Agree on These Litigation Rules to Level the Playing Field

Agree on These Litigation Rules to Level the Playing Field

TexasBarToday_TopTen_Badge_VectorGraphicThe “Fiver Rules” Recognize the Reality of Modern Litigation Practice

WARNING: Typically, I try to write posts that will interest lawyers and non-lawyers alike. But this post is for attorneys only, particularly Texas attorneys. If you don’t have a “JD” or an “Esq.” after your name, DO NOT READ THIS. It is “inside baseball” exclusively for us lawyers.

The high-powered litigation firm Susman Godfrey popularized the practice of “Trial by Agreement,” a process where lawyers on both sides of a lawsuit agree on certain procedures up front to minimize gamesmanship and unnecessary discovery disputes.

This was an admirable goal, but as a practicing Texas litigator, I find that the suggested stipulations on “Trial by Agreement” don’t always match the reality of modern litigation practice. Having closely observed the way Texas lawyers actually handle lawsuits, I propose that readers of Five Minute Law agree on the following “Fiver Rules” for Texas litigation.

  1. Every response to a written discovery request must begin with three pages of detailed “general” objections. If the responding law firm is from California or New York, the requirement is increased to five pages. These general objections must state that they apply to every request, but most of them must not actually apply to every request.
  1. In state court, the response to each request for production must include an objection that the documents are privileged. Texas Rule of Civil Procedure 193.2(f) says that the responding party should withhold privileged documents, not object to the request, but the parties will be required to ignore this rule.
  1. Contention interrogatories must ask for “all facts” supporting the responding party’s contentions. Texas Rule of Civil Procedure 197 is clear that phrasing a contention interrogatory this way is objectionable, but the requesting party must ignore this rule. Conversely, an interrogatory asking for the basic factual grounds for a claim in a party’s pleading must be met with the objection that it improperly requires “marshaling evidence.”
  1. The “conference” requirement for discovery disputes may be satisfied by stating to opposing counsel in writing that all of his objections are unfounded. The statement must be in the form of a letter attached to an email to emphasize its seriousness. Alternatively, the procedure for resolving discovery disputes will be a conference call with at least three participants on each side. The lead lawyers are expected to use the conference call to train their associates on how to show the lawyers on the other side how tough and smart they are.
  1. Motions for summary judgment will be decided based on which side brings a larger binder of documents for the judge. If the binders are the same size, the tie-breaker will be which side has more PowerPoint slides.
  1. Every document produced in discovery must be designated “Confidential – Attorneys’ Eyes Only,” regardless of actual confidentiality. This includes documents found on the internet and copies of pleadings from publicly available court files.
  1. No one is allowed to smirk or make a sarcastic comment when a lawyer interrupts a difficult deposition question to “confer on a privilege issue.” If there is no plausible reason the question would raise any privilege issue, the remedy for the questioning lawyer will be limited to resuming the deposition with a snarky comment like “now that you’ve had a chance to confer with your lawyer . . .”
  1. The parties stipulate that every witness met with his lawyer five times for a total of 20 hours to prepare for the deposition. How many hours of your life have you spent listening to detailed deposition questions about who the witness met with, where, and for how long to prepare for the deposition? How many times has this questioning resulted in discovering a fact that will make any difference whatsoever at trial? This stipulation will save time for everyone.
  1. Each side’s first request for production will include a request for every document generated by the other side’s expert witness. Never mind that the “new” Texas discovery rules (which are now almost 20 years old) provide for only two exclusive methods of obtaining discovery about testifying experts (read Rule 195.1 if you don’t believe me). Why waste those forms your firm has been saving since the Reagan administration?
  1. In federal court, the defendant must file a motion to dismiss raising every possible factual defense to the plaintiff’s claims. A lot of court opinions say the judge should decide a motion to dismiss based only on the facts alleged in the plaintiff’s complaint. Those courts obviously do not appreciate the number of billable hours that a thorough motion to dismiss can generate for the benefit of both sides.

Agreeing on these rules up front will level the playing field for everyone. Nerds who take the Rules of Civil Procedure seriously will no longer be at a disadvantage. If the judge reprimands a lawyer for following one of the Fiver Rules, it will be socially acceptable for that lawyer to point at opposing counsel and say “he started it!”

And if you are a non-lawyer who has gotten this far and is now saying, “I wish I had that five minutes of my life back,” all I can say is, “you were warned.”

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head-shot-photo-of-zach-wolfeZach Wolfe is a Texas trial lawyer who handles non-compete and trade secret litigation. His firm Fleckman & McGlynn, PLLC has offices in Austin, Houston, and The Woodlands.

These are his opinions, not the opinions of his firm or clients, so don’t cite part of this post against him in an actual case. Every case is different, so don’t rely on this post as legal advice for your case.

Track These Changes: Ethics of Inadvertent Disclosure of Metadata

Track These Changes: Ethics of Inadvertent Disclosure of Metadata

Texas Ethics Opinion 665 says lawyers have an ethical duty to avoid inadvertently disclosing confidential metadata, but not an ethical duty to disclose they received inadvertently-sent metadata

Does a lawyer have an ethical duty to avoid sending opposing counsel a document containing metadata that reveals confidential client information? Does the receiving lawyer have a duty to inform the sending lawyer of the receipt of confidential metadata and to refrain from using the information obtained therefrom?

