Marsh USA Inc. v. Cook
354 S.W.3d 764
| Tex. | 2011Background
- Cook, a Marsh managing director, received MMC stock options under a 1992 Plan in 1996 to become part owner.
- In 2005 Cook signed a Non-Solicitation Agreement that barred post-employment competition and confidential disclosure in exchange for stock options.
- Cook resigned within three years, joined a direct Marsh competitor, and was accused of soliciting Marsh clients and employees.
- Marsh sued for breach of contract and fiduciary duty; Cook moved for partial summary judgment arguing the agreement was unenforceable under Light v. Centel.
- The trial court granted summary judgment; the Dallas Court of Appeals affirmed; Supreme Court granted review to assess enforceability under the Covenants Not to Compete Act.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the covenant is enforceable under the Act | Cook’s agreement is ancillary to an otherwise enforceable contract and protects Marsh goodwill. | Stock options do not give rise to an interest in restraining competition; thus unenforceable. | Yes; the covenant is ancillary to an enforceable agreement and protects goodwill. |
| Whether stock options can constitute valid consideration giving rise to a restraint of trade | Stock options reasonably relate to Marsh's goodwill and incentivize long-term performance. | Stock options do not give rise to an interest in restraining competition. | Yes; stock options can give rise to a protectable interest when ancillary to an enforceable agreement. |
| Whether the 'ancillary to or part of' requirement is met by the relationship here | The option grant and non-solicitation provisions are part of a single integrated agreement ancillary to employment. | Light's 'give rise' standard is not satisfied by mere goodwill; no nexus shown. | Yes; the relationship is ancillary to an enforceable agreement because it protects goodwill tied to the stock plan. |
| Whether the timing of consideration matters under the Act | Timing is not required to precede the employer's interest in protecting goodwill. | No consideration yet given cannot support a restraint. | Timing is not a prerequisite; constraints may be enforced if ancillary to a valid agreement. |
| Whether Marsh may reform or enforce the covenant if any provision is overbroad | Courts may enforce reasonable limits and reform as needed under § 15.51(c). | Overbreadth concerns require stricter scrutiny and possible invalidity. | Court may reform to enforce reasonable limitations consistent with the Act. |
Key Cases Cited
- Light v. Centel Cellular Co. of Texas, 883 S.W.2d 642 (Tex. 1994) (two-prong 'ancillary to or part of' test for enforceability)
- DeSantis v. Wackenhut Corp., 793 S.W.2d 670 (Tex. 1990) (ancillary requirement; sale of goodwill context)
- Mann Frankfort Stein & Lipp Advisors, Inc. v. Fielding, 289 S.W.3d 844 (Tex. 2009) (expanded enforcement; implied confidential information can support restraint)
- Alex Sheshunoff Mgmt. Servs., L.P. v. Johnson, 209 S.W.3d 644 (Tex. 2006) (unilateral contracts can support covenants if ancillary to enforceable agreement)
- Hill v. Mobile Auto Trim, Inc., 725 S.W.2d 168 (Tex. 1987) (initially restricted covenants based on 'common calling' approach)
- Peat Marwick Main & Co. v. Haass, 818 S.W.2d 381 (Tex. 1991) (allowing reform of unreasonable covenants)