Richard Gehrke and Pacific Companies, Inc. v. Merritt Hawkins and Associates, LLC

Citation: Not availableDocket: 05-18-01160-CV

Court: Court of Appeals of Texas; December 19, 2018; Texas; State Appellate Court

Original Court Document: View Document

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Merritt Hawkins and Associates, LLC has filed an emergency motion to enforce a temporary injunction against former employee Richard Gehrke, who is accused of violating a non-competition agreement. Despite the injunction, Gehrke allegedly solicited clients and worked in restricted territories, actions that directly contravene the trial court's orders. The motion requests that the Court of Appeals initiate enforcement proceedings under Texas Rule of Appellate Procedure 29.4 and refer the matter back to the trial court for a hearing to determine Gehrke's potential contempt of court.

The case centers on Gehrke's role as an executive in Merritt Hawkins' sales and marketing department, where he had access to sensitive company information. As part of his employment, he signed a confidentiality agreement that prohibited him from using Merritt Hawkins’ confidential information for his benefit, working in any territories he managed in the last year, and soliciting clients he serviced during that time. Although the trial court issued an injunction restricting Gehrke from soliciting clients on a specified list, the injunction only limited his activities to within ten miles of those customers, rather than the broader restrictions outlined in his agreement.

On August 16, September 12, and September 13, 2018, hearings were held regarding Merritt Hawkins' Application for Temporary Injunction. On September 21, 2018, Gehrke and Pacific Companies, Inc. filed a motion to dismiss under the Texas Citizens Participation Act, which automatically stayed discovery. On September 25, 2018, the Court issued a temporary injunction order (TI Order) that prohibited Gehrke from soliciting customers on a specific list and from engaging in competitive activities within a ten-mile radius of those customers until January 24, 2020. The TI Order restricts Gehrke from soliciting any client he interacted with during the year before his departure from Merritt Hawkins and from performing similar services for competitors in specified states.

Gehrke allegedly violated the TI Order by attending conferences where prohibited customers were present, as evidenced by a declaration from Travis Singleton. Gehrke's attendance at the Missouri Primary Care Association Conference, Missouri Hospital Association’s Annual Conference, and Illinois Staff Physician Recruiters Conference, all of which included clients from the Prohibited Customer List, was documented through photos he posted on LinkedIn. At these conferences, which are aimed at healthcare professionals, Gehrke represented Pacific and operated as a vendor, not merely as an attendee.

Gehrke participated in several conferences primarily to promote Pacific's services, despite being aware that clients on the Prohibited Customer List would be present. His attendance violated the TI Order, which prohibits him from soliciting these clients for any physician recruitment activities, including both locum tenens and permanent placements. Gehrke's claims of soliciting only locum tenens clients are undermined by his presence at a booth displaying a large sign advertising Pacific's permanent staffing services, qualifying his actions as indirect solicitations against the TI Order.

Additionally, Gehrke violated the TI Order by offering permanent healthcare staffing services at two conferences located within ten miles of customers on the Prohibited Customer List. Specifically, he attended the MHA Conference near one prohibited customer and the ISPR Conference near four, both of which are within the restricted area. His actions and promotional materials at these events clearly indicate solicitation for both types of staffing services.

Moreover, Gehrke further breached the TI Order by posting an advertisement for a permanent gastroenterologist position online, which was located within the prohibited area, specifically within a fifteen-minute drive of St. Louis. These actions demonstrate Gehrke's repeated violations of the TI Order, for which he must be held accountable.

The temporary injunction remains effective until the Court issues a ruling. The TI Order continues to be enforceable, as the appellate process is ongoing, and no mandate has been issued yet.

The trial court's temporary injunction against Gehrke remains in effect, and Gehrke is currently violating it during the pending appeal. This Court is tasked with preserving the parties' rights and enforcing the injunction. Gehrke's violations not only contravene the injunction but also challenge the Court's authority to review the case. Rule 29 of the Texas Rules of Appellate Procedure aims to prevent such contemptuous actions. Specifically, Rule 29.3 allows the appellate court to issue temporary orders to protect the parties' rights during an appeal of an interlocutory order. The appellate court can refer enforcement proceedings back to the trial court for a hearing, where Gehrke can explain his actions regarding the injunction. To ensure the Appellees' rights are maintained, Merritt Hawkins requests that the Court initiate an enforcement proceeding under Rule 29.4 and refer it to the trial court for a prompt hearing on Gehrke's potential contempt. The document concludes with a certification of service to relevant counsel.

On August 10, 2018, the Court granted an Agreed Amended Temporary Restraining Order. Subsequently, on August 17, 2018, the Court approved an order extending this restraining order, requiring Merritt Hawkins to submit a $15,000 bond. Hearings regarding the Plaintiffs' Application for a Temporary Injunction took place on August 16, September 12, and September 13, 2018, with parties and their attorneys present. 

The Court made several findings of fact and conclusions of law, including that Merritt Hawkins, founded in 1987, evolved into a leading physician recruitment firm with about 120 employees. The company has developed significant business assets, including detailed customer information, marketing strategies, and customer relationships, all of which contribute considerable economic value and competitiveness. The Court found that this proprietary information qualifies as trade secrets under applicable law, as it is not generally known or easily ascertainable by others. 

