument that Sparks contractually agreed to the forum, the headquarters of Sirius lies in San Antonio and that is where the contract at issue was born. Therefore, an argument could be made that a local interest is most definitely apparent in retaining venue in this Court in San Antonio, especially as it pertains to any potential impact Sirius might have on the local economy. This factor weighs in favor of retaining venue in this Court.
The familiarity of the forum state with governing law should only be considered a public-interest factor weighing in favor of transfer if the governing law is "exceptionally arcane." See Atl. Marine, 134 S.Ct. at 584. The Supreme Court has held that "federal judges routinely apply the law of a State other than the state in which they sit." Id.
The parties in this case dispute whether Texas or Oregon law applies to the issues in this case. Sparks asserts that Oregon law governs the claims in this case, and that this factor therefore weighs heavily in favor of transfer to Oregon. (Dkt. # 15 at 9; Dkt. # 25 at 2.) As support, Sparks argues that the Agreement was performable only in Oregon where Sparks worked and where he interacted with fellow employees and customers. (Dkt. # 25 at 2.) Sirius disagrees, stating that Texas law governs this matter. (Dkt. # 23 at 3.) It argues that Sparks contractually agreed that Texas law governs claims arising from the Agreement in the provision discussing forum selection. (Id.) As evidence, Sirius argues that the heading of the provision, "Applicable Law and Venue," as quoted above, clearly means that Texas law will apply to the dispute. (Id.)
The Court notes at the outset that regardless of which state's law applies to the issues in this case, neither party has demonstrated that the resolution of the claims will involve any thorny or unusual issues of state law, and courts in both venues are equally able to resolve any choice of law issues presented by Sirius's claims. See Atl. Marine, 134 S.Ct. at 584. Still, because which state's law is important to deciding the issues in the case, and in
In diversity cases, district courts apply the choice-of-law rules of the forum state. Klaxon v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496, 61 S.Ct. 1020, 85 L.Ed. 1477 (1941); Int'l Interests, L.P. v. Hardy, 448 F.3d 303, 306 (5th Cir.2006). In this case, Texas determines the enforceability of choice-of-law provisions under the Restatement (Second) of Conflict of Laws ("Restatement"). Section 187 of the Restatement states:
Restatement § 187.
Accordingly, in this case, under § 187(2), the parties' contractual choice of Texas law controls unless 1) Texas has no substantial relationship to the parties or the transaction, or 2) another state has a materially greater interest than Texas in the enforceability of the agreement, and that state's law would apply "in the absence of an effective choice of law by the parties" under § 188. Section 188 of the Restatement states:
Restatement § 188.
As noted earlier, the parties dispute whether the provision titled "Applicable Law and Venue" can be interpreted to mean that the parties contractually agreed that Texas law would govern any disputes arising from the Agreement. (Dkt. # 23 at 3-4.) Sirius argues that this provision's title, along with stating that the "Plan and Agreement were entered into and are performable in San Antonio, Texas," dictates that Texas law should apply to the current dispute. (Id. at 4.) Sparks, on the other hand, argues that this sentence in the provision, along with the provision's heading, does not explicitly direct the application of Texas law and it does not limit the performance of the contract to Texas. (Dkt. # 25 at 2.)
While the Court considers the title of the heading of the forum selection provision, "Applicable Law" to be sufficient to put Sparks on notice that Sirius would apply Texas law to any dispute arising from the Agreement, even if it were not sufficient, the other factors of Restatement § 188 weigh in favor of the application of Texas law. The record shows that Texas has a substantial relationship to the parties and the transaction. The parties entered into the Agreement in Texas. Sirius's headquarters is in Texas. Additionally, the parties contractually agreed that the Agreement was "performable in San Antonio, Bexar County, Texas." (Dkt. # 23-1 at 10.) Therefore, because Texas has a substantial relationship with the parties and the transaction, then the Court finds that Texas law should be applied to the instant dispute. As such, this factor of the venue transfer analysis which considers familiarity of the forum state with the law governing the case also weighs in favor of retaining venue in this Court.
Neither party argues that there will be a conflict of laws or application of foreign law to the claims in this case. This factor is therefore neutral.
