Beacon Hill Staffing Group, LLC Cody Cox And Brannon Ross v. Kforce, Inc.

ACCEPTED 03-15-00022-CV 4584091 THIRD COURT OF APPEALS AUSTIN, TEXAS 3/20/2015 3:00:01 PM JEFFREY D. KYLE CLERK Oral Argument Requested No. 03-15-00022-CV FILED IN 3rd COURT OF APPEALS IN THE COURT OF APPEALS AUSTIN, TEXAS 3/20/2015 3:00:01 PM FOR THE THIRD DISTRICT OF TEXAS JEFFREY D. KYLE Clerk AT AUSTIN, TEXAS

BEACON HILL STAFFING GROUP, LLC, CODY COX, and BRANNON ROSS, Appellants, v. KFORCE, INC, Appellee.

On appeal from Cause No. D-1-GN-14-004781 In the 98th District Court of Travis County, Texas Honorable Gisela Triana, Judge Presiding

APPELLANTS’ BRIEF

Rick L. Lambert State Bar No. 11844725 rick.lambert@uwlaw.com Jennie C. Knapp State Bar No. 24069350 jennie.knapp@uwlaw.com Underwood Law Firm, P.C. P. O. Box 9158 Amarillo, Texas 79105 Telephone: (806) 376-5613 Facsimile: (806) 379-0316

Attorneys for Appellants

IDENTITY OF PARTIES AND COUNSEL

Appellants: Beacon Hill Staffing Group, LLC

Cody Cox

Brannon Ross

Appellants’ Counsel: Rick L. Lambert State Bar No. 11844725 rick.lambert@uwlaw.com Jennie C. Knapp State Bar No. 24069350 jennie.knapp@uwlaw.com Underwood Law Firm, P.C. P. O. Box 9158 Amarillo, Texas 79105 Telephone: (806) 376-5613 Facsimile: (806) 379-0316

Appellee: Kforce, Inc.

Appellee’s Counsel: Bruce A. Griggs State Bar No. 08487700 bruce.griggs@ogletreedeakins.com Martin A. Rodriguez State Bar No. 24071129 martin.rodriguez@ogletreedeakins.com Ogletree, Deakins, Nash, Smoak & Stewart, P.C. 301 Congress Avenue, Suite 1150 Austin, Texas 78701 Telephone: 512-344-4700 Facsimile: 512-344-4701

TABLE OF CONTENTS

IDENTITY OF PARTIES AND COUNSEL ............................................................2 TABLE OF CONTENTS ...........................................................................................3 INDEX OF AUTHORITIES......................................................................................4 STATEMENT OF THE CASE ..................................................................................5 STATEMENT REGARDING ORAL ARGUMENT ...............................................6 ISSUES PRESENTED...............................................................................................7 STATEMENT OF FACTS ........................................................................................8 A. The staffing industry ..........................................................................................8 B. Cox and Ross .....................................................................................................9 SUMMARY OF THE ARGUMENT ......................................................................11 ARGUMENT ...........................................................................................................11 A. Standards of Review ........................................................................................11 B. The Temporary Injunction is an overly broad, impermissible restraint on trade ..................................................................................................12 1. The Temporary Injunction is not limited in time ......................................13 2. The Temporary Injunction impermissibly prevents Appellants from using public information ................................................................................14 C. Injunctive relief is not appropriate because Kforce did not establish that it suffered an irreparable injury and it has an adequate remedy at law ...............18 PRAYER ..................................................................................................................20 CERTIFICATE OF COMPLIANCE .......................................................................21 CERTIFICATE OF SERVICE ................................................................................22 APPENDIX ..............................................................................................................23

