Case No. 09-38044-H4-11, Jointly Administered, Adv. Proceeding No. 09-03445.United States Bankruptcy Court, S.D. Texas, Houston Division.
February 16, 2010
MEMORANDUM OPINION ON (1) PLAINTIFF’S MOTION FOR PARTIAL SUMMARY JUDGEMENT; AND (2) DEFENDANTS’ MOTION FOR PARTIAL SUMMARY JUDGEMENT [Adv. Docket Nos. 9 10]
JEFF BOHM, Bankruptcy Judge
I. INTRODUCTION
These motions focus on the applicability of a noncompetition clause to Darrell Brewer, a former executive of the Debtor in this Chapter 11 case. For the reasons set forth below, the Defendants’ Motion for Partial Summary Judgment is granted, and the Plaintiff’s Motion for Partial Summary Judgment is denied.
Page 2
II. PROCEDURAL AND FACTUAL BACKGROUND
III. CONCLUSIONS OF LAWA. Jurisdiction and Venue
The Court has jurisdiction over this adversary proceeding pursuant to 28 U.S.C. §§ 1334(b) and 157(a). This particular dispute is a core proceeding pursuant to 28 U.S.C. §§ 157(b)(2)(A), (C), (O), and the general “catch-all” language of 28 U.S.C. § 157(b)(2). See In re Southmark Corp., 163 F.3d 925, 930 (5th Cir. 1999) (“[A] proceeding is core under section 157 if it invokes a substantive right provided by title 11 or if it is a proceeding that, by its nature, could arise only in the context of a bankruptcy case.”); De Montaigu v. Ginther (In re Ginther Trusts) Adv. No. 06-3556, 2006 WL 3805670, at *19 (Bankr. S.D. Tex. Dec. 22, 2006) (holding that an “[a]dversary [p]roceeding is a core proceeding under 28 U.S.C. § 157(b)(2) even though the laundry list of core proceedings under § 157(b)(2) does not specifically name this particular
Page 8
circumstance”). Indeed, all of the parties have stipulated that this dispute is a core proceeding. [Adv. Docket No. 1, p. 7; Adv. Docket No. 2, p. 2.] Venue is proper pursuant to 28 U.S.C. § 1409.
B. The T.A. Noncompete Clause Applies to Brewer
1. The Noninterference Clause binds Brewer to the T.A. Noncompete Clause
Brewer contends that he is no longer bound by the S.A. Noncompete Clause because the confirmation of the Plan resulted in a change of ownership of Express, and the S.A. Noncompete Clause expressly relieves him of the covenants upon such a change. [Finding of Fact No. 13.]
On the other hand, Express contends that Brewer is still bound by the T.A. Noncompete Clause because the Noninterference Clause — which is in the Separation Agreement — expressly states that: “Notwithstanding the above, this Agreement shall not interfere with, supersede or replace in any way the promises, covenants, arrangements, communications, representations or warranties contained in the Transaction Agreement, LLC Agreement or any other agreement of any of the parties hereto (except for the Employment Agreement).” [Finding of Fact No. 18.]
This Court agrees with Express. The Noninterference Clause is not boilerplate language which happened to be thrown into the Separation Agreement as an afterthought. Just the contrary: the Noninterference Clause expressly sets forth that the Separation Agreement does not supersede and replace any of the covenants contained in the Transaction Agreement, except those in the Employment Agreement. There is absolutely no ambiguity in this respect. Accordingly, this Court concludes that if there is a conflict between the T.A. Noncompete Clause and the S.A. Noncompete Clause, then the T.A. Noncompete Clause governs.
Page 9
And, indeed, there is a conflict. The S.A. Noncompete Clause states that if Express changes ownership, then the restrictive covenants immediately terminate; [Finding of Fact No. 13]; whereas, the T.A. Noncompete Clause simply states that the restrictive covenants shall remain in effect until the third anniversary of the Closing Date — which is in June or July of 2011.[1] [Finding of Fact No. 7.] Given this conflict in the language, and given the unambiguous language in the Noninterference Clause, this Court concludes that the T.A. Noncompete Clause controls over the S.A. Noncompete Clause, and that, even though there has been a change in ownership as a result of the confirmation of the Plan, Brewer is nevertheless still bound by the T.A. Noncompete Clause.
