Thursday, February 28, 2013

Attorneys' fees in Tortious Interference Suits

Can attorneys’ fees be recovered on a claim for tortious interference?

Generally in current litigation, attorneys’ fees are not recoverable on tort claims and are typically only recoverable if provided for by statute or in a contract.  Also generally, unless provided for by statute or by contract of the parties, attorneys’ fees incurred by a party in older litigation are not recoverable against the present adversary in new, current litigation.  However, at least one Texas appellate court has recognized an equitable exception to this general rule for lawsuits based on tortious interference.  See Texas Beef Cattle Co. v. Green, 883 S.W.2d 415, 430 (Tex. App.  – Beaumont 1994) rev'd on other grounds, 921 S.W.2d 203 (Tex. 1996).  In this case, the Beaumont court of appeals held that necessary and reasonable attorneys' fees and costs even though expended and incurred in previous litigation can be recovered as proper damages in a later suit based on tortious interference of contract if the natural and proximate results and consequences of prior wrongful acts had been to involve the plaintiff in litigation with and against third parties and other parties.

Tuesday, February 26, 2013

Employee's Personal Liability for Tortious Interference

Can a corporate officer be personally liable for tortious interference for his or her acts on behalf of the corporation?

It has long been the law in Texas that "a corporate agent is personally liable for his own fraudulent or tortious acts."  Miller v. Keyser, 90 S.W.3d 712, 717 (Tex. 2002).  If a corporate agent directs or participates in a tort during his employment, he faces personal liability for the tortious act. Leyendecker & Assocs., Inc. v. Wechter, 683 S.W.2d 369, 375 (Tex. 1984).  Therefore, regardless of whether the person performed the tortious acts in his or her capacity as an officer, he or she can still face personal liability for those acts.  See Leyendecker & Assocs., Inc. v. Wechter, 683 S.W.2d 369, 375 (Tex. 1984).

Proof Needed for Tortious Interference with a Prospective Contract

What must one prove for a claim of tortious interference with a prospective contract?

To prove a cause of action for tortious interference with a prospective contract, a claimant must establish the following elements: "(1) a reasonable probability that the parties would have entered into a business relationship; (2) an intentional, malicious intervention or an independently tortious or unlawful act performed by the defendant with a conscious desire to prevent the relationship from occurring or with knowledge that the interference was certain or substantially likely to occur as a result of its conduct; (3) a lack of privilege or justification for the defendant's actions; and (4) actual harm or damages suffered by the plaintiff as a result of the defendant's interference, i.e., the defendant's actions prevented the relationship from occurring."  Tex. Integrated Conveyor Sys., Inc. v. Innovative Conveyor Concepts, Inc., 300 S.W.3d 348, 367 (Tex. App. – Dallas 2009, pet. denied);  Anderton v. Cawley, 378 S.W.3d 38, 48 (Tex. App. – Dallas 2012, no pet.).

Duty of Discharged Employee to Mitigate Damages

Discharged employee’s duty to mitigate damages.

The general rule as to mitigation of damages in breach of employment suits is that the discharged employee must use reasonable diligence to mitigate damages by seeking other employment.  The correct measure of damages for wrongful discharge of an employee is the present cash value of the contract if it had not been breached, less any amounts that the employee should in the exercise of reasonable diligence be able to earn through other employment.  See Gulf Consol. Int'l, Inc. v. Murphy, 658 S.W.2d 565, 565-66 (Tex. 1983).

Monday, February 25, 2013

Texas is an at-will Employment State

What is meant by “at-will” employment?

Texas is an at-will employment state, meaning that employers generally may terminate their employees at any time, for any or no reason, without incurring  liability under Texas law, unless they have contractually agreed otherwise.  See E. Line & R.R.R. Co. v. Scott, 72 Tex. 70, 10 S.W. 99, 102 (Tex. 1888) (adopting at-will employment doctrine); see also Montgomery Cnty. Hosp. Dist. v. Brown, 965 S.W.2d 501, 502 (Tex. 1998) (“For well over a century, the general rule in this State, as in most American jurisdictions, has been that absent a specific agreement to the contrary, employment may be terminated by the employer or the employee at will, for good cause, bad cause, or no cause at all.”); Sabine Pilot Serv., Inc. v. Hauck, 687 S.W.2d 733, 734-35 (Tex. 1985) (noting certain statutory exceptions to general rule). In Sabine Pilot, the Texas Supreme Court judicially crafted a “very narrow exception” to this general rule, recognizing a cause of action against an employer that discharges its employee “for the sole reason that the employee refused to perform an illegal act.” Sabine Pilot Serv., Inc. v. Hauck, 687 S.W.2d 733, 735 (Tex. 1985).