INDEX OF AUTHORITIES Cases A.C. Crouch v. Swing Machinery Co., 468 S.W.2d 604 (Tex. App. – San Antonio 1971, no writ) .................................15 Democracy Coal. v. City of Austin, 141 S.W.3d 282 (Tex. App. – Austin 2004, no pet.)............................................19 Doerwald v. Mbank Fort Worth, N.A., 740 S.W.2d 86 (Tex. App. – Fort Worth 1987, no pet.) ............................... 18, 19 EMS USA, Inc. v. Shary, 309 S.W.3d 653(Tex. App. – Houston [14th Dist.] 2010, no pet.) ......................16 Harbor Perfusion, Inc. v. Floyd, 45 S.W.3d 713 (Tex. App. – Corpus Christi 2001, no pet.) .......................... 11, 14 Leon's Fine Foods, Inc. v. McClearin, No. 05-97-01198-CV, 2000 WL 277135 (Tex. App. – Dallas 2000, no pet.) ................................................................. 13-14 Marsh USA Inc. v. Cook, 354 S.W.3d 764 (Tex. 2011) ................................................................................13 McGonagill v. Hide-A-Way Lake Club, Inc., 566 S.W.2d 371 (Tex. Civ. App. – Tyler 1978, no writ) .....................................18 Miller Paper Co. v. Roberts Paper Co., 901 S.W.2d 593 (Tex. App. – Amarillo 1995, no writ) .......................................15 Rimes v. Club Corp. of Am., 542 S.W.2d 909 (Tex. Civ. App. – Dallas 1976, writ ref’d n.r.e.) .......................13 Sadler Clinic Ass'n, P.A. v. Hart, 403 S.W.3d 891 (Tex. App. – Beaumont 2013, pet. denied) ...............................13 Tenant Heath Ltd. v. Zamora, 13 S.W.3d 464(Tex. App. – Corpus Christi 2000, pet. dism’d w.o.j.).................12 Trilogy Software, Inc. v. Callidus Software, Inc., 143 S.W.3d 452 (Tex. App. – Austin 2004, pet. denied) .....................................15 Unitel Corp. v. Decker, 731 S.W.2d 636 (Tex. App. – Houston [14th Dist.] 1987, no writ).....................16 Walling v. Metcalfe, 863 S.W.2d 56 (Tex. 1993) ........................................................................... 11, 12 Wilson v. Chemco Chem. Co., 711 S.W.2d 265 (Tex. App. – Dallas 1986, no pet.) ............................................13 Statutes TEX. BUS. & COMM. CODE § 15.50 ................................................................... 12, 13 TEX. BUS. & COMM. CODE § 15.05 ................................................................... 13, 16

STATEMENT OF THE CASE

This is an interlocutory appeal from a Temporary Injunction. Appellants Brannon Ross (“Ross”) and Cody Cox (“Cox”) are former employees of Appellee Kforce, Inc. (“Appellee” or “Kforce”). On November 17, 2014, more than five months after they each left Kforce’s employ, Kforce filed this lawsuit against Ross, Cox, and their new employer, Beacon Hill Staffing Group, LLC (“Beacon Hill”). (CR 4) In the lawsuit, Kforce attempts to enforce non-disclosure and non-solicitation agreements. To that end, Kforce sought and obtained a temporary restraining order on November 19, 2014. (CR 84) A temporary injunction hearing was held on December 17, 2014, and a Temporary Injunction was entered on December 19, 2014. (CR 191 [Temp. Inj.]) Beacon Hill, Cox, and Ross (collectively the “Appellants”) filed this appeal from the Temporary Injunction.1 (CR 218)

1 Appellants filed a Motion to Modify the Temporary Injunction, which remains pending in the trial court. If the Motion is granted, this Court will be notified promptly as parts of this appeal could become moot.

STATEMENT REGARDING ORAL ARGUMENT

Appellants believe that oral argument would aid the Court; therefore, pursuant to Texas Rule of Appellate Procedure 39, Appellants respectfully request oral argument.

ISSUES PRESENTED

1. Whether the temporary injunction should be dissolved when it restricts competition (a) beyond the terms stated in the Agreement, (b) in excess of what would be supported by the trial court’s findings of fact, and (c) in violation of Texas law.

STATEMENT OF FACTS

A. The staffing industry.

Both Kforce and Beacon Hill are staffing agencies engaged in the business of placing personnel (“candidates”) with companies (“clients”) seeking to fill job openings in the information technology and finance sectors. The staffing industry is highly competitive, with many staffing companies identifying prospective clients, accessing available job openings, and attempting to find candidates for the job openings.