The court finds that the public-interest factors do not require the Court to transfer venue of this case to Oregon. Because this is not one of those "most unusual cases" in which the public interest overwhelmingly favors transfer, the Court finds that "the interest of justice," as defined in § 1404(a), "is served by holding [Sparks] to [his] bargain" and retaining venue in this Court in accordance with the parties' mandatory forum-selection clause. Atl. Marine, 134 S.Ct. at 583.
For the foregoing reasons, Defendant's Motion for Change of Venue (Dkt. # 15) is
Sirius also moves for a preliminary injunction against Sparks which will enjoin him from (1) using and disclosing Sirius's confidential information obtained during his employment; (2) directly or indirectly contacting, soliciting, or otherwise engaging any Sirius employee to leave employment with Sirius; and (3) directly or indirectly soliciting any existing or potential customers of Sirius with whom Sparks dealt with during his employment with Sirius. (Dkt. # 6 at 1.) Sirius alleges that without the preliminary injunction, it will continue to lose valuable employees and have its goodwill and business reputation harmed by Sparks's actions in contravention of the Agreement. (Id.)
As summarized above, the relevant provisions of the agreement state:
(Dkt. # 15-1 at 11-12.)
The grant of injunctive relief is an extraordinary remedy which requires the movant to unequivocally show the needs for its issuance. Opulent Life Church v. City of Holly Springs, Miss., 697 F.3d 279, 288 (5th Cir.2012); Valley v. Rapides Parish Sch. Bd., 118 F.3d 1047, 1050 (5th Cir.1997). A preliminary injunction should not be granted unless the movant demonstrates by a clear showing: (1) a substantial likelihood of success on the merits; (2) a substantial threat of irreparable harm if the injunction is not granted; (3) that the threatened injury outweighs any harm that may result from the injunction to the non-movant; and (4) that the injunction will not undermine the public interest. Lindsay v. City of San Antonio, 821 F.2d 1103, 1107 (5th Cir.1987); Valley, 118 F.3d at 1051. At the preliminary injunction stage, the procedures in the district court are less formal, and the district court may rely on otherwise inadmissible evidence, including hearsay evidence. Sierra Club, Lone Star Chapter v. F.D.I.C., 992 F.2d 545, 551 (5th Cir.1993). However, even when a movant established each of the four requirements described above, the decision whether to grant or deny a preliminary injunction remains within the Court's discretion, and the decision to grant a preliminary injunction is treated as the exception rather than the rule. Miss. Power & Light Co. v. United Gas Pipe Line Co., 760 F.2d 618, 621 (5th Cir.1985).
The four elements to consider in granting a preliminary injunction are analyzed below.
The non-solicitation and confidentiality provisions at issue are in essence provisions not to compete. In Texas, a provision not to compete is enforceable if (1) it is ancillary to or part of an otherwise enforceable agreement at the time the agreement is made; and (2) the limitations of time, geographical area, and scope of activity are reasonable and do not impose a greater restraint than is necessary to protect the goodwill or other business interest of the promise. Tex. Bus. & Com. Code Ann. § 15.50 (West 2009). The burden of proof lies with the employer as the promisee to demonstrate that the provision
Sirius argues that the Agreement and its non-solicitation provisions are valid and enforceable because it was entered into ancillary to Sparks's at-will employment and pursuant to his compensation plan. (Dkt. # 6 at 8.) Sirius also contends that it provided Sparks with confidential information and a higher sales commission as consideration for the Agreement following its execution. (Id.) Furthermore, Sirius asserts that the limitations, including the subject matter and temporal restrictions, identified in the Agreement are reasonable. (Id. at 9.)
Sparks, on the other hand, contends that the Agreement concerning the provisions not to solicit Sirius's customers was not valid and therefore unenforceable. (Dkt. # 27 at 19-35.) In support of his contention that this provision was invalid, Sparks contends that he signed the Agreement containing the provision based on illegality by Sirius representatives. (Id. at 19-30.)
The Supreme Court of Texas has noted that "[t]he hallmark of enforcement is whether or not the [provision] is reasonable." Marsh USA Inc. v. Cook, 354 S.W.3d 764, 777 (Tex.2011). The court warned that, when determining the enforceability of a provision, a court should not focus on "overly technical disputes" over whether a provision is ancillary to an agreement, but should instead inquire "whether the [provision] `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 promise.'" Id. (citing Tex. Bus. & Com. Code § 15.50(a)).
