Olander, et al v. Compass Bank, et al

United States Court of Appeals
Fifth Circuit
F I L E D
April 6, 2004
Charles R. Fulbruge III
Clerk
In the
United States Court of Appeals
for the Fifth Circuit
_______________
m 03-20048
_______________
GARY M. OLANDER,
Plaintiff-Counter Defendant-
Appellee-Cross-Appellant,
WHITNEY NATIONAL BANK,
Intervenor Plaintiff-Appellee-
Cross-Appellant,
VERSUS
COMPASS BANK; COMPASS BANCSHARES, INC.,
Defendants-Counter Claimants-
Appellants-Cross-Appellees.
_________________________
Appeals from the United States District Court
for the Southern District of Texas
_________________________
Before HIGGINBOTHAM, SMITH,
AND WIENER, Circuit Judges.
JERRY E. SMITH, Circuit Judge:
All parties appeal the disposition of a suit

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involving six stock option agreements. The
district court held that Gary Olander owed
Compass Bank (“Compass”) the profits re-
ceived under two of the agreements. On
appeal, Compass argues that it should have
received all the profits. On cross-appeal,
Olander and Whitney Bank (“Whitney”) con-
tend that Olander owed Compass none of the
profits.1 Agreeing with Compass, we affirm in
part, reverse in part, and remand.
I.
Olander worked for Compass from 1988
until his resignation in June 2001, at which
time he was an Executive Vice President in the
real estate lending department.2 Beginning in
1990, he participated in a stock option pro-
gram that took the form of separate, annual
agreements, each providing him with the right
to purchase a certain number of common
shares of Compass stock at a set price. The
option would remain in effect for ten years
after signing the agreement but would cease
immediately3 if Compass terminated Olander
for any reason.
Beginning in 1994, the agreements con-
tained a non-competition clause (“non-com-
pete”) that limited the employee’s ability to
associate with interests perceived to be ad-
verse to Compass. In addition to requiring the
employee to “devote his or her entire time, en-
ergy and skills to the service of the Company”
during the period of employment, the non-
compete imposes restrictions for two years af-
ter termination of employment.4 The non-
compete allows Compass to obtain an injunc-
tion in the event of an actual or threatened
breach. The agreement also contains a
remarkable provision,5 section 8(e):
Employee specifically recognizes and
affirms that [the aforementioned covenants
are] material and important term[s] of this
Agreement[,] and Employee further agrees
that should all or any part or application of
subdivisions (b) or (c) of Section 8 of this
Agreement be held or found invalid or un-
enforceable for any reason whatsoever by a
court of competent jurisdiction in an action
between Employee and the Company,
[Compass] shall be entitled to receive . . .
from Employee all Common Stock held by
Employee . . . . If Employee has sold,
transferred, or otherwise disposed of Com-
mon Stock obtained under this Agreement[,
Compass] shall be entitled to receive from
Employee the difference between the Op-
tion Price paid by Employee and the fair
market value of the Common Stock . . . on
the date of sale, transfer, or other disposi-
tion.
Thus, Compass made the enforceability of the
non-competes a precondition for the stock op-
1 Whitney and Olander also seek attorney’s
fees.
2 Olander served as an at-will employee.
3 If the termination occurred in connection with
a sale of the company or pursuant to a retirement,
the employee would have three months to exercise
his rights.
4 Such restrictions barred an employee from
soliciting existing customers of Compass, enticing
Compass employees to leave their jobs, and di-
vulging trade secrets, customer lists, or other confi-
dential information. The 2000 agreement pur-
ported to eliminate an earlier provision that re-
stricted an employee’s ability to work for a Com-
pass competitor.
5 Compass calls section 8(e) a “restoration pro-
vision,” but Olander refers to it as a “clawback
provision.”