Generally, No Recovery of Mental Anguish on a Tortious Interference with Contract Claim

Can mental anguish damages be recovered on a claim for tortious interference with a contract?

Generally, mental anguish damages are not recoverable on a claim for tortious interference with a contract.  This is because the measure of actual damages for tortious interference with a contract is the same as the measure of damages for breach of the interfered-with contract, and mental anguish damages generally are not available for breach  of a contract.  Mental anguish damages are available in "a very limited number of contracts dealing with intensely emotional noncommercial subjects such as preparing a corpse for burial or delivering news of a family emergency."  See City of Tyler v. Likes, 962 S.W.2d 489, 496 (Tex. 1997).

Tortious Interference with Property Rights

Claims for tortious interference are not limited to interference with contract rights.

“Any intentional invasion of, or interference with, property, property rights, personal rights or personal liberties causing injury without just cause or excuse is an actionable tort.”  See King v. Acker, 725 S.W.2d 750, 754 (Tex. App. – Houston [1st Dist.] 1987, no pet.).  A cause of action for tortious interference with the peaceful use and enjoyment of property is a claim for intentional interference with property rights. See Ski River Dev., Inc. v. McCalla, 167 S.W.3d 121, 140 (Tex. App.—Waco 2005, pet. denied).

Sunday, February 24, 2013

Tortious Interference with the Employer-Employee Relationship

Can an employer claim someone else tortiously interfered with the at will relationship between the employer and his employees?  

It is well settled that a cause of action exists for tortious interference with an employment relationship terminable at will.  See Sterner v. Marathon Oil Co., 767 S.W.2d 686, 689 (Tex. 1989).

Legal Justification or Privilege as a Defense to Tortious Interference Claims

Justification or excuse is an affirmative defense to a tortious interference claim.

Legal justification or privilege is an affirmative defense to tortious interference with contract.  "The party asserting this privilege does not deny the interference but rather seeks to avoid liability based upon a claimed interest that is being impaired or destroyed by the plaintiff's contract."  Under this defense, "one is privileged to interfere with another's contract (1) if it is done in a bona fide exercise of his own rights, or (2) if he has an equal or superior right in the subject matter to that of the other party."  See Sterner v. Marathon Oil Co., 767 S.W.2d 686, 689-91 (Tex. 1989).

Proving Tortious Interference with an Existing Contract

What must a plaintiff prove when claiming tortious interference with an existing contract?

To recover for a tortious interference with an existing contract, a plaintiff must prove: (1) the existence of a contract subject to interference; (2) a willful and intentional act of interference; (3) that the act was a proximate cause of the plaintiff's damages; and (4) actual damage or loss.  See Butnaru v. Ford Motor Co., 84 S.W.3d 198, 207 (Tex. 2002).  Proximate cause is that cause which in a natural and continuous sequence, unbroken by any new and independent cause, produces the injury and without which the injury would not have occurred.  See Phoenix Refining Co. v. Tips, 125 Tex. 69, 81 S.W.2d 60, 61 (Tex. 1935); see also Cook Consultants, Inc. v. Larson, 700 S.W.2d 231, 236 (Tex. App. – Dallas 1985, writ ref'd n.r.e.).  “To show proximate cause, a plaintiff must allege that 'the defendant took an active part in persuading a party to a contract to breach it.  Merely entering into a contract with a party with the knowledge of that party's contractual obligations to someone else is not the same as inducing a breach.  It is necessary that there be some act of interference or of persuading a party to breach, for example by offering better terms or other incentives, for tort liability to arise.”  M-I LLC v. Stelly, 733 F. Supp. 2d 759, 775 (S.D. Tex. 2010).  A plaintiff is not limited to showing the contract was actually breached.  Any interference that makes performance more burdensome or difficult or of less or no value to the one entitled to performance is actionable.  See Khan v. GBAK Props, Inc., 371 S.W.3d 347, 359-60 (Tex. App. – Houston [1st Dist.] 2012, no pet.).

