Statute of limitations for claims under the Copyright Act
What is the limitations period for claims under the Copyright Act?
Copyright Act claims have a three year limitations period, beginning when an infringing act accrues. However, when a defendant has committed successive violations, the separate-accrual rule accompanying the Copyright Act states that each infringing act starts a new limitation period. Each infringement, however, is actionable only within three years of its occurrence. See Petrella v. Metro-Goldwyn-Mayer, Inc., 134 S.Ct. 1962 (2014).
Limitations periods for trademark infringement
I own a business in Texas, and two years ago I discovered that someone else was using my trademark. Is it too late for me to take legal action in Texas?
Probably not. The Lanham Act (15 U.S.C. §§1125 et seq.) creates a civil claim for trademark infringement. Since the Lanham Act does not contain a specific statute of limitations period, the courts look to state law to determine the appropriate statute of limitations. Federal courts have typically dealt with this issue by applying the state’s limitations period for fraud claims to claims under the Lanham Act. Texas is no different. In Texas, the four year statute of limitations for fraud claims (Tex. Civ. Prac. & Rem. Code §16.004) is applied to claims under the Lanham Act. See Tinker, Inc. v. Poteet, 2017 WL 4351304 at *6 (N.D. Tex. Sept. 30, 2017). This four year period begins when a plaintiff discovers the fraud or could have discovered the fraud by the exercise of reasonable diligence. See Tinker, Inc. v. Poteet, 2017 WL 4351304 at *6 (N.D. Tex. Sept. 30, 2017) citing S.V. v. R.V., 933 S.W.2d 1, 35 (Tex. 1996). Since you discovered this infringement only two years ago, the statute of limitations for your claims under the Lanham Act may not yet have expired. You may also have claims under the common law. The statute of limitations will depend on the type of claim you have. For trademark-infringement claims, the statute of limitations is four years while the statute of limitations for unfair-competition claims based on trademark infringement is two years. See Springboards to Education, Inc. v. Scholastic Book Fairs, Inc., 2018 WL 1806500 at *7 (N.D. Tex. April 17,2018) citing Derrick Mfg. Corp. v. Sw. Wire Cloth, Inc., 934 F. Supp. 796, 804-06 (S.D. Tex. 1996) (citing Tex. Civ. Prac. & Rem. Code § 16.003-.004). Unlike claims under the Lanham Act, in which the statute of limitations period begins when a plaintiff discovers or should have discovered the fraud, the statute of limitations period for common-law trademark claims does not accrue until the allegedly wrongful conduct ends. This is because Texas law treats common law trademark-infringement as a continuing tort. See Springboards to Education, Inc. v. Scholastic Book Fairs, Inc., 2018 WL 1806500 at *7 (N.D. Tex. April 17,2018) citing Horseshoe Bay Resort Sales Co. v. Lake Lyndon B. Johnson Imp. Corp., 53 S.W.3d 799, 812 (Tex. App. – Austin 2001, pet. denied). However, the affirmative defense of laches may still apply.
Access to opponent's computers
If I were involved in a lawsuit in Texas, could I get access to my opponent’s computer’s hard drive?
Maybe. As a threshold to granting access to electronic devices, you (the requesting party) would have to show that the responding party somehow defaulted on its obligation to search its records and produce the data you requested. See In re Shipman, 540 S.W.3d 562, 568-69 (Tex. 2018) citing In re Weekley Homes, L.P., 295 S.W.3d 309, 317 (Tex.2009)(orig. proceeding). Courts do not rely on skepticism or bare allegation that a responding party failed to comply with its discovery duties to grant access to electronic devices, but rather evidence is needed. See In re Shipman, 540 S.W.3d at 568-69.
I have a dispute about the meaning of a written agreement. How might a court in Texas go about resolving such a dispute?
Normally, a court will confine its interpretation to the agreement’s text, but a court’s willingness to consider outside evidence will depend on the facts of each case. Typically, the willingness of a court to consider evidence beyond what is stated directly in an agreement depends on the clarity of the agreement’s wording. If the language of an agreement is written in a way that allows for multiple reasonable interpretations of the text, then the agreement is considered ambiguous and thus, outside (i.e.,extrinsic) evidence may be considered in order to determine the meaning of the agreement’s language. However, if the agreement is worded in a way that gives its contents a direct or certain legal meaning, then it is not considered ambiguous and outside evidence cannot be used to inform the court’s interpretation of the agreement. This decision, concerning the ambiguity of an agreement, is made by the court. Nevertheless, there are limitations to the extent to which extrinsic evidence may be considered when reviewing an agreement, even if it is ruled ambiguous. As previously mentioned, outside evidence that is objective in nature may be admitted if an agreement is deemed to be ambiguous, however, it may only be admitted to determine the parties’ intent as expressed in the agreement, and cannot be relied upon to give the agreement a meaning different from the language it imports or to show what the parties probably meant, or could have meant, something other than what their agreement stated. See URI, Inc. v. Kleberg County, 543 S.W.3d 755 (2018) citing Anglo-Dutch Petrol. Int’l, Inc. v. Greenberg Peden, P.C., 352 S.W.3d 455,451 (Tex. 2011). The “facts and circumstances” in existence at the time an agreement is executed “may be consulted only to inform the meaning of the language the parties chose to effectuate their accord,” and when interpreting an unambiguous agreement or determining whether an ambiguity exists, courts may not consider the parties’ intent beyond the meaning the agreement’s language reasonably suggests when interpreted in context. See URI, Inc. v. Kleberg County, 543 S.W.3d 755, 763 (2018).
Texas court Jurisdiction over non-residents: phone calls and money transfers
I live in California, and I have a friend who lives in Texas that wired a large amount of money to me. Someone sued my friend in Texas claiming that the money did not belong to her. Recently, I learned that I too have been sued by this same person in Texas. I have never traveled to Texas, nor have I lived or worked in Texas. I do not own property in Texas. I did, however, have numerous phone calls with my Texas friend. Can I get out of this Texas lawsuit?
Maybe, but you should hire a Texas attorney to help you, and the outcome will necessarily depend upon the facts of your particular case. Your Texas attorney may find some support in Old Republic National Title Insurance Co. v. Bell, 2018 WL 2449390 (Tex. June 1, 2018), an opinion recently handed down by the Texas Supreme Court. In Old Republic, the Court found that personal jurisdiction was lacking over the non-resident defendant even though there were allegedly hundreds of phone calls between the Texas resident and the non-Texas resident. Additionally, the Court noted that a non-resident defendant’s acceptance of money – a fungible asset – from someone in Texas is generally of negligible significance for purposes of deciding whether a Texas court can exercise jurisdiction over the non-resident defendant.
When are attorney’s fees recoverable as part of a lawsuit
When are attorney’s fees recoverable as part of a lawsuit?
