WILLIAM M. TAYLOR, Jr., District Judge.
Plaintiff, Fidelity Union Life Insurance Company (hereinafter referred to as "Fidelity") requests this Court to enjoin Defendant, Protective Life Insurance Company ("Protective") from raiding Plaintiff's agents, and Plaintiff also requests damages for replacement costs of agents who left Fidelity and went to Protective. Fidelity further seeks to enforce a noncompetitive covenant prohibiting Defendant Carl Chapman from selling life insurance anywhere in Texas in the so-called college market.
Jurisdiction is governed by the provisions of 28 U.S.C.A. 1441(c) which reads as follows:
The issues may be posed by stating the positions taken by the respective parties. Fidelity contends that Protective has been raiding Fidelity's agents who have been trained at considerable expense, and who have a noncompetitive covenant in their employment contracts. As to Defendant Chapman, Fidelity contends the noncompetitive covenant in Mr. Chapman's contract should be enforced and that he should be barred from selling life insurance in the college market anywhere in Texas. On the other side, Protective denies that it has wrongfully interfered with the contractual relation between Fidelity and Fidelity's agents and contends that the non-competitive covenant is unenforceable because it is unreasonably broad. Defendant Chapman also argues that the noncompetitive covenant is overly broad and therefore unenforceable. Thus, more narrowly drawn the principal issues are two: (1) whether Fidelity's noncompetitive covenant is enforceable and (2) whether Protective has wrongfully interfered with the contracts between Fidelity and Fidelity's agents.
Facts and Conclusions of Law
Fidelity is engaged in the business of selling life insurance to college seniors and graduate students and so is Protective. Carl Chapman is a former Fidelity agent who now sells life insurance for Protective in the college market in Commerce, Texas. Mr. Chapman's contract with Fidelity contained the following noncompetitive covenant:
The college market has through the years become a lucrative but highly competitive area of the life insurance industry. Entering the college market in 1957 Fidelity became one of the pioneers in this specialized field and has since recruited and specially trained thousands of agents to concentrate on college seniors and graduate students. Fidelity did not long remain alone in the college market, however. To date, more than forty other insurance companies have entered this field and most all have short, concentrated training schools for agents entering college sales. In this specialized field of insurance sales not only is there great competition for purchasers, but also for talented salesmen. In an effort to recruit sales talent it is a common occurrence in the life insurance industry for one company to inquire whether independent agents of other companies are interested in a general agency.
Mr. Chapman's association with Fidelity began in March of 1969 and ended less than three years later, on December
The first principal issue is whether Fidelity's noncompetitive covenant is enforceable as written.
In Texas the task of deciding reasonableness is twofold. First, a Court must determine whether the non-competitive covenant as written is reasonable. If the covenant is adjudged unreasonable it does not follow that the entire covenant is void; rather, Texas law holds that the contract may in effect be reformed to aid in the enforcement thereof. Weatherford Oil and Tool Co. v. Campbell, 161 Tex. 310, 340 S.W.2d 950 (Tex.1960); Spinks v. Riebold, 310 S.W.2d 668 (Tex.Civ.App.—El Paso 1958, writ ref'd). The Texas Supreme Court explained the law this way:
A noncompetitive covenant is reasonable if it does not impose upon the employee any greater restraint than is necessary to protect the business and good will of the employer. Weatherford Oil and Tool Co., supra. Pivotal factors in this reasonableness test are the time during which the restraint is to last and the area of restraint. Fidelity's non-competitive covenant provides for a two year time restriction and an area restriction covering the entire state of Texas and any other state in which a Fidelity agent may have worked. The initial question is whether Fidelity's noncompetitive covenant is reasonable as written. The Court has concluded that the time restriction is reasonable but the area restriction is not.
