      Case: 14-20682          Document: 00513252655              Page: 1      Date Filed: 10/29/2015




           IN THE UNITED STATES COURT OF APPEALS
                    FOR THE FIFTH CIRCUIT    United States Court of Appeals
                                                                                            Fifth Circuit

                                                                                            FILED
                                        No. 14-20682                                    October 29, 2015
                               Consolidated with No. 15-20005                            Lyle W. Cayce
                                                                                              Clerk

CHRIS CARDONI, an individual; WESLEY WEBB, an individual; TERRY
BLAIN, an individual; BILLY SHAFFER, an individual,

                 Plaintiffs - Appellees

v.

PROSPERITY BANK, a Texas Financial Institution,

                 Defendant - Appellant

-------------------------------------------------------------------------------------

PROSPERITY BANK,

                 Plaintiff - Appellant

v.

CHRISTOPHER CARDONI; WESLEY WEBB; TERRY BLAIN; WILLIAM
SHAFFER,


                 Defendants - Appellees


                      Appeals from the United States District Court
                           for the Southern District of Texas


Before JOLLY, HIGGINSON, and COSTA, Circuit Judges.
GREGG COSTA, Circuit Judge:
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       In addition to their well-known disagreements over boundaries 1 and
football, 2 Texas and Oklahoma do not see eye to eye on a less prominent issue:
covenants not to compete. Texas generally allows them so long as they are
limited both geographically and temporally. Tex. Bus. & Com. Code Ann.
§ 15.50(a). Oklahoma generally does not. Okla. Stat. tit. 15, § 217. These
different policy choices—Texas’s view which prioritizes parties’ freedom to
contract and Oklahoma’s which emphasizes the right to earn a living and
competition—came to a head when Texas-based Prosperity Bank acquired
Oklahoma-based F&M Bank and Trust Company. Prosperity entered into
contracts with a number of the F&M bankers that included covenants not to
compete, not to solicit, and not to disclose confidential information obtained
while working at Prosperity. The agreements also provided that Texas law
would govern the parties’ relationship.
       Four of the bankers later left Prosperity and went to work for a
competitor. Both the bankers and Prosperity raced to the courthouse to file
lawsuits that ended up being consolidated in federal court in Houston.
Prosperity sought to enforce the restrictive covenants under Texas law,
contending that the choice-of-law provision was valid. The district court denied
Prosperity’s applications for injunctive relief. It found that the choice-of-law
provision was not enforceable with respect to the noncompetition and
nonsolicitation provisions; instead, it applied Oklahoma law, under which it


       1  See Oklahoma v. Texas, 258 U.S. 574 (1922); Oklahoma v. Texas, 256 U.S. 70 (1921);
Oklahoma v. Texas, 253 U.S. 465 (1920); see also Lonn W. Taylor, Red River Bridge
Controversy, TEX. ST. HIST. ASS’N: HANDBOOK OF TEX. ONLINE, (June 15, 2010),
http://www.tshaonline.org/handbook/online/articles/mgr02 (chronicling 1931 controversy
over a bridge crossing the Red River which involved the Governor of Oklahoma declaring
martial law and stationing National Guardsmen on both sides of the river).
        2 The authoring judge cannot help but note that the University of Texas leads the

University of Oklahoma 61-44-5 in the Red River Rivalry. See Red River Showdown,
WIKIPEDIA, https://en.wikipedia.org/wiki/Red_River_Showdown (last modified Oct. 12, 2015,
at 3:24 PM).
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concluded the covenants were not lawful. In contrast, the district court ruled
that Texas law applied to the nondisclosure provisions, but denied injunctive
relief to enforce that provision. Following the guidance of Texas courts on the
enforcement of choice-of-law provisions, we affirm in part and reverse in part.
                                           I.
      In August 2013, Prosperity acquired F&M. Prior to the merger, Chris
Cardoni, Wesley Webb, and Terry Blain were Senior Vice Presidents of F&M
in Tulsa focused on energy industry customers. As the energy group’s team
leader, Cardoni supervised Webb and Blain and other energy industry
bankers, including a manager who worked in F&M’s Dallas, Texas office. 3
Billy Shaffer, also a Senior Vice President of F&M in Tulsa, focused on middle
market commercial customers.
      In anticipation of the potential merger, Prosperity offered employment
contracts to thirty-five senior-level F&M employees, including Cardoni, Webb,
Blain, and Shaffer (“the bankers”). Prosperity considered the retention of these
employees critical to the merger’s successful completion. The bankers were
given two days to accept the contracts, which were presented to them by F&M
representatives. They were told that if they did not sign the contracts, the
merger might fall apart or that, if the merger did come to pass, their jobs with
Prosperity could not be guaranteed absent the contract.                After multiple
meetings with F&M representatives and discussions among themselves, the
bankers signed the contracts in Oklahoma. 4 The contracts were then signed
by Prosperity officials in Texas.



      3  The energy group’s customers were dispersed throughout the United States.
Immediately prior to the merger, Cardoni, Webb, and Blain “inherited” six accounts with
Texas clients from F&M’s office in Dallas, Texas. Cardoni contends that “[w]ith minimal
exceptions, those inherited accounts represent the business the Plaintiffs have done that
involves Texas.”
       4 Only one of the thirty-five employees declined to sign the contract.