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3
tion to remain in effect. If a court held sec-
tion 8 to be invalid, the employee would return
the shares of stock or the profits arising from
the stock’s sale.
In 2000, Compass amended the non-com-
pete to eliminate a provision that barred an
employee from working for a competitor of
Compass for two years after the end of em-
ployment. The 2000 agreement “supersed-
e[d]” all prior non-compete provisions.6
Olander grew dissatisfied with his job and,
in June 2001, resigned to start work with
Whitney, a direct competitor. Before leaving
Compass, Olander exercised his right to stock
options under the 1994, 1995, 1996, 1997,
2000, and 2001 agreements, then immediately
filed a declaratory judgment action in state
court to have the non-competes from 2000 and
2001 declared unenforceable. Compass re-
moved to federal court in July 2001, based on
diversity jurisdiction, and moved for a prelimi-
nary injunction. Whitney intervened as a plain-
tiff and filed its own declaratory judgment
complaint.
The district court denied a preliminary in-
junction. Olander v. Compass Bank, 172 F.
Supp. 2d 846 (S.D. Tex. 2001). As part of its
ruling, the court found that the non-compete
provisions were unenforceable7 and that, as a
consequence, Compass had little chance of
succeeding on the merits. Id. at 855. This
court upheld the denial of an injunction. Olan-
der v. Compass Bank, No. 01-21151 (5th Cir.
June 3, 2002) (unpublished).8
Compass then filed claims against Olander
for breach of all six non-competes, for reim-
bursement under section 8(e) of the 2000-01
agreements, and for recovery under equitable
theories. Compass also filed a claim against
Whitney for tortious interference with employ-
ment. Olander and Whitney moved for sum-
mary judgment on the matter of the non-com-
petes’ unenforceability.9
6 The “supersede” language appears in section
8(g) of the 2000 Stock Option Agreement: “This
Section 8 supercedes [sic] any provision governing
the Employee’s ability to compete with, or solicit
personnel from, the Corporation and Compass
contained in any stock option agreement between
the Corporation and the Employee entered into as
of a date prior to the date of this Agreement.”
7 The district court’s determination arose from
(continued...)
7(...continued)
three conclusions: (1) the confidentiality portions of
the non-compete did not represent an “otherwise
enforceable agreement,” because Compass did not
provide Olander with any confidential information
at the time the agreement was signed; (2) the stock
options did not “give rise to” Compass’s interest in
restraining Olander’s future behavior; and (3) there
was no evidence that Olander breached the non-
disclosure provisions. Olander, 172 F. Supp. 2d
at 854-56.
8 The panel discussed the requirements of a val-
id non-compete under Texas law by looking to
Light v. Centel Cellular Co., 883 S.W.2d 642
(Tex. 1994), and held that the Compass non-com-
pete was not “ancillary to or part of an otherwise
enforceable contract.” Olander v. Compass Bank,
No. 01-21151, slip. op. at 5. It also ruled that the
district court did not clearly err in holding that
“Compass did not promise to provide confidential
information in the stock option agreement.” Id.
9 Olander and Whitney may have realized that
section 8(e) would effectively nullify the effect of
a victory, because Olander would have to return
profits earned under the agreement. In their reply,
the two asked the district court not to label the
(continued...)

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4
The district court granted summary judg-
ment on three matters, holding (1) that the
2000 and 2001 non-competes were unenforce-
able; (2) that Olander did not breach the non-
solicitation provision of the 2000 agreement
and did not breach the 2000-01 confidentiality
agreements; and (3) that Whitney did not tor-
tiously interfere with Olander’s employment
with Compass. The court also denied, without
prejudice, Olander’s and Whitney’s motions
for attorney’s fees.
A bench trial on the remaining issues fol-
lowed. Compass demanded a return of profits
per section 8(e) of the 2000-01 agreements
and asserted that, because the 2000 agreement
incorporated section 8(e) into the 1994-97
agreements through the “superseding” lan-
guage of section 8(g), Olander owed Compass
the profits from the earlier stock option plan.
Both sides sought attorney’s fees.
The district court held that Olander owed
Compass the profits gained through the 2000
and 2001 agreements.10 It decided, however,
that the word “supersede” in section 8(g) void-
ed rather than replaced the non-competes from
1994-97. Consequently, it denied relief to
Compass on the 1994-97 agreements. It
awarded, pursuant to TEX. CIV. PRAC. & REM.
CODE ANN. § 38.001 (Vernon 2004), partial
attorney’s fees to Compass. Finally, the court
determined that the Texas Declaratory Judg-
ment Act,11 on which Olander and Whitney
relied for attorney’s fees, did not provide a
basis on which it could award fees.
II.
A.
We review a summary judgment de novo.
Frank v. Xerox Corp., 347 F.3d 130, 135 (5th
Cir. 2003). Following a bench trial, we review
findings of fact for clear error and conclusions
of law de novo. Kona Tech. Corp. v. S. Pac.
Transp. Co., 225 F.3d 595, 601 (5th Cir.
2000).
B.
The district court did not err in holding un-
enforceable the non-compete language from
the 2000 and 2001 agreements. As we have
said, the district court, in determining whether
Compass’s non-competes met public policy
requirements, looked to the Texas Supreme
Court’s interpretation of the Covenants not to
Compete Act.12 See Light v. Centel Cellular
Co., 883 S.W.2d 642 (Tex. 1994). In Light,
the court highlighted two requirements that a
non-compete must satisfy before a court will
enforce it: The agreement must “be ancillary
to or part of an otherwise enforceable agree-
ment at the time the agreement is made [, and
must] contain limitations as to time, geograph-
ical area, and scope of activity to be restrained
that are reasonable . . . .” Id. at 644. We
focus on the first requirement.
The district court considered the facts and
language of Light and correctly determined
that the 2000 and 2001 non-competes were
not “ancillary to or part of an otherwise en-
9(...continued)
2000 non-compete as unenforceable but instead to
find that Olander did not violate its terms.
10 The court held that such profits totaled
$57,672.03.
11 TEX. CIV. PRAC. & REM. CODE ANN.
(continued...)
11(...continued)
§ 37.009 (Vernon 2004).
12 TEX. BUS. & COM. CODE ANN. § 15.50
(Vernon 2004).

