Opinion issued August 21, 2009
In The
Court of Appeals
For The
First District of Texas
NO. 01-07-00478-CV
GALLAGHER HEALTHCARE INSURANCE SERVICES, Appellant
V.
PAGE M. VOGELSANG, Appellee
On Appeal from the 133rd District Court
Harris County, Texas
Trial Court Cause No. 2006-11123
DISSENTING OPINION
The majority erroneously concludes that appellant, Gallagher Healthcare Insurance Services ("GHIS"), "presented summary judgment evidence to show that its confidential information was an interest worthy of protection" in its breach of employment contract claim against appellee, Page M. Vogelsang. Thus, the majority errs in holding that the covenant-not-to-compete clause of the contract is enforceable and that the trial court erred in entering summary judgment in favor of Vogelsang. Accordingly, I respectfully dissent.
In Texas, an agreement not to compete is enforceable only if it is "ancillary to or part of an otherwise enforceable agreement at the time the agreement is made," imposes "limitations as to the time, geographical area, and scope of activity to be restrained that are reasonable," and does not "impose greater restraint than is necessary to protect the goodwill or other business interest" of the employer. Tex. Bus. & Comm. Code Ann. § 15.50 (Vernon 2002). An agreement not to compete is unreasonable, and therefore unenforceable, when it is not necessary to protect a "legitimate business interest." DeSantis v. Wackenhut Corp., 793 S.W.2d 670, 684 (Tex. 1990).
In support of its conclusion that the information that GHIS provided to Vogelsang is "protected confidential information," the majority relies upon the affidavit testimony of the president of GHIS, Phillip E. Reischman, and emphasizes:
According to its summary judgment evidence, GHIS's confidential information (1) took years to acquire; (2) is only shared with employees and agents of GHIS on a "need to know basis"; (3) is not "readily ascertainable by its competitors; and (4) gives GHIS "a valuable competitive advantage in the insurance brokerage industry." Moreover, GHIS (1) spent substantial time and resources developing and acquiring the information and (2) takes reasonable precautions in preventing the disclosure of the confidential information.
However, GHIS's evidence, even the evidence emphasized by the majority above, does not establish that an agreement by Vogelsang not to compete with GHIS was "necessary to protect any legitimate business interest" or that "the necessity of such protection outweighs the hardship of [the] agreement" on Vogelsang. See DeSantis, 793 S.W.2d at 684.
In DeSantis, the Texas Supreme Court concluded that an agreement not to compete between DeSantis, an employee, and Wackenhut, his employer, was unreasonable and, therefore, unenforceable. Id. The court explained that because such agreements are restraints on trade, they are unenforceable unless they are "reasonable." Id. at 681. An agreement not to compete is not a reasonable restraint on trade unless (1) the agreement is ancillary to an otherwise valid transaction or relationship, (2) the restraint must not be greater than necessary to protect the promisee's legitimate interest, and (3) the promisee's need for the protection must not be outweighed by either the hardship to the promisor or any injury likely to the public. Id. at 681-82.
The legal issues in DeSantis involved whether the agreement not to compete was "necessary to protect some legitimate interest of Wackenhut, and whether that necessity was outweighed by the hardship of enforcement." Id. at 683. Wackenhut argued that its "confidential information" was "protectable" because "during his employ, DeSantis learned the identity of Wackenhut's customers, their special needs and requirements, and Wackenhut's pricing policies, cost factors and bidding strategies." Id. at 684. The court rejected Wackenhut's argument, explaining:
. . . [W]hile confidential information may be protected by an agreement not to compete, Wackenhut has failed to show that it needed such protection in this case. Wackenhut failed to show that its customers could not readily be identified by someone outside its employ, that such knowledge carried some competitive advantage, or that its customers' needs could not be ascertained simply by inquiry addressed to those customers themselves. Also, Wackenhut failed to show that its pricing policies and bidding strategies were uniquely developed, or that information about its prices and bids could not, again, be obtained from the customers themselves. There is no evidence that DeSantis ever took advantage of any knowledge he had of Wackenhut's cost factors in trying to outbid Wackenhut or woo away its customers. Wackenhut simply has not demonstrated a need to protect any confidential information by limiting DeSantis' right to compete.
Id.
Although the business jargon used by GHIS in its summary judgment evidence is somewhat more sophisticated than that used by Wackenhut in DeSantis, much of it is conclusory. See id. Additionally, GHIS, like Wackenhut, has not demonstrated a need to protect any confidential information by limiting Vogelsang's right to compete. See id. Just because it took GHIS years to acquire and compile information about its customers and it shared this information with employees and agents of GHIS only on a "need to know basis" does not make the information "protectable." Nor does the fact that the compilation of the information somehow gives GHIS a competitive advantage make the information "protectable."
The critically important fact remains that GHIS has not demonstrated that the identity of its customers and the information about its customers cannot readily be obtained by others outside of GHIS. See id. Nor has GHIS demonstrated that the information about its customers cannot be "ascertained simply by inquiry addressed to the customers themselves." See id. Also, like Wackenhut, GHIS has not shown that information about its prices cannot be obtained from the customers themselves. See id. Moreover, GHIS did not offer evidence explaining how its compiled information gives it a competitive advantage or that Vogelsang has actually used any of the compiled information. See id.
Thus, the summary judgment evidence does not establish that GHIS's "confidential information" is worthy of protection and that the non-compete agreement between Vogelsang and GHIS is necessary to protect a legitimate business interest of GHIS. Accordingly, I would hold that GHIS has not established that the agreement not to compete is reasonable and therefore enforceable. See id.; see also Tex. Bus. & Comm. Code Ann. § 15.50. I would further hold that the trial court did not err in granting summary judgment in favor of Vogelsang, and I would affirm the judgment of the trial court.
Terry Jennings
Justice
Panel consists of Justices Jennings, Keyes, and Higley.
Justice Jennings, dissenting.