Is That Your Final Answer? Lost Profits Damages in “Fiduciary Duty Lite” Cases

Is That Your Final Answer? Lost Profits Damages in “Fiduciary Duty Lite” Cases

Recent Case from Beaumont Court of Appeals Provides Opportunity to Test Your Knowledge of Texas Lost Profits Damages Law

This week I’m doing something a little different on Five Minute Law: a contest! Here are the official rules:

  1. Read the fact pattern and multiple-choice question below.
  1. You have one week to send me your answer and your explanation. You can do this in the Comments section, by email (, on the Twitter (@zachwolfelaw), on LinkedIn . . . you get the idea.
  1. For the next week you are not allowed to read Rhymes v. Filter Resources, Inc., 2016 WL 5395548 (Tex. App.—Beaumont Sept. 22, 2016). We are on the honor system!
  1. The Five Minute Law follower who gives the best answer will win a fabulous prize.*
  1. Non-lawyers get extra credit.

But first, the background. Last month, the Beaumont Court of Appeals issued a revised opinion on lost profits damages in Rhymes v. Filter Resources, a typical Fiduciary Duty Lite case.

Fiduciary Duty Lite? As I wrote here, that is the flavor of fiduciary duty that an employee owes to an employer under Texas law. As I explained, it doesn’t really make sense to call it “fiduciary” duty, but that’s the label Texas courts have used so we’re probably stuck with it.

Winneconne WI - 17 Feb 2016: Six pack of Miller Lite in cans.
“Fiduciary Duty Lite” allows an employee to make plans to compete

Essentially, Fiduciary Duty Lite says that an employee can prepare to compete with his employer while still employed but cannot actually start competing until after leaving the employer. If you suspect that maintaining this distinction is easier in theory than in practice, you may have a bright future in Fiduciary Duty Lite litigation.

But first you have to pass this quiz. Here are the facts of Rhymes in simplified form:

  1. Employee signs agreement with Company that says Employee will not solicit the Customers for one year after leaving Company.
  1. Employee speaks to attorney who provides formal legal opinion that non-solicitation clause is “not worth a s**t.”
  1. Employee gets access to Company’s double super-secret information, such as “products, prices, contracts, and financial, vendor, and customer information” (i.e. the same kind of information every sales employee gets).
  1. Employee, while employed by Company, prepares to compete with Company, including forming Competitor and communicating with Customers about Employee’s plans.
  1. But Employee testifies he did not actually “solicit” Customers before leaving Company (whatever that means).
  1. After leaving Company and joining Competitor, Employee quickly begins selling to his old Customers from Company.
  1. Company sues Employee and Competitor. Law firm partner who represents Company buys new Lexus. At trial, Company’s damages expert presents these numbers for Year 1:


  1. Company’s expert also testifies that Company’s lost profits for a five-year period would be $622,800, using Year 1 as a base line and assuming a gradual decrease over Years 2-5 to account for risk and customer attrition.
  1. Employee and Competitor present no contrary expert testimony.
  1. Jury finds that Employee breached his Fiduciary Duty Lite and finds damages of $620,000 for Year 1 and zero dollars for Years 2-5.

Got it? Now, here is the multiple choice question.

QUESTION: Assuming there was sufficient evidence that Employee breached his Fiduciary Duty Lite, what is the right amount of damages to award to Company based on the jury verdict?

A. $620,000. This is the amount found by the jury, and there is some evidence to support it because Employee earned revenue of over $638,000 in Year 1.

B. $206,767. Lost profits damages must be based on net profits, not gross revenues, so there is insufficient evidence to award $620,000 for Year 1 but sufficient evidence to award $206,767 for Year 1.

C. $622,800. Company’s damages expert testified to this amount of net profits for Years 1-5 without contradiction.

D. Zero dollars. There is legally insufficient evidence to support the amount of damages found by the jury.

E. None of the above. A new trial should be ordered. (I added this choice strictly for my appellate ninjas.)

If you’re struggling, don’t feel bad. It took the Beaumont Court of Appeals two tries to come up with its final answer.

Now, may the odds be ever in your favor.

*Selection of the best answer will be in Five Minute Law’s sole discretion. “Fabulous” as used herein shall mean having a cash value of greater than $5.00. 



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. He made up the part about the Lexus.

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.

Did You Get the Digits? Judge Grants Preliminary Injunction in Houston College of Law Trademark Litigation

Did You Get the Digits? Judge Grants Preliminary Injunction in Houston College of Law Trademark Litigation

Federal District Court finds that “Houston College of Law” Creates Likelihood of Initial-Interest Confusion with University of Houston

Meet Dave. Dave is a college student in Florida. He spent the first couple of years at school mostly partying, but lately he’s been working on getting his grades up, and he’s thinking about applying to law school. Dave doesn’t have any lawyers in his family, but he’s familiar with the University of Houston because he likes high-scoring college football teams. Dave saw an ad for Houston College of Law and, thinking it must be part of the University of Houston, he checked out its website.

Recognizing the red and white color scheme, Dave started clicking through the website to find out more. Pretty soon, Dave realized that Houston College of Law may not be part of the University of Houston. “Hey, Tony,” he said to his roommate, “is Houston College of Law the one you’re applying to?” “No, you dumb***,” Tony said.[1] “That’s the one with the moot court teams. U of H has its own law school. It’s the one in the top 50.” “Oh,” Dave said sheepishly. “Well I’m going to check out this Houston College of Law anyway.”

