If Part 1 was a flashback to the vinyl era, then this Part 2 moves us into the cassette era. That’s more my time. I never actually had a Peter Frampton record, but I can still remember recording The Name of This Band is Talking Heads on to a blank cassette tape.
The theme of Part 1 was the Sales Territory principle, which says that a reasonable geographic area for a Texas non-compete should usually coincide with an employee’s actual sales territory. This principle goes all the way back to the first vinyl era, the Jazz Age, when Texas courts reasoned that an employee is going to develop goodwill only in the area where he has personal contact with customers.
But of course, not every case involves the typical sales employee who is responsible for a certain territory. What about cases where physical territory is not important, or where the employee is a high-level executive?
In such cases, the Sales Territory principle may be less useful, and Texas courts may be more likely to follow what I call the Holistic principle. The Holistic principle considers the reasonableness of the geographic limitation not in isolation, but in combination with other factors, such as the employee’s rank in the company, the employee’s knowledge of high-level confidential information, the nature of the business, and perhaps most important, the scope of activity restrained by the non-compete.
This leads us to General Rule No. 5.
General Rule 5: No geographic limitation or broad geographic limitation + non-compete limited to existing customers = probably reasonable.
The Sales Territory principle was rooted in the idea that customer goodwill is usually tied to a certain geographic territory. This idea goes back at least as far as the City Ice Delivery case in the 1920s. But Texas courts also recognized decades ago that even a non-compete with no geographic limitation at all can be reasonably limited to protecting customer goodwill, if the scope of activity it restrains is narrow.
Consider Stocks v. Banner American Corp., 599 S.W.2d 665 (Tex. Civ. App.—Texarkana 1980, no writ). Stocks sold his stock in Banner and agreed not to compete with Banner for three years. Banner’s business included manufacturing and selling blank cassette tapes, selling blank labels for cassette tapes, and custom duplication of cassette tapes. Banner’s customers included Tandy Corporation and Apple Computers. Id. at 666.
Stocks apparently could not leave the cassette game behind, because he somehow became an owner of Xalon Corporation, which sounds like an evil company from Aliens or Terminator. Despite the lack of any geographic limitation in the non-compete, the trial court enjoined Stocks and Xalon Corporation from doing business with Tandy, Apple, or a list of other Banner customers. Id. at 666-67.
The Court of Appeals found that the lack of a geographic area was not fatal to the non-compete. See id. at 667 (“Failure to include a territorial limitation will not void a covenant to compete”). The court cited Justin Belt Company, Inc. v. Yost, 502 S.W.2d 681 (Tex. 1973), where the court held that a non-compete that was “unlimited both as to time and to space” could be enforced to a reasonable extent. Id. The court also reasoned that non-competes may be construed more broadly in the sale of a business than in an employment relationship. Id. (citing Seline v. Baker, 536 S.W.2d 631 (Tex. Civ. App.—Houston [1st Dist.] 1976, no writ)).
Thus, the non-compete could be enforced to some extent, despite the lack of a geographic limitation. But to what extent? The Stocks court cited two cases approving injunctions limited to prohibiting a former employee from contacting certain listed customers. Id. at 667-68 (citing Toch v. Eric Schuster Corp., 490 S.W.2d 618 (Tex. Civ. App.—Dallas 1972, writ ref’d n.r.e.), and Arrow Chem. Corp. v. Anderson, 386 S.W.2d 309 (Tex. Civ. App.—Dallas 1965, writ ref’d n.r.e.)). The takeaway was that “[t]he use of a customer list as an alternative to setting a specific geographical limit is a reasonable means of enforcing a covenant not to compete.” Id. at 668.
Apple Computers was one of the key customers in the Stocks case decided in 1980
From the Stocks rule we can deduce this common-law principle of Texas non-compete law: a non-compete that is limited to prohibiting a former employee or owner from doing business with the company’s existing customers may be reasonable and enforceable even if it lacks a geographic limitation. See also Investors Diversified Servs., Inc. v. McElroy, 645 S.W.2d 338, 339 (Tex. App.—Corpus Christi 1982, no writ) (non-compete limited to clients securities salesmen contacted or learned about while working for company was enforceable despite lack of defined territory).
The logic of the rule is that the point of requiring a geographic limitation was to protect customer goodwill. If the non-compete is otherwise limited to protecting customer goodwill—because it is limited to the company’s existing customers—then a geographic limitation may not be necessary. This is the most basic formulation of the Holistic principle.
But this was a common-law rule. Did the Stocks rule survive the enactment of the Texas non-compete in 1989? Let’s just say the Stocks rule fared better than cassette tapes at the end of the 80s.
Even though the statute expressly requires a geographical limitation, Texas courts continued to hold that a geographic limitation may be unnecessary if the scope of activity restrained is sufficiently narrow.
In Totino v. Alexander & Associates, Inc., No. 01-97-01204-CV, 1998 WL 552818 (Tex. App.—Dallas Aug. 20, 1998), former employees of an insurance brokerage argued that the their non-competes violated the statute because they contained no geographic limitation, but the court rejected this argument. Id. at *3. The statute’s reasonable geographic restriction parallels a similar common-law requirement, the court reasoned, and Texas courts had held that a geographic limitation was not necessary where the non-compete was limited to clients the former employee had contact with. Id. at *3-4 (citing McElroy and Stocks). The non-compete “implicitly” contained a reasonable geographic restriction because it was limited to clients of the brokerage. Id. at *4.
The First Court of Appeals followed the same approach in Gallagher Healthcare Insurance Services v. Vogelsang, 312 S.W.3d 640 (Tex. App.—Houston [1st Dist.] 2009, pet. denied). The non-compete in Gallagher had no geographic limitation, but it was limited to clients the employee had worked with in her last two years at the company. Id. at 654. “A number of courts have held that a non-compete covenant that is limited to the employee’s clients is a reasonable alternative to a geographical limit,” the court said, citing Stocks, Totino, and McElroy. Id. at 654-55. The court held the limitation to clients the employee worked with while employed by the company was a “reasonable alternative to geographical area.” Id. at 655.
The employee’s position in the company is also an important factor, which leads to the next general rule.
General Rule 6: No geographic limitation or broad geographic limitation + non-compete not limited to specified customers + high-level executive = It depends.
We have seen that a broad geographic area—or even the lack of any geographic area—may be found reasonable if the non-compete is limited to existing clients or customers. But what if the non-compete is not limited to existing clients or customers?
This is where it gets hard. In a case like this, other factors, such as the employee’s rank in the company and knowledge of the company’s confidential information, become more important.
The Stocks rule lasted longer than these bad boys
Judge Ellison considered the issue in detail in M-I LLC v. Stelly, 733 F.Supp.2d 759 (S.D. Tex. 2010). In that case, Knobloch resigned from his position as Manager of Sales for the Americas at M-I, an oilfield services company. He started his own oilfield services company and allegedly started “raiding” employees from M-I. Id. at 769-70.
Knobloch’s non-compete restricted doing business with existing M-I customers, but it did not end there. Like many non-competes, it also prohibited Knobloch from engaging in any business “involving oilfield displacement tools or services or any other businesses then conducted by Employer.” Id. at 794. These restrictions applied “in any geographic area” where the company did business, which effectively meant North America, South America, and the Caribbean. Id. at 797.
Knobloch argued that his non-compete was unenforceable because the geographic area was too broad, but Judge Ellison disagreed, citing his own formulation of the Holistic principle. “[N]on-compete covenants with restrictions covering a wide geographic area may be reasonable if they are limited in scope to a firm’s current or prospective clients such that they do not pose a greater restraint than necessary to protect the firm’s goodwill,” he said, citing his own opinion in TransPerfect Translations (I love that flex). Id. at 797-98.
He also cited a version of the Sales Territory principle: “Covenants with wide geographic areas have been upheld frequently in Texas courts, especially when the area covered constitutes the employee’s actual sales or work territory.” Id. at 798.
Applying these rules, Judge Ellison acknowledged that “a geographic area covering the Western hemisphere is broad, reaching to the outer limits of a restriction.” But he ruled that this broad geographic area was reasonable, even where the non-compete was not limited to existing customers, where:
Knobloch had “extensive job responsibilities” and held a position in “upper management” (Manager of Sales for the Americas). He was “much more than a manager and salesman for his former employer.” He oversaw the company’s “relationships with major international clients.”
His actual territory did span the Americas.
Knobloch knew the company’s technical confidential information: “An engineer by training, Knobloch participated in the design of [the company’s] tools and in facilitating wellbore completions. He delivered technical presentations internationally, formulated company growth strategies, and discussed product development with engineers.”
Id. at 798-99.
In short, in M-I v. Stelly the geographic area covering the entire Western hemisphere was reasonable where the employee was a high-level executive, he was actually responsible for that territory, and he had knowledge of the company’s confidential technical information.
M-I v. Stelly took a “holistic” approach
Texas cases since M-I v. Stelly have tended to find broad geographic areas reasonable when the former employee was a high-level executive.
Consider Daily Instruments Corp. v. Heidt, 998 F.Supp.2d 553 (S.D. Tex. 2014). In that case, the non-compete broadly applied to the United States and any country in which Daily Instruments did business. Id. at 567. Daily Instruments specialized in the narrow field of reactor thermometry, which involved electrical temperature measurement devices used in reactors for the refining, chemical, and petrochemical industries. Id. at 557.
The court found the non-compete reasonable for three reasons. First, the employee was a high-level sales manager with responsibility for a very large territory and with access to the company’s confidential information regarding worldwide clients and sales. Id. at 567-68. Second, the field of reactor thermometry was very narrow, with a narrow customer base, few competitors, and a global scale. Id. at 568. Third, the non-compete had a reasonable limitation on scope because it did not bar the employee from working in the industry, but only from performing the kind of work he had performed in his last two years of employment in the narrow field of reactor thermometry products, and from disclosing confidential information. Id.
Similarly, in Ameripath, Inc. v. Hebert, 447 S.W.3d 319, 335 (Tex. App.—Dallas 2014, pet. denied), the court found a broad geographic area reasonable considering the employee was a member of employer’s “highest level management team.” The employee cited the Sales Territory principle and argued that he only worked in two counties, while the geographic scope of the non-compete was much broader. Id.
But the court said “the breadth of enforceable geographical restrictions in covenants not to compete must depend on the nature and extent of the employer’s business and the degree of the employee’s involvement in that business.” Id. (citing Butler v. Arrow Mirror & Glass, Inc., 51 S.W.3d 787, 793 (Tex. App.—Houston [1st Dist.] 2001, no pet.). The restriction on working anywhere for a company that operated in the Dallas-Fort Worth area was reasonable, the court reasoned, because the employee’s “management knowledge of and experience with [the company’s] Dallas-area operations would be valuable to his new employer.”
And in McKissock, LLC v. Martin, 267 F.Supp.3d 841, 856-57 (W.D. Tex. 2016), the court found a nationwide geographic area reasonable, where the company had a national customer base, the employee taught online courses available to the national customer base, and the employee held an upper-level position as Senior Appraisal Instructor.
Hmm. “Senior Appraisal Instructor.” I’m wondering how “upper-level” that really was. In theory, I don’t have a problem with the Holistic principle applied in M-I v. Stelly and subsequent cases. Courts should remember that the primary rationale for requiring a geographic limitation is to protect a company’s goodwill.
But I fear that in practice, dispensing with the geographic limitation requirement or allowing an extremely broad geographic area can have a real chilling effect on the ability of businesses to hire the best executive talent. I’ve seen this in my practice.
Maybe it’s time to hit rewind.
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Zach Wolfe (zwolfe@fleckman.com) is a Texas trial lawyer who handles non-compete and trade secret litigation at his firm Fleckman & McGlynn, PLLC. Follow @zachwolfelaw on Instagram to keep up with his latest shenanigans.
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.
Shannon Montgomery is a lawyer I know who handles contracts, trademarks, and other legal issues for clients such as social media influencers. We were both presenting at a CLE conference (right before COVID-19), and we got to talking about her training for an upcoming bodybuilding competition. I said something about how hard it would be for me to stick to the kind of strict nutrition plan bodybuilders have to follow.
I don’t remember her exact words, but her response stuck with me. She said something to the effect of, “it’s no different from the things you do as a lawyer that require discipline, you just have to decide to do it.”
You just have to decide to do it. I thought it was great advice. So true, so simple, yet so difficult.
Fast forward a few months, and I found out not only did Shannon enter the competition, she won it. I knew I would have to get her lessons from that experience into a blog post.
I envisioned it as sort of a companion to my post 7 Things Physical Fitness Teaches You About Professional Success. But that post was about physical fitness for ordinary people, like me. I was curious what lessons could be drawn from someone who competes at an elite level.
So here’s my interview with Shannon.
Why don’t you start with telling us a little bit about your law practice?
I do intellectual property and some transactional business work, but it’s mostly contract drafting and review, trademark, and copyright. Most of my clients are fitness entrepreneurs or fitness influencers. And I’m getting into sort of the supplement space as well and doing some work in that arena. I do have clients who are not fitness related, but the majority of my clients are somehow connected to the fitness industry.
Shannon Montgomery of Montgomery Law, PLLC
How did you end up with these clients in the fitness-related industry?
It all started on Instagram. I had a personal Instagram, @liftinglawyer, which I started back in law school, and I used it to post fitness-related content. And then I started getting legal questions from influencers and different people that I was following. They would pop into my DMs or comment on something and ask me some sort of legal question.
I realized that there are a lot of influencers out there who are business owners or who want to start businesses or who just make a lot of money on the Internet, and they didn’t have any legal help. So I thought, you know what, I’m going to go ahead and be the person to help these people out. In law school I spent a lot of time in the sports world. I worked with a lot of sports agents, and it’s kind of the same thing.
What I do now is obviously a little bit more. I help them with their businesses more than I would for an athlete, but a lot of the contract principles and IP issues are the same for influencers as for athletes. I thought maybe I’m a good fit for this because it’s what I wanted to do in first place.
Before you were a lawyer, were you a weightlifter?
Yeah. I started working out when I was very young. My dad took me to the gym when I was in high school at 15, maybe 16. I don’t know if I could drive.
My older sister was really into lifting. She did powerlifting at the high school. She was very athletic. I was always a gymnast and a cheerleader, so I was athletic, but not quite like her. She was working out with my dad, and I went and I just got became obsessed.
So I have been lifting and working out in some capacity since I was in high school, and I just never stopped. When I got to college, I would skip class to go to the gym. I would plan my day around going to the gym.
Were you able to continue a disciplined weightlifting schedule in law school or was that difficult?
