Covenant Not to Compete Ruled Unenforceable for Failing to Comply With State Law – Elite Coil Tubing Solutions v. Guillory

An appellate court in Louisiana affirmed an order granting partial summary judgment to the defendants in a lawsuit over a purported covenant not to compete. The court held in Elite Coil Tubing Solutions v. Guillory that the plaintiff company failed to meet its evidentiary burden to enforce a non-compete agreement under Louisiana law, which generally disfavors such agreements. In addition to failing to identify specific parishes in which the non-compete agreement should apply, the court held that the plaintiff failed to provide sufficient evidence regarding the nature of the business prohibited by the non-compete agreement.

The plaintiff, Elite Coil Tubing Solutions, LLC, provides oilfield services, with a principal business location in Caddo Parish, Louisiana. The company employed the defendant, Weldon Guillory, as Manager of Operations from June 15, 2006 until Guillory’s resignation on October 15, 2010. It also employed defendant Bobby Gill from July 15, 2008 until his resignation on December 18, 2010.

Guillory signed an employment contract with Elite in 2006, which included a non-compete agreement. That part of the contract provided that, while employed by Elite and for a period of two years afterwards, Guillory would not own or accept employment with a business in direct competition with Elite anywhere within two hundred miles of any of Elite’s business locations. It also provided that, in the event of breach or threatened breach by Guillory, Elite could obtain a temporary injunction without a bond, and that it would be entitled to liquidated damages of $250,000. Gill did not sign an employment contract when he began working for Elite.

Shortly after leaving Elite, both Guillory and Gill began working for High Capacity Coil, LLC (HCC), based in Bossier Parish, Louisiana. HCC’s principal business location was about twenty-five miles away from Elite’s principal place of business.

Elite filed suit against Guillory, Gill, and HCC to enforce the non-compete agreement. The suit alleged that Guillory and Gill were founding members of HCC, and that Guillory had contacted Elite’s employees and used confidential information to solicit employees away from Elite. The defendants denied these charges. Elite sought liquidated damages, declaratory judgment, and specific performance prohibiting Guillory and Gill from working for HCC. It did not, however, seek a preliminary injunction.

The defendants moved for partial summary judgment, arguing first that the non-compete agreement only applied to Guillory, and second that it was unenforceable under state law. Louisiana law views non-compete agreements as unlawful restrictions on trade, and only allows them under strictly-controlled circumstances. A non-compete agreement cannot last longer than two years and must identify parishes in which competition is prohibited. Elite argued that the nature of its business prevented it from anticipating where it might do business in the future, and that the 200-mile radius provision was therefore enforceable even without the identification of specific parishes. The trial court granted the defendants’ motion.

Elite appealed the summary judgment ruling, stating the same argument about the enforceability of the 200-mile radius provision. The appellate court affirmed the judgment, finding that state law strictly requires identification of parishes where competition is prohibited. It also found that Elite did not present summary judgment evidence to identify the type of business activities in which it was engaged, and therefore failed to specify the types of activities it sought to enjoin the defendants from pursuing. Without this level of specificity, the court held, the non-compete agreement was unenforceable.

The business litigation attorneys at Lubin Austermuehle represent business owners and professionals regarding non-competition agreements and other claims throughout the Chicagoland area, including Cook, DuPage, Lake, Kane, McHenry and Will Counties; and in the Mid-West region, including Indiana, Wisconsin and Iowa.