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      Except for the salary and common stock offered to each banker, the
contracts do not differ in any respect relevant to this case. They provide for a
three-year term as a senior vice president. The bankers’ duties are to “solicit
and service loan and depository accounts/relationships . . . associated with the
locations of [Prosperity] in and around Tulsa, Oklahoma, which were
previously locations of [F&M].” ROA.907 § 2.1. The contracts further provide
that the bankers “shall work in Tulsa, Oklahoma and shall be furnished with
an office and other business facilities and services[.]” Id. § 2.2.
      The contracts also contain the three restrictive covenants that are the
subject of this appeal. A nondisclosure agreement provides that, during or
after their employment, the bankers will not “make any unauthorized
disclosure, directly or indirectly, of any Confidential Information of [F&M] or
[Prosperity], or third parties, or make any use thereof, directly or indirectly.”
ROA.909 § 6.1(c). A noncompetition clause provides that, for three years, the
bankers will not “directly or indirectly” compete, engage, or be employed by a
business entity within 50 miles of F&M’s former banking centers “in a business
similar to that of [F&M] or [Prosperity].” ROA.910 § 6.3(a); see also ROA.910
§ 6.3(b) (providing that for three years the bankers will not “invest in, own,
manage, operate, [or] control” a competitive business within 50 miles of F&M’s
former banking centers). A nonsolicitation agreement provides that, for three
years, the bankers will not “directly or indirectly . . . solicit competing business
from customers or prospective customers of [F&M] or [Prosperity]” if the
banker made contact with that customer or had access to information and files
about that customer within the twelve months prior to the termination of the
banker’s employment.      ROA.910 § 6.3(c).     Finally, the contracts contain a
choice-of-law provision stating that Texas law will govern “[a]ll questions
concerning the validity, operation and interpretation of this Agreement and
the performance of the obligations imposed upon the parties hereunder” and a
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forum selection clause stating that that “[e]xclusive venue of any dispute
relating to this Agreement shall be, and is convenient in, Texas.” ROA.915
§ 9.3.
         The merger took effect in the spring of 2014. The bankers maintain that
their compensation, benefits, and working conditions were worse off after the
merger. On August 12, 2014 they gave notice of their intent to terminate their
employment. In early September, the bankers went to work at CrossFirst
Bank in Tulsa, which is approximately seven miles from the F&M/Prosperity
location where they had been working.
         Litigation had begun even before the bankers moved to CrossFirst. In
June 2014, they filed a lawsuit against Prosperity 5 in Oklahoma state court,
seeking a declaration that the covenants were void and asserting claims for
tortious interference with business relations and false representation. Two
days later, Prosperity filed suit in Texas state court seeking a declaration that
the covenants were enforceable and asserting a claim for breach of contract.
Both cases were removed to federal court on diversity grounds and
consolidated in the Southern District of Texas pursuant to the forum selection
clause.
         A flurry of motions ensued. The bankers filed two motions in federal
district court. First, they sought a ruling that Oklahoma law applies despite
the contractual choice of Texas law. Second, they moved for partial summary
judgment on their claim that the noncompetition and nonsolicitation
agreements were unenforceable under Oklahoma law. Prosperity, meanwhile,
filed an application for temporary and permanent injunctive relief to enforce
the restrictive covenants under the chosen Texas law.



        The lawsuit also named two former F&M executives, Anthony Davis and Eric Davis,
         5

as defendants. For simplicity, we refer to all of the defendants as “Prosperity.”
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      The district court granted in part the bankers’ motion for summary
judgment, holding that Oklahoma law governed the noncompetition and
nonsolicitation clauses but not the nondisclosure provision. The reason for the
different ruling on the nondisclosure agreement was the court’s conclusion that
it—unlike the other two covenants—does not contravene a fundamental policy
of Oklahoma. As a result, the court summarily denied Prosperity’s request for
injunctive relief which had been based on the belief that Texas law governed
all three clauses, without prejudice to refiling. Prosperity then moved under
Rule 59(e) to alter or amend the district court’s order. In its motion, Prosperity
requested that the nonsolicitation agreement be reformed and enforced under
Oklahoma law, and sought reconsideration of the choice-of-law determination
as to Cardoni because of his contacts with Texas. The district court denied the
motion.
      Prosperity then filed its second application for injunctive relief. This
motion focused on the nondisclosure agreement that the district court found
was governed by Texas law.       The proposed injunction would prevent the
bankers from disclosing Prosperity’s confidential information pending trial.
Not wanting to leave any stone unturned, Prosperity then filed a supplement
to this motion requesting an injunction requiring the bankers to comply with
the noncompetition and nonsolicitation agreements even assuming Oklahoma
law applies to them. After holding an evidentiary hearing, the court denied
the request. Although it believed that the information provided to the bankers
was arguably confidential, the court concluded that Prosperity had not shown
that the bankers had disclosed that information. Prosperity thus did not
establish a substantial likelihood of ultimately prevailing or irreparable injury.




