LTCPRO v. Johnson.
2024 COA 123. No. 24CA0321. Contracts—Effect of Integrated Agreement on Prior Agreements—Noncompetition Agreement—Merger Clause—Parol Evidence Rule—Preliminary Injunction.
November 21, 2024
Johnson was employed as an investment advisor, assisted by co-employee Forrest, for LTCPRO, LLC, d/b/a Federal Benefits Made Simple (FBMS). Buck Enterprises Inc. (Buck) later acquired FBMS, and in connection with the acquisition, Johnson and Forrest each signed noncompetition agreements. The noncompetition agreements included a merger clause providing that it supersedes all prior agreements. On the same day that he signed the noncompetition agreement, Johnson also signed an investment advisor agreement (2021 IAA) that set forth some terms of his employment as an investment advisor and contained a merger clause. In 2023, Johnson entered into a new investment advisor agreement (2023 IAA) that was substantively identical to the 2021 IAA, including its merger clause. Later in 2023, Johnson and Forrest resigned from FBMS on the same day. Allegedly, Johnson began to solicit FBMS clients almost immediately after his resignation, and he indicated that he intended to open a branch office for his new company—where Forrest also intended to work—close to an FBMS office. Several days later, Buck sought a preliminary injunction against Johnson and Forrest based on alleged breaches of their noncompete agreements. The district court concluded that the 2023 IAA was controlling and that it clearly states that it supersedes the 2021 contract, including its noncompete clauses. The court thus found that plaintiffs failed to show a reasonable probability of success on the merits, and it denied plaintiffs’ motion for a preliminary injunction. The court then considered the preliminary injunction factors, noting that while there could be harm, it was “not enough to meet the factors and the controlling contract.”
On appeal, plaintiffs argued that the district court erred by concluding that the 2023 IAA supersedes the noncompetition agreements because the court erroneously failed to consider whether the noncompetition agreements were within the scope of the 2023 IAA, and they were not. First, the district court’s conclusion that the 2023 IAA superseded Forrest’s noncompetition agreement is incorrect because Forrest is not a party to the 2023 IAA. As to whether the 2023 IAA superseded Johnson’s noncompetition agreement, the court of appeals followed the Restatement (Second) of Contracts § 213(2) to hold that without unambiguous contractual language to the contrary, a completely integrated contract discharges previous agreements only to the extent that they are within its scope. In determining whether a prior contract is within the scope of an integrated contract, a court must consider all relevant evidence and the interpretation of both contracts. Here, the district court erred by looking only to the 2023 IAA merger clause—which was ambiguous—without considering whether the noncompetition agreement was within the scope of the 2023 IAA, as well as other relevant evidence, such as the parties’ intent.
Plaintiffs also argued that the district court abused its discretion by excluding testimony from Buck about the 2021 IAA’s purpose. Given the ambiguity in the language of the 2023 IAA merger clause, Buck’s testimony about the purpose of the 2021 IAA could have been relevant to whether the parties intended the two agreements to coexist.
The court declined to rule on the ultimate issue of plaintiffs’ entitlement to a preliminary injunction because the district court did not rule in the first instance on their arguments, which may be addressed on remand.
Lastly, because the court ruled in plaintiffs’ favor, it denied defendants’ request for an award of appellate attorney fees and costs under C.A.R. 38(b).
The order denying plaintiffs’ motion for preliminary injunction was reversed. The case was remanded for further consideration of whether Johnson’s noncompetition agreement is within the scope of the 2023 IAA such that it is superseded and whether plaintiffs are entitled to a preliminary injunction.