Did I really just use the word “therefrom” in Five Minute Law? Please don’t report me to Bryan Garner.

In any case, the Professional Ethics Committee for the State Bar of Texas recently addressed these questions in Opinion No. 665, which appeared in the January 2017 Texas Bar Journal. The Committee said yes, a Texas lawyer generally has an ethical duty to avoid transmission of confidential metadata, and no, a Texas lawyer generally does not have an ethical duty to notify opposing counsel of the inadvertent receipt of confidential metadata.

In short, you could say the Texas rule on inadvertent disclosure of metadata is don’t disclose. If you’re the sending lawyer, don’t disclose confidential metadata. If you’re the receiving lawyer, you don’t have to disclose that you received it.

The Committee included this important qualification: the opinion applies only to the “voluntary transmission of electronic documents outside the normal course of discovery.” Disclosure of metadata in discovery—an issue currently before the Texas Supreme Court in the State Farm case—is an entirely different subject.

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I read these things on the weekend so you don’t have to

The second part of Opinion 665 is consistent with Opinion 664, which I covered here. Opinion 664 said generally Texas lawyers do not have an ethical duty to notify opposing counsel they have inadvertently received confidential information. You might even say Opinion 665 simply applies Opinion 664 to metadata.

Once again, this puts Texas at odds with the ABA’s Model Rule of Professional Conduct 4.4(b), which  requires a lawyer to promptly notify the sender of the receipt of inadvertently-sent electronically stored information. This is Texas, the home of rugged individualism. If the other guy inadvertently sends you confidential information, that’s his problem.

But there is a limit. Would you believe the Texas ethics rules require lawyers to be honest? It’s right there in Rule 8.04(a)(3), which says a lawyer shall not “engage in conduct involving dishonesty, fraud, deceit or misrepresentation,” and Rule 3.03(a)(1), which requires that a lawyer shall not knowingly “make a false statement of material fact or law to a tribunal.” You can use confidential metadata opposing counsel inadvertently sent you; you just can’t lie about it.

In the Committee’s words:

[A]lthough the Texas Disciplinary Rules do not prohibit a lawyer from searching for, extracting, or using metadata and do not require a lawyer to notify any person concerning metadata obtained from a document received, a lawyer who has reviewed metadata must not, through action or inaction, convey to any person or adjudicative body information that is misleading or false because the information conveyed does not take into account what the lawyer has learned from such metadata.

That sounds reasonable. But it’s so abstract. What does it really mean?

Application of the Texas “don’t disclose” rule to metadata in a settlement agreement

Let’s make this concrete with my favorite hypothetical non-compete lawsuit, Paula Payne Windows v. Dawn Davis. Suppose Dawn’s lawyer sends Dawn Paula Payne’s proposed settlement agreement in Microsoft Word. Dawn revises it and inserts some confidential comments, such as “change this to a one-year non-compete, but I’ll agree to two years if that’s what it takes—I just want this nightmare to be over!”

Dawn’s lawyer emails Paula Payne’s lawyer, Sam Sneaky, a Word document containing metadata that allows Sam to recover and review Dawn’s comments, including the comment about the length of the non-compete. Sam decides not to tell Dawn’s lawyer about the inadvertent disclosure. Knowing that Dawn is desperate to settle and will cave on the non-compete, Sam sends back a demand for more money and a two-year non-compete.

So has anyone broken any ethical rules under Opinion No. 665?

Dawn’s lawyer probably failed to meet his duties of competent representation (see Rule 1.01) and maintaining confidentiality of client information (Rule 1.05).  According to Opinion 665:

Lawyers . . . have a duty to take reasonable measures to avoid the transmission of confidential information embedded in electronic documents, including the employment of reasonably available technical means to remove such metadata before sending such documents to persons to whom such confidential information is not to be revealed pursuant to the provisions of Rule 1.05.

Let’s assume Dawn’s lawyer knew the original Word document had sensitive client communications in it and should have known those communications could be recovered from the metadata in the new document. In that case, Dawn’s lawyer should have taken reasonable measures such as using a common metadata-scrubbing program when emailing the document to opposing counsel.

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Be careful what you send opposing counsel

On the other hand, Dawn’s lawyer only has to take reasonable measures. “Not every inadvertent disclosure of confidential information in metadata will violate Rule 1.05.”

What about Sam Sneaky? Under the ABA Rule, you could argue Sam had a duty to promptly notify Dawn’s lawyer that the confidential metadata was inadvertently sent. But under Opinion 665, he’s fine in Texas.

That is, unless he conveys information that is false or misleading because it doesn’t take into account what he learned from the metadata. For example, after reviewing the confidential metadata, Sam couldn’t say to Dawn’s lawyer, “I have no idea what length of non-compete your client is willing to agree to, but my client insists on two years.” That would be dishonest. It’s a statement Sam could truthfully make before seeing the confidential metadata, but not after.

Admittedly, this hypothetical is pretty contrived. Who talks like that?

Let’s imagine something more subtle and realistic. Can Sam say to Dawn’s lawyer, “we have to insist on a two-year non-compete because anything less than that won’t adequately protect my client”? That statement is misleading, you could argue, because it omits the material fact that Sam is insisting on the two-year non-compete because he knows from the inadvertently-disclosed metadata that Dawn will agree to it.

