Water Processing Tech., Inc. v. RidgewayWater Processing Tech., Inc. v. Ridgeway
Charles D. Marshall, Jr., Robert T. Lorio, Milling, Benson, Woodward, Hillyer, Pierson & Miller, for appellant.
Before CIACCIO, WARD and LANDRIEU, JJ.
LANDRIEU, Judge.
In this expedited appeal, we are asked to review the trial court‘s issuance of a preliminary injunction, restraining behavior аlleged to violate the non-competition provision of a distributorship agreement. Concluding that the non-competition agreement is invalid, we reverse the judgment of the trial court.
FACTS:
On August 15, 1992, Water Processing Technologies/Clean Water Utilities (hereinafter “WPT/CWU“), represented by its president Robert E. Farmer, and Clean Water Utilities of New Orleans (hereinafter “CWUNO“), represented by its president David B. Ridgeway, entered into a Distributorship Agreement.1 According to the Agreement, CWUNO was named as the exclusive agent to market and lease the processing and conditioning units manufactured by WPT/CWU in the geographical marketing area of Orleans, Jefferson, and St. Tammany Parishes for a term of twenty years.
Among the provisions of the Agreement was the right of termination for cause, with thirty days written notice. However, should the distributorship be terminated, the form agreement included a non-cоmpetition clause at Paragraph No. 7. It provides in pertinent part:
Non-Competition. Distributor agrees that or [sic] a period of two (2) years after the termination of this Agreement, Distributor will not knowingly, directly or indirectly, manage, oрerate, jointly control, lend money to, endorse the obligations of or participate in or be connected with any business (other than ____ or an affiliate thereof) engaged to any extent in a business similar to thаt of CWU (i.e. water purification) in competition with CWU in the State(s) of ____, and that for such two (2) year period, Distributor will not, in any manner solicit customer of CWU, directly or indirectly, compete with CWU or its assigns engaged in the water purification business, directly or indirectly, within such area. Distributor acknowledges that the remеdy at law for any breach of this provision amy [sic] be inadequate and that CWU or its assignees shall be entitled to injunctive relief should Distributor breach this provision, in addition to other remedies....
Although the form Agreement contained a blank to insert the geographical limits of the non-competition clause, those limits were not specified.
By letter of October 13, 1992, Ridgeway provided official notice that the “distributorship agreement between Cleanwater Utilities, Inc. and Cleanwater Utilities of New Orleans, Inc.” was terminated “per our discussions.” He later attested that no sales were ever made and that no money ever changed hands between the parties under the agreement. Shortly after its termination, Ridgeway obtained employment as a factory representative of Hydrodynamics Corporation of Bogalusa, Louisiana, a manufacturer аnd seller of water conditioners, but not water purification products, comparable to those sold by WPT/CWU.
Relying on the non-competition provision of the Distributorship Agreement, Water Processing Technologiеs, Inc., d/b/a Clean Water Utilities filed a Petition for Injunctive Relief against Ridgeway in the Civil District Court for the Parish of Orleans. A temporary restraining order was issued to enjoin Ridgeway from continuing his employment
DISCUSSION:
B. Any person ... who sells the goodwill of a business may agree with the buyer that the seller will refrain from carrying on or engaging in a business similar tо the business being sold or from soliciting customers of the business being sold within a specified parish or parishes, municipality or municipalities, or parts thereof, so long as the buyer, or any person deriving title to the goodwill frоm him, carries on a like business therein, not to exceed a period of two years from the date of the sale.
C. Any person ... who is employed as an agent, servant, or employee may agree with his employer to refrain from carrying on or engaging in a business similar to that of the employer and/or from soliciting customers of the employer within a specified parish or parishes, municipality or municipalities, or pаrts thereof, so long as the employer carries on a like business therein, not to exceed a period of two years from termination of employment.
D. Upon or in anticipation of a dissolution of the partnership, the partnership and the individual partners ... may agree that none of the partners will carry on a similar business within the same parish or parishes, or municipality or municipalities, or within specified parts thereof, where the partnership business has been transacted, not to exceed a period of two years from termination of employment.
E. Parties to a franchise may agree that:
(a) ...
(b) The franchisee shall:
(i) During the term of the franchise, refrain from competing with the franchisоr or other franchisees of the franchisor or engaging in any other business similar to that which is the subject of the franchise.
(ii) For a period not to exceed two years following severance of the franchise relationship, refrain from engaging in any other business similar to that which is the subject of the franchise and from competing with or soliciting the customers of the franchisor or other franchisees of the franchisor.
. . . . .
F. (1) An employеe may at any time enter into an agreement with his employer that, for a period not to exceed two years from the date of the termination of employment, he will refrain from engaging in any work or activity to design, write, modify, or implement any computer program that directly competes with any confidential computer program owned, licensed, or marketed by the employer, and to which the employee had direct access during the term of his employment or services.
. . . . .
The failure to perform this “obligation not to do” may entitle the obligee to recover damages, and a court may order injunctive relief to enforce the terms of the agreement without the necessity of proving irreparable injury.
A contract or agreement which prohibits an employee from competing with a former employer consistеntly has been found to be against public policy in Louisiana. Neeb-Kearney and Co., Inc. v. Rellstab, 593 So.2d 741, 747 (La.App. 4th Cir.), writ denied, 594 So.2d 1321 (La.1992).
Cases which have interpreted the current law have held that “[p]ublic policy requires that covenant-not-to-compete agreements ‘must be strictly construed in the employee‘s favor.‘” Daiquiri‘s III On Bourbon, Ltd. v. Wandfluh, 608 So.2d 222, 224 (La. App. 5th Cir.1992), writ denied, 610 So.2d 801 (La.1993) (quoting Jon Bet & Associates v. Tyer, 550 So.2d 673, 675 (La.App. 2d Cir.1989)). Accordingly, a non-competition agreement which contained no territorial limitation whatever was found to be null and void pursuant to the requirements оf
In this case, the trial court concluded that the statutory exception to the prohibition against non-competition agreements found at
The relevant statute requires that a valid clause limit competition only in a business similar to that of the employer and in soliciting the employer‘s customers. Furthermore, that limitation may occur only in a restricted geographical area, “a specified parish or parishes, municipality or municipalitiеs, or parts thereof,” and only “so long as the employer carries on a like business therein,” but, in no event, “to exceed a period of two years from termination of employment.”
We find that the non-compеtition clause included in the Distributorship Agreement fails to comply with the exception to the general prohibition described in
Accоrdingly, the district court‘s judgment of November 25, 1992 is reversed. The preliminary injunction is dissolved and the defendant, David B. Ridgeway, is no longer enjoined from pursuing employment opportunities proscribed by the invalid non-competition сlause of the Distributorship Agreement.
REVERSED.