Hixon Autoplex of Alexandria, Inc. v. Donald Ray Lewis

STATE OF LOUISIANA
COURT OF APPEAL, THIRD CIRCUIT

08-1142

HIXSON AUTOPLEX OF ALEXANDRIA, INC.

VERSUS

DONALD RAY LEWIS

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APPEAL FROM THE
NINTH JUDICIAL DISTRICT COURT
PARISH OF RAPIDES, NO. 231,139
HONORABLE F. RAE SWENT, DISTRICT JUDGE

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MARC T. AMY
JUDGE

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Court composed of Sylvia R. Cooks, Oswald A. Decuir, Marc T. Amy, Billy Howard
Ezell and James T. Genovese, Judges.

AFFIRMED IN PART; REVERSED IN PART; INJUNCTION ENTERED.

Genovese, J., dissents and assigns written reasons.

Darrell K. Hickman
Post Office Box 48
Alexandria, LA 71309
(318) 448-6353
COUNSEL FOR DEFENDANT/APPELLEE:
Donald Ray Lewis

Mark Felipe Vilar
Aaron L. Green
Vilar & Elliott
Post Office Box 12730
Alexandria, LA 71315-2730
(318) 442-9533
COUNSEL FOR PLAINTIFF/APPELLANT:
Hixson Autoplex of Alexandria, Inc.

AMY, Judge.

An employer and employee entered into a non-competition agreement. The

employee was terminated and began to work for a competing company. The

employer sought to enforce the non-competition agreement. The trial court, finding

one provision invalid on the grounds of it being contrary to public policy, severed the

offending provision and enforced the remaining two provisions of the agreement.

The employer appeals, contending that the trial court erred by retroactively applying

a substantive change to the pertinent statute. For the following reasons, we affirm in

part and reverse in part and render judgment.

Factual and Procedural Background

The Petition for Injunctive Relief reveals that Hixson Autoplex of Alexandria,

Inc. (“Hixson”) is an automobile dealership in the business of the “selling and leasing

of automobiles, trucks, vans, accessories, parts, and related equipment as well as the

servicing and repair of automobiles, trucks and vans in the Parishes of Rapides,

Grant, Vernon, Sabine, Avoyelles, Natchitoches, Allen, and Evangeline.” The record

indicates that Donald Ray Lewis (“Lewis”) began working for Hixson on February

28, 2005, as a vehicle salesperson. Lewis signed a non-competition agreement upon

commencement of employment, wherein he pledged, among other things, to refrain

from the following activities for a period of two years after suspension or termination

of his employment:

(1) Contact, directly or indirectly, any customer of Employer with
whom Employee had contact during the Employee’s employment
hereunder; or

(2) Carry on or engage in a business similar to that of the Employer
in the parishes of Rapides, Grant, Vernon, Sabine, Allen,
Avoyelles, Natchitoches, and Evangeline, so long as Employer
continues to carry on a like business therein.

(3) Contact, directly or indirectly, any Employee of Employer for the
purpose of inducing such employee to own, manage, operate,
control, participate in, solicit for, be employed by, or be
connected with any person, firm or entity engaged or about to be
engaged in a business similar to Employer.

It is not contested that Hixson compensated Lewis fully for his employment

and provided him with training, equipment, assistance, advertising, and other

business incidentals. Lewis’ employment with Hixson was terminated on March 22,

2008. According to the record, shortly after his termination with Hixson, Lewis

began to work for a competing sales and service dealership in Rapides Parish, M &

M Dodge, Inc. Hixson, seeking to have the non-competition agreement enforced

against Lewis, filed a Petition for Injunctive Relief and Hearing Thereon. Because

there was no dispute regarding the material facts, the matter was submitted to the trial

court on briefs. The trial court ordered that the first and third provisions of the non-

competition agreement be enforced but held that the second provision, which

prohibited Lewis from carrying on or engaging in a similar business in the specified

parishes, was unenforceable in light of the 2006 amendment to the non-competition

statute, La.R.S. 23: 921—an amendment that prohibited employers from contractually

restraining automobile salesmen from selling automobiles. Hixson appeals, asserting

that the trial court committed legal error by retroactively applying a substantive

change to the law.