The bottom line seems to be this: when Texas lawyers receive confidential metadata from opposing counsel, they don’t have to disclose they received it, and they can use it to their advantage. They just have to be careful what they say after receiving it.

Is this the Cowboy Way?

I’ll be honest. I don’t like this. Ethics Opinion 665, like Opinion 664 before it, seems to make Texas an outlier, and in the wrong direction. I prefer the approach of the ABA Model Rule.

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Let’s rustle up some metadata

Yes, Texas is the Lone Star State, where the legacy of Old West rugged individualism is strong. But we should also remember “Tejas” means “friendship.” And last I checked, Texas was still part of the Bible Belt. The Bible says “do unto others as you would have them do unto you.” If you inadvertently sent a document containing confidential metadata and opposing counsel discovered it, wouldn’t you want him to tell you?

I’m not saying Ethics Opinion 665 is wrong. It’s a reasonable interpretation of the existing disciplinary rules. But using confidential information that opposing counsel inadvertently sends you just doesn’t feel like the Cowboy Way. If your neighbor’s cattle wander onto your ranch because he wasn’t careful, you don’t keep them and say “that’s his problem.”

Perhaps this comes down to the difference between “professionalism” and “ethics.” Ethics, in this context, means complying with a specific set of rules. Professionalism, on the other hand, is a higher—and admittedly fuzzier—standard. Telling a lawyer he accidentally sent you something you know he didn’t mean to send you is good professional courtesy, even if the Rules of Professional Conduct don’t require it.

It’s just following the Golden Rule. And the principles derived therefrom.

Texas lawyers: register for my March 22 webcast covering this very issue here.

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head-shot-photo-of-zach-wolfeZach Wolfe is a Texas trial lawyer who handles non-compete and trade secret litigation. His firm Fleckman & McGlynn, PLLC has offices in Austin, Houston, and The Woodlands. You can probably tell from this week’s image that his son is into Lamborghinis.  

These are his opinions, not the opinions of his firm or clients, so don’t cite part of this post against him in an actual case. Every case is different, so don’t rely on this post as legal advice for your case.

Horizon Case Addresses “Causation Conundrum” in Departing-Employee Litigation

Horizon Case Addresses “Causation Conundrum” in Departing-Employee Litigation

Oral argument in Horizon Health v. Acadia Healthcare illustrates difficulties with proving lost profits damages when employment is at-will

Last week I wrote about a new Texas Supreme Court opinion that had to draw the line between sexual harassment and sexual assault. Just days later, the Texas Supreme Court confronted an even more difficult issue in oral argument in Horizon Health v. Acadia Healthcare: how to draw the line between reasonable assumption and speculation when an expert witness testifies about lost profits damages in a departing-employee case.

This is a difficult issue, because the typical departing-employee case involves at-will employment. Let’s assume a group of employees does all kinds of bad things before leaving to go to work for a competitor. And let’s assume the employer lost sales after the group left. Those facts are relatively easy for a jury to understand.

But this leaves out a critical issue that is harder for the average person to grasp: causation.  It’s not enough to prove the defendants did bad things and the plaintiffs were damaged. You have to prove that the bad things caused the damage. And you have to quantify the damage.

Let’s say the bad conduct is soliciting a key employee to join a competitor, and the damage is the loss of sales the key employee would have made for the company if she had not been solicited. The problem for the plaintiff is obvious: if the key employee is an at-will employee, she could have left the company at any time regardless of whether she was solicited. How do you quantify the amount of lost profits caused by the wrongful solicitation?

That, in simplified form, is the problem confronting the Texas Supreme Court in Horizon Health v. Acadia Healthcare. I call this the Causation Conundrum for departing-employee cases.

Facts of Horizon v. Acadia: the distilled version

Horizon was a somewhat complex case with multiple defendants, numerous causes of action, and a 55-page jury charge (see Court of Appeals opinion here). But the basic facts, in simplified form, follow a familiar pattern:

  • Horizon managed mental-health programs for hospitals.
  • Four of Horizon’s executives, the Saul group, began negotiating to join a Horizon competitor, Acadia, while they were still working for Horizon.
  • While still employed by Horizon, the Saul group solicited John Piechocki, a successful Horizon salesman, to work for the competitor.
  • The Saul group and Piechocki left Horizon to work for Acadia.
  • Before leaving Horizon, the Saul group said things in their emails that must have made their trial lawyers cringe later. Our departures will leave Horizon “dead,” they said, and our business strategy at Acadia will be “hurting Horizon early and often.”
  • The Saul group also did things that would not look good to the jury. Saul, for example, copied a massive amount of Horizon files from his work computer to an external hard drive before leaving Horizon.[1]

Given these facts, Horizon’s lawyers had a lot to work with on liability. But how could they prove the Saul group caused damage to Horizon by bringing Piechocki to the new company? And how could they quantify that damage?

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Emails about “hurting Horizon early and often” certainly didn’t help the defendants at trial

These challenges were compounded by a couple pesky facts. First, Horizon’s profits continued to go up after the employees departed, even exceeding Horizon’s own targets. Second, there was no evidence that any existing Horizon customer left and went to Acadia.

How could Horizon prove lost profits given all these difficulties? The answer is that Horizon tried to prove causation and damages the old-fashioned way: they hired an expert.

