U.S. Risk Insurance Group, Inc/U.S. Risk Inc. v. Brett Woods & Midwestern General Brokerage, Inc , 399 S.W.3d 295 ( 2013 )

AFFIRM; and Opinion filed February 25, 2013.
In The
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No. 05-1 14J0558-CV
U.S. RISK INSURANCE GROUP, INC. AND U.S. RISK, INC., Appellants
V.
BRETT WOODS, Appellee
On Appeal from the 192nd Judicial District Court
Dallas County, Texas
Trial Court Cause No. 09-04069-K
OPINION
Before Justices O’Neill, FitzGerald, and Lang-Miers
Opinion By Justice O’Neill
U.S. Risk Insurance Group, Inc. (US RIG) and U.S. Risk, Inc. (USR) (collectively appellants)
appeal the trial court’s judgment granting summaryjudgment on its breach of contract claim in favor
of Brett Woods. In three issues, appellants contend generally that the trial court erred in granting
Woods’s motion for summary judgment and in denying their motion for summary judgment. We
overrule appellants’ issues and affirm the trial court’s judgment.
Background
Woods began working for USR in 1996 as a senior broker. On January 1, 2003, Woods
signed an Employment, Confidentiality, and Non-Compete Agreement (Agreement). The
Agreement states that it is between the company, U.S. Risk Insurance Group, Inc., and the employee,
I3rett M. Woods, USRIG is a holding company that does not engage in the business of insurance.
It owns subsidiaries such as USR that do engage in the business of insurance. USRIG does not have
any insureds of its own. Woodss employer did not change at the time he signed the Agreement or
at anytime thereafter. USRIG paid Woods to work as the Branch Manager for U.S. Risk Brokers.
Inc., an assumed name of USR.
Woods resigned his position with (JSR on March 25, 2009. One of two provisions of the
Agreement came into play when Woods resigned. First, assuming Woods resigned for good reason.
the Agreement prohibited Woods, for a period of one year, from soliciting ins ureds for whom he had
written policies on behalf of USRIG. Second, assuming Woods voluntarily resigned without good
reason, the Agreement prohibited him from working in the industry for a period of ninety days as
long as USRIG elected to continue to pay him. The Agreement defines good reason to include a
material reduction in pay.
In 2008, Aon, one of Woods’s long-time clients, reduced the number of its brokers. Aon did
not choose USR to continue as one of its authorized wholesale brokers and Woods lost the ability
to place business through Aon. Woods testified that Aon represented about twenty percent of his
income. Prior to resigning, Woods determined that the decrease in his aggregate compensation as
a result of the loss of Aon’ s business would exceed ten percent and, thus, his resignation would be
for good reason.
Soon after Woods resigned, he went to work for Westrope & Associates. Westrope and USR
are competitors. In his letter of resignation, Woods asserted that he was resigning for good reason.
In response, Richard Schwartz, USR’s general counsel, informed Woods that he did not meet the
requirements for resigning for good reason.
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USRIG souglit a temporary restraining order against Woods and Westrope. The trial court
denied its application. Following Woodss plea in abatement showing that USRIG lacked the
capacity to maintain suit in Texas because it was not registered to do business in this State. USR
joined the lawsuit claiming that it was Woods’s employer, not USRIG. The trial court subsequently
denied appellants request for a temporary injunction.
The parties filed competing motions for partial summary judgment on the breach of contract
claim relating to the abovementioned two provisions. The trial court granted Woods’s motion and
denied appellants’ motion. The parties proceeded to trial on the remaining claims. At the time
appellants rested their case, the only claim remaining was unjust enrichment against Woods. The
jury returned a verdict in favor of Woods. The trial court rendered final judgment and this appeal
timely followed. The only issues in this appeal involve the breach of contract claims disposed of
through summary judgment.
Standard of Review
The standard for reviewing a traditional summary judgment is well established. See Nixon
v, Mr. Prop. Mgmt. Co., 690 S.W,2d 546, 548-49 (Tex. 1985); McAfee, Inc. v. Agilysys, Inc., 316
S.W,3d 820, 825 (Tex. App.—Dallas 2010, no pet.). The movant has the burden of showing that no
genuine issue of material fact exists and that it is entitled to judgment as a matter of law. Tux. R.
Civ. P. 166a(c). In deciding whether a disputed material fact issue exists precluding summary
judgment, evidence favorable to the noninovant will be taken as true. Nixon, 690 S.W.2d at 549;
In re Estate of Berry, 280 S.W.3d 478, 480 (Tex. App.—Dallas 2009, no pet.). Every reasonable
inference must be indulged in favor of the nonmovaiit and any doubts resolved in its favor. City of
Keller v. Wilson, 168 S.W.3d 802, 824 (Tex. 2005). We review a summary judgment de novo to
determine whether a party’s right to prevail is established as a matter of law. Dickey v. Club Corp.