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      Prosperity brings interlocutory appeals of both denials of injunctive
relief, as well as the denial of the motion to alter or amend. Another panel of
this court denied Prosperity’s motion for injunctive relief pending the appeal.
We now consider the consolidated appeals.
                                        II.
      We have jurisdiction over orders denying a request for a preliminary
injunction. 28 U.S.C. § 1292(a)(1). That jurisdiction extends to other rulings
that are inextricably intertwined with the injunction rulings.          See Ali v.
Quarterman, 607 F.3d 1046, 1048 (5th Cir. 2010). The parties agree that the
district court’s ruling that Oklahoma law applies was a key factor in its denial
of the injunction. So do we. Indeed, the district court recognized the central
role of the choice-of-law analysis in the injunction ruling when it invited a
renewed motion for injunctive relief after determining the applicable law.
Prosperity further contends, this time with opposition, that the summary
judgment    ruling   rejecting    Prosperity’s   backup     argument—that       the
noncompetition and nonsolicitation provisions are enforceable even if
Oklahoma law applies—is also sufficiently intertwined with Prosperity’s
request for injunctive relief to be considered in this appeal. We agree, as
Prosperity argued as part of its second application for a preliminary injunction
that it was likely to succeed on the merits because the covenant satisfied
Oklahoma’s goodwill exception to the state’s prohibition on covenants not to
compete. We will thus consider this issue in assessing whether Prosperity has
shown a substantial likelihood of prevailing on the merits.
      Substantial likelihood of prevailing is the first of four factors that a party
seeking an injunction must show. See Bluefield Water Ass’n, Inc. v. City of
Starkville, Miss., 577 F.3d 250, 252–53 (5th Cir. 2009). The other three are:
irreparable injury if the injunction is not granted; that the irreparable injury
outweighs any harm to the other side; and that granting the preliminary
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injunction will not disserve the public interest. Id. We review a district court’s
assessment of these factors for abuse of discretion. Id. at 253. Conclusions of
fact that affect that analysis are left undisturbed unless clearly erroneous,
whereas conclusions of law are reviewed de novo. Id.
                                        III.
       A legal issue—whether Texas or Oklahoma law governs the enforcement
of the contract provisions—is the primary reason the district court concluded
that Prosperity did not establish a substantial likelihood of prevailing on the
noncompetition and nonsolicitation clauses. Because this is a diversity case,
the forum state of Texas provides the law that governs this choice-of-law
analysis. See Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496 (1941);
see also Atl. Marine Constr. Co., Inc. v. U.S. Dist. Court for W. Dist. of Tex., 134
S. Ct. 568, 582–83 (2013) (noting that although the Klaxon rule generally does
not apply when a case is transferred to a more convenient federal forum
pursuant to 28 U.S.C. § 1404(a), it does when the transfer “motion is premised
on enforcement of a valid forum-selection clause”).
       The employment contract between Prosperity and the bankers provides
that Texas law applies to “[a]ll questions concerning the validity, operation and
interpretation” of the contract, as well as “the performance of the obligations
imposed upon the parties.” ROA.915 § 9.3. Just last year, the Supreme Court
of Texas reiterated its recognition of the “party autonomy rule” by which
“parties can agree to be governed by the law of another state.” Exxon Mobil
Corp. v. Drennen, 452 S.W.3d 319, 324 (Tex. 2014), reh’g denied (Feb. 27, 2015);
cf. Tex. Bus. & Com. Code § 1.301(a) (“[W]hen a transaction bears a reasonable
relation to this state and also to another state or nation the parties may agree
that the law either of this state or of such other state or nation shall govern
their rights and duties.”). At first glance, one may think that principle largely
ends our inquiry. We are accustomed to giving effect to the knowing and
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voluntary agreement of parties, especially sophisticated ones. Agreements to
arbitrate are a recurring example. See Carter v. Countrywide Credit Indus.,
Inc., 362 F.3d 294, 297 (5th Cir. 2004) (noting strong presumption favoring
enforceability of arbitration agreements). And the Supreme Court recently
ruled that forum selection clauses should be enforced “‘in all but the most
exceptional cases.’” Atl. Marine, 134 S. Ct. at 581 (quoting Stewart Org., Inc.
v. Ricoh Corp., 487 U.S. 22, 33 (1988) (Kennedy, J., concurring)). Indeed,
enforcement of such a clause is why this appeal is being heard in the Fifth
Circuit rather than in the Tenth, where the bankers filed suit.
      Contractual choice-of-law provisions are not so unassailable. Unlike
arbitration and forum selection clauses, which dictate where a dispute will be
heard, choice-of-law provisions dictate the law that will decide the dispute, and
thus create more tension with a state’s power to regulate conduct within its
borders. See DeSantis v. Wackenhut Corp., 793 S.W.2d 670, 677 (Tex. 1990)
(explaining that judicial respect for enforcing the contractual expectations of
the parties is not unlimited when it comes to choice-of-law agreements because
parties “cannot by agreement thwart or offend the public policy of the state the
law of which ought otherwise to apply”); see also In re AutoNation, Inc., 228
S.W.3d 663, 669 (Tex. 2007) (distinguishing choice-of-law provisions from
forum selection clauses because there is no “fundamental Texas policy
requir[ing] that every employment dispute with a Texas resident must be
litigated in Texas”); Restatement (Second) of Conflict of Laws § 187(2) cmt. g
(“Fulfillment of the parties’ expectations is not the only value in contract law;
regard must also be had for state interests and for state regulation.”). Thus,
although Texas courts permit choice-of-law agreements and the default
position is that they are enforceable, it is not uncommon for a party to overcome




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them. 6 See, e.g., DeSantis, 793 S.W.2d at 681 (holding parties’ choice of Florida
law unenforceable and applying Texas law to enforcement of noncompetition
agreement); CMA-CGM (Am.), Inc. v. Empire Truck Lines, Inc., 416 S.W.3d
495, 516–17 (Tex. App.—Houston [1st Dist.] 2013, pet. denied) (holding parties’
choice of Maryland law unenforceable and applying Texas law to resident
motor carrier being required to indemnify for third-party’s negligence);
Panatrol Corp. v. Emerson Elec. Co., 163 S.W.3d 182, 186–89 (Tex. App.—San
Antonio 2005, pet. denied) (holding parties’ choice of Missouri law
unenforceable and applying Texas law to manufacturer’s indemnification of
innocent seller); cf. Ennis, Inc. v. Dunbrooke Apparel Corp., 427 S.W.3d 527,
534–36 (Tex. App.—Dallas 2014, no pet.) (reversing summary judgment on
grounds that genuine issue of material fact remained on whether parties’
contractual choice of Texas law or another state’s law should apply to question
of enforceability of noncompetition provision).
       To render a choice-of-law provision unenforceable, a party must satisfy
the standards in Section 187(2) of the Restatement (Second) of Conflict of
Laws, which provides that:
       (2)    The law of the state chosen by the parties to govern their
              contractual rights and duties will be applied . . . unless
              either
              (a)    the chosen state has no substantial relationship to the
                     parties or the transaction and there is no other
                     reasonable basis for the parties’ choice, or


       6 The same is true in other states. See, e.g., Feeney v. Dell Inc., 908 N.E.2d 753, 766–
67 (Mass. 2009) (holding contractual choice-of law-provision unenforceable because applying
selected state’s law would contravene fundamental policy of forum state); McKee v. AT & T
Corp., 191 P.3d 845, 852 (Wash. 2008) (en banc) (same); Brenner v. Oppenheimer & Co. Inc.,
44 P.3d 364, 380 (Kan. 2002) (same); Long v. Holland Am. Line Westours, Inc., 26 P.3d 430,
434–35 (Alaska 2001) (same); Cherry, Bekaert & Holland v. Brown, 582 So. 2d 502, 507–08
(Ala. 1991) (same); Bush v. Nat’l Sch. Studios, Inc., 407 N.W.2d 883, 887–88 (Wisc. 1987)
(same).