Law school was the first time in my life when I couldn’t skip class to go to the gym, because you had to go to class. But I definitely made sure that I planned all of my classes around my ability to get to the gym.
I prioritize the gym. I always have. So you know how they say if you if you really want something and you don’t have time for it, make time. That’s always been the case. It was never a matter of, oh, I don’t have time for this today. It was what else can I take off my plate? Because I have to be able to get to the gym and keep that structure, because it really keeps me sane and focused and allows me to be productive in the rest of my life.
I was going to joke and say, well, it sounds like you had your priorities straight in law school, but it sounds like having that sort of regular schedule helped you with your school.
Yeah, absolutely. I’m one of those people that if I’m not crazy busy and I’m not productive at all, so I need to have structure. I need to have my time blocked out. So I was in the gym every day by 7:00 a.m., typically because I love to work out in the morning or if class didn’t allow, then it was right after class. There was always a slot for the workout because it keeps me focused.
This may be a dumb question, but what’s the difference between weightlifting and bodybuilding?
There’s a lot of different ways to lift weights, so it depends on the context.
When you see people doing clean and jerks, or snatches, which are the two Olympic lifts, that’s technically called weightlifting. Bodybuilding is you lift weights, you can power lift, you can do whatever in order to build your muscle, build your body so you can get on stage in a very small outfit and be judged for how well you build muscle and lean down.
Weightlifting takes a lot of skill. And if you’re competing in weightlifting, you’re obviously a very good athlete.
Bodybuilding is one of those things that takes extreme dedication and discipline. But you don’t really have to be an athlete. You just have to you have to get to the gym and be very disciplined.
How did you make the transition from just the weightlifting to lifting weights for bodybuilding?
I would get questions a lot in the gym. People would be like, what are you training for? Are you a bodybuilder? Do you do physique sports? Are you a Cross-fitter, all that stuff.
When I was in law school, actually, was my first sort of exposure to bodybuilding. I had always thought about it, as the Arnold Schwarzeneggers of the world, and I did not think women competed, or if they did, they looked like a female version of Arnold Schwarzenegger, and I was not interested in that.
But then Instagram, social media in general, but mostly Instagram shed light on these other divisions. There is the Bikini division and the Figure division, which are for women and it’s not this extreme, you’re not huge. It’s really meant to be more someone who’s generally into health and fitness, and it’s a place for you to compete and showcase that.
So when people started asking me, I started looking into it and it just looked like something that was right up my alley. One thing led to another, and here we are six years later, and I’ve done four seasons and 12 shows at this point.
Wow, that’s a lot of shows. Tell us about the most recent competition that you did.
Yeah, so I did the NPC [National Physique Committee] Oklahoma Championship. NPC is the governing body. The NPC is what leads into the IFBB [International Federation of Bodybuilding and Fitness], which is for pro bodybuilders. You can go pro, and you can earn money, although not many of them earn a lot of money.
It was the second show this year to go on because of COVID everything that we had originally planned to do. I started dieting in January, and then every show I was supposed to compete in early May that got canceled. And then I picked another one, and that got canceled.
So it was just like a domino, everything just kept falling. But I got lucky. And this show in Oklahoma was like, are we going to go on? We’re going to take precautions. They limited the amount of people that signed up, a lot of people that could come and I went. It was my first show actually. For years I haven’t competed since 2016.
And I did the Bikini Division, which was actually the two years prior competing I’ve done Figure. So I was kind of going back down into Bikini so I wasn’t used to the posing or just that division in general and very, very nervous. But I went and it was a great show, it was really well run. Everybody was super nice.
There were thirteen girls in my height class. I won my height class, and then I won the overall, which means I beat out all the other girls and all the other height classes too. And it turned out really well. I was not expecting that at all, but I did well and I enjoyed it. So I’m really happy that I got to do it this year.
Congratulations. What was it that made you want to get back into competition after four years of not competing?
It just never feels done, or at least I don’t feel done. I knew the last time that I competed that I was going to take a nice long break, and I was just kind of waiting for the right time. In between I moved from Florida back to Texas, and so when I first got back to Texas, I thought maybe that would be the year and that just wasn’t right. And then last year, I moved to Houston.
Finally this year, January rolled around and I was like, I’m ready to diet and I’m ready to focus. If you’re not one 100% mentally ready to take it on, you should not even try, because it’s exhausting. It takes up a lot of mental space. It takes up a lot of your time. So, I was in a good place, both career-wise and everything else kind of fell into place. I was ready to give it another shot.
When you decided to enter this competition, was your mindset like, ok, I’ll do this competition and I’ll have fun with it and see how it goes? Or was it like, I’m going to do this competition and I’m going to win?
I didn’t necessarily think about winning, but in order to go pro, you have to get first or second place at a national show and there are only four or five national shows throughout the year. So I knew that I needed to get first or second so that I could get nationally qualified. Eventually I would like to compete at the national level and go for that pro card.
I do get on stage just because I love it, but I have been told that I stand a chance of winning a pro card in Bikini. So I was like, this is the year I’m actually going to go in there. I’m going to win first or second and get nationally qualified. That was the expectation. I kind of figured I would just get second, and I kept telling my coach that I wanted to do a really small show so that there would maybe only be like girls in my division and I could get second place, and then I could step on stage at Nationals.
I had no idea that I would take the overall by any stretch of the imagination, especially because I’m not used to Bikini and the posing is just totally different than what I’m used to. So I didn’t have huge expectations.
What was the planning process like?
I started planning way back in September of last year. As far as I knew, I wanted to start dieting in January for a May show. So I have a nice long diet phase so I could go slow instead of because crash dieting is not a good idea.
I started structuring my training around what I know they look for, so I changed up the way I was training a little bit. I kind of stepped back from powerlifting and focused a little more on so hypertrophy training for bodybuilding purposes to kind of grow certain muscles, and then certain muscles stop growing, because I have bigger arms and for Bikini you don’t need that.
The timeframe sounds pretty similar to my law practice where we’re getting ready for a trial, because you’re planning months out. And was there anything that you learned from that planning process that you can apply to professional life?
Absolutely. Fail to plan, plan to fail. Just like with me running my own practice. I don’t litigate, so I don’t have to worry about trial so much, but it’s the same idea with trademarks as they take six to eight months. You’re planning when you get to a client, you have to plan something out maybe even a year. You have to be able to see the big picture, while also seeing the little day-to-day picture, which is 100% what a bodybuilding prep is.
You wake up every single day and you have to take care of these many little tasks that all add up to your long-term goal of getting on stage, which could be a year away, it could be six months away. Until you look at the big larger picture and you can step back and look at things from a macro perspective, then it all adds up to one long bodybuilding prep.
Right. It reminds me a lot of really business development. And I know you have your own firm so I’m sure you know this, but so much so much of it is doing those little things, you know, every day or every week.
Yeah. And just being consistent in what you’re doing.
You mentioned your coach. How was your coach helpful to the process of getting ready for the competition?
I don’t think you can perform or get ready without having a coach. It’s really hard to be objective about the way you’re looking or how your training is going or your nutrition and all of that stuff for yourself. You need somebody who’s outside, looking in, controlling all of that.
Without a coach, I would just grind myself right into the ground almost instantly. I’d be like, we’re going to do one hundred hours of cardio, we’re going to train for three hours, we’re going to not eat anything. That’s not the way to do it.
So having a coach keeps me focused and it helps me stay out of my own head and out of my own way and really gives me the path that I have to follow. And I love structure. I mean, I’m a lawyer. I love it. And so really, somebody else gives me the plan and I can just follow along and makes it way less stressful to have a coach.
It sounds like your coach is not so much pushing you to do things but more like keeping you disciplined and not overdoing it.
Yeah, keeping me in line basically. I don’t struggle with the discipline part. I’m a very self-disciplined person, as I think most attorneys are, I would say, or else we probably wouldn’t have gone into this profession. So that part of it isn’t hard for me. But knowing when to push or knowing when to pull back, I kind of need help with because otherwise I’m just like push, push, push.
You mention self-discipline, which leads to a question about diet. That seems to me like maybe the hardest part of doing something like this. So what was your nutrition plan and your approach for that? How does one eat for a bodybuilding competition?
Well, it depends on who you ask. Obviously, nutrition is very personalized, but for me, I do what we call flexible dieting.
It’s been around for probably ten years now. So the typical old way of thinking was you had to eat fish and asparagus and chicken and flavorless things. And a certain amount of those things. And that was it. But with flexible dieting, you essentially get to eat whatever you want.
You have to track your macros, so your protein, carbs, and then within those macros I’m allowed to eat whatever I want. I typically eat very healthy anyway because you think of it like a bank account. If you eat a doughnut, for example, it’s going to eat up a huge chunk of your carbs and your fat for that day.
So I usually just eat healthy foods. I eat a lot of lean meats, a lot of vegetables. I do love carbs, but I’ll use like potatoes, rice—I do eat bread—that kind of stuff to hit my calorie goal. And then within that, my protein and carb goal for the day.
It sounds similar to the Weight Watchers concept, which I think studies have shown is one of the most effective methods.
It is just like that. Weight Watchers is not as detailed, but it’s the same concept and it’s from a psychological perspective, it helps people adhere to their diet way more because you’re not saying no to anything and you kind of learn to not want anything all that much because you know that you can have it at any point in time, you know, as opposed to say, oh, I can’t eat carbs.
And then when they do let themselves have carbs, they eat a box of cereal and 10 doughnuts and you’re like, no, that’s probably not a good idea.
Most people have a lot of trouble sticking to eating right. How do you do that?
I do love healthy food, and I do love being in control of my nutrition, but really, it’s just making the decision to do something and then doing that thing. I don’t know if that’s a personality trait that I just have, so I always feel like I’m the world’s worst advice giver because I don’t know, is that something that everyone does?
But for me personally, when it comes to sticking to my nutrition or when it came to the bodybuilding and sticking it out even through COVID and the lockdown’s and all of this stuff, it’s just I made a decision to do something.
So I’m going to honor that, and I’m going to continue to make the right choices because I made this decision. I’m going to stick to it.
Are you able to take that mindset of just deciding to do it and use it in your law practice?
100%. Honestly, that’s when I decided to start my law practice. It was kind of like I made the decision and then two days later, I had a law firm.
So again, I’m not the best at giving advice, because when I decide to do something like, I have to do it, I have to get started on that thing right away, or I have to make some sort of move towards accomplishing that thing. So when it comes to the law, when it comes to my practice, that’s pretty much how I get myself to do everything.
You don’t want to do everything it takes to run a law firm every single day. Some of it’s not that fun. Sometimes I’m like, you don’t want to do this. But if I make the decision and I tell myself this exercise is getting done today, then I have no choice. I have to do it. It doesn’t get put off until later, it gets done because I make the decision to do it.
Montgomery Law, PLLC represents fitness entrepreneurs, social media influencers, and other business clients.
Practicing as a solo attorney, what’s the thing that you really dislike having to do every day or every week?
For one, the accounting. I have software for most of it. So, you know, it’s kind of seamless, but I still just hate getting on there. And I don’t like numbers. Yeah, I’m a lawyer, so I hate the accounting part of it.
And then what I would consider the administrative type stuff like some of the emails and intake, the invoicing and all of that, and just those little tedious things.
One more question on nutrition. I know a lot of people are like me in that when you get really stressed, you tend to eat the wrong things. I think most people can relate to that. When you’re training and sticking to this this very specific nutrition plan and running a law practice, I’m sure there’s a lot of stress that comes along with that. How do you deal with the stress?
Well, first, let me say, if you are a stress eater, don’t tell yourself that you’re eating something that’s wrong or bad. You’re just eating something that maybe isn’t ideal for that moment in time. In general, there are healthier choices and then there are less healthy choices, just as a disclaimer for people so that they don’t feel guilty about stuff like that. And for me personally, I’m not immune to wanting to do that.
And now that I’m not bodybuilding, if I’m having a moment of anxiety, it’s like a glass of wine. But when you can’t turn to food or wine or whatever to relieve some of that stress, I might pick a podcast that has nothing to do with business growth. I pick a podcast that is either about training or something fun, something that I just want to listen to. Or go for a walk, or get a book, sit in the corner and read for 10, 15 minutes uninterrupted, and just take a breather and take a moment to myself.
That’s really the only thing you can do when you’re in a bodybuilding preop because everything else is so controlled. Your activity is controlling your nutrition, your water intake, your sleep, all of it. So when you just need that stress relief, it’s really about finding something just a few moments to yourself to shut everything out and then just kind of focus. If you meditate, perfect. I don’t do that. I would love to, but something like that essentially is my version of meditating.
Those sound like much more constructive ways to deal with stress. And you mentioned sleep, which is really interesting to me. One of my most popular blog posts was about how lawyers are so sleep deprived. And I contrasted that with professional athletes who are usually very careful about getting enough sleep. Is getting a certain amount of sleep part of your training for a competition?
Absolutely. And it should be a part of everybody’s training for life, because if you don’t sleep enough, your body doesn’t function properly. And so not only do you have to sleep for muscle recovery, and actually everyone thinks that you’re building muscle in the gym, but you’re not. What you’re doing in the gym is tearing it down. And then when you sleep is when the muscle gets built.
So if you’re not sleeping, you’re not building any muscle. So I am obviously not going to get eight quality hours every single night. But I aim to have everything, have the lights off, have the phone down, everything by 9:30 and in bed.
And I’m very strict about my work-life balance. I will cut things off at 6:30, 7:00. I’m done. I don’t want to check my email. I’m not going to answer a client if they text or call after a certain point in time, you just have to put your foot down and prioritize your sleep. I mean really, truly prioritizing sleep over all the other stuff first and foremost. It’s the most important aspect.
Now let’s talk about getting in the gym. I would say most guys at least, you know, they go in the gym, they throw a bunch of weights on the bench, they do a bench press and they stand around for a few minutes, maybe do some more bench press, maybe go get on the StairMaster. I’m guessing that kind of approach is not going to work for someone like you training for a serious competition.
It’s not ideal. I would say you’re not wasting your time, but you’re certainly not utilizing your time wisely. So, yeah, my programming, my training days are very thought out, usually in two to three-month blocks, and things are progressively overloaded. Everything is very structured.
Even in an off season, when I go to the gym, I don’t just go in without a plan. I go in with maybe it’s a chest day or maybe it’s a shoulder test day. I write things down, I keep track of how I feel, how the weight felt. I track all of that because you really have to train with a purpose and with an intent to actually make progress.