Generally, Texas follows the “American Rule,” which means that litigants may recover attorney's fees only if specifically provided for by statute or contract. See, e.g., Epps v. Fowler, 351 S.W.3d 862, 865 (Tex.2011); see also Choice! Power, L.P. v. Feeley, No. 01-15-00821-CV, 2016 WL 4151041, at *8 (Tex. App.–Houston [1st Dist.] Aug. 4, 2016, no pet. h.).
If my company provided goods or services to another company, but we did not have a contract, does my company have a claim for getting paid?
Yes, Texas law provides an equitable claim for the recovery of the reasonable value of goods or services that one provides to another when no contract covered the transaction. This cause of action is called quantum meruit. “To recover in quantum meruit, a claimant must prove that (1) valuable services were rendered or materials furnished; (2) for the person sought to be charged; (3) and were accepted by the person sought to be charged; (4) under circumstances that reasonably notified the person sought to be charged that the plaintiff, in performing the services or furnishing the materials, expected to be paid by the person sought to be charged.” Weaver v. Jamar, 383 S.W.3d 805, 811 (Tex. App.– Houston [14th Dist.] 2012, no pet.)(emphasis added). “To recover in quantum meruit, the plaintiff must show that his efforts were undertaken for the person sought to be charged; it is not enough to merely show that his efforts benefitted the defendant.” Truly v. Austin, 744 S.W.2d 934, 937 (Tex. 1988). A party may recover under quantum meruit only when there is no express contract covering the services or materials furnished. Vortt Exploration Co. v. Chevron U.S.A., Inc., 787 S.W.2d 942, 944 (Tex.1990).
Unilateral Mistake: An Equitable Exception to Contract Enforcement
Can I get out of a contract that I entered into by mistake?
Generally, under Texas law, if the other party did not enter into the contract based upon the same mistake (i.e., both parties made the same mistake or mutual mistake) a party cannot avoid its contractual obligations even though it entered into a contract based upon its own mistake. Texas law, does however, recognize an equitable exception to this general principle. “[E]quitable relief will be granted against a unilateral mistake when the conditions of remediable mistake are present. These conditions generally are: (1) the mistake is of so great a consequence that to enforce the contract as made would be unconscionable; (2) the mistake relates to a material feature of the contract; (3) the mistake must have been made regardless of the exercise of ordinary care; and (4) the parties can be placed in status quo in the equity sense, i. e., rescission must not result in prejudice to the other party except for the loss of his bargain. There may be other circumstances which will govern or influence the extension of relief, such as the acts and extent of knowledge of the parties.” James T. Taylor & Son, Inc. v. Arlington Indep. Sch. Dist., 335 S.W.2d 371, 373 (Tex. 1960).
Specific performance as a remedy for breach of contract
Can one sue to make another party perform a contract that it has breached?
Generally, the remedy for a breach of contract is money damages sufficient to place the non-breaching party in the position that it would have been in but for the breach. However, the equitable remedy of specific performance is an exception to this general rule. The doctrine of specific performance may provide a means to make another party perform under the contract. “Specific performance is an equitable remedy that may be awarded at the trial court’s discretion upon a showing of breach of contract. Paciwest, Inc. v. Warner Alan Props., LLC, 266 S.W.3d 559, 571 (Tex. App.– Fort Worth 2008, pet. denied). Specific performance is not a separate cause of action, but rather is an equitable remedy used as a substitute for monetary damages when damages would not be adequate. Paciwest, 266 S.W.3d at 571; Stafford v. S. Vanity Magazine, Inc., 231 S.W.3d 530, 535 (Tex. App.–Dallas 2007, pet. denied). Because specific performance is an equitable remedy available only when the legal remedy of damages is insufficient, when one brings a breach of contract suit, one must elect to sue for either money damages or specific performance. See Carrico v. Kondos, 111 S.W.3d 582, 588 (Tex. App.–Fort Worth 2003, pet. denied).” Kleberg County v. URI, Inc., 13-14-00158-CV, 2016 WL 363114, at *11 (Tex. App. Corpus Christi Jan. 28, 2016).
Recovery of Lost Profits for a New Business
Can a new business that does not have an established track record recover lost profits as part of a breach of contract claim?
Assuming the losses are a natural, probable, and foreseeable consequence of the defendant’s breach, then under Texas law, the answer depends upon a fact intensive inquiry, which focuses on the experience of the people involved in the business, the nature of the business, and the relevant market. See Tex. Instruments, Inc. v. Teletron Energy Mgmt., Inc., 877 S.W.2d 276, 280 (Tex.1994). “To recover damages for breach of contract, a plaintiff must show that he suffered a pecuniary loss as a result of the breach. To recover lost profit damages, a plaintiff must show the loss by competent evidence and with reasonable certainty.” Peterson Group, Inc. v. PLTQ Lotus Group, L.P., 417 S.W.3d 46, 64 (Tex. App. Hous. [1st Dist.] 2013). “Lost profits are damages for the loss of net income to a business and, broadly speaking, reflect income from lost business activity, less expenses that would have been attributable to that activity. As a minimum, opinions or estimates of lost profits must be based on objective facts, figures, or data from which the amount of lost profits can be ascertained. Lost profits cannot be based on pure speculation or wishful thinking.” Peterson Group, Inc. v. PLTQ Lotus Group, L.P., 417 S.W.3d 46, 64-65 (Tex. App. Hous. [1st Dist.] 2013) (citations and quotation marks omitted) citing Tex. Instruments, 877 S.W.2d at 279. “Profits which are largely speculative, as from an activity dependent on uncertain or changing market conditions, or on chancy business opportunities, or on promotion of untested products or entry into unknown or unviable markets, or on the success of a new and unproven enterprise, cannot be recovered. Factors like these and others which make a business venture risky in prospect preclude recovery of lost profits in retrospect . . . . The mere hope for success of an untried enterprise, even when that hope is realistic, is not enough for recovery of lost profits.” Tex. Instruments, Inc. v. Teletron Energy Mgmt., Inc., 877 S.W.2d 276, 279-80 (Tex.1994). However, the fact that a business is new does not absolutely preclude recovery of lost profits. See id. at 280. Recovery will depend upon the experience of the people involved in the business, the nature of the business, and the relevant market. See Tex. Instruments, Inc. v. Teletron Energy Mgmt., Inc., 877 S.W.2d 276, 280 (Tex.1994).
Contract Damages: Lost Profits
If someone breached our contract, can I seek recovery of lost profits?