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              (b)    application of the law of the chosen state would be
                     contrary to a fundamental policy of a state which has
                     a materially greater interest than the chosen state in
                     the determination of the particular issue and which,
                     under the rule of § 188, would be the state of the
                     applicable law in the absence of an effective choice of
                     law by the parties.
Restatement § 187(2) 7; see DeSantis, 793 S.W.2d at 677–78 (following the
Restatement framework).
       The first subsection, 187(2)(a), does not help the bankers. The parties
had a reasonable basis for agreeing that Texas law would apply given that
Prosperity is headquartered in the state. See Drennen, 452 S.W.3d at 325
(stating, with respect to Section 187(2)(a), that “parties will be held to their
choice when ‘the state of the chosen law [has] a sufficiently close relationship
to the parties and the contract to make the parties’ choice reasonable.’”
(quoting Restatement § 187 cmt. f)).
       The analysis under subsection (b) is not so straightforward. Even when
a reasonable basis exists for selecting a state as the source of law governing a
transaction, the parties’ selection does not control if another state: (1) has a
more significant relationship with the parties and the transaction at issue than
the chosen state does under Restatement § 188; (2) has a materially greater
interest than the chosen state does in the enforceability of a given provision;
and (3) has a fundamental policy that would be contravened by the application
of the chosen state’s law. Drennen, 452 S.W.3d at 325–27.




       7 Section 187 has two subsections. However, Section 187(1) is inapplicable to this case
because the enforceability of restrictive covenants is generally not “‘one which the parties
could have resolved by an explicit provision in their agreement.’” See DeSantis, 793 S.W.2d
at 678 (quoting Restatement § 187, cmt. d). Examples of issues that may not be resolved by
an explicit provision are those involving capacity or validity. Restatement § 187, cmt. d. The
parties do not dispute that Section 187(1) is inapplicable under DeSantis and, thus, that
Section 187(2) alone directs the choice-of-law inquiry in this case.
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                                               A.
       As illustrated in Drennen, Texas takes the Section 187(2)(b) factors in
reverse order. This makes sense as the first two inquiries do not matter unless
“yes” is the answer to the last question posed—whether Oklahoma’s law would
provide the applicable law “in the absence of an effective choice of law by the
parties.” Restatement § 187(2)(b). In other words, if Oklahoma law would not
apply even under an ordinary conflicts analysis without a choice-of-law
provision in the mix, then there is no reason to consider whether public policy
trumps the parties’ agreement. Because this initial inquiry assesses whether
Oklahoma law would apply in the absence of the parties’ choice-of-law
agreement, the “more significant relationship” test does not take account of the
parties’ expectation that Texas law would apply. See Drennen, 452 S.W.3d at
325–26 (determining the most significant contacts without taking account of
the choice-of-law provision); DeSantis, 793 S.W.2d at 678–79 (same).
        The “more significant relationship” determination is made by examining
various contacts, in light of the basic choice-of-law principles enumerated in
Section 6 of the Restatement. 8 DeSantis, 793 S.W.2d at 678. These contacts
include:




       8  Section 6 of the Restatement enumerates the following conflict-of-laws
principles for consideration:
       (a)     the needs of the interstate and international systems,
       (b)     the relevant policies of the forum,
       (c)     the relevant policies of other interested states and the relative interests
               of those states in the determination of the particular issue,
       (d)     the protection of justified expectations,
       (e)     the basic policies underlying the particular field of law,
       (f)     certainty, predictability and uniformity of result, and
       (g)     ease in the determination and application of the law to be applied.
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       (a)    the place of contracting,
       (b)    the place of negotiation of the contract,
       (c)    the place of performance,
       (d)    the location of the subject matter of the contract, and
       (e)    the domicil, residence, nationality, place of incorporation
              and place of business of the parties.
Restatement §188(2) 9; see also Minn. Mining & Mfg. Co. v. Nishika Ltd., 955
S.W.2d 853, 856 n.6 (Tex. 1996). These contacts are weighed “not by their
number, but by their quality.” Minn. Mining, 955 S.W.2d at 856.
       Although some of the contacts favor Texas, the greater contacts—both in
number and quality—favor Oklahoma. The bankers signed their agreements
in Oklahoma, but the final signatures were affixed in the Lone Star State.
That makes Texas the place of contracting. See Restatement §188, cmt. e
(“[T]he place of contracting is the place where occurred the last act necessary .
. . to give the contract binding effect . . . .”).          It is also where Prosperity
maintains its headquarters.           Prosperity’s home in Texas is cancelled out,
however, by the bankers’ residence in Oklahoma. And the remaining factors
that favor Oklahoma are more than enough to overcome the execution of the
contract in Texas.        Most of the negotiations took place in Oklahoma. The
bankers discussed the terms with F&M executives in Oklahoma and did not