Did actionable trademark infringement just happen here? That, essentially, is the difficult issue presented in Board of Regents of the University of Houston System v. Houston College of Law, which I first covered here. You can read the Houston Chronicle’s coverage here.

On October 14, Judge Keith Ellison issued this opinion and granted the University of Houston’s motion for a preliminary injunction to stop South Texas College of Law from changing its name to Houston College of Law, finding there was a substantial likelihood that prospective law students would confuse Houston College of Law with the University of Houston, at least initially, and that such “initial-interest confusion” is actionable in the Fifth Circuit.

Wow.  That was a really long sentence.  Let’s break this down.

What Issues Were Most Important to the Decision?

Like most trademark infringement opinions, Judge Ellison’s opinion walks through eight factors—the “digits”—to determine the likelihood of confusion. But the decision really came down to three key issues.

Houston College formerly
Would you think this school is part of the University of Houston?

First, there was the typical “Battle of Surveys” between two experts. UH’s expert did a survey that found a 25% net confusion rate. Houston College of Law’s expert’s survey found a 6% net confusion rate.[2] “Thus,” Judge Ellison deadpanned, “as is so often the case in high-stakes litigation, highly qualified experts have presented dueling reports that reach significantly different results.”

The judge found that UH’s expert’s methodology was more reliable, and that was a major factor supporting the decision. The lesson for lawyers who handle trademark litigation is that it is important to work closely with the expert ahead of time to make sure the methodology is as defensible as possible. I know, easier said than done.

Second, UH benefitted from citing anecdotal examples of actual confusion, such as misdirected mail and email, including confusion by prospective law students. These instances of confusion were minor—and probably fleeting—but the cumulative effect was to bolster UH’s argument that people are likely to associate Houston College of Law with UH.

Third, UH won the legal argument on initial-interest confusion. I explained the concept of initial-interest confusion when I wrote about the preliminary injunction hearing: When a consumer walks into a bar called the “Velvet Elvis” thinking it is affiliated with Elvis Presley and then realizes it is not, initial-interest confusion has happened. Even though the consumer is not confused at the “point of sale,” the initial confusion has succeeded in getting him “in the door.”

Trademark surveys: they’re not rocket science

Houston College of Law’s lawyers argued the doctrine of initial-interest confusion doesn’t make sense when the product at issue is a three-year law degree. Even if Dave goes to the Houston College of Law website thinking it is affiliated with the University of Houston, they might say, Dave is eventually going to figure out the two institutions are not affiliated. No one is going to go to the wrong law school for three years by mistake. No harm, no foul.

But Judge Ellison disagreed. Even if the initial confusion only causes Dave to go to the Houston College of Law website, the judge would say, Houston College of Law has unfairly obtained some benefit from the goodwill built up by the University of Houston, and that is the kind of harm the Lanham Act is intended to remedy.

What Issues Were Less Important to the Decision?

Three issues received a lot of attention at the hearing but relatively less attention in the opinion.

First, the lawyers at the hearing spent a lot of time talking about Houston College of Law’s intent to cause confusion with the University of Houston, particularly the change in school colors from crimson and gold to “Cougar” red and white. You know it’s a trademark lawsuit when people get worked up arguing about different shades of red.

Modern art, or evidence of trademark infringement?

Judge Ellison did go over the evidence and arguments on intent in some detail, and he did find the change in school colors “troubling.” Ultimately, however, intent was not a major stated factor in his decision. He found the question of intent a “close call” that did not weigh in either side’s favor in the likelihood of confusion analysis.

Second, as I described when I first reported on the hearing, there was a lot of evidence and argument about whether the University of Houston still calls its law school “College of Law.” This was potentially important, because it is easier to confuse “Houston College of Law” with “College of Law” than with “Law Center.” But Judge Ellison sidestepped this issue by focusing on just two of the UH trademarks at issue: “University of Houston” and “University of Houston Law Center.” This meant he didn’t even have to address UH’s use vel non of “College of Law.”[3]

Third, many hours were billed arguing about whether, after the Supreme Court’s eBay decision, trademark infringement creates a presumption of irreparable injury to support granting an injunction. At least one prescient commentator predicted that Judge Ellison would avoid the need to decide this issue:

If Judge Ellison issues an injunction, I expect he will say something to this effect: “It is unclear in the Fifth Circuit whether a showing of trademark infringement creates a presumption of irreparable harm, but in this case it is unnecessary to decide that issue because there is evidence of irreparable harm.”

Turns out that is essentially what Judge Ellison said: “Irrespective of the presumption, the Court concludes that monetary damages will not adequately compensate UH.”

And yes, you guessed it, the commentator quoted above was Five Minute Law.

Overtime: The Way Opinions Should Be Written

At the risk of going over my five minutes, I have to note two things about the Board of Regents opinion that are a credit to Judge Ellison and—it must be said—a discredit to some other courts by comparison. First, there is the simple fact that Judge Ellison wrote his own opinion at all. Often, trial court judges simply sign an order that has been prepared by the winning side. To be fair, writing an opinion is a lot of work (and federal judges typically have more staff support than state court judges).

But the more disappointing reason many trial court judges don’t like to write their own opinions and orders is that their main concern is not getting reversed on appeal. They figure that signing a one-sided order prepared by the winning side is likely to maximize the chances of the order holding up on appeal. But should that be the judge’s greatest concern?