Sparks makes no arguments that the non-solicitation provisions pertaining to Sirius's employees and customers are unreasonable as to the time, geography, and scope of activity that they prohibit. Furthermore, Sparks does not dispute that he had an obligation not to disclose confidential information. (Dkt. # 27 at 1.) Instead, Sparks's arguments in opposition to the validity of the provisions focus on whether his signature on the Agreement was obtained by fraudulent inducement, waiver, unclean hands, estoppel, and apparent authority. (Dkt. # 27 at 19-35.) These affirmative defenses to enforceability are discussed below.
Sparks contends that Sirius fraudulently induced him into signing the Agreement with the inclusion of the provision concerning the non-solicitation of customers. (Dkt. # 27 at 19.) He argues that Sirius made a commitment to him that he would be able to keep his long-time customer base, however, when it came time to sign the Agreement, he was of the understanding that Sirius would "fix" the Agreement so that the provision would be inapplicable to him. (Id.) He contends that he signed the Agreement in form, but not to its contractual meaning regarding the provision relating to non-solicitation of customers. (Id.)
To prove a claim for fraudulent inducement under Texas law, a plaintiff must show that the defendant (1) made a false material representation, (2) knew the representation was false when made, or made recklessly, without knowledge of its truth, (3) with intent to induce the plaintiff to act upon the representation, and (4) the plaintiff justifiably relied upon the representation, thereby suffering injury. Bohnsack v. Varco, L.P., 668 F.3d 262, 277-78 (5th Cir.2012).
Sparks has not presented sufficient evidence at this stage of the proceedings to demonstrate that Sirius made a false representation, or much less that it knew the representation was false. His evidence
Sparks also contends that even if the Court were to consider the Agreement valid because of his signature on it, Sirius has waived its right to enforce it. (Dkt. # 27 at 20.) Specifically, he contends that Sirius unequivocally represented to him that he would not be subject to the non-solicitation of customers provision. (Id. at 21.) "Waiver is the intentional relinquishment of a right actually known, or intentional conduct inconsistent with claiming that right." Ulico Cas. Co. v. Allied Pilots Ass'n, 262 S.W.3d 773, 778 (Tex.2008). "The elements of waiver include (1) an existing right, benefit, or advantage held by a party; (2) the party's actual knowledge of its existence; and (3) the party's actual intent to relinquish the right, or intentional conduct inconsistent with the right." Id.
Again, Sparks has not provided sufficient evidence of waiver on the part of Sirius. He bases his allegation on the same evidence he presented for his fraudulent inducement claim, contending that Pixton's action in assuring him that the non-solicitation of customers provision would not be enforceable as to him resulted in Sirius's relinquishment of a known right that was inconsistent with that right. (Dkt. # 27 at 21.) However, as discussed above, Pixton's testimony does not indicate that he clearly conveyed any representation to Sparks that he would definitely not be bound to the non-solicitation provision. (See Dkt. # 27-2 at 17-18). In such case, Sparks has not provided sufficient evidence of waiver.
Sparks also contends that a preliminary injunction should be denied to Sirius because it has come to court with unclean hands. (Dkt. # 27 at 23.) He alleges that Sirius's actions in first representing to him that he did not have to sign the non-solicitation provision concerning customers and then attempting to enforce it is unjust. (Id.) Unclean hands is an affirmative defense that may bar a party with unclean hands from obtaining equitable relief. Davis v. Grammer, 750 S.W.2d 766, 768 (Tex.1988); Truly v. Austin, 744 S.W.2d 934, 938 (Tex.1988) ("It is well-settled that a party seeking an equitable remedy must do equity and come to court with clean hands.")
Again, Sparks relies on his assertion that he was assured that he did not have to agree to the non-solicitation provision prior to his signing the Agreement. (Dkt. # 27 at 24.) However, as discussed
Sparks next contends that Sirius is equitably estopped from enforcing the non-solicitation provisions because the entire contract was procured by fraud, deceit, and misrepresentation. (Dkt. # 27 at 25.) Similar to his previous arguments, Sparks alleges that Sirius made false representations to him before, during, and after employment which it intended that he act and rely on.