Generally, Texas law does allow a party injured by another party’s breach of their contract to sue for lost profits. “Generally, the measure of damages for breach of a contract is that which restores the injured party to the economic position he would have enjoyed if the contract had been performed. This measure may include reasonably certain lost profits. Lost profits may be in the form of direct damages – that is, profits lost on the contract itself – or in the form of consequential damages – such as profits lost on other contracts resulting from the breach. To be recoverable, consequential damages must be foreseeable and directly traceable to the wrongful act and result from it. Thus, consequential damages are generally not recoverable unless the parties contemplated at the time they made the contract that such damages would be a probable result of the breach.” See AZZ Inc. v. Morgan, 462 S.W.3d 284, 289 (Tex. App. – Fort Worth 2015, no pet.) (citations omitted).
Does Texas recognize a common law cause of action for minority shareholder oppression?
The Texas Supreme Court recently decided that Texas does not recognize a common-law cause of action for “shareholder oppression.” Richie v. Rupe, 443 S.W.3d 856, 891 (Tex. 2014). The Court reasoned that since the Texas Legislature has crafted a statutory scheme governing domestic corporations in the Texas Business and Organization Code there are no compelling grounds to impose a cause of action upon the statutory framework. Id.
The Texas Business and Organization Code provides that the only remedy for shareholder oppression is the appointment of a rehabilitative receiver. Richie v. Rupe, 443 S.W.3d at 877; see also Tex. Bus. Orgs. Code § 11.404. This remedy for “oppressive” actions is limited yet sufficient according to the Texas Supreme Court. Richie, 443 S.W.3d at 891.
Read Before Signing: You Should Not Rely Upon What the Other Side Tells You a Document Says
Under Texas law, if I have a written contract with someone, they tell me what the terms are, and later I find out that what I was told differs from the written terms, are the written terms enforceable?
Generally, the written terms will be enforceable. In a recently decided case (National Prop. Holding, L.P. v. Westergren, 453 S.W.3d 419 (Tex. 2015), the Texas Supreme court stated that: “Texas courts have repeatedly held, a party to a written contract cannot justifiably rely on oral misrepresentations regarding the contract's unambiguous terms. See, e.g., Thigpen v. Locke, 363 S.W.2d 247, 251 (Tex. 1962) (‘In an arm's-length transaction the defrauded party must exercise ordinary care for the protection of his own interests . . . . [A] failure to exercise reasonable diligence is not excused by mere confidence in the honesty and integrity of the other party.’) (citation omitted). This is particularly true when the party had a reasonable opportunity to review the written agreement but failed to exercise ordinary care to do so. See Tex. & Pac. Ry. Co. v. Poe, 131 Tex. 337, 115 S.W.2d 591, 592 (1938) (holding that evidence was legally insufficient to support a finding of fraud where party who relied on oral statement that release was receipt had an opportunity to read the document which plainly identified itself as a release); see also Thigpen, 363 S.W.2d at 251. Instead of excusing a party's failure to read a contract when the party has an opportunity to do so, the law presumes that the party knows and accepts the contract terms. It is not the courts' role ‘to protect parties from their own agreements.’ El Paso Field Servs., L.P. v. MasTec N. Am., Inc., 389 S.W.3d 802, 810-11 (Tex. 2012). As the [United States] Supreme Court explained long ago: ‘It will not do for a man to enter into a contract, and, when called upon to respond to its obligations, to say that he did not read it when he signed it, or did not know what it contained. If this were permitted, contracts would not be worth the paper on which they are written. But such is not the law. A contractor must stand by the words of his contract; and, if he will not read what he signs, he alone is responsible for his omission.’ Upton v. Tribilcock, 91 U.S. 45, 50, 23 L. Ed. 203 (1875).”
Time Limitations for Filing Claims Against a Partner in a Texas General Partnership
If I have a claim against a Texas general partnership and one of its partners, is the time period in which I must file suit (i.e., the limitations period) the same for both?
Generally, no. Because a partnership is a separate entity from its partners and because there is a statutory prerequisite to proceeding against a partner (the judgment against the partnership must go unsatisfied for ninety days before a creditor may proceed against a partner), a plaintiff’s cause of action against a partner does not accrue until the expiration of the ninety-day statutory satisfaction period against the partnership. See Am. Star Energy & Minerals Corp. v. Stowers, 457 S.W.3d 427, 431 (Tex. 2015).
Expert Reports Required for Malpractice Claims Against Professional Engineers
Is an expert’s report necessary before one can sue a professional engineer for malpractice?
Generally, Texas law does require that a person claiming malpractice against a professional engineer must also file an “expert report.” The Texas Legislature passed the following statute that gives professional engineer’s this added “defense”:
Sec. 150.002. Certificate of Merit.
(a) In any action or arbitration proceeding for damages arising out of the provision of professional services by a licensed or registered professional, the plaintiff shall be required to file with the complaint an affidavit of a third-party licensed architect, licensed professional engineer, registered landscape architect, or registered professional land surveyor who:
(1) is competent to testify;
(2) holds the same professional license or registration as the defendant; and
(3) is knowledgeable in the area of practice of the defendant and offers testimony based on the person's:
(E) training; and
(b) The affidavit shall set forth specifically for each theory of recovery for which damages are sought, the negligence, if any, or other action, error, or omission of the licensed or registered professional in providing the professional service, including any error or omission in providing advice, judgment, opinion, or a similar professional skill claimed to exist and the factual basis for each such claim. The third-party licensed architect, licensed professional engineer, registered landscape architect, or registered professional land surveyor shall be licensed or registered in this state and actively engaged in the practice of architecture, engineering, or surveying.
(c) The contemporaneous filing requirement of Subsection (a) shall not apply to any case in which the period of limitation will expire within 10 days of the date of filing and, because of such time constraints, the plaintiff has alleged that an affidavit of a third-party licensed architect, licensed professional engineer, registered landscape architect, or registered professional land surveyor could not be prepared. In such cases, the plaintiff shall have 30 days after the filing of the complaint to supplement the pleadings with the affidavit. The trial court may, on motion, after hearing and for good cause, extend such time as it shall determine justice requires.
(d) The defendant shall not be required to file an answer to the complaint and affidavit until 30 days after the filing of such affidavit.
(e) The plaintiff's failure to file the affidavit in accordance with this section shall result in dismissal of the complaint against the defendant. This dismissal may be with prejudice.
(f) An order granting or denying a motion for dismissal is immediately appealable as an interlocutory order.
(g) This statute shall not be construed to extend any applicable period of limitation or repose.
(h) This statute does not apply to any suit or action for the payment of fees arising out of the provision of professional services.
Tex. Civ. Prac. & Rem. Code § 150.002.
What is the Economic Loss Rule?