Within a staffing company, an “account manager” works to identify potential job openings at companies with hiring needs. (2 RR 32) Most, if not all, of these job openings are publicly posted. (2 RR 63) Once a job opening with a client is identified, an account manager uses a talent representative or recruiter to “match” a candidate to the open position. The only source of revenue a staffing agency receives is a commission from a client when a “match” is achieved. Although a particular client may regularly utilize the services of a particular staffing agency, the relationship is not exclusive. (2 RR 111) The staffing agency derives no revenue from the mere existence of a client relationship.

In the staffing industry, there is candidate and client “overlap.” That is to say, a company typically attempts to fill a job opening with the assistance of multiple staffing agencies because it wants to get as much exposure as possible for *9 its job opening in order to locate the best candidate. (2 RR 63, 80, 98-99, 111; 3 RR Def. Exh. 3-6) Similarly, candidates often post their resumes with multiple staffing agencies (as well as numerous other online sources) in an attempt to expose their talents and skills to as many potential employers as possible. (2 RR 83, 86, 98-99)

In addition to utilizing multiple staffing agencies to fill job openings, companies often post their job openings on their company website, as well as public internet job boards such as Careerbuilder.com, LinkedIn.com, monster.com, dice.com, or Craigslist.com to achieve maximum exposure. (2 RR 111) Similarly, candidates often post their resumes on public websites such as LinkedIn.com, Discover.org, Facebook.com, Twitter.com, and Indeed.com. Job openings and candidate information, then, can be viewed instantly by the general public with click of a mouse. (2 RR 83, 84, 86) B. Cox and Ross.

In December 2009, Cox was hired by Kforce as a market manager. (2 RR 32) When hired, Cox signed an Employment, Non-Disclosure, and Non-Solicitation Agreement (the “Agreement”) with Kforce. (3 RR Pl. Exh. 1 [Agreement]) In January 2013, Ross was hired by Kforce as a recruiter. (2 RR 95) Ross did not recall signing an identical Agreement with Kforce, although Kforce claims that he did. (2 RR 97) The Agreement provides that an employee would *10 not use or disclose any of Kforce’s “trade secrets or other confidential information” except as needed to perform duties for Kforce. “Trade secrets and other confidential information” is defined by the Agreement to include, without limitation:

(a) client or prospective client lists and client or prospective client contact information (including but not limited to business cards, contact persons, and hiring managers); (b) client job openings and job orders and client pricing information; (c) actual or prospective applicant, employment candidate, employee or consultant lists; (d) actual or prospective applicant, employment candidate, employee or consultant qualifications, contact information, and resumes; (e) actual or prospective applicant, employment candidate, employee or consultant compensation and benefits; and (f) other client, applicant, employment candidate, employee or consultant data or information.

(Agreement at ¶ 6) The Agreement also contains a non-solicitation covenant, which purports to prohibit, for a period of one year, employees from “directly or indirectly” soliciting or accepting business competitive with Kforce from any client “that EMPLOYEE serviced while employed” by Kforce. (Agreement at ¶ 8)

Cox resigned from Kforce on or about May 20, 2014, and is now employed by Beacon Hill. (2 RR 32) Ross resigned from Kforce on or about June 18, 2014, and began working for Beacon Hill. (2 RR 95)2

2 For reasons unrelated to this lawsuit, Ross is no longer employed by Beacon Hill.

SUMMARY OF ARGUMENT

The Temporary Injunction entered by the trial court should be dissolved because it is an overly broad restraint on trade. Although the Agreement on which the Temporary Injunction is based was a one-year agreement, the Temporary Injunction provides no temporal limit. This is impermissible under Texas law and amounts to an unlawful restraint on trade. The Temporary Injunction is also overly broad and unlawful because it protects information as “confidential” when it is available in the public domain. This is not permitted as a matter of law and in any event is not supported by the evidence. The Temporary Injunction was also improper because Kforce did not establish a probable irreparable injury because damages are quantifiable.

ARGUMENT

A. Standards of Review The standard of review for the grant or denial of a temporary injunction is

abuse of discretion. Walling v. Metcalfe, 863 S.W.2d 56, 58 (Tex. 1993). A trial court abuses its discretion when it acts arbitrarily and unreasonably, without reference to guiding rules or principals, or misapplies the law to the established facts of the case. Harbor Perfusion, Inc. v. Floyd, 45 S.W.3d 713, 716 (Tex. App. – Corpus Christi 2001, no pet.). A trial court also abuses its discretion when the evidence does not reasonably support its decision. Id. at 717. In reviewing the *12 grant or denial of a temporary injunction, a reviewing court should not give any particular deference to legal conclusions of the trial court and should apply a de novo standard of review regarding pure questions of law. Tenant Heath Ltd. v. Zamora, 13 S.W.3d 464, 468 (Tex. App. – Corpus Christi 2000, pet. dism’d w.o.j.).