So in or out of bodybuilding, you really should train with intent or else don’t bother going to the gym. Go do something else.
A lot of people will start an exercise program and they don’t really see results from it. What do you think most people are doing wrong when they get in the gym?
Either they’re not doing a good program, maybe they’re just following along haphazardly with different exercises or different workouts that they see online or they’re not giving themselves enough time. I’ve been doing essentially the same types of workouts since I started working out. I don’t do a lot of fancy stuff. Things don’t really change, the bread and butter: the squat, bench press, deadlift. There are some accessory movements that go along with that. But I go and do the same things day in and day out, and then you just have to be patient.
Everybody always wants to change up every couple of weeks, to “confuse” the body. I don’t know where that came from; you can’t confuse your body. You just go in and do the movements that, you know, work, the movements that are hard, that challenge you. And you do the same things over and over. Maybe you’re going to add some weight from week to week, or maybe you’re going to add some reps. But be patient. You’re not going to see results in a few weeks. It’s going to take time.
“I’ve been doing essentially the same types of workouts since I started working out. I don’t do a lot of fancy stuff.”
So we’re not going to see Shannon Montgomery doing a lot of rope climbing or tire flipping?
No, unless I’m having a totally crazy day and I feel like just having fun and doing something totally out there, but not typically. And that works for cardio, I mean, it definitely works, but the same thing goes. If you’re going to tire flip, if you use the same weight tire every single time you do it, you’re not going to get any stronger. So start with a small tire and move up to the giant tire.
Another thing I would guess most lawyers would say about physical fitness is just that it’s hard to find the time, because they’re so busy. For someone like you, where you’re doing client work and the administrative work all on your own, how do you manage your time when you’re doing this training?
So, one, you don’t have to spend tons of time in the gym. You don’t need any more time than 45 minutes to an hour.
And two, like I said earlier, if you want something, you will make it happen. So sometimes it means I’m up at 4:00 a.m. to make sure that I get that workout in before the meeting, or before when I was with the firm, I was in the office by 8:00 a.m., so I was at the gym by 4:40 every single day.
I don’t have kids, so I know a lot of people who have kids, it’s a lot there. There are a lot of moving parts. But you can make something happen. You don’t have to go to a gym, not necessarily. You can go for a run or work out in your garage. If you want to do it, you will find the time to do it.
It’s just about understanding you don’t need to spend two hours and it doesn’t have to be the biggest gym work. It can be a 30-minute, 45-minute body-weight workout in your garage.
That’s great advice. I was also wondering about competing on stage, and I’m thinking that most people, including me, would be terrified to get on stage like in a bathing suit. And not only that, where the people are scrutinizing everything about your appearance. Does that make you nervous? And how do you deal with that?
Yes, super nervous. And still, it makes me nervous every single time. I don’t know if that is something that will ever go away. Maybe I’ll let you know in a few years, but I still get nervous because it is it’s very awkward.
And especially for me. I’m just not like a very flashy center of attention kind of person. And you’re getting up on stage in literally nothing and you’re being scrutinized, and as a female, our biggest insecurity is typically our body. But over the years, I’ve been able to kind of separate that being on stage and what the judges are going to say or think from who I am.
It’s definitely given me so much confidence because if I can get on stage in a bikini and some clear plastic heels, I can probably do just about anything, and that bleeds into just everything else in life, having that confidence.
It has led me to starting my own law firm. It’s like, well, if I can get on stage and do this very awkward thing and withstand that, there’s no way I can’t open my own law firm and be at least mildly successful.
My next question was inspired by watching that documentary, The Last Dance about Michael Jordan. One thing that comes out of that is you see this burning desire to compete and win. You just won a competition. How important is that will to win to actually winning?
I think particularly in bodybuilding, if you don’t have the ability to at least visualize yourself winning, you might never get there, because when it comes to bodybuilding, your stage presentation is most of the battle. So having that desire to win will give you more confidence on stage and will give you the ability to really showcase what you worked so hard for.
It’s perfectly fine to compete and have no expectation and want to just do it for fun, but if you want to compete and you want to win, that will to win has to be paramount. Because there are times during prep where you’re just like, why am I doing this? I’m tired, I’m hungry, I have to go do an hour of cardio, and I don’t want to do it. But the desire to actually get on stage and win something just kind of pushes you through those times.
Are you fun to be around in the final weeks of your training?
Ooh, probably not, honestly. You’re kind of hungry and you’re tired and you’re just like, I’m ready to be on stage. I’m over this. So probably not.
After you won the overall competition, what was the first, I’ll say “bad” food—foods are not bad or good, but you know what I mean. What was the first thing you wanted to eat that you couldn’t before?
One, wine. I had a little glass of wine. And then I made myself I guess they call them brookies, but it’s a brownie and chocolate chip cookie thing. I’m a sweets person. My sweet tooth is terrible. So that’s what I always want. I want the sweetest chocolateiest peanut-butteriest thing I can find.
That sounds great. So overall, what was the most important lesson you took out of this experience of training for and winning this competition?
Well, this year was special because of COVID and because of the gym shutdowns and all the show cancellations and everything. So, I think the number one lesson I learned from prepping through all of this was how resilient I am, but also just how resilient humans are, because there are so many people who were doing the same thing as I was. And we were training in our garages with chairs and stuff so that we can get on stage.
Just knowing that not only can I adapt, I can change, I can pivot when I need to. I am apparently very resilient. So it was a it was a very good life lesson this year.
Resilience. Yeah, we all need that right now for sure. So what’s your next bodybuilding goal?
Right now I am taking a break. I actually am kind of dealing with a little bit of a back injury, so my training has been not great.
Probably in the beginning of next year, I will start another prep for hopefully the national shows that originally are in the summertime. We’re hoping that everything goes back to normal next year, and then I can get on stage at a national show and see what the judges say. Maybe they’ll like me as I am and I can win that card.
Or maybe they’ll tell me, hit the hit the gym, do these three things and then come back. So that’s kind of the goal. But the long-term goal is to win a pro card. So hopefully that’ll happen soon.
Well, I expect we’re going to see that sometime in the future. Now, what is your next big professional goal and related to that, people who want to help you professionally, what can they do to help?
I would love to be able to bring on help to do the things I hate to do. So figuring out how to do that the right way.
And scaling the business a little bit, getting better about that, because I have a tendency to just sort of take everything on and just keep everything. I’m starting to do a little more work, like hiring freelancers for certain things, because they always say hire out, hire out. But being a control freak, that’s so hard for me. But I’m getting better at it.
So professionally, I would hopefully by the end of this year, I’m in a position to where I can bring somebody in maybe part time, if not full time, for some of the administrative stuff and actually be a good manager and actually be able to tell them what it is I need, because I feel like I’m really bad about that.
That’s definitely the goal. And then maybe by next year, who knows, hiring an associate or something, that would be crazy, but also awesome.
Well maybe people who see this interview can help with that. And if people want to keep up with what you’re doing, they can follow you on Instagram?
Yes, they can follow my firm Instagram @montgomerylawpllc, and my personal Instagram focused on weightlifting is @liftinglawyer. I haven’t been super active on either of them lately because I’ve just been so busy, but hopefully I’ll get back on there soon because I do love being on social media.
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Zach Wolfe (zwolfe@fleckman.com) is a Texas trial lawyer who handles non-compete and trade secret litigation at his firm Fleckman & McGlynn, PLLC. Follow @zachwolfelaw on Instagram to keep up with his latest shenanigans.
It was a rite of passage this past year in the Wolfe casa, when I watched the classic 1980 film The Blues Brothers with my 11YO son, just as I had done with my dad back in the day.
Some of you will remember the opening scene. “Joliet” Jake Blues is finally getting out of prison. Dressed in his jailhouse fatigues, he is led to the property room to claim his personal belongings. He steps up to the counter, and an officer holding a clipboard glares at him (played by none other than Frank Oz of Muppets and Yoda fame). The two escorting officers pull him back to stand behind the yellow-taped line on the floor.
“Sign here,” the officer sneers. Jake sarcastically plants his feet behind the yellow line while cartoonishly leaning forward to sign his “X” on the line. Right off the bat you get a sense of Jake’s personality.
I experienced something similar as a teenager when I went to get my driver’s license. I walked up to the counter, and the lady behind it said “please stand behind the line until you’re called.” Afterwards, I remember my dad saying something like “you give people a little bit of power . . .”
I’ll come back to that.
The 2020 bar exam controversy
You may have heard there has been some controversy about the bar exam this year. The problem is obvious. The last thing you want in the middle of a pandemic is hundreds of test-takers assembled in one big room together for hours on end.
This has presented bar examiners with several options. I’ll list them in order from worst to best:
1. Cancel the exam and just wait until next year. Graduating law school students can just figure something out for a year.
2. Grin and bear it. Stick with the in-person bar exam, but maybe with some extra social distancing. How bad could it be?
3. Switch to an online exam. If monitoring the test-takers is too much of a logistical challenge, then just make it an open-book exam (as many exam critics have already suggested).
4. Considering the unprecedented nature of the COVID-19 epidemic, the threat of spreading the virus to test-takers, the anxiety that the threat of the virus must visit on already-stressed-out examinees, and the fact that the bar exam is not really that essential in the first place, grant admission to the bar based on diploma privilege—at least just this one year.
(Diploma privilege means accepting graduation from an accredited law school in lieu of passing the bar exam.)
My ranking of the options is of course just my opinion, and there are pros and cons to each. I’ll concede this is not an easy issue for bar examiners to deal with. Same for the state supreme courts that, in most cases, ultimately oversee the bar examiners.
But that’s about the best I can say for the bar examiners. Overall, if I had to grade their collective response to the COVID-19 crisis, they would get an F. Ok, maybe some of them would get a C, if we’re being charitable.
They should have just made it simple and granted diploma privilege for this one year. That would earn an A.
Granted, as indicated earlier, my grade is based on the premise that the bar exam is not really that valuable. If my premise is wrong, then maybe my grade is too low.
So it comes down to this: what is the real purpose of the bar exam, and how well does it serve that purpose?
Are you ready for some football?
Let’s put it in football terms. NFL teams use the scouting combine to help evaluate college players for the draft.
At the combine, players run a gauntlet of physical fitness challenges that includes things like the 40-yard dash, the vertical jump, and bench pressing 225 pounds as many times as possible. They also get interviewed and take a sort of IQ test called the Wonderlic.
Of course, the tests at the combine are just part of the puzzle. It’s a sports talk show cliché for some former player to say, “I don’t care how good he looks running around in shorts, let me see him on the field in pads getting hit.”
But the physical tests at the combine give the teams some relevant information they find valuable.
No, on game day you don’t get points for running a 40-yard dash in a straight line with no pads for time. But if the defensive back you’re scouting has a subpar time on the 40, that tells you he may not have the speed needed to stay with a Tyreek Hill streaking down the sideline. Seeing that prospective offensive lineman bench press 225 pounds like it’s nothing gives you some idea of what he can do to a blitzing linebacker.
In the same way, testing future lawyers on their knowledge of specific areas of law is obviously not the same as watching them actually practice law, but it gives you some indication of their legal acumen, right?
Well, not so much. The NFL combine is perhaps what the bar exam wants to be, but the reality is different.
Imagine you’re a college football player arriving at the NFL combine, and a team scout hands you a stack of 15 detailed rulebooks from various sports. The sports include everything from tennis to basketball to golf, and maybe—maybe—football. “You’ve got a week to memorize these rulebooks, kid, and then there’s going to be a written test.”
That’s the bar exam.
You can see the problem. First, knowing all the intricate rules to football is no test of how well you are prepared to play football. Second, knowing the rules of, say, professional bowling has no relevance whatsoever to playing football.
Now, in fairness, making NFL prospects memorize these rulebooks and take a test on them might have some value. For one thing, the ability to memorize that much information and apply it on a written test would be some indication of a player’s intelligence. For another, this ordeal would give teams some sense of a player’s grit, determination, and discipline.
It would also serve as a sort of rite of passage, building camaraderie among players. Someday they’ll sit at a bar reminiscing about the experience. “You remember when we had to memorize all those crazy rules of table tennis, that was insane!”
And finally, let’s say the rulebooks include the rules of the NFL. In that case, a player’s knowledge of the rulebook might have some value, even if it’s not the thing that really matters.
So how is my combine hypothetical like the bar exam?
An exam for a bygone era?
The first problem is that the ability to memorize a bunch of legal rules and apply them on a written test isn’t even close to how lawyers actually practice law. It is both too difficult and too easy. It’s too difficult because in practice, if a lawyer doesn’t remember all the elements of the business records exception to hearsay, she’s just going to look them up. It’s too easy because real flesh-and-blood client matters don’t come in neat little fact patterns with right or wrong multiple-choice answers.
But that’s just the least of it. The bigger problem is specialization.
There was a bygone era when small-town lawyers had to know a little about a lot of different areas of law practice. You might draft a will on Monday, appear in court for a criminal defendant on Tuesday, and review an oil and gas lease on Wednesday. The typical selection of bar exam topics seems built for this kind of practice.
But hardly anyone practices like that anymore. Almost every lawyer today specializes in some specific area of law. Sure, the level of specialization varies, and some lawyers have more than one specialty, but very few lawyers now have the kind of general practice that the bar exam attempts to test for.
Let’s say a lawyer specializes in patent law. Testing that lawyer on her knowledge of criminal procedure is about as relevant as testing a wide receiver on his knowledge of the rules of baseball. That would be unnecessary and over-inclusive.
And there’s a less obvious problem. No matter what topics you pick, the bar exam is also going to be under-inclusive. I’ll use myself as an example. My practice focuses on non-compete and trade secret litigation. Sometimes I also handle trademark matters. (This is by happenstance; the two practice areas have nothing to do with each other.)
Guess what? The bar exam I took had nothing about either one of these practice areas.
How can this be? How could the Texas Board of Law Examiners set me loose on an unsuspecting public without first testing my competence in these areas of law?
The answer is twofold and, I think, illustrative.
First, in the case of trademark law, I learned it the old-fashioned way: apprenticeship. I don’t mean any kind of formal apprenticeship. I just mean that I learned it by working with a lawyer who was experienced in trademark matters. I wouldn’t call myself a trademark law expert, but it didn’t take long for me to achieve basic competence in it.
This is how almost every new lawyer learns to practice law.
Granted, there are some intrepid souls who get out of law school and immediately hang up the proverbial shingle. But we don’t need to worry too much about them. Anybody who goes that route is likely to have an unusually high amount of initiative and motivation, which I’ll bet more than compensates for lack of experience.