“[T]here is not one economic loss rule broadly applicable throughout the field of torts, but rather several more limited rules that govern recovery of economic losses in selected areas of the law.” Sharyland Water Supply Corp. v. City of Alton, 354 S.W.3d 407, 415 (Tex. 2011)(citations omitted). Generally, “the prevailing rule in America [is that] a plaintiff may not recover for his economic loss resulting from bodily harm to another or from physical damage to property in which he has no proprietary interest.” See, e.g., Fleming James, Jr., Limitations on Liability for Economic Loss Caused by Negligence: A Pragmatic Appraisal, 25 Vand. L. Rev. 43, 43 (1972) “In actions for unintentional torts, the common law has long restricted recovery of purely economic damages unaccompanied by injury to the plaintiff or his property - a doctrine we have referred to as the economic loss rule. The rule serves to provide a more definite limitation on liability than foreseeability can and reflects a preference for allocating some economic risks by contract rather than by law. But the rule is not generally applicable in every situation; it allows recovery of economic damages in tort, or not, according to its underlying principles.” Lan/STV v. Martin K. Eby Constr. Co., 435 S.W.3d 234, 235 (Tex. 2014)(footnotes omitted). One of "[t]he underlying purpose[s] of the economic loss rule is to preserve the distinction between contract and tort theories in circumstances where both theories could apply." Lan/STV, 435 S.W.3d at 240 (citing Vincent R. Johnson, The Boundary-Line Function of the Economic Loss Rule, 66 ash. & Lee L. Rev. 523, 546 (2009)(footnotes omitted) (quoting Stewart I. Edelstein, Beware the Economic Loss Rule, Trial, June 2006, at 42, 43 (2006))). “The economic loss rule is a doctrine that limits the recovery of purely economic damages in an action for negligence. Lan/STV v. Martin K. Eby Constr. Co., 435 S.W.3d 234, 235 (Tex. 2014) ("In actions for unintentional torts, the common law has long restricted recovery of purely economic damages unaccompanied by injury to the plaintiff or his property[.]"); see also Sharyland Water Supply Corp. v. City f Alton, 354 S.W.3d 407, 415 (Tex. 2011)("[P]arties may be barred from recovering in negligence or strict liability for purely economic losses."). Texas courts have generally applied the economic loss rule in cases involving defective products and in cases involving the failure to perform a contract.” Clark v. PFPP, Ltd. Partnership, 455 S.W.3d 283, 288 (Tex. App. – Dallas 2014, no pet.).
Texas Uniform Trade Secrets Act and Recovery of Attorney’s Fees
May attorneys’ fees be recovered on a claim that trade secrets were stolen?
Under the Texas Uniform Trade Secrets Act, a court may award attorney’s fees to the prevailing party. “The court may award reasonable attorney’s fees to the prevailing party if: (1) a claim of misappropriation is made in bad faith; (2) a motion to terminate an injunction is made or resisted in bad faith; or (3) wilful and malicious misappropriation exists.” Tex. Civ. Prac. & Rem. Code § 134A.005.
Texas Statute of Limitations for Fraudulent Inducement of a Contract
Is there a time limit within which one must file a lawsuit if he enter into a contract based upon another person’s intentional misrepresentations?
Generally, under Texas law, a person who wants to get out of a contract because he entered into it based upon the intentional misrepresentations (fraud) of someone else must file suit within four years of when he discovered, or should have discovered, the fraud. See Tex. Civ. Prac. & Rem. Code § 16.004(a)(4); see also Hooks v. Samson Lone Star, Ltd. Partnership, 58 Tex. Sup. J. 252 (Tex. 2015).
Remedies for Misappropriation of Trade Secrets
What remedies are available if trade secrets have been misappropriated?
Under Texas law, a claimant who prevails on a claim for misappropriation of trade secrets may be entitled to injunctive relief as well as damages. “Damages can include both the actual loss caused by misappropriation and the unjust enrichment caused by misappropriation that is not taken into account in computing actual loss.” Tex. Civ. Prac. & Rem. Code § 134A.004(a). Alternatively, “damages caused by misappropriation may be measured by imposition of liability for a reasonable royalty for a misappropriator’s unauthorized disclosure or use of a trade secret.” Tex. Civ. Prac. & Rem. Code § 134A.004(a). Additionally, “if wilful and malicious misappropriation is proven by clear and convincing evidence, the fact finder may award exemplary damages in an amount not to exceed twice any award” described above. Tex. Civ. Prac. & Rem. Code § 134A.004(b).
Texas Statute Defines What are Trade Secrets
What are “Trade Secret” in Texas?
The Texas Uniform Trade Secrets Act states that:
“Trade secret” means information, including a formula, pattern, compilation, program, device, method, technique, process, financial data, or list of actual or potential customers or suppliers that:
(A) derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use; and
(B) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.
See Tex. Civ. Prac. & Rem. Code section 134A.002(6).
The Fiduciary Shield Doctrine and Personal Jurisdiction over Non-resident Employees
Should an individual who resides in another state be subject to a Texas Court’s jurisdiction for his work done in Texas when his work was done solely on behalf of his employer?
Generally, an out-of-state resident who is working on behalf of an employer would not be individually liable in Texas because of the “fiduciary shield doctrine.” The “fiduciary shield doctrine” protects nonresident employees from the jurisdiction of Texas courts when all of the employee’s contacts with Texas were made on behalf of his employer. Nichols v. Tseng Hsiang Lin, 282 S.W.3d 743, 750 (Tex. App.–Dallas 2009, no pet.) This doctrine is consistent with the Texas Supreme Court’s holding that an out-of-state employee, in his individual capacity, cannot be subject to Texas personal jurisdiction based solely on the activities of his employer. Siskind v. Villa Found. for Educ., Inc., 642 S.W.2d 434, 437-38 (Tex. 1982). For example, a Texas court should not exercise personal jurisdiction over a Colorado resident who traveled to a Texas office every few months to conduct business on behalf of his employer. See Urban v. Barker, 2007 Tex. App. LEXIS 1633, at *21 (Tex. App.–Houston [14th Dist.], March 6, 2007).
The fiduciary shield doctrine does not apply to an officer’s or employee’s tort’s committed in Texas. See Ennis v. Losieau, 164 S.W.3d 698, 707 (Tex. App.–Austin 2005, no pet.) This rule is not based on an exception to the fiduciary shield doctrine, but rather on the well-established principal that "a corporate officer is primarily liable for his own torts." Morris v. Kohls-York, 164 S.W.3d 686, 695 (Tex. App.–Austin 2005, no pet.).
The Discovery Rule as an Exception to Statutes of Limitation
Can I pursue a lawsuit for a wrongful act even though the limitations period has expired?
Generally, No. In certain limited circumstances however, Texas courts apply the “discovery rule” as an exception to the statutory limitations period.