The doctrine of equitable estoppel generally prevents one party from misleading another to the other's detriment or to the misleading party's own benefit, and requires: "(1) a false representation or concealment of material facts; (2) made with knowledge, actual or constructive, of those facts; (3) with the intention that it should be acted on; (4) to a party without knowledge or means of obtaining knowledge of the facts; (5) who detrimentally relies on the representations." Ulico Cas. Co. v. Allied Pilots Ass'n, 262 S.W.3d 773, 778 (Tex.2008); Johnson & Higgins of Tex., Inc. v. Kenneco Energy, Inc., 962 S.W.2d 507, 515-16 (Tex.1998).
As previously addressed, Sparks has not presented sufficient evidence of any false representation or concealment. Nor has he presented any evidence of Sparks's lack of ability to obtain knowledge of the facts concerning whether the non-solicitation would be applicable to him. His evidence for this defense includes Sirius's email communications within its staff concerning Sparks's desire not to sign the non-solicitation agreement. (Dkt. # 6-7.) This email details that Sparks had the option of signing the Agreement with a higher commission rate, or taking a lower commission rate in exchange for not signing it. (Id. at 1.) An email sent from Sirius's Executive Vice President of Sales, Muditha Karunatileka, states that the commission structure regarding non-solicitation agreements "is consistent with how we treat all new hires, and I am not willing to grant an exception [to Sparks]." (Id.) Karunatileka's message also states that "[t]he other option for him is to SIGN the non-solicitation, but with a `carve out' of his accounts (once we verify that they are not current Sirius customers, and a manageable number of say 10[or] 15) that are not subject to the non-solicitation." (Id.) In response to this email, Sirius's Senior Vice-President of Sales for the Western Region, Imran Salim, informed Karunatileka that he and Pixton would "have discussions with Jason [Sparks]." (Dkt. # 6-7 at 55.) Sparks contends that this email exchange allowed an exception for Sparks regarding his former customers, but that Pixton and other Salim did not effectuate and follow-up with this exception for him. (Dkt. # 27 at 27.)
Sirius, however, has provided the declaration of Pixton wherein he states that subsequent to Karunatileka's email, he had a phone conversation with Sparks regarding Karunatileka's inability to waive the requirement of the Agreement, and that "[a]t the end of that conversation, "Mr. Sparks informed me that he would sign [the Agreement] "as is." (Dkt. # 6-6 at 2.) Pixton then notified Sirius's Recruitment Programs Manager, Stayce Schill, that he spoke with Sparks "and walked him through our non-solicitation/PRA" and that Sparks had agreed to the Agreement "as is." (Id.; Dkt. # 6-7 at 59.) After sending Sparks the paperwork, Schill notified Pixton that Sparks had signed and accepted the offer without any modifications to the Agreement. (Dkt. # 6-6 at 2; Dkt. # 6-17 at 60; Dkt. # 6-8 at 6.) Pixton also states that at no time was he aware that Sirius had "agreed to strike or remove
Nevertheless, Sparks asserts that the "carve-out" exception was applicable to him and his customer base; however, he does not provide sufficient evidence that it was in fact approved and agreed to by him or Sirius in any formal capacity so as to lead the Court to conclude that certain customers of Sparks were in fact excepted from the provision. He provides no evidence that he contacted anyone or that anyone contacted him regarding its implementation prior to him signing the Agreement. Nor is there any evidence that Sparks inquired about a revised non-solicitation provision upon his belief that his customer base would be "carved-out," and there is no evidence that a list of Sparks's customer base was created in order for the "carve-out" exception to apply to Sparks.
Without such proof, the Court is unable to conclude that the provision regarding non-solicitation of customers was "carved-out" for Sparks, especially in light of the fact that Sparks signed the Agreement without any revisions, or attachments, to the non-solicitation provisions. As such, Sparks has not presented sufficient evidence of equitable estoppel.
Sparks also contends that Sirius cannot maintain any argument that Pixton did not have the apparent authority to remove the non-solicitation provision. (Dkt. 27 at 27.) However, this contention is premature. Sirius has not made such an allegation and the Court will not consider the merits of this argument.
Overall, Sparks has not presented sufficient evidence at this stage of the proceedings that the Agreement or any of its provisions were invalid or unenforceable. Additionally, Sparks does not dispute the actual terms of the relevant provisions nor does he dispute that he was provided access to confidential information. (Id. at 2-3.) He also does not dispute that he signed the Agreement containing the non-solicitation provisions, although he contends he did so with the understanding that the provision pertaining to non-solicitation of customers would not be applicable to him. In such case, the Court concludes that the Agreement's restrictions pertaining to the non-solicitation of employees and customers appear reasonable and do not impose a greater restraint than necessary to protect Sirius's business interests, including its confidential information. See Marsh, 354 S.W.3d at 774 (noting that confidential information is a protectable business interest under Tex. Bus. & Com.Code § 15.50(a)).