       9 Section 188(2) says that these are the “contacts to be taken into account in applying
the principles of § 6.” DeSantis and Drennen appear to read this as indicating that these
contacts provide a more specific application of the general Section 6 considerations in this
context, and thus both addressed only the Section 188 contacts. DeSantis, 793 S.W.2d at
678–79 & n.2; Drennen, 452 S.W.3d at 326. Following those cases, both parties argue only
the Section 188(2) contacts. Some intermediate Texas courts, however, have separately
evaluated the Section 188(2) contacts and Section 6 factors. See, e.g., Chesapeake Operating,
Inc. v. Nabors Drilling USA, Inc., 94 S.W.3d 163, 170–77 (Tex. App.—Houston [14th Dist.]
2002, no pet.) (noting that in considering the expectations of the parties, the court must “put
aside the parties’ explicit choice of Texas law, but certainly not the rest of their contract”).
Because the parties ask us to consider only the Section 188(2) factors in determining the more
significant relationship, we need not consider whether the Section 6 factors should separately
be considered as in Chesapeake, or whether DeSantis’s and Drennen’s exclusive reliance on
the Section 188(2) contacts prevents us from doing so.
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communicate with any Prosperity employees in Texas. Most significant, the
bankers performed all of their work for F&M (their employer for the first seven
months after the agreements were signed but prior to the effective date of the
merger), and most of their work for Prosperity, in Oklahoma. Cardoni did
handle six Texas accounts and managed the energy lending group in Dallas,
but far more of his and the other bankers’ customers were non-Texans,
including Oklahomans. 10 Indeed, the contracts twice identify Tulsa as the
place of performance. That factor, deemed to be “conclusive in determining
what state’s law is to apply,” carried the day in two Supreme Court of Texas
decisions assessing the “most significant relationship.” DeSantis, 793 S.W.2d
at 679 (citing Restatement § 196) (finding Texas to have more significant
relationship than Florida when Florida employer hired Texas employee to
manage Texas office, even though contract negotiations took place in Florida
and employer supervised employee from Florida); Drennen, 452 S.W.3d at 326
(finding Texas to have more significant relationship than New York when
employer and employee were Texas residents and place of performance was
Texas even though employee previously worked in employer’s New York office
for three years). We thus agree with the district court that Oklahoma has the
more significant relationship with this case and its law would govern absent
the choice-of-law provision. See also Restatement § 188(3) (“If the place of
negotiating the contract and the place of performance are in the same state,
the local law of this state will usually be applied . . . .”).




       10 Prosperity points out that Texas is where loans had to be sent for approval and
where computers systems used by the bankers were located. These Texas contacts, however,
are easily outweighed by the fact that Oklahoma is where the bankers maintained their
offices and conducted the vast majority of their business. See DeSantis, 793 S.W.2d at 679
(holding that the focus is on the “gist” of the agreement, which it found to be the plaintiff’s
work as the manager of the defendant’s Houston office even though supervision was
conducted from Florida).
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                                      B.
      To avoid application of the choice-of-law provision, the bankers must
next show that Oklahoma has a materially greater interest than Texas does in
the question of whether the covenants are enforceable. DeSantis and Drennen
both indicate that Oklahoma has the stronger interest in this issue.          In
DeSantis, Texas and Florida shared an interest in protecting justifiable
expectations of contracting parties, and Florida additionally had a “direct
interest . . . [in] protecting a national business headquartered in that state.”
793 S.W.2d at 679. But these were easily outweighed by Texas’s interest in
DeSantis as a Texas employee, in two businesses operating in Texas, and in
the Texas customers which those businesses hoped to serve.          See id.   In
Drennen, both the employee and employer were Texas residents, which gave
Texas an even stronger interest in the issue affecting actors located within its
borders, and left as the only countervailing consideration the uniformity and
predictability that choice-of-law provisions promote. 452 S.W.3d at 326–27. It
necessarily followed from DeSantis that Texas’s even weightier interests in
Drennen prevailed. Id. at 327 (“Having concluded in DeSantis that Texas had
a materially greater interest in enforcement of the agreement than Florida
when the employer at issue was Floridian, we must conclude that Texas has a
materially greater interest than New York here, where both the employee and
the employer are Texas residents.” (citation omitted)).
      This case, with the employees located in Oklahoma and employer based
in Texas, implicates essentially the same interests as DeSantis, with the
difference that Texas is now on the opposite side of the equation.         It is
Oklahoma that has the interest in the issue because of its impact on employees
residing in its borders, a company (Prosperity) operating in the state, a
competing bank (CrossFirst) headquartered in the state that wants the
services of the employees, and the Oklahoma customers of the competing bank.
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See DeSantis, 793 S.W.2d at 679 (recognizing all these as important state
interests when they favored Texas). On the Texas side of the equation are the
widely recognized interest in enforcing parties’ contractual expectations and
Texas’s interest in enforcing an agreement made by a company based in the
state.        Given the nearly identical alignment of interests in this case and
DeSantis—with Oklahoma taking the place of Texas in having more of the
affected parties within its borders—what argument can be made for reaching
a different result than the Supreme Court of Texas? Prosperity identifies a
discussion in Drennen about Texas’s evolving public policy as it relates to
choice-of-law provisions: 11
         With Texas now hosting many of the world’s largest corporations,
         our public policy has shifted from a patriarchal one in which we
         valued uniform treatment of Texas employees from one employer
         to the next above all else, to one in which we also value the ability
         of a company to maintain uniformity in its employment contracts
         across all employees, whether the individual employees reside in
         Texas or New York. This prevents the “disruption of orderly
         employer-employee relations” within those multistate companies
         and avoids disruption to “competition in the marketplace.”
452 S.W.3d at 329–30 (footnote omitted) (quoting DeSantis, 793 S.W.2d at
680). The problem for Prosperity is that at the “materially greater interest”
stage in Drennen, this uniformity-promoting interest which was shared by both
New York and Texas still lost out to the geographic-based interests of Texas
alone. Id. at 327. Indeed, Prosperity cites no Texas case in which a state’s
interest in a company’s maintaining uniform contracts for multistate
employees has been deemed “materially greater” than a state’s interest in