The discovery rule delays the accrual of a cause of action until the plaintiff knows, or by the exercise of reasonable diligence, should have known of the facts giving rise to his cause of action. See Baker v. Eckman, 213 S.W.3d 306, 311-312 (Tex. 2006). In order for the discovery rule to apply, the nature of the injury must be inherently undiscoverable and objectively verifiable. HECI Exploration Co. v. Neel, 982 S.W.2d 881, 886 (Tex. 1998). When applied, the discovery rule tolls the running of limitations until the plaintiff (1) discovers the wrongful act that causes an injury or (2) acquires knowledge of facts that would lead to the discovery of the wrongful act. S.V. v. R.V., 933 S.W.2d 1, 4 (Tex. 1996). Similarly, a defendant cannot avoid liability for his actions by purposefully concealing the wrongdoing until the statute of limitations has run. Id. at 6.
A party trying to rely upon the discovery rule must both plead and prove that the rule applies. See Woods v. William M. Mercer, Inc., 769 S.W.2d 515, 518 (Tex. 1988).
Texas Statute of Limitations for Unfair Claims Settlement Practices Under the Texas Insurance Code
Is there a time limit within which one must file claims under the Texas Insurance Code for unfair claims settlement practices?
Yes. Under the Texas Insurance Code, a person must bring an action within two years of (1) the date the unfair or deceptive act or practice occurred; or (2) the date the person discovered or, by the exercise of reasonable diligence, should have discovered that the unfair or deceptive act or practice occurred. Tex. Ins. Code. § 541.162(a)(1-2). This two year limitations period may be extended for 180 days if the plaintiff proves that the failure to bring the action within the two year period was caused by the defendant’s attempt to induce the plaintiff to refrain or postpone bringing the action. Tex. Ins. Code. § 541.162(b).
A cause of action under the Insurance Code for unfair claims based on denial of insurance coverage accrues on the date that the insurer denies coverage. See Celtic Life Ins. Co. v. Coats, 885 S.W.2d 96, 100 (Tex. 1994).
Statute of Limitations for an Insurer’s Breach of the Duty of Good Faith and Fair Dealing
If my insurance company cancelled my insurance policy without a reasonable basis or denied payment of a claim when it was required to pay, is there a limited time within which I have to file a lawsuit against the insurance company?
Yes. Claims against an insurer for breach of the duty of good faith and fair dealing must be brought not later than two years from the date the claim accrued. See Tex. Civ. Prac. & Rem. Code § 16.003(a); Murray v. San Jacinto Agency, Inc., 800 S.W.2d 826, 827 (Tex. 1990). The “accrual date” (the date when the two year limitations period begins to run) is the day the insurer wrongfully denied coverage. See Murray, 800 S.W.2d at 828. The fact that damage may continue to occur for a period after the denial date does not prevent the statute of limitations from starting to run. Id. However, if the insurance company “strings the insured along” without denying or paying the claim, then the accrual date may be tolled. See, e.g., Murray, 800 S.W.2d at 829 n.2.
Texas Court’s have “All Purpose” Jurisdiction if a Company is “At Home” in Texas
Does a Texas court have general (i.e., “all-purpose”) jurisdiction over a foreign corporation for alleged injuries that took place entirely outside of Texas?
Generally, the Due Process Clause of the Fourteenth Amendment does not permit a Texas court to exercise general jurisdiction over a foreign corporation for alleged injuries that took place entirely outside of Texas unless the corporation’s affiliations with Texas are so constant as to render it essentially “at home” in Texas. See Daimler AG v. Bauman, 134 S. Ct. 746, 748 (2014).
General jurisdiction (or all-purpose jurisdiction) is appropriate only when a foreign corporation’s continuous corporate operations within Texas are so substantial that its activity justifies jurisdiction over dealings entirely different from its activities in Texas. See International Shoe Co. v. Washington, 236 U.S. 310, 318 (1945). The proper test for general jurisdiction is whether a foreign corporation’s affiliations with a state are so continuous and systematic as to render it essentially at home in the state. See Goodyear Dunlop Tires Operations, S.A. v. Brown, 131 S.Ct. 2846 (2011). A company’s place of incorporation and principal place of business are normally where a corporation is “at home” and that is the state in which a corporation may normally be sued. See Daimler AG, 134 S. Ct. at 760. In Daimler, the Supreme Court noted that it is possible for general jurisdiction to exist in a state other than where its formal place of incorporation or principal place of business is, but such a such a case would have to be exceptional and the company’s operations in the state would have to be substantial. See Daimler AG, 134 S. Ct. at 760.
Web Sites and Texas Court Jurisdiction
If my company is not incorporated in Texas and does no business in Texas, will its merely having a web site nevertheless subject it to the jurisdiction of a Texas court?
Generally, a company that is neither incorporated in Texas nor does business in Texas, will not be subject to a Texas court’s jurisdiction just because of its web site. See Monkton Ins. Servs. v. Ritter, 768 F.3d 429, 432 (5th Cir. 2014). The Supreme Court recently held that the proper test for general jurisdiction is whether the defendant’s affiliations with a state are so continuous and systematic as to render it “at home” in the state. Daimler AG v. Bauman, 134 S. Ct. 746, 760 (2014). For corporations, it is therefore “incredibly difficult to establish general jurisdiction in a forum other than the place of incorporation or principal place of business.” Monkton Ins. Servs., 768 F.3d at 432.
Generally, a foreign corporation’s website, at most, shows that the corporation conducts business with the forum state, not in the forum state. Id. An interactive website is not enough to render a defendant “at home” and general jurisdiction is therefore improper. Id. Even evidence that the foreign corporation communicated with other residents of the forum state through its website would not be enough for general jurisdiction. Monkton Ins. Servs., 768 F.3d at 434.
Spoliation: Destruction of Evidence
In Texas, what are the standards governing whether spoliation (destruction of evidence) has occurred and a trial court’s discretion to impose a remedy for spoliation?
In Texas, spoliation is an evidentiary concept rather than a separate cause of action. Trevino v. Ortega, 969 S.W.2d 950, 952 (Tex. 1998).
The Texas Supreme Court recently clarified the law on this issue. In Brookshire Bros., Ltd. v. Aldridge, 2014 Tex. LEXIS 562, *2-4 (Tex. July 3, 2014), the Court held “that a spoliation analysis involves a two-step judicial process: (1) the trial court must determine, as a question of law, whether a party spoliated evidence, and (2) if spoliation occurred, the court must assess an appropriate remedy. To conclude that a party spoliated evidence, the court must find that (1) the spoliating party had a duty to reasonably preserve evidence, and (2) the party intentionally or negligently breached that duty by failing to do so. Spoliation findings--and their related sanctions--are to be determined by the trial judge, outside the presence of the jury, in order to avoid unfairly prejudicing the jury by the presentation of evidence that is unrelated to the facts underlying the lawsuit. Accordingly, evidence bearing directly upon whether a party has spoliated evidence is not to be presented to the jury except insofar as it relates to the substance of the lawsuit. Upon a finding of spoliation, the trial court has broad discretion to impose a remedy that, as with any discovery sanction, must be proportionate; that is, it must relate directly to the conduct giving rise to the sanction and may not be excessive. Key considerations in imposing a remedy are the level of culpability of the spoliating party and the degree of prejudice, if any, suffered by the nonspoliating party.”