Merritt Hawkins has implemented reasonable measures to protect its confidential information, including confidentiality agreements for employees, restricted access to sensitive materials, and secure computer networks. Additionally, the Court noted that Gehrke began working with Merritt Hawkins on April 1, 2013, and had access to sensitive company information as part of his employment, which was contingent on signing a confidentiality agreement acknowledging the confidential nature of the information he would access.

The court determined that the Confidentiality Agreement establishes the value of protected confidential information, recognizing it as a unique asset of the Company with economic value stemming from its confidentiality. The Employee acknowledged that disclosing any Confidential Business Information to competitors, or using it for personal gain, constitutes misappropriation.

The Agreement defines "Confidential Business Information" broadly, including but not limited to: marketing strategies, pricing policies, client and candidate lists, personnel needs, service contract terms, business plans, financial data, competitor information, employee compensation details, proprietary software, and other trade secrets essential for competitive advantage.

Additionally, the court found that the Employee, Gehrke, agreed not to use this information to compete with Merritt Hawkins. The Agreement's non-compete clause was deemed reasonable to protect the Company’s legitimate business interests, which include safeguarding confidential information, client relationships, and goodwill, with an 18-month duration considered appropriate.

Gehrke entered into an agreement prohibiting competition with Merritt Hawkins within a defined geographic area, specifically Dallas County, Tarrant County, and adjacent counties in Texas. This includes a broad range of roles (employee, contractor, partner, etc.) and prohibits providing similar services to any competitor in the healthcare staffing industry, particularly those involving territories for which Gehrke had responsibility in the year prior to his termination.

Additionally, Gehrke is restricted from soliciting Merritt Hawkins employees for 30 months post-termination, which includes inducing or hiring any current employees or disrupting relationships within the company. He also cannot solicit customers or clients for 18 months after his departure, targeting those he interacted with during his last year of employment.

The court affirms that the Confidentiality Agreement underpins legitimate business interests, protecting Merritt Hawkins' confidential information, customer relationships, and the integrity of its workforce.

The Court determines that specific restrictions in the Confidentiality Agreement are essential to protect Merritt Hawkins' business and goodwill, and that Gehrke would cause significant harm if he continues to breach these covenants. After signing the agreement, Gehrke accessed confidential business information, including proprietary plans, client lists, and pricing strategies. As an executive in sales and marketing, he developed important relationships with clients and gained insights into business strategies relevant to healthcare recruiting. 

During the year preceding his termination on May 1, 2018, Gehrke managed territories including Missouri, Illinois, Arkansas, Colorado, and southern California, thereby acquiring sensitive information about clients and contracts. He expressed no objections to being restricted from contacting clients in Colorado, Kansas, Nebraska, Oklahoma, and southern California. Following his termination, he emailed confidential information to himself and was reminded of his ongoing obligations under the Confidentiality Agreement.

Gehrke began working for competitor Pacific Companies on June 18, 2018, where he contacted multiple former Merritt Hawkins clients, breaching the contractual restrictions. He successfully procured business from clients he was barred from soliciting and misused Merritt Hawkins' confidential information in his new role. The Court finds that Gehrke plans to continue soliciting these clients and using the confidential information unless restrained. His actions violate the Confidentiality Agreement, which he acknowledged when receiving employment and promotions, and his unauthorized use of trade secrets is confirmed. The Court concludes that the restrictions within the agreement are reasonable, aimed at protecting confidential information, trade secrets, specialized training, and business goodwill.

Defendant Gehrke and his agents are temporarily enjoined from several activities until January 24, 2021, and January 24, 2020, including:

1. **Client Solicitation**: Prohibited from soliciting any actual or prospective client, customer, or candidate associated with Merritt Hawkins for 12 months prior to his separation. The court holds a customer list to define those affected.

2. **Employment with Competitors**: Gehrke is barred from performing similar services to those at Merritt Hawkins for competitors in specified states (Colorado, Kansas, Nebraska, Oklahoma, and southern California) and within a 10-mile radius of the defined customer list.

3. **Employee Solicitation**: Prohibited from soliciting any Merritt Hawkins employee until January 24, 2021.

4. **Use of Confidential Information**: Gehrke cannot use, disclose, or transfer any of Merritt Hawkins' trade secrets or confidential information, including customer data, business plans, and pricing strategies.

5. **Document Handling**: He must not destroy, conceal, or dispose of any documents or materials belonging to Merritt Hawkins or containing its confidential information.

6. **Document Alteration**: Gehrke is barred from altering or deleting any documents or files related to Merritt Hawkins until they are turned over in discovery or further court order.

7. **Competitor Employment Documentation**: He must not destroy or dispose of any documents related to potential employment by Pacific or other competitors of Merritt Hawkins.

The court deems the previously paid bonds sufficient for issuing this Temporary Injunction Order, and the Clerk is instructed to issue a Writ of Injunction accordingly.