Chris Cardoni v. Prosperity Bank
805 F.3d 573
5th Cir.2015Background
- Prosperity Bank (Texas) acquired F&M Bank (Oklahoma) and offered employment contracts to 35 senior F&M bankers containing nondisclosure, noncompetition (3 years, 50-mile radius), and nonsolicitation (3 years, limited by prior contact) clauses, plus a Texas choice-of-law and Texas forum-selection clause.
- Bankers signed contracts in Oklahoma (Prosperity later signed in Texas); they worked principally in Tulsa and left after the merger to work for CrossFirst (Tulsa) ~7 miles away.
- Bankers sued in Oklahoma seeking declaratory relief that the covenants were void; Prosperity sued in Texas seeking to enforce them; cases were removed and consolidated in federal court in Houston per the forum clause.
- District court held Oklahoma law applied to the noncompetition and nonsolicitation clauses (voiding noncompetition under Oklahoma law) but applied Texas law to the nondisclosure clause; denied Prosperity’s requests for preliminary injunctions on all three.
- Prosperity appealed the injunction denials and denial of its Rule 59(e) motion; Fifth Circuit reviewed choice-of-law issues under Texas law (Klaxon rule) and reviewed injunction factors for abuse of discretion.
Issues
| Issue | Prosperity's Argument | Bankers' Argument | Held |
|---|---|---|---|
| Enforceability of parties’ Texas choice-of-law clause for restrictive covenants | Choice-of-law should be enforced because Prosperity is Texas-based and parties agreed to Texas law | Clause unenforceable because Oklahoma has materially greater interest and its law would apply absent choice | Court: Choice-of-law likely unenforceable for noncompetition; Oklahoma has more significant relationship and materially greater interest, and Texas law would contravene Oklahoma’s fundamental policy against noncompetes |
| Enforceability of noncompetition clauses under Oklahoma law (goodwill exception) | Even if Oklahoma law applies, noncompetes qualify under Oklahoma’s goodwill exception because bankers held goodwill/stock and were integral to purchased business | Bankers: ownership interests are minimal; Bayly precludes treating tiny stock stakes as goodwill sellers | Court: Prosperity unlikely to prevail; bankers’ stock ownership too negligible to meet goodwill exception — affirmed denial of injunction for noncompetes |
| Enforceability of nonsolicitation clause under choice-of-law analysis | Texas choice-of-law should govern; clause protects legitimate interests | Bankers: Oklahoma statute permits nonsolicitation but limits scope; clause may overreach and be invalid under Oklahoma law | Court: Choice-of-law for nonsolicitation likely enforceable; applying Texas law would not contravene Oklahoma fundamental policy; remanded for district court to determine enforceability/modification and other equitable injunction factors |
| Preliminary injunction for nondisclosure (trade secrets/confidential info; inevitable-disclosure doctrine) | Texas law permits relief; inevitable-disclosure or presumption of misuse makes injunction appropriate | Bankers: Prosperity made only speculative showing of disclosure or misuse; no concrete evidence of actual or probable disclosure | Court: Affirmed district court — refused to adopt a categorical inevitable-disclosure rule; no clear error in finding Prosperity failed to show likely disclosure or irreparable harm |
Key Cases Cited
- Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487 (choice-of-law governed by forum state in diversity cases)
- Exxon Mobil Corp. v. Drennen, 452 S.W.3d 319 (Tex. 2014) (Texas framework for evaluating contractual choice-of-law provisions under Restatement §187)
- DeSantis v. Wackenhut Corp., 793 S.W.2d 670 (Tex. 1990) (party autonomy limited where chosen law contravenes forum’s fundamental policy; noncompete choice-of-law analysis)
- FMC Corp. v. Varco Int’l, Inc., 677 F.2d 500 (5th Cir. 1982) (trade-secret injunctions where disclosure effectively inevitable in narrow factual contexts)
- Bayly, Martin & Fay, Inc. v. Pickard, 780 P.2d 1168 (Okla. 1989) (Oklahoma restricts judicial reformation of flawed noncompetition agreements)
- Key v. Perkins, 46 P.2d 530 (Okla. 1935) (goodwill exception historically applied where seller had substantial stock/ownership interest)