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Appeals Court Reverses Non-Compete Trade Area Case Based On Harper’s Testimony

Court of Appeals Reverses $21 Million Trial Outcome Based on Rhonda Harper's Testimony

Trade Area Non-Compete Was Unreasonable, Says Harper

Ortega sued Abel for breach of a covenant not to compete, tortious interference with the covenant, and conspiracy to interfere with and conceal the breach of the covenant. (No 01-16-00415-cv - Court of Appeals For The First District of Texas, Decided August 23, 2018).

Ortega owns two chains of grocery stores, in total, he owns 150 stores throughout Texas and Oklahoma. These grocery stores primarily target Hispanic customers. By the time of trial, there were over 70 La Michoacana and El Ahorro stores in Houston, Texas.

In 2007, Ortega agreed to purchase from Abel five Hispanic grocery stores, called Mi Rancho. Four of the stores were located in Houston. The fifth was located in Carrolton, Texas. As part of the agreement, Abel signed a non-competition agreement that stated for a 15-year period, he would not own or operate a Hispanic themed grocery store within 10 miles of the 5 stores he sold, any La Michoacana or El Ahorro operating at the time of the agreement, or any La Michoacana or El Ahorro operating at the time.

In late 2012, Ortega sued Abel for breach of the covenant not to compete. Ortega accused Abel of operating four competing Hispanic-themed grocery stores: one in Irving, Texas; one in Oklahoma City, Oklahoma; one in Houston, Texas; and one in Pasadena, Texas. At the end of the trial, the jury found in favor of Ortega and awarded damages, including punitive damages.

On appeal, however, the court reversed the decision of the lower court, stating, "We hold there is legally and factually sufficient evidence to support the trial court's determination that the geographical area restricted in the original covenant not to compete was not reasonable and imposed a greater restraint than was necessary to protect Ortega's goodwill and other business interests. Mann Frankfort Stein & Lipp Advisors, Inc. v. Fielding, 289 S.W.3d 844, 848 (Tex. 2009) (holding whether covenant not to compete is enforceable as written is question of law for courts).

In the opinion the Court bases their decision on Ms. Rhonda Harper's testimony. Harper testified, in part, that a 10-mile radius was not reasonable the trade area is beyond what is necessary financially to support a grocery store based on poplation and that consumers don't drive that far to go to a grocery store. Regarding goodwill, Harper testified that once a grocery store changes its name and management team, much of the existing goodwill is lost.