A Texas appeals court on Thursday upheld an injunction banning a former sales executive of Irving-based Merritt Hawkins and Associates from misappropriating MHA’s proprietary information in his new job with a competitor in the physician staffing and recruiting industry.
At the same time, the Dallas Fifth Court of Appeals ruled that the trial court abused its discretion when it imposed only a 10-mile radius on the injunction instead of a statewide injunctions in five states.
The ruling is part of a set of opinions issued by the court of appeals that make it very likely MHA will recover significant damages — including close to $1 million in attorneys’ fees — in the trial court, the company’s lawyers said. The first ruling, issued earlier this month, was an opinion that denied a request by former MHA employee Richard Gehrke and his new employer, Pacific Companies, to dismiss the lawsuit against them under the Texas Citizens Participation Act.
“It’s a very significant win for our client because [MHA] employs a lot of employees in this field and provides the most extensive training of any company that operates in the field,” said Winston & Strawn partner John Sanders, who represents MHA. “This opinion sends a clear message to my client’s competitors that you cannot steal employees and customers and get away with it.”
Gehrke and Pacific’s lawyers have not returned messages seeking comment.
Sanders said last week’s ruling was remarkable because it not only upheld the injunction but broadened it, which is unusual because courts are traditionally hesitant to enforce injunctions related to noncompetes.
“Courts are sensitive to the fact that the employee should be able to move on and go do different jobs and still practice their trade … courts are reluctant to say, ‘Because you went to a competitor, you may no longer work for that competitor and we’re going to take the food of your family’s table,’” Sanders said.
“Oftentimes what you see with injunctive relief is lower courts splitting the baby and giving less injunctive relief than what’s requested,” Sanders added. “Normally as an employer the best you can hope for is for the appellate court to affirm the injunction you got, but here not only did they affirm, but they said it didn’t go far enough.”
According to court documents, Gehrke was poached by Pacific during his last year at MHA. MHA fired Gehrke in May 2018 when the company discovered he had disseminated confidential MHA information, including business development strategies, business plans, customer lists, marketing and sales strategies, margins, prices and costs. He also developed substantial relationships with MHA’s clients and key contacts.
Gehrke joined Pacific a month after he was fired. MHA later learned that Pacific agreed to indemnify Gehrke for any lawsuit brought by MHA that attempted to enforce the noncompete, Sanders said.
After a three-day hearing before Dallas District Judge Emily Tobolowsky, the judge issued an injunction that banned Gehrke from performing any services at Pacific of the same, similar or greater nature to those performed by Gehrke while at MHA. But instead of applying the injunction statewide in the five states Gehrke worked in, she imposed one that was merely within a 10-mile radius of the MHA customers in those five states: Colorado, Kansas, Nebraska, Oklahoma and southern California.
The judge ordered the parties to come up with a list of MHA customers that Gehrke had serviced or interacted with in the last year of his employment with his old company. MHA’s lawyers argued Gehrke had interacted with 500 such clients, while Gehrke’s lawyers came up with a list that comprised only 20% of what MHA had compiled, Sanders said.
But all developments in Judge Tobolowsky’s court, including coming up with a mutually-agreed upon list, froze when Gehrke and Pacific filed a motion to dismiss on anti-SLAPP grounds right after the three-day injunction hearing. Judge Tobolowsky denied the motion and the defendants appealed.
MHA’s lawyers argued that their courtroom opponents abused the TCPA process because their motion was frivolous — particularly because MHA had just spent three days in the injunction hearing proving its claims with extensive evidence and Gehrke’s lawyers knew the hearing “had gone really badly for them,” Sanders said.
The court of appeals agreed in its Jan. 17 opinion.
“Appellants’ counsel candidly and appropriately conceded that prior decisions from this court are adverse to appellants’ arguments and control the outcome of this appeal regarding the claims asserted against Gehrke. We agree,” the opinion said.
With respect to the injunction, both parties appealed Judge Tobolowsky’s ruling — MHA on the grounds that the injunction was too narrow to do the company any good, and Gehrke on the grounds that there was an injunction issued at all.
In last Thursday’s opinion, the court of appeals determined Judge Tobolowsky had abused her discretion by imposing “the arbitrary 10-mile radius restriction because neither party presented evidence supporting that restriction.
“We conclude that the trial court abused its discretion by misapplying the law to the facts in failing to enforce a geographic restriction for all states where Gehrke had worked during his final year at MHA, including the entirety of the contested states,” said the opinion, written by retired Justice Martin Richter.
Justice Richter and retired Justice Barbara Rosenberg both served as visiting judges on the panel, which also included current Chief Justice Robert D. Burns III.
Ironically, the injunction that Tobolowsky imposed on Gehrke expired Friday since the noncompete period is over. But Sanders said now that discovery in the trial court is unfrozen, MHA will likely uncover significant evidence that will support their assertion that Gehrke “faces serious civil liability for damages.”
“He could have made sales to customers that lied outside the [original] 10-mile radius of MHA customers but still within the contested states, and now we get to pursue damages for that,” Sanders said.
The Winston & Strawn team representing MHA also includes partner Tom Melsheimer and associate Hayden Lawson Duffy. Sanders, Melsheimer and Duffy are all based in the firm’s Dallas office.
Gehrke and Pacific’s legal team includes Houston partners William Helfand and Jason Powers and Dallas partner Elisaveta Dolghih of Lewis Brisbois Bisgaard & Smith.