Furthermore, the provisions' restrictions still allow Sparks to work in the same industry and pursue a living by only preventing him from disclosing confidential information, from providing similar services to Sirius's customers, and from soliciting Sirius's employees. See Evans Consoles Inc. v. Hoffman Video Sys., Inc., No. 3:01-CV-1333-P, 2001 WL 36238982, at *8 (N.D.Tex. Dec. 6, 2001) ("One of the factors considered by courts in determining the reasonableness of an agreement is whether the defendant is restricted from earning a living if the agreement not to compete is enforced."). Accordingly, the Court concludes that the non-solicitation provisions in the Agreement are enforceable and that there is a substantial likelihood that Sirius will prevail on its claims against Sparks.
A plaintiff must be threatened with irreparable injury for a court to issue a preliminary injunction. Univ. of Tex. v. Camenisch, 451 U.S. 390, 392, 101 S.Ct. 1830, 68 L.Ed.2d 175 (1981). To show threat of irreparable injury, a plaintiff must demonstrate that "a significant
Sirius contends that not only will it experience economic injury if the preliminary injunction is not granted, but that it will cost the company existing and potential customer relationships, the loss of company goodwill, and the threatened release and misuse of its confidential and secret trade information. (Dkt. # 6 at 10.) Specifically, Sirius alleges that Sparks will continue to "divulge, misuse, or impart" confidential and proprietary information to Nordisk and that his solicitation of Sirius's customers and potential customers threatens loss of business goodwill. (Id.)
Sparks responds that Sirius is unable to establish irreparable injury, especially because it chose to wait three months before seeking relief by filing its suit in state court. (Dkt. # 27 at 5, 35.) As such, Sparks contends that Sirius stood still and allowed competition to occur, forfeiting any right to claim a loss of goodwill. (Id.) Additionally, Sparks contends that Sirius cannot claim any injury after it was prepared to offer Sparks the ability to keep his customer base in exchange for a reduction in salary, or give up his customer base to receive higher compensation. (Id.) Despite Sparks's contentions, because Sirius has come forward with competent evidence concerning the irreparable injury it is likely to suffer if the preliminary injunction is not issued, Sparks's contentions are without merit.
As proof that Sparks has violated the provision not to solicit customers and that it will continue to suffer irreparable harm, Sirius has provided evidence of Sparks's communications with Sirius customers after his employment with Nordisk. (Dkt. # 16 at 11.) This evidence indicates that on several occasions after his termination from employment at Sirius, Sparks contacted customers in a business capacity that he himself identified in deposition testimony were customers of Sirius. (See, e.g., Dkt. # 16 at 11-12; Dkt. # 16-11 at 57). Sirius's evidence also includes at least one email message Sparks sent to Sirius customers informing them of his resignation and providing his new contact information. (Dkt. # 16 at 11; Dkt. # 6-13 at 4, 7-12.) Sirius further indicates that at least one client of Sirius has ordered equipment from Nordisk subsequent to Sparks's departure, and that he may be providing quotes from Nordisk to these customers based on quotes from Sirius. (Dkt. # 16 at 13; Dkt. # 6-13 at 3.) These activities are in direct opposition to those restricted in the Agreement.
Sirius has also provided evidence that Sparks has violated the provision not to solicit employees. (Dkt. # 16 at 13.) It provides evidence that at least three employees either contacted Sparks or were contacted by him subsequent to his resignation in regard to possible employment with Nordisk. (Id.; Dkt. # 16-4 at 3; Dkt. # 6-12 at 2-3, 5, 6, 7-13.) Sirius argues that while Sparks alleges that those
Sirius has also provided evidence that Sparks was in possession of confidential information that was deleted from his computer in violation of the state court's temporary restraining order. (Dkt. # 6 at 6; Dkt. # 6-2.) Sirius's evidence from a forensic computer examiner indicates that at least 294 documents pertaining to Sirius were deleted from Sparks's computer. (Dkt. # 6-2.) Sparks disputes this evidence, as discussed below in his motion to strike, contending that the information he had on his computer was not confidential. (Dkt. # 19.) Sparks also argues that any deletion was done in accordance with the temporary restraining order issued by the state court. (Id.) Nonetheless, Sirius's evidence sufficiently infers that Sparks was in possession of confidential information which he may have used in a capacity contrary to the confidentiality provision of the Agreement. In such case, Sirius has demonstrated that irreparable harm would be likely should Sparks disseminate any confidential information he obtained from Sirius.