         Drennen made this pronouncement at the third step of the choice-of-law-inquiry, in
         11

determining whether applying New York law would violate fundamental Texas policy. 452
S.W.3d at 329–30. We agree with Prosperity that we can nonetheless consider it as an
indication of Texas’s current public policy on the importance of enforcing choice-of-law
provisions that promote uniformity. But as discussed infra, we also have to follow how the
Drennen court balanced this interest at the “materially greater interest” stage.
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regulating conduct occurring largely within its borders. On this Erie question,
we are bound to follow the DeSantis balancing which found “little doubt” that
the interests which favored Texas in that case, but favor Oklahoma here, are
weightier. 793 S.W.2d at 679; see also Drennen, 452 S.W.3d at 327 (finding
Texas’s interest in the issue that affects the employer and employee residing
within its borders materially greater than Texas’s and New York’s shared
interest in “protecting the justifiable expectations” of multi-state entities).
                                        C.
      Even though Oklahoma has the more significant relationship with the
parties as well as a greater interest in whether the covenants are enforced, the
parties’ choice of law should stand unless application of the chosen Texas law
would contravene a fundamental policy of Oklahoma.            See DeSantis, 793
S.W.2d at 679. For example, even though the district court found that the first
two inquiries favored Oklahoma, it concluded that application of Texas law to
the nondisclosure provision was not at odds with a fundamental policy of its
neighbor to the north because Oklahoma generally enforces such agreements.
But the court reached a different conclusion as to the noncompetition and
nonsolicitation covenants.
      Reviewing those determinations poses a challenge as neither the
Supreme Court of Texas nor the Restatement has articulated a clear standard
for determining when a policy is “fundamental.” Drennen, 452 S.W.3d at 327;
see also Restatement § 187 cmt. g (“No detailed statement can be made of the
situations where a ‘fundamental’ policy of the state of the otherwise applicable
law will be found to exist.”). Nevertheless, these sources offer some guidance
in their statement that the “application of the law of another state is not
contrary to the fundamental policy of the forum merely because it leads to a
different result than would obtain under the forum’s law.” DeSantis, 793
S.W.2d at 680 (invoking Restatement § 187 cmt. g). And DeSantis explains
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that the general “focus is on whether the law in question is a part of state policy
so fundamental that the courts of the state will refuse to enforce an agreement
contrary to that law, despite the parties’ original intentions, and even though
the agreement would be enforceable in another state connected with the
transaction.” Id.; see also Chesapeake Operating, Inc. v. Nabors Drilling USA,
Inc., 94 S.W.3d 163, 178 (Tex. App.—Houston [14th Dist.] 2002, no pet.) (“The
test is whether the chosen law contravenes a state policy, not the outcome in a
particular case.” (italics in original)).
      Although “fundamental policy” is often an elusive concept, it can be
readily determined that Oklahoma has a clear policy against enforcement of
most noncompetition agreements.         Indeed, the Supreme Court of Texas has
recognized that Oklahoma, along with many other states, has a fundamental
policy on this issue. DeSantis, 793 S.W.2d at 680–81 (citing Fort Smith Paper
Co., Inc. v. Sadler Paper Co., 482 F. Supp. 355, 370 (E.D. Okla. 1979)); see also
Drennen, 452 S.W.3d at 330 n.7 (“[O]ther jurisdictions have held, as we did in
DeSantis, that the application of another state’s law which results in the
enforcement of a non-competition agreement contravenes the forum state’s
fundamental public policy.” (collecting cases from multiple jurisdictions,
including Fort Smith)). Oklahoma’s policy, though having common law origins,
is today codified: “Every contract by which any one is restrained from
exercising a lawful profession, trade or business of any kind, otherwise than as
provided by Sections 218 and 219 of this title . . . is to that extent void.” Okla.
Stat. tit. 15, § 217.   The only exceptions are noncompetition agreements for
sale of goodwill and dissolution of a partnership. See id. §§ 218, 219. Further
indicating its antipathy to noncompetition agreements, Oklahoma law limits
the ability of courts to reform unenforceable covenants. See Bayly, Martin &
Fay, Inc. v. Pickard, 780 P.2d 1168, 1172–75 (Okla. 1989) (holding that
noncompetition agreements cannot be modified judicially if essential elements
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of a contract must be supplied to bring it within the rule of reason); Loewen
Grp. Acquisition Corp. v. Matthews, 12 P.3d 977, 982 (Okla. Civ. App. 2000)
(refusing to judicially modify a “fundamentally flawed” noncompetition
agreement in accordance with Bayly). We thus agree with the district court
that applying Texas law, which takes a more permissive attitude of both
noncompetition agreements and the ability to reform them, would contravene
Oklahoma’s    statutory    aversion   to     noncompetition   agreements.       See
Restatement § 187 cmt. g (“[A] fundamental policy may be embodied in a
statute which makes one or more kinds of contracts illegal or which is designed
to protect a person against the oppressive use of superior bargaining power.”).
      The district court lumped the noncompetition and nonsolicitation
agreements together when it concluded that “Oklahoma has a strong interest
in the application of its law because of that state’s public policy concerning non-
competition agreements.” But the statutes governing restraints of trade that
reflect Oklahoma’s hostility to noncompetition agreements take a different
attitude towards nonsolicitation agreements:
      A person who makes an agreement with an employer, whether in
      writing or verbally, not to compete with the employer after the
      employment relationship has been terminated, shall be permitted
      to engage in the same business as that conducted by the former
      employer or in a similar business as that conducted by the former
      employer as long as the former employee does not directly solicit
      the sale of goods, services or a combination of goods and services
      from the established customers of the former employer.
Okla. Stat. tit. 15 § 219A(A). The “as long as” clause of this statute, which was
a 2001 amendment to the restraint of trade laws, “specifically enable[d]
employers and employees to enter into non-solicitation agreements.”             Jeb
Boatman, Note, As Clear As Mud: The Demise of the Covenant Not to Compete
in Oklahoma, 55 OKLA. L. REV. 491, 501 (2002).           This statute codified a
longstanding distinction Oklahoma courts had drawn between noncompetition