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forceable agreement as required by Texas
law.”13 As mentioned in Light and in the dis-
trict court’s decisions, Texas law, has been in-
terpreted by its courts to limit restraints on
trade. TEX. BUS. & COM. CODE ANN.
§ 15.05(a) (“Every contract, combination, or
conspiracy in restraint of trade or commerce is
unlawful.”). Section 15.50 of the Texas Busi-
ness and Commerce Code establishes the re-
quirements for a valid non-compete, and Light
has applied those requirements.
A non-compete cannot, on its own, form
the consideration for an agreement. Instead,
the non-compete must be connectedSSmust be
ancillary toSSan already valid agreement. In
making this determination, a court must make
two inquiries: “(1) [I]s there an otherwise en-
forceable agreement, to which (2) the cove-
nant not to compete is ancillary to or a part of
at the time the agreement is made.” Light, 883
S.W.2d at 644.
The parties cannot make illusory promises
to satisfy the requirement of an “otherwise
enforceable agreement.” In an at-will context,
“[c]onsideration for a promise, by either the
employee or the employer[,] cannot be depen-
dent on a period of continued employment.
Such a promise would be illusory, because it
fails to bind the promisor who always retains
the option of discontinuing employment in lieu
of performance.” Id. at 644-45. The presence
of an illusory promise does not destroy the
possibility of a contract. Instead, it may create
a unilateral contract, and “the promisor who
made t he illusory promise can accept [it] by
performance.” Id. at 645 n.6.
Compass’s stock option agreement contains
only illusory promises on the part of the em-
ployer and renders the non-compete unen-
forceable. As an at-will employer, Compass
could terminate Olander for “good cause, bad
cause, or no cause at all.” Montgomery Coun-
ty Hosp. Dist. v. Brown, 965 S.W.2d 501, 502
(Tex. 1998). At the time of termination, the
rights under the stock option agreement would
disappear. Compass claims, as an alternative
argument, that “Olander’s promise not to dis-
close confidential information . . . was an offer
to Compass to enter into a unilateral agree-
ment . . . . Compass accepted that offer when
it provided Olander with confidential informa-
tion . . . .”
Nothing in the record suggests that Com-
pass provided Olander with confidential infor-
mation immediately on signing any of his stock
options. Additionally, the non-disclosure
provisions do not contain express promises on
the part of Compass to provide any informa-
tion to Olander. Instead, only Olander prom-
13 Interestingly, neither party challenges, as a
primary ground for appeal, the summary judgment
ruling on the 2000 and 2001 agreements. Instead,
the litigants attack the unenforceability rulings only
as secondary arguments. Because a ruling on the
2000 language directly affects the panel’s deter-
mination on the 1994-97 agreements, we consider
the general enforceability of the non-compete.
Olander first asserts that the 1994-97 agree-
ments are void and do not trigger, in any fashion,
section 8(e). Alternatively, he claims that the dis-
trict court erred in its construction of the 2000
language, that the non-competes are valid, and that
he did not breach any of the non-competes.
Compass, predictably, argues that all the non-
competes are unenforceable and that it should re-
ceive all the profits received under all of the agree-
ments. Alternatively, it asserts that the district
court erred in its construction of the 2000
language, that the non-competes are valid, and that
Olander breached the provisions.