Admittedly, it’s a lot of work for a judge to write his own opinion

The second thing that is impressive about Judge Ellison’s opinion is less obvious: it is not a one-sided opinion that pretends the decision is easy. For each sub-issue, Judge Ellison considered the best arguments made by each side and gave each side its due. For example, in deciding which expert survey was more persuasive, he explained the strengths and weaknesses of each, concluding that “neither survey is without flaw” but that the UH survey was “substantially stronger.” I don’t necessarily agree with the decision—I’m still a little skeptical about initial-interest confusion—but the important thing is that the process be fair and impartial.

If you don’t spend a lot of time reading court opinions, you might be thinking “what’s the big deal, isn’t that what judges are supposed to do?” The problem is that even when judges write their own opinions, they often do so as if they were writing a brief for the winning side. All of the losing arguments are absurd. The winning arguments are stated so strongly that the reader wonders how it could have come out any other way. When this style is employed, it is fairly obvious.

But I will let you in on a little secret that may not be so obvious: there is nothing to stop the judge from writing an opinion that simply ignores facts and arguments that do not support the decision. Believe me, it happens. Unless the reader was personally involved in the case or takes the time to read the briefs, he probably won’t even realize the judge has done this.

And that’s a shame.



Zach Wolfe is a Texas trial lawyer who handles non-compete and trade secret litigation (and sometimes even trademark 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] Guys sometimes talk like this to each other. Contrary to recent reports, however, they do not typically brag to each other about sexual assault.

[2] “Net” confusion is the percentage of respondents confused by an infringing mark after filtering out the percentage of people who were confused by a non-infringing “control” mark.

[3] I’ve been looking for an excuse to use “vel non.”

Lawyers, Want More Clients? A Business Development Coach Says Sell Less, Listen More

Lawyers, Want More Clients? A Business Development Coach Says Sell Less, Listen More

This week I’m doing something a little different: featuring a guest blogger. Karen Kaplowitz is a lawyer and business development coach with The New Ellis Group. I met Karen at a law firm retreat years ago. Since then I have enjoyed reading the insightful and practical advice she publishes in her weekly newsletter, Monday Monday. Karen graciously shared this post with some helpful–and somewhat counter-intuitive–advice for lawyers on business development:

Business Development Tips from Karen Kaplowitz

Karen Kaplowitz, The New Ellis Group

Stop Pitching and Start Discovering.  Many lawyers are busy lining up as many opportunities to “pitch” as possible, inside and outside their firms, and casting about for people who can give them business. If you are finding that clients and prospective clients are not rushing to set meetings for you to pitch them, consider these strategies instead, which focus on positioning yourself to discover what your clients need:

  • Don’t make giving presentations on your firm’s capabilities a top priority; do find reasons your clients have an impetus to invite you in.
  • Don’t go to meetings or lunch prepared to pitch, waiting for the opening to talk about your services.  Do go ready to ask probing questions about the company’s problems that might lead to work for your firm.
  • Don’t ask new colleagues in your firm which of their clients you can meet.  Pick one of your clients and discuss where the fit might be for your new colleague.
  • Don’t plan meetings to ask clients for more work; do plan meetings to get feedback so you don’t fall short of their expectations going forward.
  • Don’t rush to offer your opinions and solutions in conversations; listen carefully and encourage clients to elaborate on their struggles first.

Example:   Your client’s law department has changed significantly in the last year; senior lawyers you knew have retired; there were layoffs and consolidation; and most disturbingly, lawyers from a competitor law firm have infiltrated the law department.  A few times, you have offered the general counsel to bring in a team to make a presentation to insure the new people know your firm.  She always says “great” but never sets it up.

You try a different tack.  First, you ask for a new org chart of the law department, and bios if available. Then you ask when your people could meet the new in-house lawyers to hear from them what they are up against.  The general counsel warms to the idea of your investing in learning about her new team’s challenges and invites you to an all hands meeting.  You propose a meeting agenda for the client’s department heads to make short presentations on their priorities, with questions from your lawyers.  You help your team prepare to probe the new priorities.   At the end, the general counsel invites you to introduce your people and to stay for coffee.  You have planned your lawyers’ introductions of themselves to be very brief but targeted to the client’s most pressing needs. There is lively discussion when everyone mingles over coffee.

Are you willing to consider substituting “reverse presentations” from your clients instead of pressing to give presentations about your firm to clients?  Is the urgency to make this year more successful causing you to push too hard when active listening, probing, and connecting the dots are the better course of action?

This piece was originally published by Karen Kaplowitz of The New Ellis Group, a business development strategist and coach who works with lawyers all over the United States.  It is available in the archives of the Monday Monday newsletters.


So, the next time you start to “pitch” your services to a potential client, remember Karen’s advice and think about “discovering” instead.


Zach Wolfe is a Texas trial lawyer handles litigation involving non-competes, trade secrets, and other business disputes. His firm Fleckman & McGlynn, PLLC, has offices in Austin, Houston, and The Woodlands. 

Public Speaking Tips for Lawyers and Other Humans: Part 4 – Less Is More

Public Speaking Tips for Lawyers and Other Humans: Part 4 – Less Is More

Too Much of a Good Thing Can Keep Your Presentation from Being Great

This Part 4 of my 5-part public speaking series is a little different. Parts 1-3 covered how to make a good presentation. This installment is about how to go from making good presentations to making great presentations.