And that is the exception, not the rule. Very few clients hire a lawyer who just got out of law school and has no experience. So, naturally, the vast majority of new lawyers go to work under the supervision of a more experienced lawyer. Effectively, most lawyers start their careers serving an informal apprenticeship that effectively lasts 1-3 years, or even longer.
This informal apprenticeship—not the bar exam—is the main way the profession trains lawyers for basic competence.
The second way the profession ensures competence is through self-study and the free market. Here’s what I mean. Remember I said the main focus of my practice is non-compete and trade secret litigation? I’m not too modest to say I am an expert in that area of law.
And here’s the funny thing. I didn’t become an expert on non-compete and trade secret litigation through studying for an exam on it, or even through some kind of informal apprenticeship. I learned it on my own through on-the-job training, and then tried to make a name for myself in it. Then the free market does its thing, and people who hear that I’m an expert call me up.
These examples teach us that the bar exam is neither necessary nor sufficient to ensure competency of lawyers.
Having said that, I must give the bar exam its due. Like our hypothetical NFL rulebook ordeal, the bar exam doesn’t prove nothing. Passing the bar exam is probably some indication of intelligence. It is definitely some indication of perseverance and dedication. And, like making NFL prospects memorize the rules of badminton, it may have some value as a sort of shared rite of passage.
Still, these are pretty weak justifications for the bar exam.
I think the real purpose of the bar exam is public relations. The public thinks that some test of legal competence is necessary, and that the bar exam serves that purpose. Lawyers are already an unpopular group. The last thing we want is the PR disaster of the public thinking “they’ll let anyone practice law these days, you don’t even have to take a test.”
So I get it. We probably need some kind of bar exam to assuage an already hostile public. But just among us lawyers, let’s not pretend that the purpose goes much further than that.
And with that backdrop, let’s look at how bar examiners have handled the bar exam in 2020.
What is wrong with these people?
Perhaps the greatest shortcoming has been the simple failure or refusal to grasp the seriousness of the health risks of taking an in-person bar exam, combined with an inflated sense of the value of the exam. The response from the North Carolina Board of Law Examiners typifies this attitude:
For the reasons addressed above, I think this position puts too much faith in the value of the bar exam. It just isn’t grounded in the reality of how new lawyers learn to practice law.
But I will concede that this is at least a plausible position, and one the average John Q. Public probably agrees with. Reasonable people can disagree over whether temporary diploma privilege is the best way to respond to COVID-19.
The problem, though, is not so much that bar examiners have made bad decisions, it’s the way they have done it. Their attitudes have not reflected well on our profession.
Sure, I’m basing this on anecdotal evidence, but the stories I’ve seen suggest that bar examiners have reacted to the COVID-19 crisis with a disappointing combination of pettiness, arbitrariness, lack of compassion and empathy, and even outright hostility towards law school graduates preparing to enter the profession.
I’ll give you some examples.
In the hypocrisy category, let’s start with the fact that many bar examiners, while insisting that we continue with an in-person exam, have required examinees to sign COVID-19 waivers. See also the bar examiner boards that are working from home but still insist on an in-person exam.
In the procrastination category, how about waiting until the last minute to tell law school graduates studying for the bar exam that the exam has been canceled or postponed? Breaking: Florida Man cancels online bar exam three days out.
Then there’s New York. Here’s the New York Court of Appeals explaining why an online exam would not work:
“As the nation’s largest legal market . . .” I can only hear that in the voice of Thurston Howell III. Or maybe Dan Aykroyd in Trading Places, when he complains “that’s my Harvard tie!” The message seems to be that an online exam might be ok for some backwoods state, like maybe Texas, but not a civilized place like New York.
And I love the combination of arrogance and resistance to innovation. “We’re the most important legal market in the world, but using the Internet for an exam sounds way too sophisticated.” (Plus, later they changed their minds.)
In fairness, the response of the Southern states hasn’t been much better.
In the “bold thinking” category, Virginia responded to the unprecedented crisis with a radical change: waiving its necktie requirement. This was a big deal for the Virginia Board of Bar Examiners, which is not down with the whole “casual Fridays” thing:
This notice has such a high-school-principal-measuring-mini-skirts-with-a-ruler vibe, but without the actual concern for the students.
It also has the feel of the law firm managing partner announcing that, in lieu of bonuses this year, lawyers won’t be required to wear ties on Fridays. Wow, thanks.
And of course, “no further discussion of this topic will be necessary.”
Discouraging bar applicants from expressing dissent seems to be a theme. One prominent bar exam official said that complaints from examinees to her board were raising “character and fitness” issues.
What does it say about our profession that our response to future leaders of the bar who take the initiative to propose changes is to say, in effect, “hey, snitches get stitches”?
There also seems to be some generational prejudice at play. You get the feeling the bar examiners look at the bar applicants as “entitled” millennials who think law licenses should be handed out like participation trophies. “You want us to make special arrangements just because you could catch Coronavirus? What’s next, demanding free soy lattes during the breaks?” The collective response from bar examiners has had a tone of “just suck it up and deal.”
This was apparent in the “eye roll” incident. You can look it up.
Rolling your eyes at legitimate concerns from bar applicants strikes me as the wrong attitude. Same with dozing off during a Zoom conference with concerned bar applicants. And then there are the bar officials who suggested law school graduates who couldn’t take the bar exam and get jobs could just ask alumni for money. It’s like telling people who get evicted just to move into their summer homes.
But nothing captures the pettiness of the bar examiners quite like the anti-cheating precautions they have adopted for both in-person and online exams.
Before I get to some examples, let me be clear. Cheating on the bar exam would be wrong, and I don’t fault bar examiners for taking reasonable precautions against cheating.
But let’s be real about this. Cheating on the bar exam would be extremely difficult. You could make it an open-book exam, and it probably wouldn’t make a big difference. You’re not going to have enough time to look up the answer to each question, and looking up a rule isn’t going to help you apply the rule to a specific situation. Plus, there is no way you’re going to cram all the testable information on to some kind of crib sheet. It’s just not the kind of exam where you can write the answers on your hand.
Considering this reality, some of the anti-cheating rules bar examiners have adopted are downright bizarre.
Imagine you’re 38 weeks pregnant and taking the bar exam. Surely it would be reasonable to request a few additional bathroom breaks, right? Nope, the Illinois bar examiners said. You might have written the Rule Against Perpetuities on a roll of toilet paper in the bathroom.
And whatever you do, don’t fidget. Consider these rules from the Tennessee Board of Law Examiners:
Seriously? Reading notes on your hand?
And the part about not looking up, down, or to the side for more than a few seconds cracks me up. It’s like the scene in This Is Spinal Tap when Christopher Guest tells Rob Reiner not to look at one of his special guitars. “Don’t touch it. Don’t point even.”
It would be funny if wasn’t so serious for the people taking the exam.
But for sheer absurdity, nothing can top the Great Tampon Caper of 2020.
It turns out that many states, including Texas where I practice, prohibit bringing menstrual products into the bar exam. I’m not making this up.
But for me, it’s even more fundamental than that. There’s something that’s just so petty and idiotic about it. Why did someone ever think this policy was a good idea? Did they think women were going to write all of the hearsay exceptions on a tampon with a Sharpie?
I mean, what is wrong with people?
Abuse of Power
Ultimately, that’s my big takeaway from all of this. There is something wrong with people. I think the abysmal way that bar examiners have responded to concerns about the COVID-19 virus points out something dark about human nature. People just can’t be trusted with power.
Give us authority over other people, even—or maybe especially—in some small sphere of life, and we just can’t help ourselves. We want to use that power. We want to lord it over other people. We get an inflated sense of the importance of our little rules, and we bristle at any suggestion that we change them.
It’s why the property clerk in The Blues Brothers makes Jake stand behind the yellow line. It’s why the driver’s license lady—who was probably a very nice person to her friends and family—did the same thing to me.
And I think it must be part of why bar examiners have dropped the ball when it comes to dealing with the COVID-19 pandemic.
Zach Wolfe (zwolfe@fleckman.com) is a Texas trial lawyer who handles non-compete and trade secret litigation at his firm Fleckman & McGlynn, PLLC. Follow @zachwolfelaw on Instagram to keep up with his latest shenanigans.
These are his opinions, not the opinions of his firm or clients.
One trick I learned early in my litigation career was what the witness can say when the lawyer asks, “ok, but is it possible that ____?”
The classic answer: “Anything’s possible.”
Sure, it’s flip, but it’s effective. This answer succinctly points out the folly of the question. Getting a witness to say it’s possible that some event happened doesn’t really prove anything. In litigator lingo, it’s “no evidence” that the thing actually happened.
But is it true that anything is possible? Sometimes performance of a contract will become impossible after the parties sign it. This has become even more apparent in the COVID-19 era.
Suppose you own a hotel in the Houston area, where I practice law. You sign a contract with the Texas Knitting Association to host their annual knitting blowout. The contract calls for the hotel to provide a ballroom, three meeting rooms, and catered meals for a three-day convention. The TKA expects 500 members to attend.
But of course something goes wrong. The COVID-19 pandemic hits Texas with a wallop. Both the Governor of Texas and the Mayor of Houston issue emergency declarations.
Public health officials said a large gathering would present a “clear and present danger.”
Then, the week before the knitting convention, the Director of the Houston Public Health Authority notifies the Mayor that the risk of COVID-19 spreading at large in-person gatherings is high. He says a convention presents a “clear and present danger to the health and well-being of convention attendees, workers, local hotel and restaurant owners and Houstonians because of the surging pandemic.” The Mayor recommends that Houston hotels cancel large conventions.
So, the hotel manager emails the head of the TKA. “I’m sorry, we must cancel the convention because of the pandemic situation.”
But this hotel messed with the wrong people.
The knitters swing into action and call their aggressive Houston lawyers. The lawyers file suit asking a Houston judge to order the hotel to host the convention. They claim the breach will cause “irreparable injury” because there’s no time to find an alternate venue, and this may be the last chance some of their members ever get to attend.
Did the hotel breach the contract? Does it have a good defense to the lawsuit? Let’s break it down.
The General Rule
The general rule in Texas is that a deal’s a deal. Impossibility of performance does not excuse a breach of contract:
Where the obligation to perform is absolute, impossibility of performance occurring after the contract was made is not an excuse for nonperformance if the impossibility might have reasonably been anticipated and guarded against in the contract. This is true even though an impossibility may subsequently have occurred by virtue of an act of God or some other circumstance over which the parties had no control. Impossibility of performance is also not an excuse if it is subsequently occasioned by the act or default of the promisor or by the acts of a third party.
So there you have it. If you want to use a subsequent event as an excuse to get out of the contract, you should have put that in the contract. If performance becomes impossible, too bad so sad.
But wait, my loyal Fivers say. What if the parties did put that in the contract? What about a force majeure clause, which you deftly explained in your viral blog post Use the Force (Majeure).
I’m glad you asked.
Use the Force (Majeure Clause)
A force majeure clause is a defense to a breach of contract claim if:
1. The event at issue is one of the events specifically enumerated in the force majeure clause
OR
2. The event at issue is within the scope of the “catch-all” clause AND was not reasonably foreseeable to the parties (?)
AND
3. The event caused the breaching party’s failure to perform
AND
4. The breaching party complied with any notice requirements of the force majeure clause
I put a question mark by the “reasonably foreseeable” part because not everybody agrees. The dissent in TEC Olmos said the court should not read “reasonably foreseeable” into the contract if the plain language of the contract doesn’t say that.
Setting aside that complication, let’s apply these elements to our Houston knitting convention.
Was the event at issue expressly enumerated in the force majeure clause?
Let’s assume for our hypothetical that the force majeure clause expressly refers to “epidemics,” as follows:
But that’s not all! Let’s suppose that after the pandemic hit, the knitting association and the hotel signed an addendum containing this “supplemental” force majeure clause:
I think that gives us a pretty clear answer to element 1. Under our hypothetical, the force majeure clauses specifically refer to the very events that the hotel cited as force majeure events. We don’t even have to look at the catch-all clause under element 2.
So we go to element 3: did these events cause the hotel’s failure to perform?
The answer seems to be yes, but let’s muddy the hypothetical a little. Suppose that a week before the Mayor recommended canceling hotel conventions, he found out that the president of the knitting association made a big campaign contribution to the Mayor’s opponent. The knitters claim in their lawsuit that the mayor didn’t make his recommendation for legitimate public health reasons, but to get back at the knitters.
That might at least present a factual dispute about causation.
If these facts ring a bell, it’s probably because I’ve loosely based them on the litigation over the 2020 Texas Republican Party Convention. The force majeure clauses cited above are taken directly from the contract the Texas Republican Party signed with Houston First, the corporation that operates the massive George R. Brown Convention Center in Houston.
I got pretty excited when that case hit the headlines, because I was scheduled to co-present a continuing legal education course on force majeure issues. But the case, for all its craziness, was kind of a letdown, at least as to force majeure issues. As we’ve seen, whether the pandemic was a force majeure event was not even a close call. It was right there in both the original contract and the addendum.
The harder question was the “pretext” issue, i.e. the allegation that the Mayor caused Houston First to cancel the convention for political reasons, not because of the pandemic. In theory, that allegation could negate the causation element of the force majeure defense.
But in practice, that argument was a pretty hard sell, considering the unprecedented nature of the COVID-19 epidemic and the fact that cases were spiking right around the time of the convention. Two state district court judges and the Texas Supreme Court didn’t seem to buy it. The only judge who did was U.S. District Court Judge Lynn Hughes, who ordered the convention to proceed. But the Fifth Circuit Court of Appeals quickly stayed that order, and then sat on the case until it effectively became moot.
It seems the only lasting effect was to give thought leaders like me a fun hypothetical.
The convention contract specifically included “Pandemics affecting Houston” as a force majeure event
My takeaway for private disputes is that you can make the pretext argument if you represent the party trying to enforce performance, but you’d better have some really strong facts to support it, especially where there’s no question that an enumerated force majeure event occurred.
But that’s really just the first half of the story. Let’s suppose our contract between the hotel and the knitting association doesn’t have a force majeure clause at all. Is the hotel stuck with the obligation to perform?
Impracticability
This is where the impracticability defense comes in. Think of it as an implied, non-contractual force majeure clause.
As we saw earlier, the general rule is that impossibility of performance is no excuse. But there’s an exception. Section 261 of the Restatement (Second) of Contracts states as follows:
Where, after a contract is made, a party’s performance is made impracticable without his fault by the occurrence of an event the non-occurrence of which was a basic assumption on which the contract was made, his duty to render that performance is discharged, unless the language or the circumstances indicate the contrary.