Additionally, “While the spectrum of remedies that may be imposed range from an award of attorney's fees to the dismissal of the lawsuit, the harsh remedy of a spoliation instruction is warranted only when the trial court finds that the spoliating party acted with the specific intent of concealing discoverable evidence, and that a less severe remedy would be insufficient to reduce the prejudice caused by the spoliation. This intent requirement is congruent with the presumption underlying a spoliation instruction--that the evidence would have hurt the wrongdoer. A failure to preserve evidence with a negligent mental state may only underlie a spoliation instruction in the rare situation in which a nonspoliating party has been irreparably deprived of any meaningful ability to present a claim or defense.” Brookshire Bros., Ltd. v. Aldridge, 2014 Tex. LEXIS 562, *4-5 (Tex. July 3, 2014).
Statute of Limitations for Quantum Meruit Claims
Is there a limited time within which a plaintiff must file a quantum meruit claim?
Yes. As a general matter of Texas law, the statute of limitations on a claim for quantum meruit is four years. See Quigley v. Bennett, 256 S.W.3d 356, 361 (Tex. App. – San Antonio 2008, no pet.); see also Pepi Corp v. Galliford, 254 S.W.3d 457, 461 (Tex. App.– Houston [1st Dist.] 2007, pet. denied)(A four-year limitations period applies to a quantum meruit claim.).
Equitable Remedy of Quantum Meruit
My company did work for another company, we did not have a contract, and now the other company refuses to pay. Does the law provide a cause of action upon which my company may recover?
Yes, equity may allow you to recover. In Texas, this equitable claim is generally called “quantum meruit.” “To recover in quantum meruit, a claimant must prove that (1) valuable services were rendered or materials furnished; (2) for the person sought to be charged; (3) and were accepted by the person sought to be charged; (4) under circumstances that reasonably notified the person sought to be charged that the plaintiff, in performing the services or furnishing the materials, expected to be paid by the person sought to be charged.” Weaver v. Jamar, 383 S.W.3d 805, 811 (Tex. App.– Houston [14th Dist.] 2012, no pet.). “To recover in quantum meruit, the plaintiff must show that his efforts were undertaken for the person sought to be charged; it is not enough to merely show that his efforts benefitted the defendant.” Truly v. Austin, 744 S.W.2d 934, 937 (Tex. 1988).
Mandamus Available When Trial Court Refuses to Decide a Motion
Is mandamus available if a trial court refuses to rule on a motion?
Yes. The act of considering and ruling on a properly filed motion is a ministerial act. In re Bonds, 57 S.W.3d 456, 457 (Tex. App. – San Antonio 2001, orig. proceeding). Mandamus will issue when there is a legal duty to perform a non-discretionary act, a demand for performance, and a refusal to act. O'Connor v. First Court of Appeals, 837 S.W.2d 94, 97 (Tex. 1992). Although a trial court has a reasonable time within which to perform its ministerial duty to rule on a pending motion, In re Guetersloh, 326 S.W.3d 737, 740-41 (Tex. App.--Amarillo 2010, orig. proceeding), a trial court commits a clear abuse of discretion when it refuses to rule on a properly filed motion. See Eli Lilly and Co. v. Marshall, 829 S.W.2d 157, 158 (Tex. 1992). There is no adequate remedy at law for a trial court’s failure to rule because “[f]undamental requirements of due process mandate an opportunity to be heard.” See In re Christensen, 39 S.W.3d 250, 251 (Tex. App. – Amarillo 2000, orig. proceeding) (citing Creel v. Dist. Atty. for Medina Cnty., 818 S.W.2d 45, 46 (Tex. 1991)).
Mandamus Available for Continuance of Special Appearance Hearing
Does a trial court abuse its discretion if it continues a special appearance hearing even though the plaintiff has not followed the requirements of Texas Rule of Civil Procedure 120a?
Yes. If a plaintiff, prior to a hearing on a special appearance, does not file affidavits proving he needs a continuance to obtain essential discovery, the trial court abuses its discretion if it continues the special appearance hearing to allow discovery. See IRN Realty Corp. v. Hernandez, 300 S.W.3d 900, 903 (Tex. App – Eastland 2009, no pet.)(holding trial court abused its discretion by granting motion to compel and abating special appearance hearing to allow plaintiff to conduct additional discovery because plaintiff did not follow procedures for continuance under Rule 120a(3)); see also Washington DC Party Shuttle, LLC v. IGuide Tours, 406 S.W.3d 723, 739 (Tex. App.--Houston [14th Dist.] 2013, pet. filed)(holding plaintiff did not follow procedures under Rule 120a(3) for discovery continuance). “Texas Rule of Civil Procedure 120a governs special appearances,” and “Rule 120a ‘specifically provides for the means to obtain a continuance of the special appearance so that . . . [additional discovery] may be conducted: affidavits of the party opposing the special appearance.’” In re Stern, 321 S.W.3d 828, 836-839 (Tex. App. – Houston [1st Dist.] 2010, orig. proceeding)(quoting IRN Realty Corp. v. Hernandez, 300 S.W.3d 900, 903 (Tex. App – Eastland 2009, no pet.)); see also Said v. Maria Invs., Inc., No. 01-08-00962-CV, 2010 Tex. App. LEXIS 959, 2010 WL 457463, at *3 (Tex. App.--Houston [1st Dist.] Feb. 11, 2010, pet. denied) (mem. op.) ("Rule 120a(3) gives the trial court the discretion to continue a special appearance hearing and thereby extend the time in which evidence may be served, but this power applies only to a party opposing the special appearance who avers that he cannot adequately prepare for the special appearance hearing.")(emphasis added); see also Parex Resources, Inc. v. ERG Resources, LLC, 2014 Tex. App. Lexis 880, *66 fn. 34 (Tex. App. – Houston [14th Dist.] Jan. 28, 2014).
Procedure for Obtaining Electronic Data During a Lawsuit
How does one obtain electronic data during the course of a lawsuit in Texas?
In many cases today, electronic data is critically important. In most of these cases, each side will want to request electronic data and must also be prepared to provide electronic data that is requested by the opposing party. The primary rule of civil procedure governing the discovery of "information that exists in electronic or magnetic form" is Tex. R. Civ. P. 196.4, which dictates that "the requesting party must specifically request production of electronic or magnetic data and specify the form in which the requesting party wants it produced."