For a plaintiff to be entitled to injunctive relief, he must first establish (1) that a wrongful act occurred, (2) that he has a probable right to recovery, and (3) that there is a probable injury in the interim. Walling, 863 S.W.2d at 57. To establish that there is probable harm, a plaintiff must establish that the harm is imminent, that the injury would be irreparable, and that the plaintiff has no other adequate remedy at law. Zamora, 13 S.W.3d at 468.

B. The Temporary Injunction is an overly broad, impermissible restraint on trade. Under long-standing Texas law, restraints on trade are illegal unless they

follow strict parameters and the plaintiff can prove that it has a protectable interest that gives rise to the need for the restrictive covenant. TEX. BUS. & COMM. CODE § 15.50(a). The Temporary Injunction restrains the Appellants from competition that is broader than the restrictions stated in the Agreement, unsupported by the court’s findings of fact, and it amounts to an impermissible restraint of trade under Texas law.

1. The Temporary Injunction is not limited in time.

The Temporary Injunction is not limited in time to the one-year period provided for in the Agreement. (Temp. Inj. at ¶ 12) The injunction is an impermissible restraint on trade that is not supported by the evidence and should be dissolved.

Under Texas law, non-competition and non-solicitation agreements are only allowed under a narrow set of facts and must be temporally limited. TEX. BUS. & COMM. CODE § 15.50(a); Marsh USA Inc. v. Cook, 354 S.W.3d 764, 777 (Tex. 2011). Any other restraint is prohibited by Texas Business and Commerce Code Section 15.05, which provides that “Every contract, combination, or conspiracy in restraint of trade or commerce is unlawful.” Further, courts may not extend the period provided by a restrictive covenants contained in an employment contract. See Sadler Clinic Ass'n, P.A. v. Hart, 403 S.W.3d 891, 899 (Tex. App. – Beaumont 2013, pet. denied); Wilson v. Chemco Chem. Co., 711 S.W.2d 265, 268 (Tex. App. – Dallas 1986, no pet.); Rimes v. Club Corp. of Am., 542 S.W.2d 909, 912 (Tex. Civ. App. – Dallas 1976, writ ref’d n.r.e.).

Allowing Kforce to restrain Appellants longer than one year grants them a benefit that was neither bargained-for nor agreed to by the parties to the Agreement. The benefit given Kforce by the Temporary Injunction is broader than Texas law allows. See Leon’s Fine Foods, Inc. v. McClearin, No. 05-97-01198-*14 CV, 2000 WL 277135, at *1 (Tex. App. – Dallas 2000, no pet.) (holding in noncompetition agreement case that injunctive relief was not available after the term of the covenant not to compete had expired).

Furthermore, the trial court abused its discretion in granting the Temporary Injunction beyond the time period supported by the evidence. The Agreement provides that it is only good for one-year post-termination for each employee. (Agreement at ¶ 8) This uncontroverted fact was emphasized by trial court in its findings, which state that the Agreements were good for one year from the date of termination. (Temp. Inj. at ¶¶ 1-3, 6) Any injunction must expire by its terms for Cox on May 20, 2015, one year from Cox’s termination from Kforce and for Ross on June 18, 2015, one year from his termination from Kforce. (2 RR 32) The Temporary Injunction period is not supported by any evidence or the trial court’s finding and the granting of it therefore amounts to an abuse of discretion. See Harber Perfusion, 45 S.W.3d at 717.

2. The Temporary Injunction impermissibly prevents Appellants from using public information.

Public information is not protectable as a trade secret and cannot be confidential information. Yet, the Temporary Injunction purports to prohibit the Appellants’ use of such information. The Temporary Injunction prohibits the use of “Kforce trade secrets and other confidential information as defined in the Agreements.” (Temp. Inj. at ¶ 12.a and 12.b) The Agreements, in turn, explain *15 that “trade secret and confidential information” includes things that are not confidential, are not unique to Kforce, and are in fact public information. The Temporary Injunction allows Kforce’s definition of confidential information rule the day without regard to what is actually protectable under Texas law. And, because the Agreements purport to protect un-protectable information, they are not enforceable, and injunctive relief should not have been granted.