Brewer argues that because the Separation Agreement was negotiated and signed several months after the Transaction Agreement, and because Brewer departed Express as a result of the Separation Agreement, the terms of the S.A. Noncompete Clause should govern and that he should be allowed to compete immediately in the wake of the change in ownership of Express. Indeed, Brewer argues that it is illogical to keep the T.A. Noncompete Clause in effect because the S.A. Noncompete Clause is a very specific clause and the Noninterference Clause in the Separation Agreement is a more general clause. This Court disagrees. The Noninterference Clause is very specific, at least equally as specific as the S.A. Noncompete Clause. The Noninterference Clause unequivocally states that the Separation Agreement “shall not interfere with, supersede or replace in any way the promises, covenants, arrangements, communications, representations or warranties contained in the Transaction Agreement, LLC Agreement or any other agreement of any of the parties hereto (except for the Employment Agreement).” [Finding of Fact No. 18.]
Page 10
Contrary to what Brewer states about Express — namely, that Express “now wants to retrade the deal it made and . . . to ignore the Separation Agreement . . .” [Adv. Docket No. 9, p. 7] — this Court concludes that it is Brewer who wants to retrade the deal. He wants this Court to disregard the specific and express language in the Noninterference Clause in order to relieve him of his obligations under the T.A. Noncompete Clause so that he may immediately compete against Express. This, the Court will not do. Indeed, it is clear to this Court that all parties to these agreements are sophisticated business persons who had high-powered counsel representing them. The language in the Noninterference Clause is not a scrivener’s error, but rather specific language that the parties negotiated and that counsel for the parties drafted and had the opportunity to review and change prior to their clients executing the Separation Agreement See Burger King v. Rudzewicz, 471 U.S. 462, 483-84 (1985) (enforcing choice of law provision against “sophisticated businessman” and affirming District Court’s finding of no economic duress or disadvantage); Newton v. Rumery, 480 U.S. 386, 394-95 (1987) (upholding unrelated criminal release-dismissal agreement voluntarily signed when sophisticated businessman not in jail, had benefit of counsel and had previously filed suit against the same municipality).
2. Brewer obligated himself individually when he signed the Transaction Agreement on behalf of Express
Brewer’s second argument as to why he ought to be immediately allowed to compete against Express is that he is not bound by the T.A. Noncompete Clause because he, in his individual capacity, is not a party to the Transaction Agreement. Thus, he contends that the only noncompete provision to which he is bound is the S.A. Noncompete Clause; and because that clause relieves him of his noncompete obligations if Express is sold, he is now free to
Page 11
immediately compete because Express has changed ownership in the wake of the confirmation of the Plan. [Finding of Fact Nos. 13 21.]
The Court finds this argument to be disingenuous. Brewer is correct that there is no signature line on the Transaction Agreement that reads “Darrell Brewer” or “Darrell Brewer, individually” or “Darrell Brewer, in his individual capacity.” However, Brewer signed the Transaction Agreement four times, three of which were on behalf of Express and affiliated entities and one of which was on behalf of BLI, the company that he, his wife, and three children own. [Finding of Fact No. 4.] When he signed the Transaction Agreement in these various capacities, he knew that the Transaction Agreement contained the T.A. Noncompete Clause and he also knew that this particular clause applied to him. Indeed, Schedule 7.14 of the Transaction Agreement expressly lists Brewer as one of the eleven individuals bound by the T.A. Noncompete Clause. [Finding of Fact No. 8] Furthermore, this Court has no doubt that had Brewer refused to agree to be subject to the T.A. Noncompete Clause, the sale evidenced by the Transaction Agreement would not have been consummated. There is no way that the Macquarieled group would have paid over $500 million if Brewer could have immediately competed against Express. [Finding of Fact No. 5.] Moreover, Brewer conveniently overlooks the fact that as a result of Macquarie purchasing Express, his family-owned company, BLI, which sold its shares to Macquarie, received approximately $70 million. [Finding of Fact No. 5.] If Brewer had been unwilling to be subject to the T.A. Noncompete Clause, BLI would not have received this extraordinary consideration. Now, in an effort to escape the bargain from which he and his family-owned company benefited handsomely, Brewer has concocted the flimsy rationale that
Page 12
because he did not sign the Transaction Agreement in his individual capacity, he is not bound by any of the terms of this document.