The Texas Supreme Court has laid out the following steps the parties should follow under Rule 196.4:
1. Prior to promulgating requests for electronic information, parties and their attorneys should share relevant information concerning electronic systems and storage methodologies so that agreements regarding protocols maybe reached or, if not, trial courts have the information necessary to craft discovery orders that are not unduly intrusive or overly burdensome.
2. The party seeking to discover electronic information must make a specific request for that information and specify the form of production. (The request is reasonably specific if the responding party understands the scope of the request before the trial court intervenes. See In re Weekley Homes, L.P., 295 S.W.3d 309, 314-15 (Tex. 2009)).
3. The responding party must then produce any electronic information that is "responsive to the request and . . . reasonably available to the responding party in its ordinary course of business."
4. If "the responding party cannot -- through reasonable efforts -- retrieve the data or information requested or produce it in the form requested," the responding party must object on those grounds.
5. The parties should make reasonable efforts to resolve the dispute without court intervention.
6. If the parties are unable to resolve the dispute, either party may request a hearing on the objection at which the responding party must demonstrate that the requested information is not reasonably available because of undue burden or cost.
7. If the trial court determines the requested information is not reasonably available, the court may nevertheless order production upon a showing by the requesting party that the benefits of production outweigh the burdens imposed, again subject to Rule 192.4's discovery limitations.
8. If the benefits are shown to outweigh the burdens of production and the trial court orders production of information that is not reasonably available, sensitive information should be protected and the least intrusive means should be employed. See Tex. R. Civ. P. 192.6(b). The requesting party must also pay the reasonable expenses of any extraordinary steps required to retrieve and produce the information. See Tex. R. Civ. P. 196.4.
9. Finally, when determining the means by which the sources should be searched and information produced, direct access to another party's electronic storage devices is discouraged, and courts should be extremely cautious to guard against undue intrusion.
See In re Weekley Homes, L.P., 295 S.W.3d 309, 322 (Tex. 2009).
Proof Needed for a Temporary Injunction in a Federal Court in Texas
What must be proved to obtain a temporary injunction in a Texas federal court?
A preliminary injunction is an extraordinary remedy that should only issue if the movant establishes: (1) a substantial likelihood of success on the merits, (2) a substantial threat of irreparable injury if the injunction is not issued, (3) that the threatened injury if the injunction is denied outweighs any harm that will result if the injunction is granted, and (4) that the grant of an injunction will not disserve the public interest. A district court’s decision whether to grant or deny a preliminary injunction is reviewed only for abuse of discretion; however, a decision grounded in erroneous legal principles is reviewed de novo. When a preliminary injunction turns on a mixed question of law and fact, it is reviewed de novo. Byrum v. Landreth, 566 F.3d 442, 445 (5th Cir. 2009).
Purpose & Proof for Temporary Injunctions in Texas
What is the purpose of a temporary injunction, and what must be proved to obtain a temporary injunction in Texas?
“A temporary injunction's purpose is to preserve the status quo of the litigation's subject matter pending a trial on the merits. A temporary injunction is an extraordinary remedy and does not issue as a matter of right. To obtain a temporary injunction, the applicant must plead and prove three specific elements: (1) a cause of action against the defendant; (2) a probable right to the relief sought; and (3) a probable, imminent, and irreparable injury in the interim. An injury is irreparable if the injured party cannot be adequately compensated in damages or if the damages cannot be measured by any certain pecuniary standard. Whether to grant or deny a temporary injunction is within the trial court's sound discretion. A reviewing court should reverse an order granting injunctive relief only if the trial court abused that discretion. The reviewing court must not substitute its judgment for the trial court's judgment unless the trial court's action was so arbitrary that it exceeded the bounds of reasonable discretion.” Butnaru v. Ford Motor Co., 84 S.W.3d 198, 204 (Tex. 2002)(citations omitted).
Covenants Not to Compete Must be Reasonable
Unreasonable covenants not to compete are not enforceable.
"Whether a covenant not to compete is an unreasonable restraint of trade is a question of law . . .. Courts generally disfavor covenants not to compete ‘because of the public policy against restraints of trade and the hardships resulting from interference with a person's means of livelihood.’ Zep Mfg. Co. v. Harthcock, 824 S.W.2d 654, 658 (Tex. App. – Dallas 1992, no writ). A covenant not to compete is a restraint of trade and unenforceable as a matter of public policy unless it meets a reasonableness standard. Covenants not to compete are unreasonable if they are broader than necessary to protect the legitimate interests of the employer." M-I LLC v. Stelly, 733 F. Supp. 2d 759, 793 (S.D. Tex. 2010)(citations omitted).
Texas's Covenant Not to Compete Statute
Does Texas have a statute that governs the enforcement of agreements not to compete?
The following section from the Texas Business and Commerce Code governs the enforceability of agreements not to compete:
§ 15.50. Criteria for Enforceability of Covenants Not to Compete
(a) Notwithstanding Section 15.05 of this code [which generally makes every contract, combination, or conspiracy in restraint of trade or commerce unlawful], and subject to any applicable provision of Subsection (b), a covenant not to compete is enforceable if it is ancillary to or part of an otherwise enforceable agreement at the time the agreement is made to the extent that it contains limitations as to time, geographical area, and scope of activity to be restrained that are reasonable and do not impose a greater restraint than is necessary to protect the goodwill or other business interest of the promisee.
(b) A covenant not to compete relating to the practice of medicine is enforceable against a person licensed as a physician by the Texas Medical Board if such covenant complies with the following requirements:
(1) the covenant must:
(A) not deny the physician access to a list of his patients whom he had seen or treated within one year of termination of the contract or employment;
(B) provide access to medical records of the physician's patients upon authorization of the patient and any copies of medical records for a reasonable fee as established by the Texas Medical Board under Section 159.008, Occupations Code; and
(C) provide that any access to a list of patients or to patients' medical records after termination of the contract or employment shall not require such list or records to be provided in a format different than that by which such records are maintained except by mutual consent of the parties to the contract;
(2) the covenant must provide for a buy out of the covenant by the physician at a reasonable price or, at the option of either party, as determined by a mutually agreed upon arbitrator or, in the case of an inability to agree, an arbitrator of the court whose decision shall be binding on the parties; and
(3) the covenant must provide that the physician will not be prohibited from providing continuing care and treatment to a specific patient or patients during the course of an acute illness even after the contract or employment has been terminated.
(c) Subsection (b) does not apply to a physician's business ownership interest in a licensed hospital or licensed ambulatory surgical center.
Tex. Bus. & Com. Code § 15.50.
Theft of Trade Secrets is a Third Degree Felony
Is it a crime to take, copy or transmit someone else’s trade secrets?