I have seen many good lawyers (including myself) make presentations that were good but not great. The problem is somewhat counter-intuitive: the very things that make good lawyers good can keep their presentations from being great. Good lawyers are thorough, prepared, detailed, and knowledgeable. Because of these very traits, good lawyers often try to do too much of a good thing.

As George Harrison sang in 1969, “It’s All Too Much.”

  1. Too Many Words Too Fast

Lawyers today talk too fast. They do this even when the judge—or court reporter—interrupts them to tell them to slow down. Heed their advice and take your foot off the gas. This is partly because the court reporter has to get everything down. But the more important reason is that it is harder for the audience to follow your argument when you talk too fast.

Slowing down can also help you sound more confident, more authoritative, and more persuasive. I once listened to the recording of the oral argument from Gideon v. Wainwright, a landmark U.S. Supreme Court case from the 1960s. I was blown away by the stately cadence of Abe Fortas, the famous lawyer (and later Supreme Court justice) arguing for Gideon. He had you hanging on every word.

Abe Fortas: The dude knew how to take his time

Shortly after that, I listened to an oral argument at today’s U.S. Supreme Court. It felt like I was listening to a New Yorker order a combo meal at a crowded McDonalds. This is partly due to the shorter time allowed for argument these days. Sometimes talking quickly is a necessity in order to get your points in. But going fast doesn’t make your presentation more persuasive.

  1. Too Much Repetition 

Juries often complain about lawyers repeating themselves too much. “We get it, you don’t have to tell us so many times!” The problem for the lawyers, of course, is that we can’t turn to the jury and say “ok, do you get it now, so I can move on to the next point?”

Still, lawyers often spend too much time reiterating points that were already made in the papers filed with the court. Sometimes this is necessary because the judge hasn’t read the papers, or you don’t know how much the judge has read. But sometimes you can tell the judge has read the papers and understands the basic issues in the case. I watched a hearing where the judge repeatedly gave cues that politely indicated, “ok, I get it,” but the lawyers continued to hammer away at the same points they had packed into their PowerPoint presentations.

Which brings me to . . .

  1. Too Much PowerPoint

Don’t get me wrong. I love PowerPoint. I use PowerPoint. I get it. We are told you can’t hold people’s attention today with just words. You have to reinforce your points with visuals. Plus, to justify your hourly rate you have to show your big corporate clients how sophisticated and “tech savvy” your firm is.

I’m not “tech savvy”

But don’t make your presentation less effective just because you’re now expected to make it a certain way. Watching a recent hearing with top-notch lawyers, I couldn’t help feeling the whole PowerPoint thing has just gone too far. It’s a combination of several things:

  • Too much PowerPoint instead of old-fashioned storytelling and teaching
  • Too many slides consisting of traditional bullet points
  • Too many bullet points on each slide
  • Too many slides, period

Here is the key: PowerPoint slides should reinforce what you say, not distract from what you say. What is the audience supposed to do while you are talking and showing five detailed bullet points at the same time?

Try this: cut the number of slides in half, use visuals instead of the usual bullet points for half of them, cut the number of bullet points per slide in half, and make each bullet point half as long. I promise it will be more effective.

  1. Too Many Cooks

I’m a little biased on this one. In litigation, I like the philosophy “one riot, one ranger.” At my last jury trial, I sat at the counsel table with two clients while a third client sat behind us in the gallery with his wife. No other lawyer. No legal assistant. No expert witness. No “tech guy” running PowerPoint or Trial Director. I liked the contrast it presented with our opponents, who had a small army on their side of the courtroom. And guess what? We won.

This is not what you want

Of course, some matters may require a larger team of lawyers. But when you go to court, there are two ways to decide how you are going to divide up your presentation time: what is best for the case, or what is best for the lawyers.

When a side divides its presentation time among three or four lawyers, it makes you wonder. Was dividing the time between that many lawyers the most effective way to present the case to the judge? Or was dividing the time necessary because all of the lawyers are very important people who need to get their moments in the spotlight? Would it have been more effective to cut the presentation time in half and use half as many lawyers?

To put it another way, if you’re coaching an NFL team, do you split time between two quarterbacks because one of them is a first-round pick with a big contract, or do you stick with the undrafted free agent who is on a hot streak and more likely to win the game?

I don’t claim to have all the answers, but these questions need to be asked. And questions like these arise in every litigation matter. Too often, lawyers staff cases based on the needs of their law firm rather than the needs of the case and the client.

  1. Too Many Points

All the problems above relate to a fundamental and typical mistake: too many points to make in too short a time. But I’ve already broken my own rule by trying to cover too many topics in this post. So tune in to the final Part 5 to find out how to focus your presentation to turn it from good to great.



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. You can, however, rely on it as public speaking advice.

When Is a Non-Compete Not a Non-Compete in Texas?

When Is a Non-Compete Not a Non-Compete in Texas?

