October, 2021 | The Law Offices of Gregory D. Jordan

Texas Court Issues Opinion in “Business Divorce” Case Involving Non-Compete Agreement

Business relationships can quickly turn sour when one of the parties no longer shares common goals. These disputes often come about when business ownership interests transfer hands. As a recent example, the Court of Appeals for the Fifth District of Texas issued an opinion in a case involving a business dispute between a co-founder of a business and the other co-founder’s son, who took over his father’s interest.

The Facts of the Case

In 2002, Mr. Bihner and Mr. Chen formed a limited partnership called Bihner Chen. Bihner Chen provided structural engineering services to clients in and around Houston. Bihner and Chen were both equal partners.

The two men executed several formation documents, including a non-compete agreement. The agreement explained that Chen was to pay Bihner $38,800 for his agreement not to compete against Chen or the partnership as long as Bihner was a partner and for five years after he departed the company. The agreement also prohibited “use in any competition, solicitation, or marketing effort any confidential Information, any proprietary list, or any information concerning customers of Bihner Chen.” The agreement also contained a clause that made it binding to any permitted successors in interest for either party.

Seven years later, Bihner decided to retire. He wanted to transfer his interest in Bihner Chen to his son, Brett, who was also a licensed engineer and worked for Bihner Chen for several years. Although Chen had the right to object to Brett assuming his father’s interest, he did not do so. Once Brett took formal ownership of his father’s interest, Chen provided him with all of the agreements between Bihner and Chen. A few months later, Chen and Brett entered into a subsequent agreement under which Brett would be “bound by all of the governing documents, bylaws, and regulations of the Bihner Chen entities, as is, without limitation.” However, unlike the agreement with Bihner, Chen did not offer Brett any compensation.

About eight years later, Brett triggered the buy-sell provision of the limited partnership agreement. Under the terms of the buy-sell agreement, Chen had to either buy out Brett’s interest for $600,000 or sell his interest to Brett for $600,000. The two men met the next month, where Chen informed Brett that he wanted to buy Brett out. He also went over Brett’s obligations and responsibilities to the partnership if the transaction closed. Brett became angry, announced his immediate resignation, and announced his intent to start a competing business.

Chen responded by sending Brett a letter explaining the non-compete agreement and his intention to sue if Brett went through with opening a competing business. Brett ignored the letter and opened Bihner Engineering, PLLC. He also purchased a web domain with a very similar URL to the one used by Bihner Chen. In December 2020, the buy-sell transaction closed, and Brett received $600,000 from Chen.

Chen later learned that Brett took the “Christmas Card” list from Bihner Chen and sent a letter to all Bihner Chen customers announcing his new company. Chen then sent Brett a letter, asking him to stop using the name Bihner Engineering, PLLC.

Brett filed a petition against Chen, seeking permission to use his last name in his new business. He also claimed that the non-compete agreement was not enforceable against him. The trial court found in favor of Chen and issued a temporary injunction preventing Brett from using the Bihner Engineering name. The court also found that Brett misappropriated trade secrets by taking the “Christmas card” list of clients.

The Appeal

On appeal, Brett raised several issues. First, he argued that the trial court was wrong to issue a temporary injunction. Brett claimed that the “Christmas card” list was not a “trade secret” or confidential. Thus, he asserted that there was no basis for any relief. However, the court rejected Brett’s claims, finding that there was at least some evidence justifying the lower court’s decision to issue the temporary injunction. Among other things, the court noted the efforts Chen went through to maintain the secrecy of his client list.

The court did not weigh in on Brett’s challenge to the non-compete clause. Because there had been no decision below on this issue, the court required Brett to wait until there was a final decision on the merits before an appellate court would hear the issue.

Are you Involved in a Texas Business Dispute?

When success matters, every decision you make for yourself or your business is essential. Choosing which Austin business dispute attorney to represent you or your business is no exception. Attorney Gregory D. Jordan has over 30 years of experience helping businesses and their owners deal with a wide range of legal issues they confront, including breach of contract claims, fraud allegations, and more. We can confidently help you face the problems your business may be facing. To learn more about how we can help you efficiently resolve disputes, call 512-419-0684 to schedule a consultation today.

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