Case law says otherwise. Indeed, Brewer is individually bound by his signing of the Transaction Agreement in his individual capacity. See, e.g., Instone Travel Tech. Marine Offshore v. Int’l Shipping Partners, 334 F.3d 423, 430-31 (5th Cir. 2003) (applying Texas law, third party agent purchaser held personally liable for tickets purchased for plaintiff); Whitney Nat’l Bank v. Air Ambulance by B C Flight Mgmt., Inc., No. H-04-2220, 2006 U.S. Dist. LEXIS 90706, at *15-17 (S.D. Tex. Dec. 15, 2006) (company president who signed loan agreement four times as corporate officer signed in individual capacity); Dann v. Team Bank, 788 S.W.2d 182, 184-85 (Tex. App. — Dallas 1990, no writ) (bank president who signed loan guaranty held as personal guarantor); Am. Petrofina v. Bryan, 519 S.W.2d 484, 487
(Tex. App. — El Paso 1975, no writ) (defendant brothers held liable individually on contract signed in corporate capacity); Material P’ships, Inc. v. Ventura, 102 S.W.3d 252, 256 (Tex. App. — Houston [14th Dist.] 2003, no pet.) (individual held party to contract signed as corporate officer).
Aside from this case law, there is no question that Brewer did sign the Separation Agreement in his individual capacity. [Finding of Fact No. 11.] And, there is no question that the Separation Agreement contains the Noninterference Clause. Hence, even if Brewer is correct that the absence of his personal signature on the Transaction Agreement did not bind him to that agreement at the time of the execution in June of 2008, Brewer’s signing the Separation Agreement in November of 2008 nevertheless binds him to the T.A. Noncompete Clause because the Noninterference Clause expressly states that the Separation Agreement “shall not interfere with, supersede or replace in any way the promises, covenants, arrangements,
Page 13
communications, representations or warranties contained in the Transaction Agreement, LLC Agreement or any other agreement of any of the parties hereto (except for the Employment Agreement).” [Finding of Fact No. 18.]
3. New York Law Governs the Transaction Agreement
The Transaction Agreement contains a “choice of law” clause, stating that New York law governs. [Finding of Fact No. 9.] A “choice of law” clause is a “contractual provision by which the parties designate the jurisdiction whose law will govern any disputes that may arise between the parties.” BLACK’S LAW DICTIONARY 258 (8th ed. 2004). “The Supreme Court of Texas has recognized that contractual choice of law provisions should generally be enforced.” Int’l Interests, L.P. v. Hardy, 448 F.3d 303, 306 (5th Cir. 2006). “The ultimate goal in contract interpretation is realization and effectuation of the parties’ intent. Such intent is to be gleaned not only from the literal language of the agreement, but also from whatever may be implied therefrom.” In re Estate of Shatraw, 887 N.Y.S.2d 722, 723
(App. Div. 2009) (citations omitted). “The fundamental, neutral precept of contract interpretation is that agreements are construed in accord with the parties’ intent, and the best evidence of what parties to a written agreement intend is what they say in writing.” MHR Capital Partners LP v. Presstek, Inc., 12 N.Y.3d 640, 646 (App. Div. 2009).
Here, the Court concludes that the parties’ intent, at the time the Transaction Agreement was executed, was for the Transaction Agreement — including the T.A. Noncompete clause — to apply to Brewer. Indeed, the T.A. Noncompete Clause expressly applies to each “Seller listed on Schedule 7.14,” and Brewer is the first person listed.[2] [Finding of Fact Nos. 7, 8.] The T.A.