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()!A,nerua, I SW.3d 172. 175 (Tex. App.—[)allas 2000. pet. denied).
Woods’s Motion for Summary Judgnwnt
In its first and second issues, appellants contend the trial court erred in granting summary
judgment for Woods, Specifically, appellants contend the trial court erred in agreeing with Woods’s
interpretation of the Agreement and in finding that Woods’ conduct (lid not constitute a breach of
the Agreement.
The construction of an unambiguous written contract is a queStion of law for the court.
Matagorda Cntv. Hasp. Dist. v. Burwell, 189 S.W.3d 738, 74t) (Tex.2006). When construing a
contract, we must ascertain the true intentions of the parties as expressed in the writing itself. Italian
Cowboy Partners, Ltd. v. Prudential Ins. C’o. of Am., 341 S.W.3d 323, 33334 (Tex.2011). In
identifying the intention of the parties, we examine and consider the entire writing in an effort to
harmonize and give effect to all the provisions of the contract so that none will be rendered
meaningless. See Valence Operating Co. v. Dorsett, 164 S.W.3d 656, 662 (Tex.2005). If, alter the
rules of construction are applied, the contract can he given a definite or certain legal meaning, it is
unambiguous and we construe it as a matter of law, (‘oker v. Coker, 650 S.W.2d 391, 393
(Tex.1983). When summary judgment is sought in a case involving breach of contract, if neither
party contends that the contract is ambiguous, then the contract’s construction is a question of law.
See Richardson Lifestyle Ass’ti i. Houston. 853 S.W.2d 796, 800 (Tex. App.—Dallas 1993, pet.
denied).
The first question to be determined is whether the nonsolicitation provision in section 10(a)
or the noncompete provision in section 10(b) controls. This determination depends upon whether
Woods resigned for good reason or voluntarily resigned without good reason. Appellants contend
Woods did not resign for good reason and, therefore, was bound by the voluntary termination
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piovision in section 10(b) o[ the Agreement. By contrast, Woods contends he resigned for good
reason and, therefore, the involuntary termination provision in section 10(a) controls.
The nonsol icitation provision (sect ion 10(a)) in the Agreement provides:
Inroluniarv iermmatwn, During the term ol Employee’s employment and for a
period of twelve (12) calendar months after an involuntary termination of
employment from the Company (for any reason) or Resignation for Good Reason (as
defined in Sub-Paragraph 4(c)), Employee will not, directly or indirectly, either as
principal, agent, manager. employee, partner. shareholder, director, officer,
consultant or otherwise solicit, attempt to solicit, or accept the business or patronage
of any Insureds for whom Employee has written contracts/policies on behalf of
Company during a period of twelve (1 2) calendar months preceding the elate of
termination or otherwise induce such Insureds to reduce, terminate, restrict or
otherwise alter their business relationships with the Company in any fashion;.
The Agreement defines “Good Reason” as follows:
resignation resulting from: (i) Employee being required to relocate from
Dallas, Texas; (ii) any involuntary, on the part of the Employee, substantial or
sustained dimunition in the Employee’s authority or responsibilities as an employee
of the Company; (iii) any involuntary, on the part of the Employee, Material
Reduction (defined in this Sub-Paragraph) in the compensation or commission
schedule of Employee in the aggregate, but not including any reduction in the bonus
paid to employee; or. (iv) Employee being requested by an executive officer or
director of the Company to engage in any conduct or activities known by such
executive officer or director of the Company to be illegal, unethical or immoral. For
the purposes of this sub-paragraph, “Material Reduction” means a decrease greater
than ten percent (10%) in Employee’s compensation or commission schedule in the
aggregate, exclusive of bonus, as measured between the then-current term and the
subsequent successor term.
The noncompetition provision (section 10(b)) in the Agreement provides:
Voluntary Termination. During the term of Employee’s employment and for a period
of twelve (12) calendar months after a voluntary resignation from the Company
without good reason, Employee shall be bound by the restrictions set forth in
Paragraph 10(a) above. Additionally, for a period of ninety (90) days after the last
day of Employee’s employment following Employee’s voluntary resignation from the
Company provided that the Company elects to continue the Employee’s salary during
the ninety (90) day period, Employee agrees that Employee shall not become
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associated with, employed by. or financially interested in any business operation
which competes in the business currently engaged in by the Company or any of its
subsidiaries or affiliates, The phrase “business currently engaged in by the
Company” includes, but is nor limited to, the types of activities in which the
Company was engaged during Employee’s tenure, such as the performance of whole
saIehrokerage and nianaginggcnera1-agent services.