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and nonsolicitation clauses. As early as 1970, the Supreme Court of Oklahoma
upheld an agreement that prevented an insurance salesman from selling
policies to the insureds of his former employer during the two years following
his departure, noting that such an agreement “does not, in any manner or to
any extent whatsoever, restrain the defendant from exercising a lawful
profession, trade, or business . . . either in competition with the plaintiff or
otherwise.” Tatum v. Colonial Life & Accident Ins. Co. of Am., 465. P.2d 448,
451 (Okla. 1970).    Tatum is the beginning of a line of cases permitting
nonsolicitation agreements, which led a study to conclude that “[w]hile
Oklahoma courts historically have been extremely hostile to most type of
employer-employee restrictive covenants, Oklahoma courts have not expressed
this same hostility toward non-solicitation agreements.” Boatman, supra, 55
Okla. L. Rev. at 501 (citation omitted); see id. at 501–02 & n.95 (noting that,
with one exception, “every reported case in which the Oklahoma courts have
upheld a restrictive covenant as reasonable has involved a non-solicitation
clause” (citing cases)). A more recent case observes that enforcing reasonable
nonsolicitation agreements actually promotes important public policy
interests, as it encourages employers to hire workers without fear that the
workers will be able to later lure customers away. See Inergy Propane, LLC v.
Lundy, 219 P.3d 547, 559–60 (Okla. Civ. App. 2008). Oklahoma’s view that
most nonsolicitation agreements are lawful measures that prevent unfair
competition and encourage hiring, whereas noncompetition agreements stifle
competition and prohibit an employee from carrying on a trade, is not an
outlier. The new Restatement of Employment Law includes an illustration
which concludes that “[b]ecause a nonsolicitation covenant would have been
sufficient to address [the employer’s] legitimate interests, the noncompetition




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covenant is unenforceable.” Restatement of Employment Law § 8.06 cmt. c
(illustration 3).
      Although it did not separately assess Oklahoma’s public policy
concerning nonsolicitation agreements, the district court later explained in its
ruling why it believed the parties’ agreement not to solicit would be
unenforceable under Oklahoma law. The relevant statute allows agreements
that prohibit soliciting “the established customers of the former employer.”
Okla. Stat. tit. 15, § 219A.   The Prosperity contract went beyond that in
prohibiting the bankers from soliciting “competing business from customers or
prospective customers of the Bank” if the banker had made contact with the
customer, or had access to the customer’s information, in the preceding 12
months. ROA.910 § 6.3(c) (emphasis added). The agreement also forbids
“indirectly” soliciting Prosperity clients, id., whereas the Oklahoma statute
endorses only bans on “directly” soliciting goods and services, Okla. Stat. tit.
15, § 219A. Recall, however, that applying Texas law to this nonsolicitation
agreement does not violate a fundamental policy of Oklahoma law merely
because applying Texas law might lead to enforcement of a clause that would
be invalid under the nuances of Oklahoma law. See DeSantis, 793 S.W.2d at
680 (“[A]pplication of the law of another state is not contrary to the
fundamental policy of the forum merely because it leads to a different result
than would obtain under the forum’s law.” (invoking Restatement § 187 cmt.
g)). More is needed as choice of law is going to be outcome determinative any
time the parties are debating it.
      We see no indication that Oklahoma’s policy concerning nonsolicitation
agreements rises to the level of a fundamental one that would be violated by
applying the parties’ chosen Texas law to the covenant. Unlike the situation
for covenants not to compete which Texas generally permits and Oklahoma
forbids subject to only two exceptions, both states generally favor
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nonsolicitation agreements. Although the Oklahoma statute that reflects its
policy generally favoring nonsoliciation agreements may not permit
agreements that go as far as the one in this case, enforcing the parties’ bargain
on this issue thus does not offend Oklahoma public policy. Notably, applying
the nonsolicitation clause does not implicate the public policy concerns that
underlie Oklahoma’s hostile view of noncompetition agreements: the interest
in allowing residents of the state to earn a living and the restraint on
competition that follows when Oklahomans are not allowed to do so. See
Tatum, 465 P.2d at 451 (distinguishing between noncompetition and
nonsolicitation provisions on the basis that the former inhibits an employee’s
lawful practice of his profession as well as competition, whereas the latter only
prohibits the employee’s use of certain special information acquired during the
employee’s tenure with his former employer). Even with enforcement of the
nonsoliciation clause, no doubt there remain many potential customers in the
Tulsa area and elsewhere, who never had contact with Prosperity, for the
bankers to solicit. Applying Texas law to the nonsolicitation agreement thus
would not offend a fundamental policy of Oklahoma law given its generally
favorable treatment of such covenants.
                                       IV.
      With respect to the noncompetition agreement for which we have
concluded the choice-of-law provision likely does not govern, Prosperity does
not put all its eggs in the Texas-law basket. It argues that even if Oklahoma
law applies to those clauses, then the provisions are still enforceable under the
“goodwill exception” to the state’s ban on noncompetition agreements. That
exception allows noncompetition covenants of limited geographic scope if
entered into in connection with the sale of the goodwill of a business. Okla.
Stat. tit. 15, § 218.    Prosperity contends that because the bankers were
stockholders, they held goodwill in F&M, and Prosperity purchased that
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goodwill to maintain the business’s value. The district court rejected that
argument, concluding that the banker’s ownership interest—a combined .39%
with no individual owning more than .18% of F&M—was less than the .8%
percentage deemed too “miniscule” to implicate the goodwill exception in
Bayly, 780 P.2d at 1170.
       The district court’s reasoning persuades us at least that Prosperity has
not shown a substantial likelihood of establishing that the noncompetition
agreement qualifies for the goodwill exception, which is the extent of our
review in this appeal. 12 Oklahoma courts have applied the exception to enforce
noncompetition agreements entered into by a stockholder owning 20% of a
company, see Key v. Perkins, 46 P.2d 530, 532 (Okla. 1935) 13, and assented to
by the sole operator of a veterinary practice, Griffin v. Hunt, 268 P.2d 874,
876–77 (Okla. 1954). The stock ownership of the bankers in F&M was too
negligible to fall within the ambit of Key and, although the bankers may have
been important business generators, they certainly did not represent the
entirety of F&M’s goodwill as the Griffin vet did. We are thus not persuaded
that Prosperity is likely to prove that the noncompetition agreement is
enforceable under Oklahoma’s goodwill exception.
                                    *       *        *
       To sum up what we have said thus far: With respect to the
noncompetition covenants, the choice-of-law provision is likely unenforceable,


