Court Ordered Equitable Extensions Of The Period Of Restraint In Texas Non-Compete Cases

We are blogging on “Non-competes, Trade Secrets, Fiduciary Duties, and the Inevitable Disclosure Doctrine.” Mark Oberti has prepared a detailed paper on all of these issues, which can be found here.

Regarding equitable extension of the contractual period of restraint, in Guy Carpenter & Co. v. Provenzale, 334 F.3d 459, 464 (5th Cir. 2003), a case arising out of Texas law, the Fifth Circuit held that the expiration of the contractually agreed upon period of non-competition did not render an appeal moot because “[i]f this Court remands, the district court has the power under Texas law to craft an injunction that extends beyond the expiration of the non-solicitation covenant. Exercising this equitable power might be particularly appropriate given the district court’s year-long delay before ruling on the motion to reconsider.” See also Premier Indus. Corp. v. Tex. Indus. Fastener Co., 450 F.2d 444, 448 (5th Cir. 1971) (applying Texas law and stating that “[an] argument that the trial judge exceeded his discretion by enjoining the appellants beyond the time specified in the . . . contract is without merit”).

In RenewData Corp. v. Strickler, No. 03-05-00273-CV, 2006 WL 504998, at *5 (Tex. App.–Austin Mar. 3, 2006, no pet.), the employer, Renew, complained that the district court refused to equitably extend the term of the non-compete agreement. The appeals court rejected the employer’s complaint, stating, “[t]his chronology shows that the delays in the enforcement of the covenant not to compete were not simply “inherent to litigation” but were attributable to Renew. We find that Renew did not diligently pursue its remedies under the covenant not to compete and that the district court, in the exercise of its equity jurisdiction, did not abuse its discretion in denying Renew’s motion for equitable extension of the covenant not to compete.”

In Farmer v. Holley, 237 S.W.3d 758 (Tex. App.–Waco 2007, pet. denied), the district court equitably extended the term of the non-competition agreement. The Waco Court of Appeals found this was error, stating, “[w]e do not hold that a covenant not to compete cannot be equitably extended, but hold that the record does not support Holley’s argument that the violations of the covenant, if any, were “continuous and persistent.” Thus the trial court erred in equitably delaying the start of the covenant not to compete until the date of the judgment rather than the date of the agreement.”
In SafeWorks, LLC, 2009 WL 959969, at *6-7, Judge Nancy Atlas agreed that the expiration of the term of restraint did not preclude her from entering an injunction based on the court’s equitable powers. However, Judge Atlas declined to enter an injunction anyway because the movant had failed to establish a substantial likelihood of success on the merits.

In Travelhost, Inc. v. Brady, NO. 3:11-CV-454-M-BK, 2012 WL 556036 (N.D. Tex. Feb. 17, 2012), the court held that exercising its equitable power to extend the time period covered by the covenants not to compete was “particularly appropriate” because the “record shows that the Defendants’ violations of the covenants not to compete have been continuous and persistent.” (citing Guy Carpenter & Co., Inc., v. Provenzale, 334 F.3d 459, 464 (5th Cir. 2003) (holding that a district court may exercise its equitable power to craft an injunction that extends beyond the expiration of the covenant not to compete) and Farmer v. Holley, 237 S.W.3d 758, 761 (Tex. App. – Waco 2007, review denied) (holding that under Texas law, covenants not to compete can be equitably extended if the violations of the covenant were “continuous and persistent.”)). Likewise, in Travelhost, Inc. v. Modglin, NO. 3:11-CV-0456-G, 2012 WL 2049321, at *6 (N.D. Tex. June 6, 2012), the court concluded that the ex-employee’s consistent and persistent violation of his noncompetition agreement made it “only fair that this court use its equitable power to extend the term of the non-compete agreement for an additional two years.”

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