Discussion

In Hooper v. Hooper, 06-825, p. 7 (La.App. 3 Cir. 11/2/06), 941 So.2d 726,

731, writ denied, 06-2823 (La. 1/26/07), 948 So.2d 177, this court stated:

Where the trial court’s decision is based on an erroneous interpretation
or application of law, rather than a valid exercise of discretion, such an
incorrect decision is not entitled to deference by the reviewing court.

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Kem Search, Inc. v. Sheffield, 434 So.2d 1067 (La.1983). The standard
of our review is accordingly de novo.

Here, the sole issue to be decided, the validity of a non-competition agreement, is a

question concerning the application of law; accordingly, we will review this matter

de novo. See Herff Jones, Inc. v. Girouard, 07-393, (La.App. 3 Cir. 10/3/07), 966

So.2d 1127, writ denied, 07-2464 (La. 2/15/08), 975 So.2d 185.

In 2005—the year Lewis signed the non-competition agreement—La.R.S.

23:921 provided, in pertinent part:

A. (1) Every contract or agreement, or provision thereof, by which
anyone is restrained from exercising a lawful profession, trade, or
business of any kind, except as provided in this Section, shall be null
and void.

....

C. Any person, including a corporation and the individual
shareholders of such corporation, who is employed as an agent, servant,
or employee may agree with his employer to refrain from carrying on or
engaging in a business similar to that of the employer and/or from
soliciting customers of the employer within a specified parish or
parishes, municipality or municipalities, or parts thereof, so long as the
employer carries on a like business therein, not to exceed a period of
two years from termination of employment. An independent contractor,
whose work is performed pursuant to a written contract, may enter into
an agreement to refrain from carrying on or engaging in a business
similar to the business of the person with whom the independent
contractor has contracted, on the same basis as if the independent
contractor were an employee, for a period not to exceed two years from
the date of the last work performed under the written contract.

D. For the purposes of Subsections B and C, a person who
becomes employed by a competing business, regardless of whether or
not that person is an owner or equity interest holder of that competing
business, may be deemed to be carrying on or engaging in a business
similar to that of the party having a contractual right to prevent that
person from competing.

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Pursuant to 2006 La. Acts, No. 436, § 1, subsection I was added to La.R.S.

23:921 by the legislature on June 15, 2006, and was given effect on August 15, 2006.

Louisiana Revised Statutes 23:921(I) provides:

I. (1) There shall be no contract or agreement or provision entered
into by an automobile salesman and his employer restraining him from
selling automobiles.

(2)(a) For the purposes of this Subsection, “automobile” means
any new or used motor-driven car, van, or truck required to be registered
which is used, or is designed to be used, for the transporting of
passengers or goods for public, private, commercial, or for-hire
purposes.

(b) For the purposes of this Subsection, “salesman” means any
person with a salesman's license issued by the Louisiana Motor Vehicle
Commission or the Used Motor Vehicle and Parts Commission, other
than a person who owns a proprietary or equity interest in a new or used
car dealership in Louisiana.

In its Reasons for Judgment, the trial court articulated its understanding of the

effect this amendment had on the non-competition agreement between Hixson and

Lewis:

While it is true that the contract was not contrary to public policy at the
time of confection and could have been enforced in its entirety prior to
the 200[6] legislation, the court does not believe it can be enforced
today to stop Lewis from selling new or used motor vehicles. The
requirement that a contractual provision be valid at the time of
enforcement is embodied in C.C. Article 1968, which provides as
follows: [“]The cause of an obligation is unlawful when the
enforcement of the obligation would produce a result prohibited by law
or against public policy.[”] The court understands the 200[6] provision
to be a prohibitory law. Neither the employer nor the licensed employee
can contract to prohibit the act of selling. While Hixson and Lewis
could at the time they did, Hixson can not now ask for enforcement of
a contractual provision that is contrary to prohibitory law and public
policy.

For the reasons that follow, we find that the trial court committed legal error

in its application of the amended legislation. Louisiana Civil Code Article 6

provides: “In the absence of contrary legislative expression, substantive laws apply

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prospectively only. Procedural and interpretative laws apply both prospectively and

retroactively, unless there is a legislative expression to the contrary.” Because Lewis,

an automobile salesman, executed a non-competition agreement before the

amendment, which expressly prohibits such agreements, took effect, the essential

inquiry is whether the amendment changed the substance of the law or just the

procedure by which to apply it. In order to classify the 2006 amendment, we must

follow the two-part test of Cole v. Celotex Corp., 599 So.2d 1058, 1063 (La.1992):

“First, we must ascertain whether in the enactment the legislature expressed its intent

regarding retrospective or prospective application. If the legislature did so, our

inquiry is at an end. If the legislature did not, we must classify the enactment as

substantive, procedural or interpretive.”