Of course, the Restatement isn’t binding on a judge. It’s basically just an attempt by legal scholars to consolidate and “restate” what a bunch of courts have said. But the Texas Supreme Court did cite Section 261 favorably in Centex Corp. v. Dalton, 840 S.W.2d 952, 954 (Tex. 1992).
But what does it mean? In typical Restatement fashion, Section 261 is dense, awkwardly worded, and contains the familiar pragmatist escape hatch “unless the language or the circumstances indicate the contrary.”
Let me see if I can put it in plain language: If a basic assumption of the contract unexpectedly becomes untrue, it wasn’t your fault, and you can’t perform your obligation as a result, then you’re excused from performing. That’s the general rule of “impracticability.”
Applying this to our hypothetical, the hotel would have a pretty strong impracticability defense. It was a basic assumption of the contract that holding a convention in the hotel would not threaten public health or run afoul of emergency orders from state and local governments. It wasn’t the hotel’s fault. And the result is that it’s impracticable for the hotel to perform.
Indeed, government action is one of the classic impracticability scenarios. Texas courts have recognized three narrow situations where the impracticability defense applies:
(1) the death or incapacity of a person necessary for performance
(2) the destruction or deterioration of a thing necessary for performance
You can remember these three things if you just think “death, destruction, and taxes.”
Even in these situations, the party trying to avoid performance must show it used reasonable efforts to surmount the alleged obstacle to performance. See id. at 69 (citing Restatement (Second) of Contracts § 261, cmt. d).
Texas courts have also recognized some typical scenarios where the impracticability defense does not apply. Those include:
Where performance has merely become “more economically burdensome than expected.” Huffines v. Swor Sand & Gravel Co., 750 S.W.2d 38, 40 (Tex. App.—Fort Worth 1988, no writ)
Where the expected source for a commodity becomes unavailable but the commodity can be obtained from another source. United Sales Co. v. Curtis Peanut Co., 302 S.W.2d 763, 766 (Tex. Civ. App.—Dallas 1957, writ ref’d n.r.e.)
Inability to obtain financing needed to perform the obligation. E. Taylor Syndicate v. James, 243 S.W. 1105, 1108-9 (Tex. Civ. App.—Amarillo 1922, writ ref’d).
Comparing the categories of events that can establish impracticability with these events that do not, you can see a theme. Just like we saw with force majeure clauses, courts applying the impracticability defense are skeptical of economic excuses for a failure to perform. The fact that performance has become more expensive is usually not going to cut it.
Unless the facts or circumstances indicate otherwise. Anything’s possible.
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Zach Wolfe (zwolfe@fleckman.com) is a Texas trial lawyer who handles non-compete and trade secret litigation at his firm Fleckman & McGlynn, PLLC. Follow @zachwolfelaw on Instagram to keep up with his latest shenanigans.
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.
I took a Professional Responsibility course in law school, but I can’t remember the grade I received. I think it was at least a B, so hey, that’s good enough for a thought leader, right?
Anyway, major changes to the ethics rules that govern Texas lawyer advertising—including the use of social media—may be coming soon. The proposed changes would modernize and improve the advertising rules. If the changes are enacted, Texas law firms will be allowed to use trade names, and Texas lawyers will be able to use social media more freely without fear of stepping on ethical landmines.
The proposed changes would amend Part VII of the Texas Disciplinary Rules of Professional Conduct, which contains Rules 7.01-7.07 governing lawyer advertising and solicitation. These rules are, frankly, kind of a mess. They were obviously written to regulate plaintiff’s personal injury lawyers, and they are awkward to apply to other practice areas.
For example, how is a defense lawyer or a transactional lawyer supposed to comply with the requirement that when stating results obtained, “the amount involved was actually received by the client”? See Rule 7.02(a)(2)(ii). This is just one example. And these were problems before social media.
Applying these rules to social media is even more awkward. I’ve written about this problem before. See Five Rules Texas Lawyers and Other Professionals Must Follow When Using Social Media. As I explained, the good news was that the Texas State Bar Advertising Review Committee helped by issuing Interpretive Comments that clarified application of the rules to social media.
The bad news was that the Interpretive Comments still left open the possibility that (a) all the Texas lawyers who have LinkedIn profiles they haven’t filed with the State Bar are technically violating the requirement to file all lawyer advertising, and (b) every time a Texas lawyer posts something on social media, it could be an “advertisement in the public media” that is supposed to be filed.
For these reasons, when the Committee on Disciplinary Rules and Referenda circulated proposed changes to the advertising rules earlier this year, I recommended some changes to clarify these issues. See Influential Blogger Recommends Tweaking New Texas Ethics Rules.
To their credit—and to my pleasant surprise—the Committee members took the time to review my detailed memo, expressed appreciation, and listened attentively to my comments at the public hearing. They even invited me to share additional comments at a subsequent meeting and made further changes to the proposed rules to address some of the issues I raised. That was pretty cool.
As a result, the proposed rules include an exemption from the filing requirement for social media posts that are primarily “informational” or “educational,” as well as an exemption that would cover most lawyer social media profiles.
These are significant improvements that will encourage use of social media by Texas lawyers, while continuing the general prohibition of false or misleading lawyer advertising.
Want to see the details? Check out the submission packet for the proposed changes, including a redlined version of the rules. The packet even includes my memo and a transcript of my public comments. For the 15 changes that seem most important to me, read on.
Proposed Structural Changes
I call the first five changes structural in nature. These are the kind of changes that lawyer ethics nerds will love.
#1: One general “false and misleading” rule would replace the previous “per se” rules
This first one requires a little explanation, so bear with me.
The prohibition of false or misleading statements has been moved from Rule 7.02 to Rule 7.01, but the definition of “false or misleading” is the same:
The new part is an expanded definition of a “misleading” statement:
The key terms here are “substantial likelihood,” “reasonable person,” and “unjustified expectations.” This is more specific than the previous prohibition, which has been deleted:
The idea is to prohibit statements that, while literally true, would cause a reasonable person to expect too much. The classic example would be something like “we got a $5 million verdict for a trucking accident victim, and we can do the same for you!”
This is a good clarification, but I don’t view this as a material change.
The bigger change is that the rules now rely on the general prohibition of false and misleading statements, without also enumerating specific types of false and misleading statements.
Previously, the rules identified certain statements that were false and misleading per se, particularly as to past results. Now the per se rule about past results would be deleted:
This is a welcome change. This awkward rule created ambiguity because there are so many situations where it just doesn’t apply. The Advertising Review Committee had to clarify with Interpretive Comment 26, which essentially said just comply with the parts of the rule that apply to your situation:
With the deletion of the previous per se rule about results obtained, this interpretive comment would no longer be necessary. The only downside is that I would no longer get to gripe about this rule when I present this topic at CLE seminars.
#2: The rules would now have a definition of “advertisement,” with the key language “offers or promotes legal services”
The new Rule 7.01 “governs all communications about a lawyer’s services, including advertisements and solicitation communications.” Believe it or not, the old rules did not define an “advertisement” in the public media, but the new Rule 7.01 would:
The definition has three key elements:
(1) “substantially motivated by pecuniary gain”
(2) made to “members of the public in general”
(3) “offers or promotes legal services”
In my memo to the Committee, I quibbled with the “pecuniary gain” element because it’s subjective. Plus, isn’t most of what lawyers post on social media motivated by “pecuniary gain” to some degree? But it’s probably not a big deal. The “substantially motivated” language should be sufficient to keep this from being a problem.
The two other elements are really the key. To trigger the advertising requirements, it has to be a communication to the public, so a private post viewable only by your 50 Facebook friends is probably not advertising. And it has to offer or promote legal services. So a tweet that says “I’m working this weekend on a brief for a client” won’t be considered an advertisement.
Why does this matter? For one thing, the rules generally require advertisements to be filed with the Advertising Review Committee. More about that later.
#3: The rules would now have a definition of “solicitation,” which includes “offering to provide legal services”
The proposed rules also have a new definition of a “solicitation communication”:
This definition has three elements, which correspond to the three elements in the definition of advertisement we looked at earlier:
(1) “substantially motivated by pecuniary gain”
(2) made to a “specific person who has not sought the lawyer’s advice or services”
(3) “offering to provide legal services . . . in a particular matter”
Thus, the difference between an advertisement and a solicitation communication is that a solicitation communication is to a specific person about a particular matter. This can be important because there are specific rules about solicitation in Rule 7.03, including a prohibition on solicitation through social media (with some exceptions).
#4: The rules would now expressly refer to social media
Speaking of social media, the proposed rules would include “social media” in the communications regulated by the rule on solicitation:
Nobody thinks the existing rules don’t apply to social media, but expressly acknowledging social media in the advertising rules is a welcome update. I only wonder if, 20 years from now, the phrase “social media” will be out of date and people will cringe when they read it.
#5: There would be no separate rule for law firm websites
The current rules have a special provision just for law firm websites in Rule 7.07(c). That provision is old enough that it had to include a definition of “website.” The upshot of that rule is that law firms can file the homepage but not worry about filing changes to the rest of the website.
The new rules would have the same effect, but they would do it by adding a filing exemption for portions of the website other than the homepage. (I address this exemption below.)
Those are the major structural changes I see in the proposed new rules. The next five changes are new exemptions to the filing requirement. These exemptions would have more of a practical impact.
Proposed Exemptions from the Filing Requirement
Unless an exception or exemption applies, Texas lawyers must file advertisements and solicitation communications with the Advertising Review Committee, which requires filling out a form and paying a fee. This general requirement will not change.
This filing requirement creates a problem for lawyers who use social media for professional networking and business development. Most Texas lawyers do not file their social media profiles (such as LinkedIn), and they don’t want to have to think about filing every time they post something on social media that might be considered an advertisement.
The good news is that the new exemptions would clarify that in most cases Texas lawyers do not need to file their social media profiles or posts as advertising.
#6: The new rules would have an exemption for content published for informational, educational, political, artistic, or entertainment purposes
In my comments to the Committee, I suggested adding an express safe harbor for communications of an “educational or informational” nature. This would track the current guidance from the Advertising Review Committee in Interpretive Comment 17, which says the filing requirement does not apply to “[b]logs or status updates considered to be educational or informational in nature.”
The revised proposal expands the exemption:
This would be a significant improvement that would provide needed clarity to Texas lawyers who are active on social media. It would allow attorneys to post freely on social media for informational, educational, political, artistic, or entertainment purposes. As long as such posts do not “expressly offer legal services,” they would not have to be filed as advertising.
#7: The new rules would have an exemption for “the type of information commonly found on the professional resumes of lawyers”
Initially, the draft rule revisions included a filing exemption for “a communication on a professional social media website to the extent that it contains only resume-type information.”
In my comments to the Committee, I suggested tweaking this social media exemption to make it clear that the typical lawyer profile on LinkedIn would be exempt.
The proposed language is now a little broader. The exemption would cover a social media profile that does not expressly offer legal services and that:
This exemption would probably cover the typical lawyer profile on LinkedIn, as long as it does not “expressly offer legal services.”
My only hesitation is that one might question whether Endorsements and Recommendations, a staple of LinkedIn profiles, are commonly found on professional resumes of lawyers. But if this exemption is enacted, I think it would be a fairly safe bet to assume your LinkedIn profile does not have to be filed, at least until the State Bar says otherwise.
#8: Most of a law firm website would be exempt from the filing requirement
As noted earlier, the current rules have a special rule specifically for law firm websites, in Rule 7.07(c). That rule would be eliminated, but there would be a specific filing exemption for law firm websites:
In other words, the homepage of a law firm website must be filed, unless all of the information on the homepage is covered by other exemptions. The rest of a law firm website would not need to be filed.
The effect is similar to the current rules, except in some cases firms wouldn’t even have to file the homepage.
#9: The newsletter exemption would be expanded
Existing Rule 7.07(e), newsletters sent to existing or former clients, other lawyers or professionals, and certain members of nonprofit organizations are exempt. The proposed rule would slightly expand this exemption to cover:
Thus, a newsletter sent to a business person who is experienced in using the type of legal services the lawyer offers would be exempt, as would a newsletter sent to anyone who asked to receive it.
#10: Certain basic types of information about a lawyer or law firm would continue to be exempt
The proposed Rule 7.05(i) would carry forward most of the exemptions for certain basic information about a lawyer or law firm now found in Rule 7.07(e), such as names, contact information, court admissions, educational background, licenses, foreign language abilities, and board specializations.
Proposed Rule 7.05(i) would not include the previous exemption for “the particular areas of law in which the lawyer or firm specializes or possesses special competence,” but in most cases that information would be covered by the “professional resume” exemption addressed above.
Things Texas Lawyers Would Now Be Allowed To Do
#11: Use a trade name (if not false or misleading)
This is the big one. Rule 7.01(c) would expressly provide that “[l]awyers may practice under a trade name that is not false or misleading.” Law firm names would no longer be limited the name or names of current or past partners.
I don’t really have a dog in the trade name fight, so I’ll leave it to others to debate this one. I’ll just be curious to see how far creative firms push this. Will we see a firm called Badass Trial Lawyers of Abilene? Trademarks R Us? The Lollipop Firm?
Keep in mind, the only limit is that it can’t be false or misleading. Nothing in the proposed rule requires good taste.
#12: Say you “specialize” (instead of “focus,” “concentrate,” etc.)
Under the current rules, only lawyers certified by the Texas Board of Legal Specialization can say they “specialize” or call themselves “specialists” in a certain type of practice.
Of course, almost every lawyer today specializes in one or more specific areas of law practice, whether board certified or not. And there are many specialties—hmm, non-compete and trade secret litigation comes to mind—that have no board certification.
This is not a big problem, because those lawyers can simply say they “focus” or “concentrate” on their type of practice, rather than “specialize.” But this really puts form over substance.
The proposed changes would end this silliness. Rule 7.02(b) would allow lawyers to say they practice in particular fields of law:
The part about “particular fields of law” does not use the word “specialize,” but the proposed comments to Rule 7.02 make it clear that lawyers would be allowed to say they specialize:
There are limits, of course. As the proposed comment notes, the statement about specialization must not be false or misleading. And as the rest of Rule 7.02(b) provides, there are limits on stating you’re a member of an organization with a name that implies its member possess special competence.
But generally, it will now be ok to say you specialize in a particular type of practice, as long as that’s true.
#13: Promote past successes and results obtained without specific conditions
As noted above, the current Rule 7.02(a) imposing specific conditions on statements about past successes would be deleted. So, for example, there would no longer be a requirement that the lawyer was lead counsel.