Texas Courts are Effectively Ignoring the Legislature’s Command That Restraints of Trade or Commerce Are Illegal

It is a mandatory ritual for judicial candidates in Texas to recite that “a judge’s job is to interpret the law, not make the law.” Thoughtful lawyers who actually handle litigation know this statement is wrong (or at least overly simplistic), but that’s a thorny subject for another day. The point this week is that Texas courts are sidestepping the legislature’s command that restraints of trade or commerce are illegal. The recent federal district court decision Connell v. Wells Fargo illustrates the problem.[1]

Texas has a statute that says every contract in restraint of trade or commerce is unlawful.[2] The statute has an exception that says a “covenant not to compete”—I’ll call it a “non-compete” for short—is enforceable if it meets certain requirements.[3] Thus, enforcement of non-competes is supposed to be the exception, not the rule.

This doesn’t mean non-competes are always bad or always unenforceable. Sometimes I represent the employee; sometimes I represent the employer. As I discussed here, whether a non-compete is enforceable always depends on the circumstances.

Arguing that a restraint on competition is not a “non-compete” can be jumping out of the frying pan into the fire

Sometimes, when an employer wants to avoid the requirements of the non-compete statute, it will argue that the restraint at issue is enforceable because it is not really a non-compete. But there’s an obvious problem with this argument. If an agreement restrains competition but is not a “non-compete,” it is still a restraint of trade. If it’s a restraint of trade but not a non-compete, then the statute says it is unlawful. So, by trying to avoid the requirements of the non-compete statute, the employer can jump out of the frying pan straight into the fire.

Or at least, that’s the way Texas courts should look at it. The Texas Supreme Court doesn’t always see it this way.

In Exxon Mobil v. Drennen, the Texas Supreme Court addressed a contract that required a former employee to forfeit a significant amount of unvested compensation if he decided to compete with his former employer. The key legal issue was whether the agreement was a non-compete or not.[4]

Let’s pause here. In most areas of the law, courts focus on the actual function of a contractual provision, rather than what the parties label it. In other words, courts typically focus on substance rather than form to decide whether a certain legal principle applies. For example, let’s say the legal principle is that an agreement to pay a real estate commission must be in writing. A real estate agent could not avoid this principle simply by labeling the compensation a “bonus” rather than a “commission.” That would be silly.

So, you would think that a court would determine whether a contract is a “non-compete” by asking whether the contract serves the function of restraining or discouraging the employee from competing with the employer. In other words, you would think a court would put substance over form. But you would be wrong.

Exxon Mobil v. Drennen elevated form over substance

In Drennen, the Texas Supreme Court put form over substance by holding that a forfeiture clause triggered by an employee competing with the employer is not a non-compete. For the reasons explained above, I think this was wrong. Again, I’m not necessarily saying the agreement was unfair or unenforceable, just that this kind of forfeiture clause obviously functions as a non-compete and should be evaluated as such.

But then the Texas Supreme Court compounded the error with a second mistake. It declined to consider whether the forfeiture clause was an unlawful restraint on trade or commerce.

As explained above, if an agreement restrains trade or commerce but is not a “non-compete,” then it falls under the general rule for restraints of trade, rather than the exception for non-competes. It would then be unlawful and contrary to Texas public policy. But the Drennen court punted on this issue, refusing to decide whether a forfeiture clause that restrains competition is an unlawful restraint of trade.[5]

This was also a mistake. Drennen should have decided the issue rather than punting, and the effect of Drennen’s error is apparent in the recent Connell v. Wells Fargo case. The plaintiffs in Connell argued that a forfeiture clause in their contracts violated a fundamental Texas policy because either (a) it was an unenforceable non-compete, or (b) it was an unenforceable restraint of trade. The federal district court disagreed. Under Drennen, the court said, a forfeiture of unvested compensation is not a non-compete.

But was the forfeiture clause an unlawful restraint of trade? The Connell court rejected this argument also, reasoning that (a) the Texas Supreme Court declined to decide this issue in Drennen, and (b) Drennen held that Texas has no “fundamental policy” against such clauses, even if Texas courts might eventually find that they are unlawful.

Connell v. Wells Fargo followed Drennen

So let me get this straight. A forfeiture clause that restrains competition but is not a “non-compete” might be unlawful under Texas law, but even if it is unlawful, it doesn’t implicate any fundamental Texas policy?

It’s hard to fault the district court in Connell for applying Texas law as expressed pretty clearly in Drennen, but something is wrong here. If Texas courts are going to allow employers to avoid application of the non-compete statute by arguing that a non-compete is not really a non-compete, then Texas courts should at least consider whether the agreement is instead a restraint of trade prohibited by the legislature.

Because the legislature makes the law, right?



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.

[1] Connell v. Wells Fargo & Co., 2016 WL 4733448 (S.D. Tex. Sept. 12, 2016).

[2] Tex. Bus. & Com. Code § 15.05(a).

[3] Tex. Bus. & Com. Code § 15.50.

[4] Exxon Mobil Corp. v. Drennen, 452 S.W.3d 319 (Tex. 2014).

[5] Drennen was able to avoid the issue because the question was whether the clause violated a “fundamental policy” of Texas for choice-of-law purposes. The contract in Drennen selected New York law, which allows the kind of forfeiture clause at issue. I previously wrote about Texas choice of law principles for non-competes in This Stuff’s Made in New York City!

Ten Wolfe Commandments: Leadership Lessons From Hamilton

Ten Wolfe Commandments: Leadership Lessons From Hamilton


I doubt I’m the only one addicted to the original cast recording of Hamilton: An American Musical. If you haven’t heard it, you are missing out on a musical and lyric masterpiece. Plus, lawyers and other business people can learn a lot about leadership from Hamilton.