2006 La. Acts, No. 436, § 1 did not include legislative intent regarding

prospective or retroactive application; therefore, we must consider whether the

amendment embodied substantive or procedural changes in the law. The supreme

court in St. Paul Fire & Marine Ins. Co. v. Smith, 609 So.2d 809 (La.1992),

elaborated on the distinction: substantive laws create and/or change rights, duties,

and rules, while procedural laws provide the avenue by which those rights, duties, and

rules are enforced. Further, interpretative laws clarify the meaning of a statute. Id.

Relying on this distinguishing guideline, we find that the 2006 amendment

which created subsection I of La.R.S. 23:921, established a new law, inasmuch as it

changed the rights of a particular employer to prohibit its employees from engaging

in competition with it. Accordingly, it is afforded prospective application only. See

Herff Jones, Inc., 966 So.2d at 1135, wherein the court found that a 1995 amendment

to La.R.S. 23:921, relating to independent contractors, was prospective in its

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application and held: “[O]nly the provisions of La.R.S. 23:921 in effect at the time

that the agreement was entered into were applicable in determining whether this

agreement was enforceable.”

The non-competition agreement signed by Lewis in 2005 complied with the

statutory requirements at that time. Thus, the agreement, in its entirety, is valid and

enforceable against Lewis.

Insofar as Hixson alternatively argues that the retroactive application of the

amendment “impaired the contractual obligations of the parties and disturbed their

vested rights by retroactively applying La.R.S. 23:921(I), in violation of the Due

Process and Contract Clauses of both the United States and Louisiana Constitutions,”

we find that resolution of the prospective versus retroactive question pretermits

discussion of this alternative contention. Accordingly, we affirm the portion of the

judgment that found the first and third provisions of the non-competition agreement

to be enforceable, and we reverse the portion of the judgment that found the second

provision to be invalid.

DECREE

For the foregoing reasons, the trial court’s judgment is reversed insofar as it

invalidated that portion of the non-competition agreement prohibiting the appellee,

Donald Ray Lewis, from carrying on or engaging in a business similar to that of the

appellant, Hixson Autoplex of Alexandria, Inc. Accordingly, judgment is entered in

favor of Hixson Autoplex of Alexandria, Inc.; the injunction is entered in this regard

and judgment is recast in part to reflect that it is:

FURTHER ORDERED, ADJUDGED AND DECREED that
Donald Ray Lewis is enjoined from carrying on or engaging in a
business similar to that of the Employer in the parishes of Rapides,
Grant, Vernon, Sabine, Allen, Avoyelles, Natchitoches, and Evangeline,

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so long as Hixson Autoplex continues to carry on a like business therein
for a period of two years, or until March 21, 2010.

All costs of these proceedings are assessed against the defendant.

AFFIRMED IN PART; REVERSED IN PART; INJUNCTION ENTERED.

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STATE OF LOUISIANA

COURT OF APPEAL, THIRD CIRCUIT

08-1142

HIXSON AUTOPLEX OF ALEXANDRIA, INC.

VERSUS

DONALD RAY LEWIS

GENOVESE, J., dissents and assigns the following written reasons.

In my view, the trial court was correct. The issue in this case is not the

retroactivity of the 2006 amendment to La.R.S. 23:921(I), but rather compliance with

La.Civ.Code art. 1968. Notwithstanding the specific exceptions set forth in the

statute, as a general rule, non-competition agreements are contra bonos mores.

Whether the non-competition agreement in this case is enforceable is determined by

the date of enforcement, not the date of execution as required by La.Civ.Code art.

1968. The opinion fails to mention and/or address the effect, vel non, of La.Civ.Code

art. 1968 to the case at bar. In this case, at the time of enforcement of the agreement

by litigation, non-competition agreements relative to auto salespersons were legally

prohibited. Therefore, I would affirm the trial court judgment.