But again, to comply with Rule 7.01, the statement can’t be false or misleading, or create unjustified expectations. And the proposed comment to Rule 7.01 says the lawyer who cites a past result must have “played a substantial role in obtaining that result.”
#14 Compare yourself to other lawyers (if not false or misleading)
Current Rule 7.02(a)(4) prohibits comparisons to other lawyers that are not based on objective, verifiable data. In other words, you can’t compare yourself other lawyers based just on opinion. At least that’s the rule. I’m not sure it is followed.
But this rule would be deleted:
This is one case where I like the current rule. Do we really need lawyers expressing opinions comparing themselves with other lawyers? I admit I’m a little old-fashioned on this issue.
On the other hand, deleting this prohibition wouldn’t mean that anything goes. Under the new Rule 7.01, Texas lawyers still wouldn’t be allowed to make comparisons to other lawyers that are unsubstantiated.
The proposed comment to Rule 7.01 makes this clear:
So, assertions like “we’re the best lawyers in town,” or “we can get you a recovery when others can’t” are probably still off limits.
#15: Solicit business from personal or professional contacts
In addition to expanding the filing exemptions for advertisements, the proposed changes would simplify and slightly expand the filing exemptions for solicitation exemptions.
The current solicitation exemptions in Rule 7.05(f) would be deleted:
These exemptions would be replaced by the following solicitation exemptions in the new Rule 7.05:
While the “pecuniary gain” exemption would be deleted, it would effectively remain in place because the new definition of “solicitation communication” in Rule 7.01(b) would include the element of “substantially motivated by pecuniary gain.”
The new exemptions for other lawyers and experienced business users will be especially advantageous for business lawyers who seek to develop business through contact with other lawyers and potential business clients.
Bonus Change: Hammer Don’t Hurt ‘Em
I said the top 15 changes, but here’s a bonus. The proposed changes include a rule that would prohibit telling potential clients you can get results through violence:
Apparently we needed to clarify that lawyers can’t do this. Only in Texas.
My Grade for the Proposed Changes
The Committee on Disciplinary Rules and Referenda has done good work to update and modernize the rules governing Texas lawyer advertising for the social media era. It will be impossible for the changes to please everyone, but the proposed new rules would be a significant improvement in clarity over the old rules.
The new rules would rely heavily on the command to avoid false or misleading statements. That may be a “fuzzy” command that reasonable lawyers can disagree on in any particular case, but at least the command is intuitive and easy to understand.
The proposed rules would also have the benefit of making it easier for Texas lawyers to share information freely on social media without fear of violating the advertising rules. This is a development Texas lawyers should welcome. I give the Committee an A.
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Zach Wolfe (zwolfe@fleckman.com) is a Texas trial lawyer who handles non-compete and trade secret litigation at his firm Fleckman & McGlynn, PLLC. Follow @zachwolfelaw on Instagram to keep up with his latest shenanigans.
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.
Does misappropriation of trade secrets create a presumption of irreparable injury in Texas?
This is one of my best blog posts to come down the pike. It’s going to cement my blog’s status as one of the best sources for new developments in Texas trade secrets law. But maybe I’m being too presumptuous.
I’m guessing my Fivers don’t obsess over every new Texas trade secrets case like I do. So you may not realize the Texas Supreme Court made a big change to Texas trade secrets law on Juneteenth 2020.
The opinion, Pike v. Texas EMC Management, LLC, __ S.W.3d __, 2020 WL 3405812 (Tex. June 19, 2020), sparked a huge debate on law Twitter. One camp says that when Justice Brett Busby writes an opinion pouring out a multi-million-dollar jury verdict, it’s a “Buzz-burn.” The other faction says it’s a “Buzz-kill.”
But the change I’m talking about may have flown under the radar. Justice Busby’s opinion covered a lot of legal ground. So you may not have noticed that Pike overruled a line of Texas cases that say irreparable injury is presumed when a defendant misappropriates trade secrets.
At least I think it did.
Let’s drill down into the Pike case to understand why, and then I’ll explain why it’s important.
The secret sauce in Pike was a new kind of cement developed by EMC Cement. Pike was the President. When concrete cratered, a new company called VHSC bought the EMC Cement plant at a foreclosure sale and hired President Pike. See id. at *1-3.
The jury found that VHSC and Pike misappropriated EMC Cement’s trade secrets, and the trial court entered a judgment for millions in damages, including $1.5 million for misappropriation of trade secrets. Id. at *4. The Texas Supreme Court reversed the damage award on the kind of procedural and evidentiary grounds only an appellate lawyer could love. See id. at *12-13.
EMC Cement had also asked for a permanent injunction to stop VHSC and Pike from continuing to use the trade secrets. The trial court denied that request. Id. at *22.
But if the jury found that the defendants misappropriated the trade secrets, why didn’t that finding entitle EMC Cement to a permanent injunction against future use of its trade secrets?
The Court of Appeals presumed imminent and irreparable injury
That’s what the Waco Court of Appeals wanted to know. The Court of Appeals first said that the misappropriation of trade secrets established a presumption of imminent harm. Pike v. Texas EMC Mgm’t, LLC, 579 S.W.3d 390, 427 (Tex. App.—Waco 2017). Pike and VHSC “were in possession of EMC Cement’s trade-secret information and were in a position to use it,” the court said, so “imminent harm is presumed.” Id.
But imminent harm is not the same as irreparable harm, as I explained in Injunction Junction, What’s Your Function? Imminent means something is about to happen. Irreparable means you can’t compensate for that thing with damages. Those are two different things.
It’s easy to see why misappropriation of trade secrets would establish a presumption of imminent harm. If the defendant takes the plaintiff’s trade secrets and is in a position to use them, it’s not a big stretch to say harm is about to happen.
But irreparable? I don’t see how possession of the plaintiff’s trade secrets by a defendant in a position to use them proves that damages would be inadequate to compensate for the use of the trade secrets. That’s a non sequitur. I suspect this notion started with courts confusing imminent and irreparable. Plus, courts may have been looking for an easy rationale for affirming injunctions, even where there was really no evidence of irreparable injury.
However it came about, there is a line of Texas cases suggesting a presumption of irreparable injury arises when a defendant is in a position to misuse the plaintiff’s confidential information or trade secrets, and the Court of Appeals in Pike cited some of those cases. Id. at 428.
For example, in Williams v. Compressor Engineering Corp., 704 S.W.2d 469, 470 (Tex. App.—Houston [14th Dist.] 1986, writ ref’d n.r.e.), the court said a finding of irreparable injury is unnecessary where a former employee is working for a direct competitor.
In IAC, Ltd. v. Bell Helicopter Textron, Inc., 160 S.W.3d 191, 200 (Tex. App.—Fort Worth 2005, no pet.), the court said that “[w]hen a defendant possesses trade secrets and is in a position to use them, harm to the trade secret owner may be presumed,” and “[t]he threatened disclosure of trade secrets constitutes irreparable injury as a matter of law.”
The Pike case went all the way to the peak of Texas courts
Based on the case law, the Court of Appeals held that the plaintiffs satisfied both the imminent harm and irreparable injury requirements, and it was therefore an abuse of discretion for the trial court to deny a permanent injunction. Pike, 579 S.W.3d at 428.
In other words, the Court of Appeals said the misappropriation of trade secrets established a presumption of irreparable injury, supporting an injunction. But what does that really mean?
What’s a “presumption” anyway?
Let’s camp out for a second on “presumption.” What does that really mean? There are two kinds of presumptions in the law. A conclusive presumption is a legal conclusion that arises from certain facts and cannot be disputed. A rebuttable presumption is a legal conclusion that arises from certain facts, but that conclusion can be rebutted with other facts. When the law just says “presumption,” that usually means a rebuttable presumption.
So rebuttable presumptions are more common, and they essentially shift the burden of proof. Once a party offers evidence sufficient to create the presumption, the other party can rebut the presumption by offering some evidence—it doesn’t have to be a lot—that the presumption is wrong. At that point the presumption disappears. Poof! Then it’s up to the fact-finder to weigh the evidence and decide who is right.
So, for example, let’s say the cases cited by the Court of Appeals in Pike are correct that threatened misappropriation of trade secrets creates a presumption of irreparable injury. That means the burden then shifts to the defendant to offer evidence that the misappropriation will not cause irreparable injury. The defendant can rebut the presumption by offering evidence that the alleged harm can be adequately compensated by damages. Then the presumption should disappear.
That sounds pretty easy, right? You might even wonder why the presumption is such a big deal if it is so easily dispelled.
I’ll come back to that.
The question here is whether the Court of Appeals was right that the jury finding of misappropriation of trade secrets created a presumption of irreparable injury, which would entitle the plaintiffs to an injunction.
The Texas Supreme Court’s reasoning on irreparable injury
The Texas Supreme Court said no, the trial court was right and the Court of Appeals was wrong. Despite the jury’s finding of misappropriation of trade secrets, EMC Cement failed to show irreparable injury.
How can this be? What about the presumption?
Let’s remember what irreparable injury means: harm that cannot be adequately compensated by damages. As the Pike court recited:
“If there is a legal remedy (normally monetary damages), then a party cannot get an injunction too.” Pike, 2020 WL 3405812 at *24 (citing Schneider Nat’l Carriers, Inc. v. Bates, 147 S.W.3d 264, 284 (Tex. 2004)).
“[A] plaintiff can prove there is no adequate remedy at law where damages cannot be calculated.” Id. (citing Dresser-Rand Co. v. Virtual Automation Inc., 361 F.3d 831, 848 (5th Cir. 2004)).
“For purposes of injunctive relief, an adequate remedy at law exists when the situation sought to be enjoined is capable of being remedied by legally measurable damages.” Id. at *24 n. 38 (citing Dresser-Rand, 361 F.3d at 848).
So the question in Pike became whether damages for the future use of the trade secrets could be calculated in some legally measurable way. The Texas Supreme Court found that damages could be measured—and therefore there was no irreparable injury—where three factors were present:
(1) the plaintiffs themselves sought actual damages for misappropriation of the trade secrets,
(2) the plaintiffs presented expert testimony at trial that attempted to quantify the damages for the misappropriation of the trade secrets, and
(3) the damage calculation presented by the plaintiffs included damages attributable to future use of the trade secrets (not just past use).
See id. at *23.
In short, where the plaintiffs sought damages and presented expert testimony of damages partly attributable to future harm, the trial court did not abuse its discretion when it denied the plaintiffs a permanent injunction on the ground that they had an adequate remedy at law. Id. at *24.
You might be thinking this is no big deal for the plaintiffs in Pike because, hey, they still got to recover millions in damages, right? Well, no. Remember, the court poured out the trade secrets damage award.
But the fact that the plaintiffs failed to present sufficient expert testimony to support the damage award did not change the court’s conclusion that damages would have been adequate. “The failures of the EMC plaintiffs’ experts to take the necessary steps to connect their opinions to supporting data do not establish that no damages could be calculated.” Id.
Ouch. That does burn a little.
Pike teaches us that the plaintiff won’t be entitled to a trade secrets injunction where (1) the plaintiff seeks actual damages for trade secrets misappropriation, (2) the damages could be properly quantified, (3) the plaintiff presents expert testimony that tries to quantify future damages in some way, and (4) the trial court decides not to grant an injunction.
This tells us that just because there is misappropriation of trade secrets doesn’t mean there is irreparable injury. But it leaves many questions unanswered.
Questions left unanswered by Pike
First, don’t sleep on the standard of review. Technically, the holding in Pike was not that the trial court’s denial of an injunction was the right decision, but only that the trial court’s denial of an injunction was not an “abuse of discretion.” In theory, if the trial court judge had decided to grant an injunction, the court could have found that decision was also not an abuse of discretion (and I suspect that’s what would have happened).
But still, the standard of review is not the whole story. What happened to the presumption of irreparable injury? The Texas Supreme Court didn’t say it was overruling the cases that say misappropriation of trade secrets creates a presumption of irreparable injury. But it did say there was no irreparable injury, even where the jury found misappropriation of trade secrets. So how could the presumption still apply?
There are two ways to look at this. One is that Pike overruled the “presumption” line of cases sub silentio. “Sub silentio” is a Latin phrase that means “like a thief in the night.” You could interpret Pike as rejecting the presumption of irreparable injury without expressly saying so.
But another way to look at it is that, even assuming the evidence of misappropriation created a presumption of irreparable injury, there was other evidence that rebutted the presumption. Namely, the evidence that damages could be calculated. This is probably the better interpretation.
It’s really not my place to tell you how to interpret Pike
The rest of the questions raised by Pike arise from the old trick of removing just one of the factors present in the case and asking if the result would change.
Let’s say the plaintiff presents expert testimony limited to past damages, without taking into account any future damages. Or let’s say the plaintiff doesn’t present any expert testimony whatsoever on damages. Would these differences change the result?
You could argue it shouldn’t make any difference. The question is not whether the plaintiff asked for damages or proved damages, but whether the plaintiff could have sought damages for the alleged misappropriation and reasonably quantified them.
So I think it comes down to whether anyone offers evidence that damages could or could not be calculated. And that leads to my practice tips.
Practice tips suggested by the Pike decision
Considering the importance of the irreparable injury requirement, you’d think lawyers on both sides of trade secrets injunction fights would routinely offer evidence to show that damages would or would not be adequate to compensate the plaintiff. But in practice, lawyers rarely do this, especially at the temporary injunction stage.
Why is that?
I think it’s mainly because the lawyers are focused on other issues. Litigators in these situations instinctively focus on whether the defendant did something wrong. Whether the resulting injury is “irreparable” is usually an afterthought.
And there is good reason for this instinct. In practice, trial court judges usually decide temporary injunctions based on how wrongful they think the defendant’s conduct was. See Does a Breach of a Texas Non-Compete Cause “Irreparable Injury”? The judges don’t always think that hard about whether the threatened harm is irreparable.
And the trial court judges really don’t need to worry too much about it. A decision on a temporary injunction almost always holds up on appeal, because the Court of Appeals applies an “abuse of discretion” standard.
That’s not the only reason lawyers and judges don’t focus on irreparable injury. Even when they address the common-law requirements for an injunction, they tend to focus on whether the injury is imminent. But as I said, imminent and irreparable are two different things. Imminent means something is about to happen if the judge doesn’t stop it. That has nothing to do with whether damages would be adequate to compensate for the harm that is about to happen.