Page 14
Noncompete Clause limits those individuals listed on Schedule 7.14 from “directly or indirectly, own[ing], manag[ing], operat[ing], control[ling] or participating in the ownership, management, operation or control of any business, whether in corporate, proprietorship or partnership form . . . engaged . . . in any business engaged in by [Express].” [Finding of Fact No. 7.] Moreover, the T.A. Noncompete Clause prohibits the recruitment of any Express employees or clients. [Finding of Fact No. 7.] Finally, the noncompetition period lasts until the third anniversary of the Closing Date.[3] [Finding of Fact No. 7.] Brewer’s presence on Schedule 7.14 means that he may not compete with Express in any similar business until June of 2011, at the earliest, unless his interpretation of the Separation Agreement controls. Likewise, he may not recruit employees or clients whom he met while working at Express until June 2011. Unless Brewer and Express agreed to a modification of the T.A. Noncompete Clause, Brewer is bound by the T.A. Noncompete Clause.
C. The Separation Agreement Operates Concurrently with the T.A.Noncompete Clause
Brewer argues that the Separation Agreement constitutes a separate, controlling agreement, and that this contract superseded the Transaction Agreement. The Separation Agreement specifies that Texas contract law controls in the resolution of any dispute regarding the S.A. Noncompete Clause. [Finding of Fact No. 17.] Texas contract law applies because the dispute arose in Texas, it involves a company with substantial operations in the state, numerous subsidiaries are registered Texas LPs, and the general partner in Express is Express Energy
Page 15
Services GP, LLC, a Texas limited liability company. Neo Sack, Ltd. v. Vinmar Impex, Inc., 810 F. Supp. 829, 838 (S.D. Tex. 1993) (“[T]he rights and duties of the parties are determined by the local law of the state or country that has the most significant relationship to the transaction and the parties.”).
Texas contract law “examine[s a contract] as a whole to ascertain the true intent of the parties.” Utica Nat’l Ins. Co. v. Am. Indem. Co., 141 S.W.3d 198, 202 (Tex. 2004) (citin Mid-Century Ins. Co. v. Lindsey, 997 S.W.2d 153, 158 (Tex. 1999)). “The primary concern of a court in construing a written contract is to ascertain the true intent of the parties as expressed in the instrument.” Nat’l Union Fire Ins. Co. v. CBI Indus., Inc., 907 S.W.2d 517, 520 (Tex. 1995). “A court is bound to read all parts of a contract together to ascertain the agreement of the parties. The contract must be considered as a whole. Moreover, each part of the contract should be given effect.” 4 EDITH SCHAFFER, TEXAS JURISPRUDENCE PLEADING PRACTICE FORMS § 72:2 (2d ed. 2002). If the written contract can be given a “definite or certain legal meaning, then it is not ambiguous.” CBI Indus., 907 S.W.2d at 520 (citations omitted).
The Separation Agreement plainly states “that the Employment Agreement is terminated and no longer in effect.” Separation Agreement § 1(a). The Separation Agreement’s Article 3, “Nondisclosure and Noncompetition,” defines what limits by which Brewer must abide by after leaving Express. The section specifically refers to the T.A. Noncompete Clause language to emphasize that Brewer is still bound, with the added prohibition against lending money to a potential competitor. [Finding of Fact No. 13.] Furthermore, he is still subject to the same nonsolicitation of client and employee language in the Transaction Agreement, with the further explicit prohibition against the hiring of a specific employee. [Finding of Fact No. 13.]
Page 16
Most critically, the Noninterference Clause states that the Separation Agreement “shall not interfere with, supersede, or replace in any way the promises, covenants, arrangements, communication, representations or warranties contained in the Transaction Agreement, LLC Agreement or any other agreement of any of the parties hereto (except for the Employment Agreement).” [Finding of Fact No. 18.] Plainly, the Separation Agreement does not control all aspects of the non-compete obligations of Brewer; even though the Employment Agreement is terminated, the T.A. Noncompete Clause remains in effect. [Finding of Fact No. 18.] The Separation Agreement is thus operating concurrently with — and does not replace — the T.A. Noncompete Clause. Brewer is therefore still subject to the T.A. Noncompete Clause.
IV. CONCLUSION
For the reasons set forth above, the Express’s Motion for Partial Summary Judgment is granted, and the Brewer’s Motion for Partial Summary Judgment is denied.
An order consistent with this Opinion will be entered on the docket simultaneously with the entry on the docket of this Opinion.