Availablity of Mandamus

When is mandamus available?

Mandamus will issue to correct a discovery order if the order constitutes a clear abuse of discretion and there is no adequate remedy by appeal.  In re Colonial Pipeline Co., 968 S.W.2d 938, 941 (Tex. 1998).  Mandamus relief may be justified when: (1) the appellate court would not be able to cure the trial court's discovery error, such as when privileged information or trade secrets would be revealed or production of patently irrelevant or duplicative documents imposing a disproportionate burden on the producing party is ordered; (2) the party's ability to present a viable claim or defense is severely compromised or vitiated by the erroneous discovery ruling to the extent that it is effectively denied the ability to develop the merits of its case; or (3) the trial court's discovery order disallows discovery that cannot be made a part of the appellate record, thereby denying the reviewing court the ability to evaluate the effect of the trial court's error.  In re Colonial Pipeline Co., 968 S.W.2d 938, 941 (Tex. 1998)(citing Walker v. Packer, 827 S.W.2d 833, 843-44 (Tex. 1992)).  A trial court abuses its discretion if it reaches a decision so arbitrary and unreasonable as to amount to a clear and prejudicial error of law, or if it clearly fails to analyze or apply the law correctly.  In re Cerberus Capital Mgmt., L.P., 164 S.W.3d 379, 382 (Tex. 2005).

Writ of Mandamus

What is mandamus?

A writ of mandamus is an extraordinary remedy that allows an appellate court to review a ruling made by a trial court even though the trial court has not yet made a final judgment in the case and a normal appellate remedy is not available.  See, e.g., Johnson v. Fourth Court of Appeals, 700 S.W.2d 916, 917 (Tex. 1985); see also Walker v. Packer, 827 S.W.2d 833, 840 (Tex. 1992).

Recovery of Attorneys' Fees for Theft of Trade Secrets

Can attorneys’ fees be recovered on a misappropriation of trade secrets claim?

The Texas Theft Liability Act imposes civil liability for, among other actions, “unlawfully appropriating property” as described by Texas Penal Code section 31.05.  See  Tex. Civ. Prac. & Rem. Code Ann. §§ 134.002(2), 134.003.  Under penal code section 31.05(b), a person commits theft of trade secrets if, without the trade-secret owner's consent, he knowingly: (1) steals a trade secret; (2) copies an article representing a trade secret; or (3) communicates or transmits a trade secret.  Tex. Penal Code Ann. § 31.05(b) (2013).  A person who sustains damages resulting from the unlawful appropriation of property under section 31.05 may recover actual damages, as well as additional damages not to exceed $1,000 and attorney's fees.  Tex. Civ. Prac. & Rem. Code Ann. § 134.005.  See also Twister B.V. v. Newton Research Partners, LP, 364 S.W.3d 428, 440 (Tex. App. –  Dallas 2012).

Saturday, February 23, 2013

Injunctions to Protect Trade Secrets

Can a Court Issue an Injunction to Protect Trade Secrets?

The improper use of trade secrets provides a proper basis for an injunction; however, every order granting an injunction must be specific in its terms and describe in reasonable detail the  act or acts to be restrained.  In a case involving trade secrets or confidential information, the injunction must be narrowly tailored to address the improper use of confidential or proprietary information.  Further, the injunction must not be framed so broadly as to prohibit the enjoyment of lawful rights.  Sw. Research Inst. v. Keraplast Tech., Ltd., 103 S.W.3d 478, 482 (Tex. App. – San Antonio 2003, no pet.); see also Tex. R. Civ. P. 683.

Employees and Use of Trade Secrets

Can an employee use his employer’s trade secrets for his own benefit?

Upon the formation of an employment relationship, certain duties arise apart from any written contract.  One of those duties forbids an employee from using trade secret information acquired during the employment relationship in a manner adverse to the employer.  Miller Paper Co. v. Roberts Paper Co., 901 S.W.2d 593, 600 (Tex. App.-Amarillo 1995, no writ).

Proof of a Misappropriation of Trade Secrets Claim

What must a plaintiff prove to establish a claim for misappropriation of trade secrets?