In many cases, you can get by focusing on whether the harm is imminent, but if you really want to bring your “A game” to a temporary injunction fight, you should actually offer evidence concerning the irreparable injury element. This isn’t my first temporary injunction rodeo, so I have some ideas on this, some of which I previously shared in Temporary Injunction Rulings in Texas Non-Compete Cases.
If you represent the plaintiff who is trying to get a temporary injunction in a trade secrets case, you want somebody to testify that it would be difficult to calculate the damages that would result from the defendant’s use of the trade secrets. Even better, you want that person to give specific reasons why calculating damages would be difficult.
Conversely, if you represent the defendant in a trade secrets injunction hearing, you want to offer evidence that the plaintiff could calculate the damages resulting from the use of the alleged trade secrets. This can be counter-intuitive, especially to your client. So you’ll want to explain in advance why it sounds like you’re offering evidence to prove damages for the plaintiff.
But what kind of evidence? One great way to get this evidence is on cross-examination of the plaintiff or plaintiff’s representative. “So Mr. CEO, it says in this Petition your company is claiming trade secrets damages in this case, correct?” Yes, the CEO will have to say. “But there’s no way you could calculate those damages with any reasonable certainty, is there?” You get the idea.
At the least, you can prepare your client to testify that “the plaintiff could calculate the damages that would result from my use of the alleged trade secrets.” That’s better than nothing. But that sounds a little conclusory, so it’s even better if your client can testify specifically about how damages could be calculated. If this makes you nervous, you can preface it by saying “we’re not agreeing to any claim for damages made by the plaintiff.”
But if you really want to show that damages would be adequate, consider expert testimony. You usually don’t have much time to prepare for a temporary injunction, but you probably have enough time to find and hire a qualified damages expert. The expert doesn’t have to do a whole damages calculation.
All you really need is for the expert to review the plaintiff’s pleadings, and maybe the depositions (if there are any), and then to testify that a qualified expert could calculate the amount of damages that would result from the use of the trade secrets alleged by the plaintiff. “I have calculated damages in dozens of cases like this one,” your damages expert can probably say. “It’s not necessarily easy, but it can be done with reasonable certainty, and it could be done in this case.”
Boom. You just rebutted any presumption of irreparable injury.
Now that’s a Buzz-burn.
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Zach Wolfe (zwolfe@fleckman.com) is a Texas trial lawyer who handles non-compete and trade secret litigation at his firm Fleckman & McGlynn, PLLC. Follow @zachwolfelaw on Instagram to keep up with his latest shenanigans.
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.
The reasonable geographic area requirement of Texas non-compete law is delightfully dated. It’s an analog throwback in a digital era. When Texas courts say a non-compete must be limited to a reasonable geographic area, you can just feel the needle dropping into the well-worn grooves of your uncle’s vinyl copy of Frampton Comes Alive!
But some of you will object that requiring a geographic limitation in a non-compete is an obsolete relic of a bygone era, like Microsoft stores. We’re in the WFH era now. The physical location of an employee doesn’t matter. You might argue a sales person with a cell phone and a laptop can do just as much damage to your business from a beach chair in Fiji as a cubicle in Pearland.
Maybe so. But if the non-compete says “within Pearland,” you’re kind of stuck with that. Plus, the Texas non-compete statute still requires a non-compete to have a reasonable limitation as to “geographical area.” Tex. Bus. & Com. Code § 15.50(a).
The traditional connection between physical proximity and customer goodwill
This is perhaps the most old-fashioned part of Texas non-compete law. It hearkens back to a time when physical proximity was the key to a salesman maintaining goodwill with the customer.
Consider Randolph v. Graham, 254 S.W. 402, 403-4 (Tex. App.—San Antonio 1923, writ ref’d), where the court held that a medical practice non-compete was reasonable and enforceable, despite having no time limitation, because it was limited to practicing medicine within a 20-mile radius of Schertz, Texas.
The court didn’t explain why the geographic area was reasonable, but it’s easy to understand. People like to go to a doctor with an office near them. So, if a doctor sells his practice in Schertz and moves to Austin, it is unlikely his patients will follow him. (The drive from Schertz to Austin is 65 miles up I-35, which usually takes 5-7 hours.) A 20-mile radius sounds about right to prevent the doctor from taking advantage of the goodwill he developed with his patients.
Two years later, the geographic limitation requirement took shape in City Ice Delivery Co. v. Evans, 275 S.W. 87 (Tex. Civ. App.—Dallas 1925, no writ). The court said the test for enforceability of a non-compete in an employment contract was whether it imposed “any greater restraint than is reasonably necessary to secure protection of the business of the employer or the good will thereof.” Id. at 90.
Applying this principle to the geographic area of the non-compete, the court held that the employer was entitled to an injunction against the employee competing in the ice delivery business in the territory where he had delivered ice to the company’s customers, but not against competition outside of the territory, where the company had no goodwill based on the employee’s “personal contact” with customers. Id.
Again, we can see why it made sense to limit the non-compete to the employee’s delivery area. In a business that involves physical delivery of the product to the customer, it was unlikely that a salesman was going to develop goodwill with customers outside his delivery area. Especially in 1925, when the ice would melt if you had to go too far.
So there you have it. Two keys to the geographic area requirement: (1) it should be limited to the territory where the employee interacted with customers, because (2) that is the area where the employee developed goodwill with the customers on behalf of the company.
64 years later, the Texas legislature enacted the 1989 non-compete statute. It provides that a non-compete must contain limitations as to time, geographical area, and scope of activity to be restrained that are “reasonable and do not impose a greater restraint than is necessary to protect the goodwill or other business interest of the promisee.” Tex. Bus. & Com. Code § 15.50(a).
How have Texas courts interpreted the statute’s reasonable geographic area requirement? In principle, not much has changed since City Ice Delivery.
The Sales Territory principle
In most cases, where the employee worked in some kind of customer-facing sales role within a defined territory, the reasonableness of the geographic area will turn on whether it matches the employee’s sales territory. Let’s call this the Sales Territory principle.
When the case involves a sales person or other low to mid-level employee, the Sales Territory principle will usually explain why the court found the geographic area reasonable or unreasonable. In other words, the Sales Territory principle usually applies when the case does not involve a high-level executive. That leads to our first general rule.
General Rule 1: Non-executive + no geographic limitation = probably unreasonable
The easiest cases are those involving a non-executive who has a non-compete with no geographic limitation.
One of the first cases to apply the statute’s geographic area requirement was Zep Manufacturing Co. v. Harthcock, 824 S.W.2d 654 (Tex. App.—Dallas 1992, no writ). That case involved a non-compete between Zep, an industrial chemical manufacturer, and Harthcock, an industrial chemist. Id. at 656-57. Harthcock’s non-compete barred him from performing services similar to those he performed for Zep for two years following termination, with no geographic limitation. Id. at 660.
The court cited the general principle that “what constitutes a reasonable area generally is considered to be the territory in which the employee worked while in the employment of his employer.” Id. (citing two pre-statute cases, Justin Belt Co. v. Yost, 502 S.W.2d 681, 685 (Tex. 1973), and Diversified Human Resources Group v. Levinson-Polakoff, 752 S.W.2d 8, 12 (Tex. App.—Dallas 1988, no writ)).
The court then said the non-compete failed to comply with the statute because it contained no limitation as to geographic area. Id. at 661. Thus, the non-compete would prohibit Harthcock from working as an industrial chemist anywhere, regardless of whether it was in an area not serviced by Zep or Harthcock.
“Noncompete covenants with broad geographical scopes have been held unenforceable,” the court said, “particularly when no evidence establishes that the employee actually worked in all areas covered by the covenant.” Because the non-compete contained no geographic restriction, the court held it was unenforceable. Id.
But today, most Texas lawyers are smart enough to include some geographic limitation in the non-compete. What then?
Texas courts have reached similar conclusions when the non-compete has some geographic limitation, but is so broad or vague that it has no connection to protecting the goodwill developed by the employee.
For example, in TENS Rx, Inc. v. Hanis, No. 09-18-00217-CV, 2019 WL 6598174, at *1 (Tex. App.—Beaumont Dec. 5, 2019, no pet.) (mem. op.), the non-compete applied “in any state or geographical territory in which Employer is conducting, has conducted or anticipates conducting its business.”
The employee filed a motion for summary judgment that the non-compete was unenforceable because the geographic limitation and scope of activity restrained were unreasonable. Id. at *2. The employer argued that the employee was bound by the contractual stipulation that the geographic restriction was reasonable, stating it was “disingenuous” for the employee to now assert the contrary. Id. at *3.
This brings up one of my pet peeves: lawyers for the first employer love to argue that the employee is being dishonest or “disingenuous” when the the non-compete recites that its limitations are reasonable and the employee later argues they’re unreasonable. I don’t find this persuasive, and I’m guessing most judges don’t either. Almost every non-compete contains self-serving recitals like this. Even when I’m representing the employer trying to enforce the non-compete, I would rather just demonstrate that the limitation is reasonable than play this game.
In any case, the trial court in TENS Rx didn’t buy the “disingenuous” argument. It granted summary judgment that the non-compete was unreasonable in geographic scope and scope of activity restrained. Id.
Because the non-compete related to provision of personal services, the employer had the burden to prove the non-compete was reasonable. Id. at *4. On appeal, the employer cited no authority that the restrictions were reasonable, instead merely arguing that the employee was bound by the contract’s stipulation that the restrictions were reasonable. Id. at *4. The court appeared to reject this argument, instead looking to Texas case law on reasonableness of a geographic limitation. Id.
The question is “whether the covenant contains limitations that are reasonable as to geographical area and do not ‘impose a greater restraint than is necessary to protect the goodwill or other business interest of the promisee.’” Id. (citing Marsh USA Inc. v. Vook, 354 S.W.3d 764, 777 (Tex. 2011)).
“The territory in which the employee worked for an employer is generally considered to be the benchmark of a reasonable geographic restriction,” the court said. Id. “Noncompete covenants with broad geographical scopes have been held unenforceable, particularly when no evidence establishes that the employee actually worked in all areas covered by the covenant.” Id.
“Here, there is no definite territory stated and no evidence that Hanis worked in all areas covered by the covenant,” the court said. “It is also unreasonable to impose a condition upon Hanis that would require her to know where TENS ‘anticipates doing its business.’” Id.
Sales territory is usually the benchmark for a reasonable geographic area
TENS Rx shows the risk of making the geographic limitation too abstract. Sure, there is some logic to defining the area as “the employee’s sales territory.” What better way to comply with the Sales Territory principle? But the risk of defining the geographic area this way is that the court may say it is too indefinite. How are the employee—and the court—to know what the sales territory is if it’s not spelled out in the contract?
On the other hand, the company may not know in advance what the employee’s sales territory will be. What if the employee works for the company for over a decade and the territory changes? I don’t have any foolproof solution to this problem, other than to say that usually the better practice is to include a specific geographic area that predicts, as well as the company can, what the employee’s likely sales territory will be.
Let’s say the employer tries to do that and limits the non-compete to a specific, concrete geographic area, such as “within Harris County, Texas.” Is that reasonable? It will probably depend on the employee’s actual sales territory, which leads us to the next general rule.
General Rule 3: Non-executive + well-defined geographic area broader than sales territory = probably unreasonable
When the employee is not a high-level executive and the non-compete has a specific geographic area, the question will be whether the geographic area is broader than the employee’s actual sales territory.
This creates an obvious problem. Dozens of Texas cases say that the reasonableness of a non-compete is a question of law. But how can a judge decide the reasonableness of the non-compete’s geographic area without considering extrinsic evidence about the facts?
Suppose the non-compete’s stated geographic area is “within Harris County, Texas and surrounding counties.” On a motion for summary judgment, the Employee signs a sworn affidavit stating “my sales territory was limited to Harris County,” while the Employer’s CEO signs a sworn affidavit stating “Employee’s sales territory included Harris County and all the surrounding counties.” In other words, conflicting evidence. How can the trial court decide that issue as a question of law?
It can’t. And this illustrates why Texas courts are simply wrong when they declare that the reasonableness of a geographic limitation is always a question of law. On the other hand, if the facts regarding the employee’s sales territory are undisputed, then the reasonableness of the geographic area could present a question of law for the court.
Consider Fomine v. Barrett, No. 01-17-00401-CV, 2018 WL 6376500, at *1 (Tex. App.—Houston [1st Dist.] Dec. 6, 2018, no pet.), which prohibited a chiropractic case manager from competing within a 500-mile radius of the clinic’s location. The former case manager, Barrett, moved for summary judgment that the geographic limitation was unreasonable, extending beyond her work responsibilities for the clinic. Id. at *2.
The Court of Appeals affirmed summary judgment for Barrett. The court began by citing the Sales Territory principle, i.e. “[t]he territory in which an employee worked for an employer is generally considered to be the benchmark of a reasonable geographic restriction.” Id. at *3.
The clinic argued that a 500-mile radius was reasonable because Barrett marketed to patients throughout the State of Texas, but the court rejected this argument. Even assuming Barrett’s sales territory included all of Texas, a 500-mile radius would include all of Louisiana and significant portions of Alabama, Arkansas, Mississippi, Oklahoma, and Mexico. Id. at *3. The geographic scope was therefore “significantly broader” than the geographic scope of Barrett’s employment with the clinic, and the non-compete was therefore unenforceable as written. Id. at *4.
Fomine shows the importance of the employer offering evidence that an employee responsible for generating sales actually worked in the entire geographic area stated in the non-compete. Otherwise the area may be found broader than necessary to protect the employer’s goodwill.
The Sales Territory principle can also apply when the defendant is not a sales employee. Ortega v. Abel, 562 S.W.3d 604 (Tex. App.—Houston [1st Dist.] 2018, pet. denied), was a non-compete case involving the sale of a Hispanic-themed grocery store chain. The geographic area was a 10-mile radius from each of the five stores sold, which equated to most of the Greater Houston area. Id. at 611. The defendants’ expert testified that a three-mile radius would be more than sufficient to protect the goodwill of each store, reasoning that people in a city like Houston rarely travel more than 10 to 12 minutes to go to the grocery store. Id. The plaintiff, Ortega, did not present any evidence to contradict this testimony. Id. at 612.
The Court of Appeals held that the evidence was sufficient to support the trial court’s determination that the 10-mile radius in the non-compete was greater than necessary to protect Ortega’s goodwill. Id. The court reasoned that “[t]he goal of a covenant not to compete is to establish the restraints on trade reasonably necessary to protect the goodwill or other business interest of the promise, not to prevent any competition.” Id. The expert’s testimony supported the trial court’s conclusion that a 3-mile radius was sufficient. Id.