Horizon’s expert dares to pose hypotheticals and make assumptions

Horizon designated Jeff Balcombe, a qualified CPA, to testify on damages. Balcombe’s assignment was to quantify Horizon’s future lost profits resulting from the loss of Piechocki. In the words of the Court of Appeals:

Balcombe testified as to the “lost production” damages Horizon suffered as a result of the individual defendants’ wrongful actions. In doing so, he attempted to determine what would have happened but for the wrongful actions—as opposed to what actually happened—by considering (1) how long Piechocki would have remained an employee of Horizon but for the alleged wrongful conduct, (2) how many contracts Piechocki would have sold “but for being an employee of Horizon,” and (3) what the average profit for each of those contracts would have been had he remained with Horizon.[2]

The court’s interjection “as opposed to what actually happened” is dripping with skepticism. But in fairness to Horizon, let’s pause here to consider the nature of causation and damages in a lost profits case involving departing employees.

Proving lost profits damages necessarily requires entering a hypothetical world. To prove how the defendants caused your company to lose profits, you must ask the hypothetical question “what amount of profits would we have made but for the defendants’ wrongful conduct?” There is no other way to do it. So when Horizon’s expert tried to figure out what would have happened, he was doing his job.

The harder part for the damages expert is deciding what assumptions to make. Balcombe based his lost profits analysis on three assumptions:

  1. “Balcombe analyzed the average amount of time Horizon retained its higher-level employees and ‘conservatively elected to assume’ that Piechocki would have stayed at Horizon two or four more years but for the alleged wrongful conduct.”
  1. “Piechocki would have sold six contracts in each year he stayed, up to four years, but for the wrongful conduct because other Horizon salespeople sold four contracts per year.”
  1. “He concluded that $247,000 per year for each contract was ‘a conservative and reliable figure for a mature contract price.’”[3]

This is where the Court of Appeals thought the damages expert went wrong. “We conclude that Balcombe’s opinion was too speculative based on an analytical gap between the data and his opinion; thus, it was no evidence of lost profits suffered by Horizon.” For example, the assumption that Piechocki, an at-will employee, would have stayed employed by Horizon was “nothing more than speculation.” Experts are allowed to make assumptions, but the Court of Appeals found that Balcombe’s factual assumptions were “unsupported” and “not admitted into evidence.”[4]

Wait a minute. Does this mean lost profits damages are never recoverable in a case based on solicitation of an at-will employee? Is the Court of Appeals saying a damages expert is never allowed to make assumptions about how long an at-will employee would have stayed at a company? And does the plaintiff have to offer evidence during the trial to support every factual assumption made by the damages expert?

Surely the Court of Appeals did not mean to go that far. But where to draw the line? That is what the Texas Supreme Court will have to decide.

Fortunately I have the answers to these difficult questions

Does the fact that a wrongfully-solicited employee was also an at-will employee legally bar the company from obtaining lost profits damages? The answer has to be no. That the employee could have left at any time is certainly a relevant fact for the jury to consider, but it can’t mean that lost profits damages are never recoverable in such a case.

So, if lost profits damages are available in such cases, is it legally impermissible for a damages expert to make assumptions about how long a solicited employee would have stayed at the company?

Some might argue that making an assumption about how long an employee would have worked for the company is always speculative, and therefore impermissible. How can an expert know with absolute certainty how long an at-will employee would have stayed?

The answer, of course, is that he can’t. But absolute certainty is not required. The Texas Pattern Jury Charge asks the jury to decide the amount of lost profits “that, in reasonable probability, will be sustained in the future.” Reasonable probability is the standard.

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There is always some hypothetical element to the calculation of lost profits damages

So, even if the employment is at-will, a damages expert can make assumptions based on reasonable probability. That much is clear. But what assumptions?

Again, the question almost answers itself. The assumptions must be reasonable and must be supported by some evidence. No one would argue that an expert can base a damage calculation on unreasonable assumptions. And a damages expert should not be allowed to assume facts that have no evidence to support them.

A harder question is whether the facts assumed by the expert must be offered in evidence at trial. Texas Rule of Evidence 703, like the corresponding Federal Rule, allows an expert to reasonably rely on facts he has been made aware of, even if those facts are not admissible. But the Court of Appeals in Horizon was troubled by the fact Balcombe’s underlying information was not admitted into evidence.

The Texas Supreme Court also seemed troubled. In oral argument, one of the justices asked whether there was any evidence other than the expert testimony to support the amount of damages found by the jury. The Court of Appeals assumed the answer was no. But Horizon’s counsel argued to the Supreme Court that the answer was yes.

So perhaps the Texas Supreme Court will sidestep the entire expert testimony issue and find that there was other evidence sufficient to sustain the damages verdict.

It’s hard to predict what this Texas Supreme Court will do in a departing-employee lawsuit. This is a court that likes defendants and doesn’t like big speculative damage awards (see Southwestern Energy for example). But this is also a court that likes employers and non-competes.

If I had to predict, I would bet that the court’s aversion to speculative damage awards will outweigh its warm fuzzy feelings for employers, meaning a win for the defendants on the lost profits damages issue.

But it is a conundrum.

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head-shot-photo-of-zach-wolfeZach Wolfe is a Texas trial lawyer who handles non-compete and trade secret litigation. His firm Fleckman & McGlynn, PLLC has offices in Houston, Austin, and The Woodlands. He can’t remember the last time he wrote a post with as many rhetorical questions as this one.