1, 2, 3, 4, 5, 6, 7, 8, 9 . . . it’s the ten Wolfe commandments.

Number 1: “Don’t let them know what you’re against or what you’re for”? (Aaron Burr, Sir)

“Talk less, smile more.” This is how ever-slippery Aaron Burr begins his advice to a young Alexander Hamilton. “Don’t let them know what you’re against or what you’re for.”

Hamilton, of course, completely rejects this advice. No founding father more boldly told people exactly what he thought about public issues, regardless of the personal or political consequences. “Burr, drop the niceties,” Hamilton says later in Farmer Refuted, “I’d rather be divisive than indecisive.” While Hamilton’s bold opinions inspired his supporters, his lack of diplomacy and tact ultimately rendered him ineffective when the political tide turned.

Burr, on the other hand, shows the limits of pursuing power without any guiding principles. People will catch on. When the chips are down and Burr needs Hamilton’s support, Hamilton is so repulsed by Burr’s history of crass opportunism that he endorses Jefferson, his own arch-enemy. As Hamilton explains, “Jefferson has beliefs, Burr has none” (The Election of 1800).

Lawyers tend to be timid about expressing views on controversial issues, afraid they might offend that next potential client. But the most effective leaders will strike the right balance: be decisive without being divisive.

“America’s favorite fighting Frenchman”

Number 2: “I’ve never had a group of friends before” (My Shot)

“I’m only 19, but my mind is older.” By the time young Hamilton sailed from the Caribbean to New York, he was already a precocious writer, probably a genius. But to accomplish the “million things” he wanted to do, he would need more than his top-notch brain. In the vernacular of contemporary business literature, the young Hamilton was lacking in “emotional intelligence.”

Fortunately for Hamilton, he walks into a bar and immediately strikes up a friendship with southern abolitionist John Laurens, tailor-turned-spy Hercules Mulligan, and “America’s favorite fighting Frenchman,” the Marquis de Lafayette. Together, they help Washington win the war and start a new nation. Even the most intelligent leader needs a little help from some friends.

Number 3: “Include women in the sequel” (The Schuyler Sisters)

Angelica, Eliza . . . and Peggy. The Schuyler sisters. These daughters of wealthy New Yorker Philip Schuyler are downtown to watch all the guys. But Angelica is looking for more than that: “I’m looking for a mind at work.” See, Angelica has been reading Common Sense by Thomas Paine, and she can hold her own with the men. In my teenage daughter’s favorite line, Angelica says: “We hold these truths to be self-evident, that all men are created equal, and when I meet Thomas Jefferson, I’m ‘a compel him to include women in the sequel.”

“Include women in the sequel”

In today’s professional workplace, we are “in the sequel.” In a traditionally male-dominated profession like practicing law, men sometimes forget that. Effective leadership is going to require including women as leaders and team members.


Number 4: “I’m gonna need a right hand man” (Right Hand Man)

“We are outgunned, outmanned, outnumbered, out-planned.” These are the first inspiring words we hear from the pride of Mt. Vernon, George Washington. This shows us that a leader doesn’t have to sugarcoat the facts, nor does he need to affect an air of invulnerability. Right Hand Man teaches that even a great leader can let his guard down and admit weakness. “Can I be real a second?” Washington says. “Let down my guard and tell the people how I feel a second?” He then admits, “I’m in dire need of assistance.”

Like every leader, Washington needed someone to help him. “I cannot be everywhere at once, people.” In fact, the greater your level of responsibility, the more you will need to delegate. Like Washington, you’re “gonna need a right-hand man.”

Or a right-hand woman. See no. 3, supra.

Battle of Yorktown
“The code word is Rochambeau, dig me?”

5: “Immigrants, we get the job done” (Yorktown)

On the cusp of the decisive battle of the Revolutionary War, Hamilton and his friend Lafayette reunite and look back at their accomplishments. “We’re finally on the field, we’ve had quite a run—immigrants, we get the job done.” This may be my adopted son’s favorite line.

Apparently this line started generating so much applause that they had to add a break in the song. It also caused such a ruckus that Donald Trump pledged to build a wall around the theater. (Ok, I stole that joke.)

The lesson here is not necessarily that good leaders need to be immigrants, or that good leaders need to hire immigrants—let’s not take it too literally. For me, it’s a lesson about not judging people by where they come from, what they look like, or what accent they have. It’s about performance, not pedigree.

Number 6: “Why do you write like you’re running out of time?” (Non-Stop)

Hamilton, author of most of the Federalist Papers, was a great, prolific writer. If Hamilton had a weakness as a writer, it was that he wrote too much. In Non-Stop, Burr acknowledges Hamilton’s skill with the quill, but he admonishes Hamilton to be more concise in his oratory (“Our client Levi Weeks is innocent, call your first witness, that’s all you had to say”).

Hamilton also goes wrong by relying too heavily on his writing. Exhibit 1: the misguided and embarrassing “Reynolds Pamphlet.” Hamilton’s experience shows us that, while good writing is important, it’s not everything. A leader has to recognize the limits of the written word and know how to relate to people in person. Sometimes it’s better to pick up the phone or walk down the hall than to fire off another email.