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ises not to disclose or make use of “any trade
secrets, customer lists, information regarding
customers, or other confidential information.”
Furthermore, the district court noted that
Compass only produced evidence that Olander
could access confidential information. The
court expressly held that Compass failed to
produce ample evidence of Olander’s misuse
of such information. The court also did not
mention whether Compass proved that Olan-
der actually received any information.14 Thus,
Compass failed to produce evidence that it ac-
cepted a unilateral agreement. That agreement
does not constitute an otherwise enforceable
agreement under Light,15 because it was not
valid at the time of the promise.
In the absence of a unilateral promise, the
continued existence of the stock option agree-
ment depends entirely on Olander’s remaining
an employee of Compass, a relationship that
Compass, acting alone, could terminate at any
time. Because this is the essence of an illusory
promise, the district court did not err in hold-
ing that, under Texas law, it could not enforce
the non-competes.
C.
After holding that it could not enforce the
non-competes from 2000 and 2001, the district
court applied section 8(e) and ordered the
return of the profits earned from the two
agreements. During the bench trial, Compass
argued that, through section 8(g), the parties
incorporated into the 1994-97 agreements the
same language that the district court declared
unenforceable.16 Consequently, Compass de-
manded, via section 8(e), the profits earned
under those agreements.
Compass’s claim turns on the meaning of
“supersede.” Section 8(g) states that “[t]his
14 “After months of discovery, Compass has not
identified a single specific instance in which
Olander allegedly used or disclosed a specific piece
or type of confidential information.”
15 Compass also asserts, as an alternative argu-
ment, that Guy Carpenter & Co. v. Provenzale,
334 F.3d 459 (5th Cir. 2003), requires us to find
an otherwise enforceable agreement in the stock
option agreements and to give force to the non-
compete. Guy Carpenter is distinguishable on two
fronts.
First, the Guy Carpenter panel held that a sep-
arate and enforceable agreement existed, because
the parties agreed to a severance package in the
event of an improper termination. Id. at 465.
Olander’s agreement contained no such separate
agreement. Secondly, in Guy Carpenter the em-
ployer explicitly promised to provide confidential
information to the employee. Id. at 466 (“[Em-
ployer’s] promise to provide confidential informa-
tion gives rise to its interest in restraining [the
employee] from competing”). As we have men-
tioned, Compass’s contract contained no explicit
promise or acknowledgment that it would provide
any confidential information to Olander.
(continued...)
15(...continued)
As a further alternative argument, Compass
asks that we certify the question of unilateral con-
tracts to the Texas Supreme Court. Such certifi-
cation, however, “is not a proper avenue to change
our binding precedent.” Hughes v. Tobacco Inst.,
Inc., 278 F.3d 417, 425 (5th Cir. 2001) (internal
quotations and citations omitted). Light controls in
this case.
16 By using the word “supersede,” Olander and
Compass altered their prior agreements with an eye
toward affecting their future use. That is, the
alterations to the 1994-97 agreements would matter
only if and when Olander exercised his stock
options.

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Section 8 supercedes [sic] any provision gov-
erning the Employee’s ability to compete with,
or solicit personnel from [Compass] contained
in any stock option agreement . . . entered into
as of a date prior to the date of this Agree-
ment.” Because the district court used the
language referenced in section 8(e) to hold the
2000-01 non-competes unenforceable, that
language’s incorporation into a prior stock
option agreement would similarly render
unenforceable that agreement’s non-compete.
The district court, however, erred in its ap-
plication of “supersede.” As the court noted,
supersede means “[t]o annul, make void, or
repeal by taking the place of.” BLACK’S LAW
DICTIONARY 1452 (7th ed. 1999). Criminal
courts follow such a meaning with respect to
superseding indictments, and civil courts often
have examples of contracts that supersede pre-
vious agreements.17
Thus, “supersede” carries two elements:
(1) an invalidation of a prior entity; and (2) the
replacement of that entity with another. The
2000 agreement invalidated the non-compete
clauses from the 1994-97 stock option agree-
ments and replaced them with the 2000
language. Such an amendment became rele-
vant when Olander cashed in his stock options.
Interestingly, the district court applied only
the first half of the definition of “supersede”:
“Olander and Compass did not agree to incor-
porate the non-compete provisions of the 2000
Agreement into the prior agreements. Instead,
the parties chose to void the prior versions
. . .” (emphasis added). Something, however,
must take the place of the superseded words.
Instead of replacing the previous language,
the district court eliminated it entirely. Such a
holding runs contrary to the language of the
2000 agreement. Consequently, the district
court erred in its application of “supersede.”
The court correctly held that the 2000-01 lan-
guage was unenforceable and that such unen-
forceability triggered section 8(e)’s restoration
provision, so Olander owes the profits arising
from the 1994-97 agreements.18
III.
As part of their cross-appeal, Olander and
Whitney assert that the district court erred by
not awarding them attorney’s fees. Because
no party has argued against the partial fee
award for Compass, we need only to consider
the denials with respect to Olander and Whit-
ney.19 The denial of attorney’s fees is re-
viewed for abuse of discretion. Mathis v. Ex-
xon Corp., 302 F.3d 448, 461-62 (5th Cir.
2002). In diversity cases, state law governs
the award of fees. See, e.g., McLeod, Alexan-
der, Powel & Apffel, P.C. v. Quarles, 894
F.2d 1482, 1487 (5th Cir. 1990).
In seeking attorney’s fees, the parties relied
17 See, e.g., Millennium Petrochemicals, Inc. v.
Brown & Root Holdings, Inc., 246 F. Supp. 2d
632, 639 (S.D. Tex. 2003) (“It is well established
that a modified contract prevails over the old con-
tract and supercedes [sic] the earlier contract to the
extent of any inconsistencies.”).
18 Compass argues, as another alternative, that
the district court erred in not awarding it Olander’s
profits under equitable theories. Because the
district court erred in its construction of
“supersede,” and because that error provides ample
reason to order a return of all profits to Compass,
we do not address this ground.
19 United States v. Thibodeaux, 211 F.3d 910,
912 (5th Cir. 2000) (stating the general rule that
failure to raise an issue on appeal waives it).