These are his opinions, not the opinions of his firm or clients, so don’t cite part of this post against him in an actual case. Every case is different, so don’t rely on this post as legal advice for your case.

[1] Acadia Healthcare Co. v. Horizon Health Corp., 472 S.W.3d 74, 79-82 (Tex. App.—Fort Worth 2015, pet. filed).

[2] Id. at 88.

[3] Id. at 88-89.

[4] Id. at 89-90 (emphasis added).

Texas Employees Can Still Sue Employers for Common-Law Assault

Texas Employees Can Still Sue Employers for Common-Law Assault

Steak N Shake: Texas sexual harassment statute does not preempt a common-law assault claim if the “gravamen” of the claim is assault 

I had a friend in college who liked to end every argument around the dining hall table by saying “it’s really just a question of where you draw the line.”[1] It was supposed to be a joke. He was making fun of the overuse of that line—it had become the academic version of the cliché “it is what it is” on sports talk radio. But the funny thing is that he was often right.

The Texas Supreme Court’s decision last week in B.C. v. Steak N Shake proves that legal issues often do come down to a question of where you draw the line. The Steak N Shake court had to decide how to draw the line between sexual harassment and sexual assault in the workplace.

It’s a distinction that has important legal consequences in Texas. If the court classifies the claim as sexual harassment, then the claim will be subject to limits imposed by the Texas Commission on Human Rights Act (TCHRA), including a cap on damages. If the court classifies the claim as sexual assault, then it’s governed by common law, which means no cap on damages.

You can already guess which one a savvy plaintiff’s lawyer is going to pick. If the harassment involved any objectionable physical contact, the plaintiff will typically plead the claim as sexual assault, not sexual harassment, to get around the limits of the TCHRA. The plaintiff will also sue the employer for common law negligence, such as negligent hiring or retention.

Not so fast, the Texas Supreme Court said in 2010. In Waffle House v. Williams, the court held that the TCHRA’s statutory framework for sexual-harassment claims preempted an employee’s common law negligent supervision and retention claim.[2] “If [the employee’s] common-law claim for negligent supervision and retention is allowed to coexist with the statutory claim,” the Waffle House court reasoned, “the panoply of special rules applicable to TCHRA claims could be circumvented in any case where the alleged sexual harassment included even the slightest physical contact.”[3]

In other words, Waffle House said you can’t get around the limits of the TCHRA by calling sexual harassment something else, like common law assault.

The problem with the distinction is obvious. In many cases, as in Waffle House, the conduct alleged by the plaintiff qualifies as both harassment and assault. The Waffle House court adopted the “gravamen” test to address this problem. “Where the gravamen of a plaintiff’s case is TCHRA–covered harassment,” the court said, “the Act forecloses common-law theories predicated on the same underlying sexual-harassment facts.”

Gravamen is a fancy legal word for “essence,” or the most substantial part of a grievance.

The “boorish and objectionable conduct” alleged in Waffle House included both non-physical harassment and objectionable physical contact.  The manager allegedly pushed the employee, held her arms with his body pressed against her, rubbed against her breasts with his arm while she reached up to put plates away, and “cornered” her on several occasions.[4] The court said that the gravamen of this alleged conduct was harassment, not assault.

Personally, I disagree with the preemption rule adopted in Waffle House. I would have joined the two dissenting justices. The Texas legislature knows how to say that a statute preempts the common law–as it did in the Workers Comp statute. The TCHRA, in contrast, doesn’t expressly state that it preempts common-law claims based on the same facts, so I would have held that the plaintiff can still pursue the common-law claims. But I can at least see the logic of the preemption argument.

And the rest of the Waffle House decision makes some sense to me. If you’re going to say that the statute preempts common-law claims that are based on allegations of harassment, then the “gravamen” test is probably the most workable way to distinguish between harassment and assault.

And Waffle House seemed to get it right when it said that the essence of the manager’s boorish conduct was harassment, even though the conduct would also meet the definition of assault. You have to draw the line somewhere.

But what if the manager’s conduct in Waffle House had been more violent and egregious?

Let’s say the male supervisor attacked a female employee in a restaurant restroom during an overnight shift. He pushed her against a sink, grabbed her by the back of the head, and tried to kiss her. During the struggle, the supervisor allegedly exposed himself, pulled the woman’s pants down, and put his hand up her shirt.  Although the supervisor and employee had socialized before—such as sharing beer and cigarettes in the restaurant parking lot—there was no sexually suggestive conduct by the supervisor prior to the alleged assault.

What would the gravamen of those allegations be, harassment or assault?

That was the issue in Steak N Shake. Applying Waffle House to these more egregious allegations, the Texas Supreme Court found that the gravamen or “essence” of the claim was assault, not harassment. Therefore, the common-law assault claim was not preempted by the TCHRA.

You could see this coming. Even this pro-business court doesn’t want to see the headline “Texas Supreme Court Says Victim of Bathroom Attack Can’t Sue Employer.” But where does this leave Texas law?

Putting Waffle House and Steak N Shake together, the “gravamen” test seems to turn on two factors. First, how violent or egregious is the physical assault? The alleged physical contact in Waffle House, while offensive and objectionable, was not shockingly violent.  In contrast, the assault alleged in Steak N Shake was a violent struggle in a restroom. Second, was the assault part of a pattern of harassing conduct, or was it an isolated incident? Where the assault is part of a pattern, as in Waffle House, the gravamen of the claim is more likely to be “hostile work environment,” a type of sexual harassment.

