The Fifth District Court of Appeals in Dallas has ruled in an interlocutory appeal that a lower court committed error when it denied a company’s motion to compel arbitration.  In Phytel, Inc. v. Smiley, No. 05-12-00607-CV, (Tex. App.–Dallas Apr. 5, 2013, no. pet. h.), James Smiley was a former Chief Executive Officer at Phytel, Inc.  As part of his employment agreement, Smiley signed a contract that contained a restrictive covenant which prevented him from engaging in business that competed with Phytel.  When Smiley was terminated, he signed a separation agreement that referred to the restrictive covenant and contained an arbitration clause.  Later, Smiley entered into a stock repurchase contract with Phytel that amended the covenant not to compete, reaffirmed Smiley’s obligations under the second contract, and did not contain an agreement to arbitrate.

Approximately three years later, Smiley sought a declaratory judgment in district court stating the restrictive covenant not to compete was unenforceable.  Phytel responded by filing a motion to compel arbitration.  After the lower court denied Phytel’s motion, the company filed an interlocutory appeal with the Fifth District Court of Appeals in Dallas.

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Tags: Dallas Appeals Court Compels Arbitration, Fifth District Court of Appeals, James Smiley, Phytel