The Texas Penal Code specifically addresses this question. Texas Penal Code section 31.05 (“Theft of Trade Secrets”) defines a trade secret as “the whole or any part of any scientific or technical information, design, process, procedure, formula, or improvement that has value and that the owner has taken measures to prevent from becoming available to persons other than those selected by the owner to have access for limited purposes.” Section 31.05 further provides in pertinent part that “A person commits an offense if, without the owner's effective consent, he knowingly: (1) steals a trade secret; (2) makes a copy of an article representing a trade secret; or (3) communicates or transmits a trade secret.” Theft of a trade secret is a third degree felony. The punishment for a third degree felony is a range of confinement from two to ten years, with the option of a fine not to exceed $10,000. See Tex. Penal Code § 12.34.
Unfair Competition by Misappropriation
What must a party prove when claiming unfair competition by misappropriation?
A party claiming unfair competition by misappropriation must prove: "(i) the creation of plaintiff's product through extensive time, labor, skill and money, (ii) the defendant's use of that product in competition with the plaintiff, thereby gaining a special advantage in that competition (i.e., a 'free ride') because defendant is burdened with little or none of the expense incurred by the plaintiff, and (iii) commercial damage to the plaintiff." Dresser-Rand Co. v. Virtual Automation Inc., 361 F.3d 831, 839 (5th Cir. 2004). Claims for unfair competition by misappropriation are subject to a two-year limitations period. See Tex. Civ. Prac. & Rem. Code § 16.003 (two-year limitations period for injury to or conversion of the property of another); see also Daboub v. Gibbons, 42 F.3d 285, 290 (5th Cir. 1995).
Customer Lists may be Trade Secrets
Is an employer’s list of customers a trade secret?
“Under Texas law, customer lists may be protected as trade secrets. But a customer list of readily ascertainable names and addresses will not be protected as a trade secret. Texas courts consider three factors to determine whether a customer list is a trade secret: (1) what steps, if any, an employer has taken to maintain the confidentiality of a customer list; (2) whether a departing employee acknowledges that the customer list is confidential; and (3) whether the content of the list is readily ascertainable. In considering whether information was readily ascertainable, courts have considered the expense of compiling it. Other Texas courts focus on the method used to acquire the customer information. Even if the information is readily available in the industry, it will be protected if the competitor obtained it working for the former employer.” Alliantgroup, L.P. v. Feingold, 803 F. Supp. 2d 610, 625-26 (S.D. Tex. 2011)(citations omitted); see also Rimkus Consulting Group, Inc. v. Cammarata, 688 F.Supp.2d 598, 667 (S.D. Tex. 2010).
Published Patent Applications and Trade Secrets
Can the contents of a published patent application be a trade secret?
“Although no post-2000 Texas case directly addresses whether a published patent application destroys the secrecy of its contents for trade secret purposes, the weight of authority from other jurisdictions holds that it does. There can be no dispute that a published patent application, like a patent, is readily available – the United States Patent and Trademark Office and Google both allow free online searching of published patent applications. Under Texas law, information that is generally known or readily available by independent investigation is not secret for purposes of trade secrecy. . . . [T]he decision to seek a patent is an either/or choice: either ‘secure the material rewards for his invention for a limited time’ on condition ‘that he make full disclosure for the benefit of the public of the manner of making and using the invention" or "make no public disclosure of his invention and thereby protect his trade secret.’” Tewari De-Ox Systems, Inc. v. Mountain States/Rosen, L.L.C., 637 F.3d 604, 612-13 (5th Cir. 2011)(citations omitted). “However, Texas law also recognizes that trade secret status may be maintained along with patent protection in situations where the patent does not disclose the exact information or details that a plaintiff contends are trade secrets.” Wellogix, Inc. v. Accenture, LLP, 823 F. Supp. 2d 555, 563 (S.D. Tex. 2011).
Unique Combinations of Known Components Can be Trade Secrets
Trade secrets can be unique combinations of disclosed technologies or processes.
A trade secret “is one of the most elusive and difficult concepts in the law to define.” Tewari De-Ox Systems, Inc. v. Mountain States/Rosen, L.L.C., 637 F.3d 604, 613-14 (5th Cir. 2011). In Tewari, the trial court ruled that the plaintiff did not have any trade secrets because the specifics of its claimed secret process had already been publically disclosed or were know in the industry. The Fifth Circuit, however, disagreed and ruled that whether plaintiff’s process was a trade secret was a question for the fact finder to decide. In many cases, the question of whether certain information constitutes a trade secret ordinarily is best “resolved by a fact finder after full presentation of evidence from each side. . . . A trade secret can exist in a combination of characteristics and components each of which, by itself, is in the public domain, but the unified process, design and operation of which in unique combination, affords a competitive advantage and is a protectible secret." Tewari De-Ox Systems, Inc. v. Mountain States/Rosen, L.L.C., 637 F.3d 604, 613-14 (5th Cir. 2011)(citations omitted).
Personal Jurisdiction Requires "Minimum Contacts"
Can my company be sued in Texas even though its offices are located in a different state?
Of course, a person (and in the eyes of the law, a company is a person for most purposes) can be sued anywhere, but if the person being sued, the nonresident defendant, does not have a sufficient relationship with the state where it is being sued, the court will not have “personal jurisdiction” over the defendant and the lawsuit will be subject to being dismissed for lack of personal jurisdiction. Generally in Texas federal courts, the party who filed the lawsuit, the plaintiff, bears the burden of establishing that the nonresident defendant has contacts with Texas sufficient to invoke the jurisdiction of the federal court located in Texas. The plaintiff can meet that burden by making “a prima facie showing” that nonresident defendant has purposefully availed itself of the benefits and protections of Texas by establishing ‘minimum contacts’ with Texas. A court’s exercise of personal jurisdiction over a non-resident defendant comports with constitutional due process requirements when (1) the defendant “purposefully availed” itself of the benefits and protections of the forum state by establishing “minimum contacts” with that state, and (2) the exercise of personal jurisdiction does not offend traditional notions of “fair play and substantial justice.” See Moncrief Oil Int'l., Inc. v. OAO Gazprom, 481 F.3d 309, 311 (5th Cir. 2007). Both prongs must be satisfied in order for a court to exercise personal jurisdiction over the defendant. If the plaintiff makes a prima facie showing of minimum contacts, then the burden shifts to the defendant to show that the court’s exercise of jurisdiction would not comply with “fair play” and “substantial justice.” See Freudensprung v. Offshore Technical Servs., Inc., 379 F.3d 327, 343 (5th Cir. 2004). In making a fundamental fairness determination, a court must examine: (1) the burden on the defendant; (2) the forum state’s interests; (3) the plaintiff's interest in convenient and effective relief; (4) the judicial system’s interest in efficient resolution of controversies; and (5) the states’ shared interest in furthering fundamental social policies. See Stroman Realty, Inc. v. Wercinski, 513 F.3d 476, 487 (5th Cir. 2008).
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.
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).
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).
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.).
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).
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).
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).
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 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).
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).
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. 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.).