To establish a claim for misappropriation of trade secrets, a plaintiff is required to establish (1) a trade secret existed; (2) the trade secret was acquired through a breach of a confidential relationship or was discovered by improper means; (3) the defendant used the trade secret without the plaintiff’s  authorization; and (4) the plaintiff suffered damages as a result.  See Tex. Integrated Conveyor Sys., Inc. v. Innovative Conveyor Concepts, Inc., 300 S.W.3d 348, 366-67 (Tex. App. – Dallas 2009, pet. denied).  A person is liable for disclosure of a trade secret if he either (1) discovers the secret through improper means or (2) his disclosure and use, after properly acquiring knowledge of the secret, constitutes a breach of the confidence reposed to him.  Hyde Corp. v. Huffines, 158 Tex. 566, 314 S.W.2d 763, 778 (Tex. 1958).  “Use of the trade secret” means commercial use by which the offending party seeks to profit from the use of the secret.  See Global Water Group, Inc. v. Atchley, 244 S.W.3d 924, 928 (Tex. App. – Dallas 2008, pet. denied).

Appeal of Overly Broad Discovery Orders

Is a court’s order that compels overly broad discovery appealable?

"An order that compels overly broad discovery is an abuse of discretion for which mandamus is the proper remedy."  In re Deere & Co., 299 S.W.3d 819, 820 (Tex. 2009) (orig. proceeding). An overbroad request is improper regardless of whether it is burdensome. In re Allstate Cnty. Mut. Ins. Co., 227 S.W.3d 667, 670 (Tex. 2007) (orig. proceeding).  A discovery request is "overbroad" when it encompasses "time periods, products, or activities beyond those at issue in the case" and, therefore, is not "reasonably tailored to include only relevant matters."  In re Alford Chevrolet-Geo, 997 S.W.2d 173, 180 n.1 (Tex. 1999) (orig. proceeding); see also Deere & Co., 299 S.W.3d at 820;  In re Graco Children's Prods., 210 S.W.3d 598, 600 (Tex. 2006) (orig. proceeding).

Discovery of Trade Secrets

Assertion of the trade secret privilege.

The party resisting discovery must establish that the information is a trade secret.  The burden then shifts to the requesting party to establish that the information is necessary for a fair adjudication of its claims. If the requesting party meets this burden, the trial court should ordinarily compel disclosure of the information, subject to an appropriate protective order.  See In re Cont'l Gen. Tire, 979 S.W.2d 609, 613 (Tex. 1998).

Trade Secrets are Privileged

Trade Secrets Are Accorded Evidentiary Privilege.

Rule 507 Trade Secrets.  A person has a privilege, which may be claimed by the person or the person's agent or employee, to refuse to disclose and to prevent other persons from disclosing a trade secret owned by the person, if the allowance of the privilege will not tend to conceal fraud or otherwise work injustice. When disclosure is directed, the judge shall take such protective measure as the interests of the holder of the privilege and of the parties and the furtherance of justice may require.  Tex. R. Evid.  507 (2012).

Trade Secrets versus Other Types of Protected Intellectual Property

What are some ways that trade secrets differ from other types of protected intellectual property?

To qualify as a trade secret, the information must be secret and have value to the owner's trade or business.  A trade secret cannot be a matter of general knowledge in an industry.   Absolute secrecy, though, is not required, but the owner must take “reasonable precautions to ensure its secrecy.” See Phillips v. Frey, 20 F.3d 623, 630 (5th Cir. 1994).  While other forms of intellectual property protections (patents, copyrights, and trade dress) protect intellectual property that has become public knowledge, an owner of a trade secret is only protected from wrongful disclosure of the trade secret.  The law provides, "[O]ne who either discloses or uses another's trade secret, without a privilege to do so, is liable for such disclosure or use if the disclosure or use constitutes a breach of confidence reposed in the party disclosing or using the trade secret by the owner of the trade secret." See IBP, Inc. v. Klumpe, 101 S.W.3d 461, 472 (Tex. App.—Amarillo 2001, pet. denied) ("To be actionable, the disclosure or use of the trade secret ordinarily must be to the competitive disadvantage of the owner of the trade secret."). See In re Waste Mgmt. of Tex., Inc., 286 S.W.3d 615, 2009 Tex. App. LEXIS 3671 (Tex. App. Texarkana 2009).  Unlike the case of copyright infringement, one need not make an exact or nearly exact copy of an algorithm or a compilation of information to be liable for trade secret misappropriation in connection with the misappropriation of the essence of the algorithm.  Nor do each of the steps of a process that is protected as a trade secret have to be novel or previously unknown.  See Restatement of Torts § 757, cmt. b (1939);  see also E.I. DuPont de Nemours & Co. v. Christopher, 431 F.2d 1012, 1014 (5th Cir. 1970).  The value of the trade secret comes from the fact that competitors do not possess the information embodied in the trade secret, which gives the holder a potential business advantage.