Public information and information that can be readily obtained from a public source is not confidential. Miller Paper Co. v. Roberts Paper Co., 901 S.W.2d 593, 603 (Tex. App. – Amarillo 1995, no writ). Texas law only protects information that is not generally known or readily ascertainable by independent investigation. Trilogy Software, Inc. v. Callidus Software, Inc., 143 S.W.3d 452, 467 (Tex. App. – Austin 2004, pet. denied).3 Further, storing a third party’s information in a database does not convert public information to confidential information. “What is known to all cannot be converted into confidential information worthy of equitable protection by merely whispering into the ear of even the most highly trusted employee.” A.C. Crouch v. Swing Machinery Co., 468 S.W.2d 604, 606 (Tex. App. – San Antonio 1971, no writ). By restricting

public information, the Agreements and the Temporary Injunction are naked 3 Kforce has admitted in similar litigation that the purpose of a restrictive covenant is to protect trade secrets and confidential information. See Memorandum in Support of Motion for Temporary Restraining Order, Kforce Inc. v. Beacon Hill Staffing Group, LLC and Gary Hahn, Case No. 14-cv-01880, in the United States District Court, Eastern District of Missouri, Eastern Division, at p. *10-11.

restraints on trade, illegal, and unenforceable. See TEX. BUS. & COMM. CODE § 15.05(a); Unitel Corp. v. Decker, 731 S.W.2d 636, 636 (Tex. App. – Houston [14th Dist.] 1987, no writ); EMS USA, Inc. v. Shary, 309 S.W.3d 653, 658 (Tex. App. – Houston [14th Dist.] 2010, no pet.).4

Contrary to the trial court’s conclusions and admissions of Kforce, much of the information protected by the Temporary Injunction is anything but confidential. For example, the Agreement – and by extension the Temporary Injunction – would prohibit the use of things like business cards, job openings, and resumes. (Agreement at ¶ 6) As discussed at length at the temporary injunction hearing, and as admitted by Kforce’s corporate representative, much of this information included within the broad definition of “confidential” is public. (2 RR 63, 80, 83, 86, 98-99, 111; 3 RR Def. Exh. 3-6) It is freely available through quick internet searches and is published by the various clients and candidates as they seek new employees or a new job. (Id.) This is only logical because each client wishes to find the best employee for the job through whatever avenue possible. The customer’s job requirements are not secret nor is the fact that they have a job opening. Similarly, candidates publish their resumes online on various sites, hoping that a staffing company – like Beacon Hill or Kforce – will find their resume and place them with a company. There is nothing secret or “confidential”

4 The trial courts findings to the contrary are erroneous as a matter of law and are unsupported by legally or factually sufficient evidence. (See Temp. Inj. at ¶ 10)

about this information. Information from a third party could not be confidential to Kforce as a matter of law. For example, there is nothing confidential about a client’s business card or jobs posted by the client. That information is readily available from the client and other public avenues. The fact that a client gave Kforce this information without more does not create a protectable interest in that information.

Aaron Botana, market director for Kforce, admitted that much of the information included in the definition of “confidential” in the Agreements is actually publicly available or can be obtained from an avenue of public access. (2 RR 110-11) Mr. Botana defined Kforce’s protectable information as the compilation of data contained in the Recruitmax database. (2 RR 103-05) Aaron Botana acknowledged that the database contained job placements and candidate resumes that were posted in the public domain. (2 RR 110-11) The only placements that Mr. Botana stated were not public were certain temporary placements. (2 RR 107) The Temporary Injunction therefore grants more protection than is legally permitted by allowing Kforce to deem public information “confidential” because Kforce stored other people’s information in its database. And, in any event, the Temporary Injunction is not supported by the evidence because it would include information that is publicly available.