Overall, the Court concludes that Sirius has submitted sufficient evidence to demonstrate a substantial threat of irreparable injury. Plaintiff's complained of harm is the "epitome" of irreparable, especially as it pertains to its potential lost goodwill, lost employees, and potentially lost confidential and proprietary information. Sparks cannot overcome the rebuttable presumption that Sirius is suffering irreparable harm.
"The third factor requires the plaintiff to establish that his irreparable harm is greater than the hardship that the preliminary injunction would cause the defendant." DS Waters of Am., Inc. v. Princess Abita Water, L.L.C., 539 F.Supp.2d 853, 863 (E.D.La.2008) (citing Valley, 118 F.3d at 1051). Courts engage in a traditional balancing test on this factor. See, e.g., Am. Exp. Fin. Advisors, Inc. v. Scott, 955 F.Supp. 688, 693 (N.D.Tex.1996) (holding the hardships to a signatory to a non-compete from the preliminary injunction do not outweigh those to the company if the signatory were allowed to violate his non-compete and work with former clients for the period covered in the agreement).
Sirius argues that it is not seeking a non-competition agreement that would completely restrict Sparks from working anywhere in the same field or industry as Sirius. (Dkt. # 6 at 12.) Instead, it argues that it simply seeks to restrict Sparks from disclosing confidential information, contacting specific, known clients, as well as contacting and communicating with the employees of Sirius for the purpose of soliciting employment for a one-year period. (Id.)
The loss of business, its goodwill, and potential employee base is significant for Sirius's side of the balancing. Additionally, the reasonableness of the restriction on Spark's activity works against him for this factor; Sparks may continue to work
Accordingly, the balance of harms under the circumstances discussed above favors Sirius, and Sirius has therefore met its burden to establish the third element of the preliminary injunction analysis. See, e.g., Oxford Global Res., Inc. v. Weekley-Cessnum, No. 3:04-CV0330-M, 2005 WL 350580, at *6 (N.D.Tex. Feb. 8, 2005) (concluding that the balance of interests favored employer when employee could still solicit business from new customers, although he was preliminary enjoined from pursuing former customers); Evans Consoles, 2001 WL 36238982, at *10 (noting that harm than an employee occurred due to a preliminary injunction, which prevented the employee from working in six states for the noncompetition period of three years, did not outweigh the harm to his former employer in terms of lost goodwill and business).
Non-compete clauses are disfavored as a restraint on business in Texas. Nevertheless, the Fifth Circuit and courts in Texas uphold them and grant injunctions enforcing them in some circumstances. Upholding reasonable non-competes is within the public interest. See, e.g., TransPerfect Translations, Inc. v. Leslie, 594 F.Supp.2d 742, 758 (S.D.Tex. 2009); AmeriSpec, Inc. v. Metro Inspection Serv., Inc., No. 3:01-CV-0946-D, 2001 WL 770999, at *6 (N.D.Tex. July 3, 2001).
Sparks again argues that Sirius failed to negotiate the Agreement in good faith and follow up with him regarding a clear waiver of the non-solicitation provisions. (Dkt. # 27 at 35.) He also contends that his customer base's business is threatened, including a potential shut-down of an emergency room's computer operating system if the non-solicitation provisions are enforced against him. (Id. at 36.) While certainly a concern, those customers that Sparks considers his customer base, such as the hospital, likely have other options, including possibly re-employing Sirius if needed. Additionally, these situations are not compelling or unique to the signed non-solicitation agreement at issue here. Courts continuously grant injunctions in the face of these exact "public interest" concerns. Accordingly, the Court finds that a preliminary injunction in this case would not undermine the public interest.
For the reasons stated above, Plaintiff's Supplemental Application for Preliminary Injunction (Dkt. # 6) is
Sparks and Sirius have both filed motions to strike certain declaratory evidence used in support of their respective arguments concerning the preliminary injunction. (Dkts. # 19, 22.) Sparks has moved to partially strike the declaration of Justin Sobey, General Counsel of Sirius. (Dkt. # 19.) Sirius has moved to strike in part the declaration of Sparks. (Dkt. # 22.) Each motion is addressed below.