7: “You have to find a compromise” (Cabinet Battle #1)

In Cabinet Battle #1, President Washington must decide whether to support Treasury Secretary Hamilton’s plan to establish a national bank and assume state debts. Secretary of State Jefferson is adamantly against it. Naturally, Washington relies on an old-school rap battle to resolve the dispute.

Thomas Jefferson
“Such a blunder, sometimes it makes me wonder, why I even bring the thunder.”

Jefferson and Hamilton then trade some stinging barbs. My favorites:

Jefferson: His plan would have the government assumes states’ debts. Now, place your bets as to who that benefits: The very seat of government where Hamilton sits.

Hamilton: A civics lesson from a slaver. Hey neighbor, your debts are paid because you don’t pay for labor.

As Jefferson and Madison taunt Hamilton (“you don’t have the votes”), Washington asks for a word with Hamilton privately. Hamilton would still rather be divisive than indecisive (“we need bold strokes”), but the wiser Washington tells him, “no, you have to convince more folks.” Rather than praising Hamilton for his clever retorts, Washington gives Hamilton an order: “You have to find a compromise.”

This is an especially valuable lesson for lawyers. Remember who you need to persuade and how you need to persuade them. It doesn’t matter how brilliant your argument is if you “don’t have the votes.” Keep in mind who you have to convince, whether it’s a judge, jury, client, or even the opposing party. That might mean you keep your most scathing points to yourself. And understand that convincing those people may require compromise, rather than showing them how smart you are.

Eliza Hamilton
“Tell this man John Adams spends the summer with his family”

Number 8:“Take a break” (Take a Break)

In contemporary business jargon, Take a Break is Eliza Hamilton’s plea to her husband for “work-life balance.” It gets me every time when Eliza sings: “There’s a little surprise before supper, and it cannot wait. Your son is nine years old today, he has something he would like to say, he’s been practicing all day . . .” Most of us are not busy trying to found a nation’s financial system, but every parent with a demanding job can relate.

The lesson here is simple: even great leaders sometimes need to take a break. When Hamilton doesn’t take a break, the consequences are disastrous (see no. 9).

Number 9: “Show me how to say no this” (Say No to This)

This song is so well written and performed that, as a man, I feel guilty just listening to it. I won’t give it all away, but let’s just say that when confronted with temptation, Hamilton says “Lord, show me how to say no to this” and then proceeds to say yes. Leaders are often under great stress and confronted with all kinds of temptations, personal and professional. Unlike Hamilton, you have to find a way to “say no to this.”

1, 2, 3, 4, 5, 6, 7, 8, 9 . . .

Washington resigning commission
“I’m stepping down . . .”

Number 10: “I may have committed many errors” (One Last Time)

I love One Last Time. That Lin Manuel-Miranda could write an emotionally moving song about a presidential farewell address is further evidence of his genius.

Washington asks Hamilton to see him. He gives Hamilton the news that Secretary of State Jefferson has resigned to run for President. Hamilton laughs, “good luck defeating you, sir!” But Washington has surprising news: “I’m stepping down, I’m not running for president.” (This compresses the actual events—forgivable artistic license.)

Hamilton is shocked; he doesn’t understand. But he agrees to help write the farewell address. Rather than trumpeting his accomplishments, Washington emphasizes his own fallibility: “I am too sensible of my defects not to think it probable that I may have committed many errors.”

Washington, the towering military hero, the man of action, shows us here where his true greatness lies: restraint and humility.

“One last time.”


ZW portrait

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.

He has never performed on stage in a Broadway musical but hopes someday to play the title role in Hamilton. Or at least Hercules Mulligan.

Injunction Junction, What’s Your Function?

Injunction Junction, What’s Your Function?

TexasBarToday_TopTen_Badge_VectorGraphicA Recent Case Shows What it Takes for a Texas Trade Secrets Injunction to Hold Up on Appeal

I previously wrote here about how not to enforce an injunction in a non-compete lawsuit. But when an employee takes your client’s confidential information or trade secrets, what evidence do you need to get an injunction in the first place?

Most lawyers can recite the buzzwords courts have used thousands of times: “imminent harm,” “irreparable injury,” “no adequate remedy at law.” But let’s face it. Courts have a hard time coherently explaining these concepts. The recent Texas case Daugherty v. Highland Capital Management is no exception.[1]

Imminent harm? Yes. Irreparable injury? Probably not.

Lawyers who handle these cases should understand that imminent harm and irreparable injury mean two different things:

  • “Imminent harm” means that harm is about to happen if the court doesn’t stop it. This has nothing to do with whether the harm is “irreparable.”
  • “Irreparable injury” means that awarding damages would be an inadequate remedy for the harm. This has nothing to do with whether the harm is about to happen or not.

Unfortunately, courts often confuse these two requirements. For example, a court will cite evidence that a competitor is in a position to use a company’s trade secrets as establishing “irreparable injury,” when that fact actually goes to the issue of “imminent harm.”[2]

Another recurring problem is that when courts cite evidence of “irreparable injury” in a trade secrets case, they often cite evidence that is either tautological or generic. In other words, they tend to cite evidence that is either (a) true by definition or (b) recited in virtually every trade secrets case. This renders the analysis less than satisfying.

Let’s use Highland Capital as an example. The basic facts were typical: Employee signs confidentiality agreement with Employer, Employee leaves Employer, Employer sues Employee for taking Confidential Stuff.

Imminent harm, or irreparable injury?