Of course, it’s easy to imagine harder cases. The next case that goes up on appeal will likely involve allegations that are more egregious than the pattern of boorish behavior in Waffle House, but not as violent as the conduct alleged in Steak N Shake. It’s not always easy to know where to draw the line.

I for one look forward to a day when workplace incidents like these are a thing of the past, regardless of whether you call them assault or harassment. But sadly, that day is probably a long way off.

It is what it is.

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head-shot-photo-of-zach-wolfeZach Wolfe is a Texas trial lawyer who handles non-compete and trade secret litigation. His firm Fleckman & McGlynn has offices in Austin, Houston, and The Woodlands.

These are his opinions, not the opinions of his firm or clients, so don’t cite part of this post against him in an actual case. Every case is different, so don’t rely on this post as legal advice for your case.

[1] Yeah, we got pretty wild and crazy back then. Don’t tell my kids.

[2] Waffle House, Inc. v. Williams, 313 S.W.3d 796, 812 (Tex. 2010).

[3] Id. at 807.

[4] Id. at 799.

The Most Effective Form of Non-Compete in Texas (or Anywhere)

The Most Effective Form of Non-Compete in Texas (or Anywhere)

I previously wrote about the second most effective form of non-compete here. This kind of non-compete is drafted as narrowly as possible to maximize the chance that it will be enforced.

So what is the most effective form of non-compete?

The most effective form of non-compete is a happy employee who doesn’t want to leave the company.

If you’re an employer that’s probably not the answer you wanted to hear. You might even feel cheated by my headline.

Most companies that employ a sales force will not like this advice. But the problem is that companies who think they can solve the problem with a non-compete are probably (1) underestimating the value of happy employees and (2) overestimating the effectiveness of a non-compete.

I’m not a great businessman, so I don’t have any special insight about the value of happy employees, but I can observe what successful business people have said and done. My dad, for example, built a successful software consulting business that literally started in his living room. How? He recruited and retained top-notch talent by focusing on the quality of life of his employees. You might even say I got to go to college because my dad’s company had happy employees.

Another source is a businessman I don’t know personally, but he seems to have done alright. Richard Branson has said: “Take care of your employees, and they’ll take care of your business. It’s as simple as that.” In a similar vein, he said: “Train people well enough so they can leave. Treat them well enough so they don’t want to.”

Frankfurt, Germany - May 17: Richard Branson, Founder And Presid
Sir Richard Branson

So, while I don’t claim to be a business expert, I know that business people who keep their employees happy seem to do pretty well.

Non-competes, on the other hand. Those, I know a little about.

The legal problem with a non-compete is that there is almost always a dispute over whether it’s enforceable. The first thing I do when a client comes to me with a non-compete is to evaluate its enforceability. As I explained here, there are five things I look for in the typical Texas non-compete to determine if it is legally enforceable.

These five things have something in common: often the answer will depend on resolution of disputed facts. In litigator lingo, these five things often raise “fact issues,” meaning the case may have to go to trial before the judge decides if the non-compete is enforceable.  As I explain in this video, that means time and money.  A lot of time and money.

So how can you hold on to your best employees instead of ending up in litigation with them? Regardless of what kind of company you have, I can guarantee that you have two kinds of sales people working for you: above average and below average. Now, ask yourself these questions.

If a below-average sales person wants to leave the company and try to compete with you, do you really care?

If an above-average sales person wants to leave the company to work for a competitor, why?

There is always a reason. If money is an issue, then why is a competitor willing to pay the employee more? Is the competitor miscalculating and overestimating the value of the employee? Does the competitor recognize value that you may be underestimating?

If money isn’t the issue, what are you doing that is making your above-average employees unhappy? Is their boss a jerk? Do you give them enough independence? Do they feel like they can go on vacation?

Some hard-nosed employers will think me naïve. You don’t understand my industry, they will say.  It’s intensely competitive. Everyone is fighting for the same limited group of customers. It’s cutthroat. Sales people only care about money and will leave their employer at the drop of a hat for the promise of a bigger paycheck. I can’t afford to invest a lot of time and money in training my people and helping them develop customer relationships, only to have them turn around and leave, taking customers with them.

So let me get this straight. First, you’re saying your business is very competitive and requires skilled employees. Second, you’re saying that developing high performing employees takes time, money, and effort. Third, you’re saying that if you require your employees to sign non-competes, you can hold on to your best employees and customers.

To which I respond, who is being naïve?

p.s. I’m beta testing my new YouTube channel called “Non-Compete News.” Please check it out here and give me some feedback! Official rollout coming soon.

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head-shot-photo-of-zach-wolfeZach Wolfe is a Texas trial lawyer who handles non-compete and trade secret litigation. His firm Fleckman & McGlynn has offices in Austin, Houston, and The Woodlands.

These are his opinions, not the opinions of his firm or clients, so don’t cite part of this post against him in an actual case. Every case is different, so don’t rely on this post as legal advice for your case.

 

 

Proposed Changes to Texas Discovery Rules Threaten Law Firm Revenue

Proposed Changes to Texas Discovery Rules Threaten Law Firm Revenue

We earn our hourly fees the old-fashioned way

Anyone who has been involved in a business lawsuit knows that a lot of time and money is spent fighting over what documents each side must produce.