The relevant portions of Sobey's declaration to which Sparks objects include paragraphs five, six, and seven. (Dkt. # 19 at 2.) In these paragraphs, Sobey states that Sirius's forensics expert discovered 245 files containing Sirius's confidential information that were deleted from Sparks computer on August 10, 2015, subsequent to the temporary restraining order ("TRO") issued by the state court. (Dkt. # 19 at 2; Dkt. # 16-8 at 2-3.) Sobey includes examples and descriptions of the confidential information the forensics examiner obtained, highlighting the confidential nature of the documents. (Dkt. # 16-8 at 3.)
Sparks objects to the above paragraphs of the declaration because he contends that the deleted documents are being withheld from Sparks and that Sparks's attorney must be able to review these documents in order to submit any opposition to Sirius's contention that the deleted documents were in fact confidential. (Dkt. # 19 at 2.) Sparks contends that he deleted the documents in accordance with the TRO's order restraining him from retaining any copies of Sirius's confidential information and that he no longer has access to them. (Id. at 1-2.) He contends that he requested copies of the deleted documents back from Sirius, but that Sirius refused to provide them citing sensitivity concerns. (Id. at 3.)
In response, Sirius asserts that Sparks's request to view the deleted documents is baseless because he in fact had access to them prior to their deletion. (Dkt. # 29 at 1.) It argues that Sparks had access to these documents for nearly four months prior to the issuance of the TRO and that he downloaded the documents only several days before his resignation in April 2015 using his Sirius employee login. (Id.) Sirius also argues that Sparks has failed to articulate any legal or evidentiary basis on which to exclude the deleted documents which were once in his possession. (Id. at 2.) Sirius asserts that it is willing to submit the documents to the Court for an in camera review if necessary. (Id. at 3.)
Sobey's statements concerning the deleted documents are descriptions of some of the files deleted from Sparks's computer. (Dkt. # 16-8 at 2.) Notably, Sparks does not challenge the descriptions of the files, only whether they are confidential to Sirius. (See Dkt. # 19.) Sobey's description of the documents, however, plainly indicate that some of the documents stored on Sparks's computer were likely confidential to Sirius. (Dkt. # 18-2.) With reasonable inference, and without any argument from Sirius, the Court can conclude that these files contain confidential and proprietary information. Furthermore, because evidence standards at the preliminary injunction stage are less formal and the court may rely on otherwise inadmissible evidence, the Court concludes that Sobey's
Accordingly, Sparks's Motion to Partially Strike Declaration of Justin Sobey (Dkt. # 19) is
Sirius objects to paragraphs four, five, and six of Sparks's sworn declaration because it contends that it is inconsistent with his prior testimony and pleadings. (Dkt. # 22.) Specifically, Sirius asserts that the declaration is inconsistent regarding: (1) when and how frequently he informed Sirius he would not agree to the non-solicitation provisions; (2) which Sirius representatives he informed of his disagreement with the provisions; (3) which provisions he believed would be "struck through" after he returned and signed the Agreement; and (4) whether he agreed to be bound to the remainder of the Agreement, aside from the non-solicitation provisions. (Id.)
While the Court notes that some inconsistencies appear throughout Sparks's pleadings and other documents, especially as they concern which provisions of the Agreement Sparks's allegedly did not agree to or to whom he communicated his disagreement, these inconsistencies did not detract from the Court's findings that venue should remain in this Court and that a preliminary injunction is warranted. In such case, Sirius's Motion to Strike in Part Declaration of Jason Sparks (Dkt. # 22) is
Based on the foregoing, it is
(1) Plaintiff's Motion to Sever, Transfer, and Consolidate in Part Second-Filed Action Pending in the U.S. District Court for the District of Oregon (Dkt. # 4) is
(2) Defendant's Motion for Change of Venue (Dkt. # 15) is
Plaintiff's Supplemental Application for Preliminary Injunction (Dkt. # 6) is
(4) Defendant's Motion to Partially Strike Declaration of Jason Sobey (Dkt. # 19) is
(5) Plaintiff's Motion to Strike in Part Declaration of Jason Sparks (Dkt. # 22) is