The jury verdict, on the other hand, was a little unusual. The jury found that Employee breached the confidentiality agreement, Employer’s damages were zero dollars, and Employer’s reasonable attorneys’ fees were $2.8 million. The judge awarded Employer the attorneys’ fees plus an injunction against retaining, using, or disclosing Employer’s confidential information.

This raises important questions. First, where can I find one of these clients who will pay $2.8 million to try a confidentiality agreement case? Second, what does Highland Capital teach us about what evidence is necessary for a trade secrets injunction to hold up on appeal?

Evidence of Imminent Harm?

Here are six things the Highland Capital court cited as evidence of imminent harm, followed by my questions:

1. The court said there was “evidence that [Employee] took, kept, and used confidential information.”

This is evidence that the employee breached his confidentiality agreement, but is it evidence of imminent harm?

2. The court cited “demands and protracted litigation.”

Saying the litigation was “protracted” reminds me of what Nathan Arizona said when the police asked if he had any disgruntled employees. “Hell, they’re all disgruntled . . .”

3. Employer’s expert testified: “this information goes to the core of what [Employer] does as a business and what [Employer] is in terms of its value.”

This is fairly generic. Believe me, every company thinks the information the employee took “goes to the core” of the company’s value.

4. Employer’s expert: the information’s “existence away from [Employer] harms [Employer] because there’s always the possibility that it can get into general distribution . . . or to a competitor.”

This seems tautological. By definition, doesn’t the fact that someone else has the confidential information create a “possibility” that it could become public or known by a competitor?

Does the “possibility” of harm establish irreparable injury?

5. Employer’s expert: the harm “may not be immediate, but the harm may occur over a long period of time.”

Doesn’t the fact that the harm may occur over a long period of time suggest it is not imminent?

6. Employer’s expert testified “I cannot quantify the total harm,” and “it may be that I can’t measure the specific relationship of these documents to that harm. . . you can’t measure things that you don’t know have occurred.” Asked if he performed “any sort of statistical analysis to try to put a number to this harm,” the expert said, “We did not and could not.”

Do these statements go to whether the harm is imminent, or whether the harm is irreparable? It seems like the court put this evidence in the wrong section of the opinion.

Evidence of Irreparable Injury?

As for irreparable injury, the Highland Capital court cited these key points from the testimony of Employer’s co-founder:

1. “A specific document [Employee] took and failed to return revealed [Employer]’s current and prospective investment strategies.”

In other words, Defendant misappropriated confidential information. But does that make the injury irreparable?

2. There was “[a] particular document [Employee] failed to return in which one of [Employer]’s investors was identified as well as names of our other clients and the investment objectives which are confidential.”

Again, this is evidence of misappropriation of confidential information, but how is it evidence of irreparable injury?

The harm from losing confidential information can be difficult to quantify

3. “Some of the people in the marketplace can replicate our firm strategies and our investment objectives and form competing funds with these materials like marketing materials.”

This could be evidence of imminent harm, but how does it show that the harm could not be compensated by damages?

4. “If our investors see that we don’t have enough safeguards over our confidential information they would refuse to invest with us, we would be violating our agreements with them, we would be violating the law.”

Again, this is evidence of the possibility of injury, but how does it establish irreparable injury?

5. “Putting a dollar value is almost impossible. But it’s very valuable to us. It’s very, very important.”

Now we’re getting somewhere. This goes to the issue of irreparable injury. But this testimony seems generic. Very, very generic.

Based on this testimony, the court said there was “evidence of harm that could not be quantified,” and therefore, evidence of irreparable injury.

What Did We Learn Today? 

So what do you think? Does the analysis of imminent harm and irreparable injury in Highland Capital support my point that courts often get these two requirements confused? Does it show that courts often rely on tautological or generic statements to uphold an injunction?

Understand what you need to prove to stop the use of your client’s confidential information

The more practical lesson for litigators is this: If you are trying to get an injunction for your client, offer evidence showing that the defendant is going to use or disclose the confidential information soon if an injunction is not granted (imminent harm), and that damages would be an inadequate remedy because the harm is inherently difficult to quantify (irreparable injury). Even if courts get confused, don’t mix up these concepts in your own mind.

Irreparable injury can be tricky. You need to show that quantifying the damage is inherently difficult, but without conceding that the damage is speculative. This balancing act is especially difficult when, as in Highland Capital, you are also trying to persuade the jury to award lost profits or some other form of damages.

Don’t forget to prepare your witnesses to say the right “magic words,” like “putting a dollar value on this is almost impossible” (if that’s true). But take it a step further and have your witnesses explain why quantifying the damage is difficult. Because it’s not enough to have some generic testimony to uphold the injunction on appeal. It’s also important to persuade the trial court judge to grant the injunction in the first place.

Very, very important.



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.

[1] Daugherty v. Highland Capital Mgm’t, L.P., No. 05-14-01215-CV, 2016 WL 4446158 (Tex. App.—Dallas Aug. 22, 2016).

[2] For example, in Tranter, Inc. v. Liss, No. 02-13-00167-CV, 2014 WL 1257278 (Tex. App.—Fort Worth March 27, 2014, no pet.), the court said that “[a] highly trained employee’s continued breach of a noncompete agreement creates a rebuttable presumption that the employer is suffering an irreparable injury.” While the fact that an employee is competing in violation of his non-compete suggests imminent harm, it does not show that the harm is irreparable.