In his response to appellants inotioli lr partial summary judgment. Woods argued section 10(h)
does not apply because lie resigned for good reason. In his resignation letter. Woods stated that he
was resigning for good reason. in his deposition testimony, Woods explained that he was going to
have a greater than ten percent reduction in his pay from the then current term and the subsequent
successor term.
In appellants’ motion for partial summary judgment, they assert that Woods admitted that he
did not resign for good reason. They cite to Woods’s deposition testimony as support for this
statement. At his deposition, Woods testified that the loss of Aon’s business would result in
approximately a twenty percent reduction in his income in the succeeding term of 2010. Woods
testified that “material reduction means a decrease greater than ten percent of the employee’s
compensation or commission schedule in the aggregate, as measured by the then current term, which
would be ‘09, and the subsequent successor term, which, I think, means 2010, and there’s no doubt
in my mind that as of 2010, I was going to suffer a loss of compensation greater than ten percent,
hence my determination.” Woods explained also that his base salary in 2010 would be reduced
because it is based upon a broker’s production for the last fiscal year. Income he brings into the firm
in 2009 dictates his 2010 base salary. We have reviewed the deposition testimony relied upon and
have determined that Woods did not admit that he resigned without good reason.
In his letter informing Woods that he did not meet the grounds for resignation with good
reason, Schwartz stated that Woods’s “base salary was reduced in 2009 by $10,000, which is only
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3. 1 4’). of Ihisi total base salary” Schwaiii, did not factor in the subsequent term as is required under
the Agreement. Rather, he considered only the previous and current terms. From our review of the
record. Woods’s deposition testimony appears to he the only evidence regarding good reason as it
relates to the current and .vubsequeiz! terms. We conclude the undisputed evidence ShOWS that Woods
resigned his position with USR br good reason and, thus, section 10(b) of the Agreement is
inapplicable.
Even assuming that section 10(h) was applicable, Woods sought summary judgment on the
claim of breach of this non—competition provision on the ground that it was unenforceable as an
industry-wide bar.
A covenant not to compete is a restraint of trade and unenfirceahle as a matter of public
policy unless it meets a reasonableness standard. Juliette Fowier Homes. Inc. i’. Welch Assoc.. Inc.,
793 S.W,2d, 660, 662 (Tex. 1990). Whether such covenant is a reasonable restraint of trade is a
question of law for the court, Peat Marwick Main & Co. v. Haass, 818 S.W.2d 381, 388 (Tex.
1991). A covenant not to compete must contain reasonable limitations as to time, geographical area,
irnd scope of activity to be restrained. TEx. Bus. & COM. CODE ANN. § 15.50 (West 2011). An
industry-wide bar is unreasonable. Haass, 818 S.W.2d at 386-88. When applied to a personal
services occupation, a restraint on client solicitation is overbroad and unreasonable if it extends to
clients with whom the employee had no dealings during his employment. Id.
Assuming it applies, the non-competition provision prohibits Woods from being associated
with or employed by any business that competes in the business currently engaged in by USRIG or
any of its subsidiaries. Moreover, the provision states that the “business currently engaged in by the
Company” is not limited to the type of business that Woods performed for USR. We conclude
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sect ion 10(b) does not contain reasonable limitations as to the scope of activity to be restrained. For
this reason, the trial court did not err in granting summary judgment for Woods on appellants’ claim
for breach of the covenant not to compete.
With regard to the nonsolicitation provision in section 10(a). it prohibits Woods ironi
soliciting, attempting to solicit, or accepting business of any “insured” for whom he has written
policies on behalf of the “Company” during the previous twelve-month period. It also prohibits
Woods from inducing such insureds’ to alter their relationships with the “Company.” Woods
sought suimnary judgment on the ground that USRIG had no insureds and, therefore, the
nonsolicitation provision did not apply to USR’s customers. The Agreement defines ‘Company” as
USRIG. Lawrence Wesson. president and chief operating officer of USRIG and president of USR
testified at the temporary injunction hearing. He testified that USRIG is a holding company that
holds various operating subsidiaries including USR, He admitted that USRIG is not licensed to
engage in the business of insurance in the State of Texas but that USR is licensed to do business in
Texas.
In order to have standing to sue for breach of this provision, the term “Company” would have
to be redefined to mean USR. Appellants counter Woods’s interpretation of the contract with two
arguments. First, they contend that USR is a third-party beneficiary of the Agreement and, therefore,
USR has standing to sue for breach of 10(a).