In Weatherford Oil and Tool Co. v. Campbell, the Texas Supreme Court agreed that an area restriction was not reasonable and quoted the following language:
Numerous other Texas courts have relied on the reasoning in Weatherford: Orkin Exterminating Co. v. Veal, 355 S.W.2d 831 (Tex.Civ.App.—Fort Worth 1962, writ ref'd n. r. e.) (covenant not to compete at certain stated locations for a period of two years held enforceable); Wilson v. Century Papers, Inc., 397 S.W.2d 314 (Tex.Civ.App.—Houston 1965, no writ hist.) (covenant not to compete for two years within City of Houston, Texas, held reasonable); Carl Coiffure, Inc. v. Mourlot, 410 S.W.2d 209 (Tex. Civ.App.—Houston 1966, writ ref'd n. r. e.) (covenant not to compete for one year within 10 miles of any beauty salon
The effect of Fidelity's area restriction is to prohibit a former agent from selling in an area where the agent has never been, and in areas where Fidelity has not even entered the college market. As written this noncompetitive clause deprives a former agent of employment when he poses no threat whatsoever to the business of Fidelity. A noncompetitive covenant with these characteristics is unreasonable and unenforceable as written.
Having concluded that the covenant is unreasonable as written the Court turns to the second task required by Texas law: determine whether the noncompetitive covenant may be reformed to prevent Mr. Chapman from selling to the college market in the Commerce, Texas, area. When deciding whether an area restriction may be reformed and reasonably applied under the circumstances, it is helpful to ask the following questions: (1) What area does the employer's business cover? (2) What area did employee cover for employer? (3) From what area does the covenant bar the employee? (4) Is the employee barred from territory in which the employer has no business? (5) Is employee barred from territory in which he never worked for employer? See Arthur Murray Dance Studios of Cleveland v. Witter, 105 N.E.2d 685 (Ohio 1952). Applying the elements of this case to these questions one finds the following: (1) Fidelity sells to the college market in Texas and forty-seven other states; (2) Carl Chapman worked for Fidelity in three Texas cities: College Station, Denton, and Huntsville; (3) Mr. Chapman is barred from selling insurance in the college market anywhere in Texas; (4) The evidence is not conclusive as to whether Fidelity sells to the college market in Commerce, Texas; (5) Mr. Chapman never worked for Fidelity in Commerce, Texas. As an employee of Protective, Mr. Chapman has neither entered an area of Texas which his former work with Fidelity took him, nor has he taken customer lists which might provide him with undue advantage. To restrict Mr. Chapman from this area of employment would be unreasonable—and this, the Court refuses to do. Under different circumstances, however, former Fidelity agents could be barred for two years from selling in a particular area of Texas. For example, if a Fidelity agent working a specified area resigns and then enters the college market in that same area a court of equity could enjoin that agent by reforming the covenant to apply to those particular facts.
In summary, applying Texas law to this case, the Court has concluded that: (1) as written the area restriction in Fidelity's noncompetitive covenant is unreasonable and unenforceable and (2) even after reformation of the covenant Carl Chapman may not be barred from selling in the Commerce, Texas, area.
The other principal issue is whether the soliciting by Protective of Fidelity's agents is a compensable tort. The short answer is that the evidence is insufficient to support Plaintiff's claim. As to Carl Chapman, he made the initial contact with Protective after becoming dissatisfied with Fidelity, and testified
It should be noted that the retention rate is very low for new agents in the college market. For example, only fifteen or twenty percent of Fidelity's newly trained agents remain with the company after two years—after five years only ten percent remain.
To be sure, as Plaintiff correctly points out, a person who induces a party to a contract to break it, intending to injure another person or get the benefit for himself, commits an actionable wrong. Robey v. Sun Record Co., 242 F.2d 684 (5th Cir. 1957); compare with United Insurance Co. v. Dienno, 248 F.Supp. 553 (E.D.Pa.1965) (where insurance agents were barred from using former employer's confidential customer lists) and American Republic Insurance Co. v. Union Fidelity Life Insurance Co., 295 F.Supp. 553 (D.C.Or.1968) (where insurance agents who terminated employment with one insurer and went to work for competitor where they used customer lists developed by former employer were guilty of unfair competition). However, actionable wrongs such as these are not here supported by the evidence.
Accordingly, Plaintiff's requests for injunctive relief and damages are denied.