Scotsman-Norwood Co., Inc., Appellant v. George R. Hinsley et al., Appellees
Court of Civil Appeals of Texas, First District, Houston- 515 S.W.2d 347;
1974 Tex. App. LEXIS 2684
October 17, 1974

PRIOR HISTORY: Appeal from District Court of Harris County

CASE SUMMARY
PROCEDURAL POSTURE: Appellant employer sought review of a decision of the
District Court of Harris County (Texas) ordering a temporary injunction
enjoining appellee employees based on a covenant not to compete in an
employment contract. The injunction was limited to the employees' listed
customers and prospects, but declined to enjoin the employees from engaging
in the alarm business.

OVERVIEW: Appellant employer had employed appellees in its alarms division.
Appellees signed an employment contract containing a covenant not to compete
with appellant for a period of two years following termination. Appellees
terminated employment with appellant and immediately began operation of a
competitor company. Appellant sought a temporary injunction enjoining
appellees from calling upon and soliciting fire alarm, burglar alarm and
security alarm accounts in the county and from engaging in business
enterprises prohibited by the contract of employment with appellant. The
trial court ordered a temporary injunction enjoining appellees, but limited
the injunction to listed customers and prospects and declined to enjoin
appellees from engaging in the alarm business. The court affirmed the order
and held that the trial court did not abuse its discretion in limiting the
injunction to appellees' present customers and recent prospects since this
was sufficient to reasonably protect appellant's business. No one company
had a monopoly on alarm system knowledge because it was not a trade secret.


OUTCOME: The appellate court affirmed the trial court's temporary injunction
enjoining appellees and held that the trial court did not abuse its
discretion in limiting an injunction to the present customers and recent
prospects since this was sufficient to reasonably protect appellant.

COUNSEL: For Appellant: John D. Gilpin; Martin D. Berine; Houston, Texas.
For Appellees: Julius Glickman; Houston, Texas.

JUDGES: Phil Peden, Associate Justice.

OPINIONBY: PEDEN

OPINION: [*348] This is an appeal from an order temporarily enjoining five
former employees of Scotsman-Norwood Co. for two years from directly or
indirectly soliciting, diverting or taking away any of that company's
customers and enjoining them for six months from directly or indirectly
soliciting, diverting, or taking away or attempting to solicit, divert, or
take away any prospect or person to whom a sales proposal was made within
three months prior to termination of the five employees' employment with the
company. A list of the customers and a list of the prospects covered by the
injunction were attached to the order.

Scotsman-Norwood had sought a temporary injunction enjoining the appellees
from calling upon and soliciting fire alarm, burglar alarm and security
alarm accounts in Harris County and from engaging in the business
enterprises prohibited by their contract of employment with the appellant.
The only point of error presented is that the trial court [**2] abused its
discretion by limiting the temporary injunction to the listed customers and
prospects and by declining to enjoin the appellees from engaging in the
alarm business.

Scotsman-Norwood had employed the appellees in its alarms division, Alarm
Engineers. At the time of their employment each employee signed papers which
included a contract of employment containing a covenant not to compete with
appellant for a period of two years following termination of his employment.
Appellee Hinsley was the sales manager; appellees Walter, Griffin and
Garrett were salesmen and appellee Cooper was the operations manager.

Appellee Hinsley's contract contained this provision:


"In consideration of such employment on such basis, the Employee convenants
and agrees that he will not accept or pursue any employment or business
venture within the State of Texas directly or indirectly involving the sale,
lease and/or service of ice making machinery, soft cream freezing equipment,
carbonic and other drinks dispensing equipment or any other product
classification sold or distributed by the Company at present or during any
part of the tenure of Employment or for a period of two (2) years after
termination [**3] of this Employment with the Company, irrespective of the
reason for the termination of his employment with the Company."


[*349] The other appellees' contracts provided:


"In consideration of such employment on such basis, the Employee covenants
and agrees that he will not accept or pursue any employment or business
venture within the State of Texas directly or indirectly involving the sale,
lease, and/or service of security equipment of the Multra-Guard type with
sound receiving and listening capabilities as distributed by the company at
present or during any part of the tenure of Employment or for a period of
two (2) years after termination of his employment with the Company."


Appellees terminated their employment with appellant on February 8, 1974.
They immediately began the operation of Sonitrol Security Systems of
Houston, Inc., whose articles of incorporation had been filed with the
Secretary of State's office one day earlier. Appellee Hinsley was one of the
incorporators. Sonitrol had been selling, installing and operating Sonitrol
Security Alarm Systems for about a week when the hearing in this case was
held.

The general rule regarding the enforceability [**4] of a covenant not to
compete is stated in Weatherford Oil Tool Company v. Campbell, 161 Tex. 310,
340 S.W. 2d 950, 951 (1960):


"An agreement on the part of an employee not to compete with his employer
after termination of the employment is in restraint of trade and will not be
enforced in accordance with its terms unless the same are reasonable. Where
the public interest is not directly involved, the test usually stated for
determining the validity of the covenant as written is whether it imposes
upon the employee any greater restraint than is reasonably necessary to
protect the business and good will of the employer."


A trial court judgment either granting or denying a temporary injunction
will not be reversed unless the appellate courts are convinced that it
represents a clear abuse of discretion. Sun Oil Co. v. Whitaker, 424 S.W. 2d
216 (Tex. 1968).