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on two statutes. Compass sought fees pursu-
ant to TEX. CIV. PRAC. & REM. CODE ANN.
§ 38.001 et seq. (Vernon 2004).20 Olander
and Whitney requested fees under the Texas
Declaratory Judgment Act,21 which empowers
a court to “award costs and reasonable and
necessary attorney’s fees as are equitable and
just.” TEX. CIV. PRAC. & REM. CODE ANN.
§ 37.009 (Vernon 2004).
Although Olander and Whitney successful-
lySSbut phyrriclySSrendered the non-competes
unenforceable, this court’s precedent foreclos-
es an award under this statute in a diversity
case. Utica Lloyd’s v. Mitchell, 138 F.3d 208,
210 (5th Cir. 1998) (“[W]e now hold, that a
party may not rely on the Texas DJA to autho-
rize attorney’s fees in a diversity case because
the statute is not substantive law.”).22 Thus,
because Whitney and Olander sought attor-
ney’s fees through an inapplicable statute, the
district court did not err in denying fees.
IV.
The district court correctly held Compass’s
non-compete unenforceable and correctly or-
dered the return of the profits received under
it. The court erred, however, in its interpre-
tation of “supersede” and in its refusal to apply
to the 1994-97 agreements the unenforceabili-
ty ruling regarding the 2000-01 agreements.
Olander owes Compass $224,908, the amount
earned under all six stock option agreements.23
We render judgment in Compass’s favor for
that amount.24 Finally, the court did not err in
denying attorney’s fees to Olander and Whit-
ney.
Consequently, we AFFIRM in part,
REVERSE in part, and REMAND with in-
struction to enter judgment in favor of Com-
pass for $224,908 and to address pre- and
post-judgment interest and any other ancillary
matters, all in accordance with this opinion.
20 Section 38.001 contains the rather broad
statement that “[a] person may recover reasonable
attorney’s fees from an individual or corporation,
in addition to the amount of a valid claim and costs
. . . .” Subsequent sections condition such a grant
on certain actions by the requesting party.
21 Olander also asserts that he should receive
fees under the Texas Covenant Not To Compete
Act, TEX. BUS. & COM. CODE ANN. § 15.51(c)
(Vernon 2004). The district court, however, did
not suggest that Olander properly pleaded anything
related to § 15.51(c), and Olander does not argue
that he previously pleaded this matter. Con-
sequently, Olander did not properly raise the issue
before the district court and cannot do so here.
Nissho-Iwai Am. Corp. v. Kline, 845 F.2d 1300,
1307 (5th Cir. 1988).
22 See also Travelers Indem. Co. v. Citgo Pe-
troleum Corp., 166 F.3d 761, 772 n.13 (5th Cir.
1999) (stating that Utica Lloyd’s “is not a depar-
ture from the prior law of this Circuit, but is in-
stead a logical application of previously stated
(continued...)
22(...continued)
principles.”).
23 Olander testified that he profited $224,908 by
exercising his six stock options.
24 The district court apparently erred in its ori-
ginal calculation of damages for the 2000 and 2001
agreements. We remedy any such defect by
ordering a return of all profits received under all
six agreements.

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