       12  It is also not clear that the bankers qualify as “one[s] who sell[] the goodwill of a
business.” Okla. Stat. tit. 15, § 218. Like all stockholders, they received cash and Prosperity
stock under the merger agreement. But the most obvious “seller” that would fit within the
goodwill exception is F&M’s parent company. And the bankers’ nonsolicitation agreements
are not part of the merger agreement, but instead contained in separately executed contracts.
Because we are not otherwise convinced that the goodwill exception applies, however, we
need not decide this question.
        13 Although the court in Key did not specify the percentage ownership at issue, it

clarified in Bayly that the “appreciable amount of stock” in Key was 20%. See 780 P.2d at
1170 n.3.
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and the agreement is unlikely to fall within Oklahoma’s goodwill exception to
its ban on noncompetition agreements.            We thus affirm the denial of
Prosperity’s request for an injunction seeking to enforce these clauses because
Prosperity cannot meet the important “substantial likelihood of success” factor.
With respect to the nonsolicitation covenant, however, we conclude that the
choice-of-law provision is likely enforceable. On this issue, we remand to the
district court to permit it to decide in the first instance, with the benefit of full
briefing, whether the agreement is enforceable under Texas law as is, or
pursuant to a modification, and whether the other equitable factors warrant a
preliminary injunction.
                                         V.
      This leaves the nondisclosure agreement, the one issue on which the
district court concluded that it would enforce the choice-of-law provision and
apply Texas law. Although the district court concluded that the nondisclosure
agreement was likely enforceable, it still denied the request for a preliminary
injunction on the ground that Prosperity failed to establish likelihood of
success or irreparable injury because it “only made a speculative showing that
[the bankers] have disclosed or used Prosperity Bank’s confidential
information.”
      Recognizing the difficulty of undoing the district court’s factual finding
under the clearly erroneous standard, Prosperity argues that Texas law
presumes such disclosure under the “inevitable disclosure” doctrine.               It
believes some older decisions invoked that doctrine. See FMC Corp. v. Varco
Int’l, Inc., 677 F.2d 500, 504–05 (5th Cir. 1982) (noting that “Texas has
recognized the need for injunctive relief” when, “[e]ven assuming the best of
good faith,” an employee who has knowledge of a former employer’s
manufacturing process “will have difficulty preventing his knowledge [of those
trade secrets] from infiltrating his work”) (relying on Weed Eater, Inc. v.
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Dowling, 562 S.W.2d 898, 902 (Tex. Civ. App.—Houston [1st Dist.] 1978, writ
ref’d n.r.e.)); see also Rugen v. Interactive Bus. Sys., Inc., 864 S.W.2d 548, 552
(Tex. App.—Dallas 1993, no writ) (rejecting argument that failure to show
misuse of confidential information prevented issuance of injunction because it
was “probable that Rugen will use the information for her benefit”).
      The cases relied upon by Prosperity do not announce a blanket rule
applicable to all nondisclosure provisions. The phrase “inevitable discovery”
appears in none of them. FMC and Weed Eater involved trade secrets about
manufacturing processes in which it would be next to impossible to
manufacture a similar product for a competitor without using the secrets.
FMC, 677 F.2d at 504–05; Weed Eater, 562 S.W.2d at 902. Rugen noted that
it was affirming a trial court injunction finding “probable” disclosure “[u]nder
these circumstances.” 864 S.W.2d at 552; see also Conley v. DSC Commc’ns
Corp., No. 05-98-01051-CV, 1999 WL 89955, at *4 (Tex. App.—Dallas Feb. 24,
1999, no pet.) (rejecting argument that Rugen applied the “inevitable
discovery” doctrine” and instead explaining that the decision involved a factual
finding that such disclosure was “probable”). It is thus not surprising that
more recent Texas case law has rejected the notion of a categorical rule. See
Cardinal Health Staffing Network, Inc. v. Bowen, 106 S.W.3d 230, 242–43 (Tex.
App.—Houston [1st Dist.] 2003, no pet.) (observing that “no Texas case
expressly adopt[s] the inevitable disclosure doctrine” and holding that it need
not decide whether to follow Rugen and Conley’s “modified version of the
doctrine” because the employee produced evidence that “raise[d] a reasonable
inference . . . that disclosure and use [of former employer’s confidential
information] was not probable”); see also M-I, L.L.C. v. Stelly, H-09-cv-01552,
2009 WL 2355498, at *7 (S.D. Tex. July 30, 2009) (stating that “inevitable
disclosure” is not yet the law in Texas, and refusing to order an injunction due
to lack of evidence that former employees “took any confidential information
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with them or that they are using such information” at their new employers);
see also Troy A. Martin, Comment, The Evolution of Trade Secret Law in Texas:
Is It Time to Recognize the Doctrine of Inevitable Disclosure?, 42 S. TEX. L. REV.
1361, 1376 (2001) (concluding that “the functional premise behind the doctrine
itself is clearly at odds with Texas jurisprudence” and noting that “very few
courts in Texas have advanced the theory”).
      On this Erie issue, the district court thus correctly followed the best
indications of prevailing Texas law and made an individualized assessment of
whether disclosure had occurred or was likely to occur in this case. We do not
find clear error in its conclusion and thus affirm the denial of the motion for
injunctive relief.
                                       ***
      AFFIRMED IN PART; REVERSED AND REMANDED IN PART.




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