You send a request for production that includes variations on the theme of “please produce documents supporting your claim that my client did X.” Your adversaries object. You object to their objections. You “confer” with opposing counsel.

You file a motion to compel. They file a response. You go to a hearing where the judge says “I don’t have time for discovery disputes” and tells you to go out in the hall and work it out. Eventually, the judge rules.

After the hearing, you argue with opposing counsel with the wording of the order. You go back to court for the judge to resolve that dispute. The judge finally signs an order. A few weeks later the other side produces documents, but they don’t include all the documents you asked for. You file another motion.

While all this is happening, the other side requests documents from you. You object. Opposing counsel calls you and . . . well, you get the idea.

Does it have to be this hard?

When you serve a request for production of documents, you’re essentially looking for two kinds of documents: good documents and bad documents. Good documents—for the opposing side—are the documents they are going to use to prove their case. Bad documents are the ones you’re going to use against them to prove your case.

Clients spend a lot of time and money essentially getting the other side to produce its good documents and its bad documents. And the proliferation of emails has made it worse.  The only ones left smiling are the law firm partners reviewing the billable hours for the month.

Couldn’t we simplify and just have a rule that says “each party must produce its good documents and its bad documents in 30 days upon request”?

Yes and no. A rule requiring a party to produce its bad documents—the documents that hurt its case—would just not be workable. But a rule requiring production of the documents a party plans to use to prove its case? That sounds sensible.

Federalization of the Texas Rules of Civil Procedure?

Texas may soon have just such a rule.  The Texas Supreme Court Advisory Committee is considering significant changes to the pretrial discovery rules in the Texas Rules of Civil Procedure.  One of those changes would require routine disclosure of the following:

initial-disclosures-rule
Sound familiar, litigators?  This is of course what the Federal Rules of Civil Procedure already require in a party’s “initial disclosures.”

I’ve never understood the point of the alternative to provide a “description” of the documents.  I’m always tempted to respond “Plaintiff is in possession of white paper documents with black printing located in its computers and file cabinets.” Even a more reasonable description, such as “emails between the parties regarding the dispute at issue, located on Plaintiff’s email server,” is practically worthless.  If you see some value to this alternative, please tell me why.

But we must not carp too much. Overall, this change to the Texas Rules would cut the time lawyers spend arguing over requests for production that amount to saying “just give me the documents you’re going to use to prove your case.”

Some lawyers won’t like this. Those of a certain vintage will say, “Back in my day, the partners would hand you a file on Friday and say go try this case on Monday. It was trial by ambush. We never knew what documents the other side had, and we liked it!”

Does that sound old fashioned? Well, if you’re one of the lawyers saying “we used to have to serve dozens of requests for production and file a motion to compel, just to get the documents the other side planned to use,” you may sound the same way to the generation of lawyers coming up now.

Expert Texpert

Another proposed change to the Texas discovery rules could also save money, and also has a Federal flavor.

Currently, Texas lawyers have to be careful any time they communicate in writing with a hired expert witness, because those communications are discoverable. But this proposed rule would change that:

expert-communications-rule

Sound familiar again? This would match a change made to the Federal Rules in 2010.

Some of you won’t like this. You smell a rat every time you see an expert designation. You want to see the emails where the lawyer tells the expert what to say. You fight for the first draft of the expert’s report so you can show he changed opinions under pressure from the client.

“What happened to transparency?” you say. If this rule change happens, the lawyer could practically write the report for the expert, and no one would ever know. The early drafts of the expert report will be like Donald Trump’s tax returns.

There is some merit to this critique, but I think it largely misses the mark. For one thing, telling the expert what to say probably doesn’t happen as often as people think.

It’s an old saw that hired experts will say whatever the hiring lawyer tells them to say. As a litigator who sometimes has to deal with difficult experts, my response is “I wish.” Try persuading a Ph.D. who charges $500/hour that he needs to tweak his methodology. Truth is, most experts who are good enough to be hired have too much pride to let a mere J.D. tell them what to say.

But there is a simpler problem with the critique of exempting attorney-expert communications from discovery. The reality is that under the current Texas rules you hardly ever get any good dirt on the expert anyway.

Litigators know their communications with testifying experts are discoverable, and they act accordingly. They’re not going to email the expert saying “I need you to change part of your report.” Lawyers often twist themselves in knots to make sure there are no documents showing the evolution of the expert’s opinions and report. They scold the expert if he even thinks of jotting down a few notes on a legal pad.

And therein lies the problem. Jumping through hoops to avoid leaving a paper trail of attorney-expert communications costs time and money. Do we really want a rule that incentivizes a lawyer to sit and look over the expert’s shoulder while he types revisions to his report? Better to save that time and let lawyers and experts email each other all they want, without fear of how it’s going to look.

This was basically the thinking when the corresponding Federal rule was changed. And on balance, that thinking was right.

Partners at big law firms may wonder how they are going to make up the billable hours lost because of these changes. But don’t worry. They’ll find a way.

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head-shot-photo-of-zach-wolfe

Zach Wolfe is a Texas trial lawyer who handles non-compete and trade secret litigation. His firm Fleckman & McGlynn has offices in Austin, Houston, and The Woodlands.

These are his opinions, not the opinions of his firm or clients, so don’t cite part of this post against him in an actual case. Every case is different, so don’t rely on this post as legal advice for your case.