Scotsman-Norwood argues that the trial court's order granting only partial
relief denies it the protection of its business and goodwill because the
appellees were appellant's only contacts with the public and because the
appellees had gained confidential information and training from
Scotsman-Norwood.

The evidence is clear [**5] that its customers' contacts with
Scotsman-Norwood were through its sales personnel, of which appellees
comprised a major part. In support of its position that the injunction
should not be limited to its customers and prospects Scotsman-Norwood cites
Blaser v. Linen Service Corporation of Texas, 135 S.W. 2d 509 (Tex. Civ.
App. 1939, writ dism'd jud. corr.). The pertinent language of that case is:


"It is clear that if the nature of the employment is such as will bring the
employee in personal contact with the patrons or customers of the employer,
or enable him to acquire valuable information as to the nature and character
of the business and the names and requirements of the patrons or customers,
enabling him, by engaging in a competing business in his own behalf, or for
another, to take advantage of such knowledge of or acquaintance with the
patrons or customers of his former employer, and thereby gain an unfair
advantage, equity will interfere in behalf of the employer and restrain the
breach of a negative covenant not to engage in such competing business,
either for himself or for another, providing the covenant does not offend
against the rule that as to the time during which [**6] the restraint is
imposed, or as to the territory it embraces, it shall be no greater than is
reasonably necessary to secure the protection of the business and good will
of the employer." Citing Martin v. Hawley, 50 S.W. 2d 1105, 1107 (Tex. Civ.
App. 1932, no writ).


[*350] The relief granted in the present case is similar to that granted
in the Blaser case, where the employees were restrained from dealing with
their former employer's present customers. That appellees were the prime
contact with appellant's customers lends them little, if any, advantage in
soliciting the business of potential customers not recently contacted. Nor
did the trial court abuse its discretion by declining to restrain the
appellees from competing with appellant for the business of previously
unsolicited customers although appellees were formerly appellant's contact
with the public.

Appellant contends that it was hurt by appellees' overbidding on contract
proposals prior to their departure from Scotsman-Norwood, but the trial
court was entitled to conclude from the evidence that no overbidding took
place. We also hold that by enjoining any solicitation by appellees of any
person or company to which [**7] appellant had submitted a bid within the
three months prior to February 8, 1974, the trial court probably prevented
any detriment caused appellant's business and any advantage which would have
been gained by appellees if they had overstated bids.

Appellant also contends that the Multra-Guard Alarm System, which comprises
most of its burglar alarm sales, is a unique system, that during the
appellees' association with appellant they received confidential knowledge
and training in the workings of the system and that they took from appellant
certain confidential information and supplies when they left their
employment with appellant.

The Multra-Guard System has sound receiving and listening capabilities.
There was testimony that several other burglar alarm systems were equipped
with such capabilities. The evidence was conflicting as to whether or not
any of these other systems were equipped with vox circuits, or similar
equipment, having instantaneous receiving capabilities. The appellees
indicated that such systems were available in Houston prior to February 8,
1974, while Mr. Norwood of Scotsman-Norwood said that to his knowledge they
were not. The evidence as to similarities and [**8] differences between the
Multra-Guard System and Sonitrol System was not entirely clear, but it was
agreed that their receiving and listening capacities are similar in that
both provide for instantaneous opening of circuits by certain sound
frequencies. Mr. Norwood testified that they are similar; that other
comparable systems might be available, but that Sonitrol and Multra-Guard
were the only two with national merchandising programs.

In Arrow Chemical Corporation v. Anderson, 386 S.W. 2d 309 (Tex. Civ. App.
1965, writ ref. n.r.e.), the court found that the trial court did not abuse
its discretion in denying a temporary injunction where the evidence
supported the trial court's implied finding that the formula which the
former employer sought to protect was not a genuine trade secret. The court
cited the holding in Wissman v. Boucher, 150 Tex. 326, 240 S.W. 2d 278, 280
(1951), that "the subject matter of a trade secret must be secret. Matters
of general knowledge in an industry cannot be appropriated by one as his
secret."

It was clear from the evidence that no one company had a monopoly on the
knowledge of how to manufacture and operate an alarm system similar to
Multra-Guard [**9] System. The evidence is conflicting as to the uniqueness
of a Multra-Guard System in Houston, and "We are not to substitute our
judgment for that of the trial court in a case of this kind." Arrow Chemical
Corporation v. Anderson, supra, at 313.

The appellees testified that they were dissatisfied with their relationship
with Scotsman-Norwood and decided to attempt a venture of their own.
Admittedly this venture was prohibited by the restrictive covenant signed by
each of the appellees. The trial court found that an injunction imposed as
to present customers and recent [*351] prospects was sufficient to
reasonably protect Scotsman-Norwood's business. The trial court was entitled
to believe from the evidence that the appellees neither received any special
training nor removed any forms, lists or files that were confidential.

We cannot say that the trial court abused its discretion by impliedly
finding that the imposition of any greater restraint on the former employees
by injunction was not reasonably necessary to protect the business and
goodwill of the employer during the pendency of this suit.

We note that the trial court's order does not provide that it remains in
effect [**10] until final hearing or until further orders of the court, but
it is clear that the hearing was on the appellant's application for a
temporary injunction, so the order is limited to that extent.

We affirm the order of the trial court.