In Texas, there is a presumption against conferring third party beneficiary status on non-
contracting parties. South Texas Water Auth. v. Lornas, 223 S.W.3d 304, 306 (Tex. 2007). To
overcome this presumption, the contract must clearly set forth the intention to confer a direct benefit
to a third party. Id. The intention of the contracting parties is controlling. MC’I Telecornins. Corp.
v. Tex. Utils. Elec. Co., 995 S.W.2d 647,651 (Tex. 1999). The intention to contract or confer a direct
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benefit to a third party must be clearly and fully spelled out or enlorcement by the third party must
he denied. 1(1: Basic (apital Mç’mt.. Inc. v, t)vnex (ainmercuil, Inc., 348 S.W.3d 894. 900
(Tex.2() 11). We glean the parties’ intention Irom the words of their contract, and not from what they
allegedly meant, Union Poe. R.R. Co. v. Novus Int’l, Inc., 113 S.W.3d 418, 421 (Tex.
App.—[louston I st 1)1st. j 2003. pet. denied). The fact that a person may have an interest in a
contracts enforcement does not make him a third party beneficiary. (‘arr v. Main Carr Dev., LLC,
337 S.W.3d 489,496 (Tex. App.—Dallas 201 1, pet. denied).
To support their third—party beneficiary argument, appellants rely on section 17 of the
Agreement. That provision states the Agreement is binding upon and inures to the benefit of the
“Company, its subsidiaries, affiliates, successors, and assigns.” Woods counters that section 17
cannot he used to rewrite section 10(a) to include insured of USR when the Agreement specifically
limits that provision to insureds of the Company. Section 10(b) specifically references subsidiaries,
section 10(a) does not. Third-party beneficiary status cannot be used to change the unambiguous
language in a contract.
Even assuming USR was a third-party beneficiary, it would have no greater contractual rights
than were bargained for by the original parties to the contract. Bvnum v. Prudential Residential
Servs. Ltd., P’ship, 129 S.W.3d 781, 793 (Tex. App.—Houston [ 1st Dist.j 2004, pet. denied). USR
contends that as a third-party beneficiary it is simply trying to enforce the Agreement as written.
However, as written, the Agreement prohibits Woods from soliciting any insureds of USRIG, not
USR. Being a third-party beneficiary would not allow USR to redefine itself as the “Company”
thereby allowing it to pursue a claim for solicitation of its insureds. Thus, assuming USR could
enforce paragraph 10(a), by its terms, there is no breach unless Woods solicited or accepted business
of any insureds for whom Woods had written contracts or policies on behalf of the “Company,”
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USR1G.
The undisputed summary judgment evidence showed that USRIG did not have any insureds.
Appellants did not allege mistake. Even if they had pleaded mistake in dralting provision 10(a) of
the Agreement, unilateral mistake would not permit reforming the provision to change “Company”
to mean USR. See Stnith-Githard v. Perry, 332 S.W.3d 709. 71 3- 13 (Tc. App.--—- Dallas 2011, no
pet.).
Appellants’ second argument relies on section 5 of the Agreement that provides that if the
“Company” transfers, promotes, or reassigns Woods to another position, the Agreement will be
deemed conformed to reflect the appropriate changes in the terms or conditions of employment.
Appellants contend this self-conforming provision permits USR to stand in the place of USRIG as
the defined “Company” for whom Woods performed his obligations of the Agreement while in his
position with U.S. Risk Brokers and Brett Woods & Associates, both assumed names of USR, We
disagree. Woods’s employer remained the same both before and after he signed the Agreement. In
its response to requests for admissions, USRIG admitted that Woods’s employer did not change after
he signed the Agreement.
We conclude the trial court properly interpreted the Agreement in granting summary
judgment for Woods on appellants’ breach of the solicitation and non-compete portions of the
Agreement. We overrule appellants’ first and second issues.
Appellants contend in their third issue that the trial court erred in denying their motion for
summary judgment. In light of the Court’s disposition of appellants’ first and second issues, we
need not address appellants’ third issue.
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We affirm the trial court s judgment.
AK1AEL J. O’NEU±
JUSTICE
1 10558RP05
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31i[lli JiIrict of rxa at DatLi
JUDGMENT
U.S. RISK INSURANCE GROUP, INC. Appeal from the 192nd Judicial District Court
AND U.S. RISK. INC.. Appellants of 1)allas County, Texas. (Tr.Ct.No. 09-
04069-K).
No, 05- 1 1 -00558-CV V Opinion delivered by Justice O’Neill, Justices
FitzGerald and Lang-Miers, participating.
BRETT WOODS. Appellee
In accordance with this Court’s opinion of this date, the judgment of the trial court is
AFFIRMED.
It is ORDERED that appellee BRETT WOODS recover his costs of this appeal from
appellant U.S. RiSK iNSURANCE GROUP, INC. AND U.S. RISK, INC..
Judgment entered February 25, 2013.
/
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•
‘.4It1-lAEL J. O’NEILL’
JUSTICE