Appellate Review of Orders Compelling Disclosure of Trade Secrets

Is a court’s order compelling the discovery of trade secrets appealable?

Yes.  Because improper disclosure of a trade secret cannot be adequately remedied on appeal, mandamus relief is appropriate.  See In re Union Pac. R.R. Co., 294 S.W.3d 589, 593 (Tex. 2009)(orig. proceeding).

Thursday, February 21, 2013

What is a trade secret?

What type of information does Texas law regard as “trade secrets”?

A trade secret is any "formula, pattern, device or compilation of information" that is "used in one's business and presents an opportunity to obtain an advantage over competitors who do not know or use it."  In re Bass, 113 S.W.3d 735, 739 (Tex. 2003).  Customer lists, pricing information, client information, customer preferences, buyer contacts, blueprints, market strategies, and drawings have all been recognized as trade secrets.  T-N-T Motorsports, Inc. v. Hennessey Motorsports, Inc., 965 S.W.2d 18, 22 (Tex. App.—Houston [1st Dist.] 1998, pet. dism'd).  To qualify as a trade secret, the information must be secret and have value to the owner's trade or business.  A trade secret cannot be a matter of general knowledge in an industry.  Absolute secrecy, though, is not required, the owner must take reasonable precautions to ensure its secrecy.  To determine whether information is a trade secret, Texas courts consider the following six-factor test:  (1) the extent to which the information is known outside of the business; (2) the extent to which it is known by employees and others involved in the business; (3) the extent of measures taken to guard the secrecy of the information; (4) the value of the information to the business and to its competitors; (5) the amount of effort or money expended in developing the information; and (6) the ease or difficulty with which the information could be properly acquired or duplicated by others.  See, e.g., In re Union Pac. R.R. Co., 294 S.W.3d 589, 593 (Tex. 2009)(orig. proceeding).  However, the party claiming a trade secret is not required to satisfy all six factors "because trade secrets do not fit neatly into each factor every time."  In re Bass, 113 S.W.3d 735, 740 (Tex. 2003).  Whether a trade secret exists is usually a question of fact to be determined by a factfinder.  See General Universal Systems, Inc. v. Lee, 379 F.3d 131, 150 (5th Cir. 2004).

Statute of Limitations for Tortious Interference with Existing Contract

If someone tortiously interferes with a contract that I am a party to, is there a limited time within which I must file a lawsuit?

Yes.  As a general principle of Texas law, tortious interference with an existing contract has a two-year limitations period.  See First Nat'l Bank of Eagle Pass v. Levine, 721 S.W.2d 287, 289 (Tex. 1986); see also Khan v. GBAK Props., Inc., 371 S.W.3d 347, 356 (Tex. App. – Houston [1st Dist.] 2012, no pet.).

Statute of Limitations for Misappropriation of Trade Secrets

If someone misappropriates my trade secrets, is there a limited time within which I must file a lawsuit?

Yes.  “A person must bring suit for misappropriation of trade secrets not later than three years after the misappropriation is discovered or by the exercise of reasonable diligence should have been discovered.”  See Tex. Civ. Prac. & Rem. Code § 16.010(a) (O’Connor’s CPRC Plus 2012-13);  see also Pressure Sys. Int'l, Inc. v. Southwest Research Inst., 350 S.W.3d 212, 216 (Tex. App. – San Antonio 2011, pet. denied).

Wednesday, February 20, 2013

Texas Statute of Limitations for Breach of Contract Claims

If someone breaches his or her contract, is there a limited time within which the non-breaching party must file a lawsuit?

Yes.  As a general principle of Texas law, the statute of limitations on a claim for debt based on breach of contract is four years from the time the cause of action accrues.[1]

1. See Tex. Civ. Prac. & Rem. Code § 16.004(a) (O’Connor’s CPRC Plus 2012-13); see also Williams v. Unifund CCR Partners, 264 S.W.3d 231, 234 (Tex. App.—Houston [1st Dist.] 2008, no pet.).