 

Texas Jury Finds Damages Totaling $500 Million in Oculus Rift Case

Texas Jury Finds Damages Totaling $500 Million in Oculus Rift Case

On February 1, a jury in a Dallas federal court returned a verdict in ZeniMax v. Oculus, a high-stakes battle over who owns the technology used in the Oculus Rift virtual reality system. The jury found that Oculus and its co-founders caused damages totaling $500 million. That’s a lot of money in some circles, but the COO of Oculus’s owner said “the verdict is non-material to our business.”

You see, the owner of Oculus is a little company called Facebook.

But still, it’s not every day that a Texas jury finds damages of half a billion dollars in a case involving allegations of trade secret misappropriation, copyright infringement, breach of a non-disclosure agreement, trademark infringement, and spoliation of evidence. As a Texas litigator who deals with all of these issues, I was curious to see what lessons could be learned from the Oculus verdict.

The answer: not a whole lot. The problem is that you can read every word of the 90-page jury verdict and still have no idea what happened in the trial. And news reports about the verdict don’t add much. In fact, the Oculus case is a prime example study of how little the typical press coverage of a jury verdict tells you.

Of course, you can at least learn who the main players were:

  • Video game pioneer John Carmack worked for id Software, a subsidiary of ZeniMax.
  • Carmack came into contact with wiz kid Palmer Luckey, who was developing a virtual reality headset called the Rift.
  • Luckey founded Oculus to commercialize the Rift.
  • Carmack worked with Luckey on improving the Rift.
  • ZeniMax entered into a Non-Disclosure Agreement with Luckey and Oculus.
  • Carmack eventually left id Software and joined Oculus.
  • Brendan Iribe was the CEO of Oculus.
  • Facebook bought Oculus for $2 billion.

ZeniMax and id Software sued Carmack, Luckey, Iribe,  Oculus, and Facebook, claiming they misappropriated trade secrets and other intellectual property.

For me, the most interesting nugget was ZeniMax accusing Carmack of stealing documents on a USB drive and wiping his computer to destroy evidence. Carmack denied these allegations in a Facebook post after the verdict, saying “I never tried to hide or wipe any evidence,” but if the jury heard evidence supporting these allegations, it must have colored their perception of other issues in the case.

carmack-facebook-excerpt

The defendants were able to claim a partial victory because the jury found that none of the defendants misappropriated ZeniMax’s trade secrets. But the jury found liability on other causes of action, and significant damages, against all defendants except Facebook:

  • $50 million against Oculus for copyright infringement
  • $200 million against Oculus for breach of the Non-Disclosure Agreement
  • $50 million against Oculus for false designation of origin
  • $50 million against Luckey for false designation of origin
  • $150 million against Iribe for false designation of origin

Add these up, and you get a headline like this: “Oculus lawsuit ends with half billion dollar judgment awarded to ZeniMax.” If you’re a litigator, that kind of headline makes you cringe. Not because of the amount of money, but because you know that a jury doesn’t award a “judgment” at all. The jury renders a verdict. Later, the judge enters a judgment based on the verdict.

Maybe it sounds nit-picky, but reporters make this mistake all the time. When a headline says “Oculus ordered to pay $500 million in ZeniMax lawsuit,” it is simply inaccurate. The jury doesn’t order anyone to pay anything. The jury just fills in a blank in response to a question. The judge decides whether to order the defendant to pay.

screen-shot-2017-02-04-at-8-38-27-am
   I don’t care who you are, that’s a lot of zeroes

The distinction can be important. In some cases, entering a judgment on the verdict is a routine, almost ministerial, act by the judge. But in any moderately complex case, you can bet there will be a battle of post-verdict motions over what to do with the verdict. This is usually the trial court judge’s last opportunity to rule on legal issues in the case before it goes up on appeal.

It’s possible that the judge in the Oculus case will simply render judgment ordering each defendant to pay the amount of damages the jury found that defendant caused, but I don’t expect it will be that simple. You can look at the complicated charge and the number of high-priced lawyers on the case and know there is going to be a battle over the judgment.

Expect the defendants to argue that there was insufficient evidence to support the jury’s answers on both liability and damages. I also wonder if there is an election of remedies issue. When the jury awards damages on several causes of action that arise from the same facts, the judge doesn’t necessarily add up all the dollar amounts and award the total to the plaintiff.

So the verdict is the climax, not the end of the story. We’ll have to wait and see whether the judgment actually awards $500 million (plus interest and maybe attorneys’ fees?), and whether the judge grants an injunction against sales of the Oculus Rift based on the jury’s finding of copyright infringement.

I tried to think of a good football analogy, but golf is better for this point. Discovery and pre-trial motions are the first 17 holes. The trial is getting the ball on the 18th green. The post-verdict motions and appeals are getting the ball in the hole to win the tournament. That’s why they say “trial lawyers drive for show, appellate lawyers putt for dough.”

It will be fun to watch ZeniMax’s lawyers putt for $500 million.

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head-shot-photo-of-zach-wolfeZach Wolfe is a Texas trial lawyer who handles non-compete and trade secret litigation. His firm Fleckman & McGlynn has offices in Austin, Houston, and The Woodlands.

These are his opinions, not the opinions of his firm or clients, so don’t cite part of this post against him in an actual case. Every case is different, so don’t rely on this post as legal advice for your case.