The trial court allowed Kforce to define “confidential” rather than looking to Texas law and what is actually protectable. For this same reason, the restraint is vague. There is no way to know from the face of the Temporary Injunction what “confidential” really means, and even a study of the Agreement only provides that some information may be considered by Kforce to be confidential without offering guidance as to what public or other information Kforce considers secret.

C. Injunctive relief is not appropriate because Kforce did not establish that it suffered an irreparable injury and it has an adequate remedy at law. The Temporary Injunction is further improper because, as a matter of law,

Kforce has an adequate remedy at law and injunctive relief is not appropriate. For this reason, the trial courts findings of probable irreparable injury are not supported by legally or factually sufficient evidence. (Temp. Inj. at ¶¶ 10, 11) Injunctive relief is only appropriate if the plaintiff establishes an irreparable injury. An injury is irreparable if it could not be compensated by damages or that the damages resulting from the injury could not be measured by any pecuniary standard. McGonagill v. Hide-A-Way Lake Club, Inc., 566 S.W.2d 371, 375 (Tex. Civ. App. – Tyler 1978, no writ). If the relief could properly be compensated by money damages, then injunctive relief is improper. Doerwald v. Mbank Fort Worth, N.A., 740 S.W.2d 86, 90 (Tex. App. – Fort Worth 1987, no pet.)

Kforce did not identify a single lost placement due to the conduct of Cox or Ross. Even if it could, Kforce did not prove that Beacon Hill would not have made the placement without Cox or Ross, and Kforce did not prove that Kforce would have made the placement rather than Beacon Hill or one of the many other staffing companies.

That a client of Kforce allegedly did business with Beacon Hill is not dispositive because clients often engage numerous staffing companies related to the same job opening. (2 RR 110-11). Further, there is no evidence that Kforce lost a single client relationship because of the conduct of any of the Appellants. Kforce is left, then, with only a speculative loss of goodwill. As a matter of law, this does not constitute a probable, imminent, or irreparable injury. See Democracy Coal. v. City of Austin, 141 S.W.3d 282, 296 (Tex. App. – Austin 2004, no pet.) (“An injunction will not lie to prevent an alleged threatened act, the commission of which is speculative and the injury from which is purely conjectural.”).

Furthermore, Kforce has an adequate remedy at law. To the extent that Kforce could ever prove that it lost a placement, then the profit from the placement is easily calculated. (2 RR 112) See Doerwald, 740 S.W.2d at 90 (holding that lost profits could be measured by pecuniary loss standard and there was therefore an adequate remedy at law and injunctive relief was improper).

PRAYER

Appellants request that the Court dissolve the Temporary Injunction. Alternatively, Appellants request that the Court remand for the trial court to modify the Temporary Injunction (a) to specify that the Temporary Injunction is only effective to restrain Appellants until May 20, 2015, as to Cox and June 18, 2015, as to Ross, and (b) such that it restrains only Appellants’ use of information that is in fact confidential and derives independent economic value from not being generally known or readily ascertainable. Appellants further request such other relief to which they may be entitled in law or in equity.

Respectfully submitted,

/s/ Rick L. Lambert Rick L. Lambert

Rick L. Lambert State Bar No. 11844725 rick.lambert@uwlaw.com Jennie C. Knapp State Bar No. 24069350 jennie.knapp@uwlaw.com Underwood Law Firm, P.C. P. O. Box 9158 Amarillo, Texas 79105 Telephone: (806) 376-5613 Facsimile: (806) 379-0316

Attorneys for Appellants

CERTIFICATE OF COMPLIANCE

This document complies with the word-count limitations of Texas Rule of Appellate Procedure 9.4(i) because it contains 3,162 words, excluding the parts exempted by Texas Rule of Appellate Procedure (i)(1).

/s/ Rick L. Lambert Rick L. Lambert

CERTIFICATE OF SERVICE

I hereby certify that that on the 20th day of March, 2015, a true and correct copy of the foregoing was served via electronic service and certified mail, return receipt requested to the following:

Bruce A. Griggs bruce.griggs@ogletreedeakins.com Martin A. Rodriguez martin.rodriguez@ogletreedeakins.com Ogletree, Deakins, Nash, Smoak & Stewart, P.C. 301 Congress Avenue, Suite 1150 Austin, Texas 78701

/s/ Jennie C. Knapp Jennie C. Knapp

Appendix A Temporary Injunction B Agreement