General Rule 4: Non-executive + geographic area basically matching sales territory = probably reasonable
The next application of the Sales Territory principle is where the employee is a sales person or other lower to mid-level employee, and it is undisputed that the geographic area matches the sales territory the employee actually worked (or is at least pretty close).
That presents a fairly easy case for the court to hold that the geographic area is reasonable.
For example, in Gehrke v. Merritt Hawkins & Associates, LLC, No. 05-18-001160-CV, 2020 WL 400175, at *4 (Tex. App.—Dallas Jan. 23, 2020, no pet. h.), the non-compete between a national physician recruiting firm and a salesman prohibited competition in states in which the salesman worked during his last year with the firm. The court held that the multi-state geographic restriction was enforceable because the salesman actually worked within those states. Id.
But of course not every case involves an ordinary sales-level employee. What if the employee was a high-ranking executive who knew everything about the company and was responsible for all of the company’s customers?
I feel like I should save that for Part 2.
Do you feel like I do?
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Zach Wolfe (zwolfe@fleckman.com) is a Texas trial lawyer who handles non-compete and trade secret litigation at his firm Fleckman & McGlynn, PLLC. Follow @zachwolfelaw on Instagram to keep up with his latest shenanigans.
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.
But first, I have one small request: put aside, for a moment, whether you think discriminating against homosexual or transsexual employees is wrong, or whether you think it should be illegal. Easy, right?
Now here’s the question: Do you think that an employer firing an employee because the employee is gay is firing “because of sex”? You’ve got three choices:
A. Yes. And this is the only reasonable interpretation.
B. No. And this is the only reasonable interpretation.
C. Maybe. The phrase “because of sex” is ambiguous. Both A and B are reasonable interpretations, even if one is better.
If you picked A, you agree with Justice Gorsuch, who wrote the majority opinion in Bostock v. Clayton County. If you picked B, you agree with Justice Alito, who wrote a scathing dissenting opinion. If you picked C, then you agree with Five Minute Law.
Notably, both Gorsuch and Alito purported to apply the method of judging known as “textualism.” My thesis is that this teaches us an important point about textualism: it fails to deliver on its central promise of providing an objective, determinate, non-political basis for deciding hard cases.
Let’s break it down.
What is Strict Textualism?
First we need to distinguish between two kinds of textualism. For convenience, I’ll label them “Modest Textualism” and “Strict Textualism.”
Modest Textualism says when interpreting a statute the court should start with the text. If there is only one reasonable interpretation of the text of the statute, the court should stop there and not consider extrinsic sources.
“Extrinsic” sources means everything other than the text, but most notably, it could include what Congress intended the words to mean, how courts have interpreted the text in the past, pragmatic factors, and considerations of what is fair, just, or good public policy.
Virtually everyone who is serious about the law is at least a Modest Textualist. No serious practitioner—i.e. a judge or practicing lawyer—says “in interpreting a statute, the text of the statute is totally irrelevant.”
No. Everyone agrees you start with the text. Of course you start with the text.
The difference of opinion arises when different people interpret the text differently.
Even then, the Modest Textualist does not immediately jump to extrinsic sources. The mere fact that two litigants disagree over the statute’s interpretation does not mean the court has to look beyond the text. A party’s proffered interpretation must be at least reasonable. The court can reject an unreasonable interpretation without looking beyond the text.
But what if I told you that sometimes, just sometimes, there is more than one reasonable interpretation of a statute? Not only that, but once in a blue moon, there are two reasonable interpretations of a statute that lead to diametrically opposite results.
That’s called a Hard Case. And that’s where Modest Textualism and Strict Textualism part ways.
In a Hard Case, the Modest Textualist says ok, there are two reasonable interpretations of this statute. That means the statute is ambiguous as applied to this dispute. So we’re going to have to look to something else to decide which interpretation to adopt. The text alone just doesn’t give us the answer.
And of course, I’m joking when I say “once in a blue moon.” This happens all the time, at least in the kind of case that makes it up to the Supreme Court. And as a practicing litigator, I can tell you it even happens fairly often in the kind of boring, ordinary business disputes I handle.
So what should the judge do in such cases?
In theory, the Strict Textualist agrees that when a statute is ambiguous, the court can look to extrinsic sources. The difference is that the Strict Textualist tries really, really hard to avoid jumping to extrinsic sources too quickly. The Strict Textualist will first use close reading of the statute, “canons of construction,” and dictionaries to interpret the statute. It is only when those methods fail to yield a clear answer that the Strict Textualist will even consider looking to extrinsic sources. (In theory)
This immediately raises a complication, because Strict Textualism does allow the judge to look at the “ordinary public meaning” of the statute at the time it was enacted, which can include looking at dictionaries, which are an extrinsic source.
And Strict Textualism has a close cousin named Originalism, which says you must look to extrinsic sources—e.g. the Federalist Papers—to interpret the “original understanding” of the Constitution, especially considering that the broadly worded text of the Constitution just doesn’t give you the answers to Hard Cases.
But for simplicity, let’s just say the Strict Textualist tries really hard to confine the inquiry to the text.
You might object to my sharp distinction and argue the difference between the Modest Textualist and the Strict Textualist is only a matter of degree. And you’d have a point. But still, the difference is pretty easy to spot in the wild. If a judicial opinion gets down into the punctuation of a statute and parses multiple definitions of ordinary words from multiple dictionaries, that’s probably a Strict Textualist writing the opinion.
You might also object that my distinction is too abstract. So far, I’ve ignored the elephant in the room (no pun intended). Strict Textualists are almost always Republicans.
Now, in the abstract, there is nothing inherently “liberal” or “conservative” about either form of textualism. But in practice, one political ideology tends to favor Strict Textualism.
Everybody knows that conservatives and Republicans like Strict Textualism, while liberals and Democrats like Modest Textualism. But why is that? Modest Textualism does not necessarily lead to a liberal result, and Strict Textualism does not necessarily lead to a conservative result (again, in theory), so why the stark difference?
I’ll come back to that. First we need to understand the rationale behind Strict Textualism.
Strict Textualism’s Central Promise
The rationale behind Strict Textualism has two parts.
First, Strict Textualism says that judges must have an objective, non-political basis for deciding Hard Cases. Otherwise, judges would just be deciding cases based on their own personal opinions on what is fair, just, or good public policy. That would not be the rule of law, the proponent of Strict Textualism says. That would be legislating.
Thus, even if Strict Textualism did not exist, the Strict Textualist says, judges would have to invent it.
Second, Strict Textualism says that Strict Textualism provides an objective, non-political basis for deciding Hard Cases. When Strict Textualism is applied correctly, it yields a single determinate answer, even in Hard Cases where there appear to be strong arguments on both sides. This is the central promise of Strict Textualism.
Now, let’s clear aside one obvious objection to this central promise. Strict Textualism does not claim that the answer will always be obvious, or that all reasonable people will agree on the answer.
No, the Strict Textualist realizes that reasonable people will disagree on the correct application of Strict Textualism. Not only that, even the foremost legal experts, or even members of the Supreme Court, will sometimes disagree. But the fact that they disagree doesn’t change the fact that there is still a single correct answer.
The Strict Textualist might analogize to medicine. Two doctors who are renowned experts in their field could examine the same patient and come up with diametrically opposite diagnoses. The fact that they disagree does not change the fact that only one of them is correct. The one true diagnosis is “out there,” even if it is sometimes hard to discern.
So even if judges applying Strict Textualism sometimes get it wrong, the important thing is that they apply it, Strict Textualism says. That is the only way to maintain the rule of law and avoid turning judges into de facto legislators.
In short, Strict Textualism promises political legitimacy.
And one more thing. The corollary is that other theories of adjudication are illegitimate. Strict Textualism does not just claim to provide determinate answers to Hard Cases. It claims to be the only theory of adjudication that does so (with the possible exception of Originalism, but that’s another can of worms).
This turns Strict Textualism into a sword that can be used to attack a judicial decision as not only wrong, but as illegitimate. This is the key to its political appeal. And for various reasons I don’t have time to get into here, this appeal is especially strong for conservatives.
But does Strict Textualism deliver on its promise? Oh, if only we had a test case.
Enter Bostock.
Bostock v. Clayton County
Bostock is almost the perfect test case for Strict Textualism. It has it all: a hot-button social issue that turns on the interpretation of just three words in a statute, i.e. “because of sex.”
Specifically, Bostock presented a question of statutory interpretation concerning Title VII of the 1964 Civil Rights Act: does discrimination “because of sex” include discriminating against an employee for being a homosexual or transsexual. Writing for the 6-3 majority, conservative Justice Gorsuch said yes.
The results of my highly scientific poll about Bostock
In a role reversal, Justice Gorsuch’s opinion offered a “textualist” rationale for this “liberal” result. Chief Justice Roberts, another conservative, joined in the Gorsuch opinion, along with the four liberal justices. The three most conservative justices—Alito, Thomas, and Kavanaugh—dissented.
Justice Gorsuch reasoned that the text of the statute provided one—and only one answer—to this question. Therefore, it did not matter what Congress intended when it passed Title VII of the Civil Rights Act of 1964. “When the express terms of a statute give us one answer and extratextual considerations suggest another,” he wrote, “it’s no contest.” Only the “written word” is the law.
This was textbook Strict Textualism, at least on its face. “This Court normally interprets a statute in accord with the ordinary public meaning of its terms at the time of its enactment,” Gorsuch wrote.
And he offered the textbook justification for this method of adjudication: constraining judges and thereby providing legitimacy. “If judges could add to, remodel, update, or detract from old statutory terms inspired only be extratextual sources and our own imaginations,” he said, “we would risk amending statutes outside the legislative process reserved for the people’s representatives.”
Justice Gorsuch then made a painstaking logical argument for why the plain meaning of “because of sex” necessarily includes sexual orientation and gender identity. Under the Supreme Court’s precedents, discrimination “because of sex” means any discrimination where the individual’s sex is a “but for” cause of the employer’s action. Applying that standard, Justice Gorsuch reasoned, there is just no way for an employer to take an action because of an individual’s sexual orientation or gender identity that does not in some way take into account the individual’s sex. His logic hypotheticals would make the LSAT proud.
Some of you will buy his argument, and others will not. I’ll wager this will depend largely on whether you think discrimination on the basis of sexual orientation or gender identity should be illegal or not. It will be a rare case where someone says “I strongly believe discrimination based on sexual orientation should be against the law, but the statute simply doesn’t say that,” or vice-versa.
I only hope you will agree that Justice Gorsuch’s interpretation of “because of sex” is at least one reasonable interpretation. I mean, he’s a pretty smart guy, with generally conservative views. The idea that he just made it up to “appeal to college campuses and editorial boards” doesn’t seem credible. And the justices who joined him are intelligent too. They all have degrees from fancy law schools and years of judicial experience.
Of course, none of this proves they are right, but isn’t the fact that six out of nine justices on the highest court in the land agree with this interpretation some indication that their interpretation is at least reasonable? Surely they haven’t all lost their minds.
Alito’s Dissent
So how did Alito respond? Ever the gentleman, he began by saying:
My learned colleague Justice Gorsuch has written an opinion that sincerely attempts to decide this hard question through the good-faith application of textualism, a theory we both agree with, but I fear he has gone astray and applied the method incorrectly.
I’m kidding, of course. It was quite the opposite. Alito’s anger was palpable. He lashed out at Gorsuch’s opinion as not only incorrect, but as dishonest and illegitimate. “There is only one word for what the Court has done today: legislation,” he led off. “The document that the Court releases is in the form of a judicial opinion interpreting a statute,” he said, “but that is deceptive.”
Why so angry?
I think it was a combination of three things. First, the result. Second, the fact that Gorsuch and Roberts joined the liberals. Third, and perhaps the most galling, was the fact that Gorsuch wrote a textualist opinion justifying the result. “The Court’s opinion is like a pirate ship,” Alito wrote. “It sails under a textualist flag,” he said, but it actually reflects the illegitimate theory that courts should “update” old statutes so they reflect the “current values of society.”
Let’s put aside Alito’s anger for the moment and just look at what the disagreement tells us about textualism.
Alito characterized the majority opinion as holding that the only reasonable interpretation of “because of sex” is that it includes sexual orientation and gender identity. In Alito’s words, the majority argued “not merely that the terms of Title VII can be interpreted that way but that they cannot reasonably be interpreted any other way.” “According to the Court,” he said, “the text is unambiguous.”
On this point Alito got the majority opinion right. Gorsuch did not argue that “because of sex” is ambiguous and then offer an argument for choosing one of two reasonable interpretations. No, Gorsuch argued that application of the plain meaning of the statute yields only one result: discrimination based on sexual orientation or sexual identity is inherently discrimination “based on sex.”
Alito wasn’t buying it. “The arrogance of this argument is breathtaking,” he wrote. “The Court’s excuse for ignoring everything other than the bare statutory text is that the text is unambiguous,” Alito said, “and therefore no one can reasonably interpret the text in any way other than the Court does.” But “to say that the Court’s interpretation is the only possible reading is indefensible.”
You might expect Alito’s next move to be an argument that the majority’s interpretation is only one reasonable interpretation, and that the statute is therefore ambiguous.
But no. Alito believes that the majority’s interpretation is not only wrong, but that his opposite interpretation is the only reasonable one. In other words, Alito would pick option B, not C, in my opinion poll above. “The Court’s argument is not only arrogant,” he said, “it is wrong.”
Alito argued that “because of sex” does not include sexual orientation or gender identity. He supported his interpretation with evidence that included:
The fact that Congress has considered—but rejected—attempts to amend the statute to expressly add “sexual orientation” and “gender identity.”
Dictionary definitions showing that “sex” did not mean “sexual orientation” or “gender identity” in 1964. (Remember, textualists love dictionaries.)
The fact that ordinary people in 1964 would not have understood “discrimination because of sex” to include discrimination because of sexual orientation or gender identity. (This is textualism’s “ordinary public meaning.”)
Evidence that Congress didn’t intend to prohibit discrimination based on sexual orientation or gender identity.
I’ll let others get into the weeds on these points. Conservatives will tend to find Alito’s evidence compelling. Liberals will tend to reject it.
I only hope to make the modest point that Alito’s interpretation of the statute, like the majority’s, is at least one reasonable interpretation.
Ask people on the street, either today or in 1964, if discrimination “based on sex” includes discrimination based on sexual orientation—without telling them the effect of their answer—and plenty of people will say no. As Justice Kavanaugh emphasized in his separate dissent, textualism means applying the “ordinary” meaning of a phrase, not the “literal” meaning of an isolated term.
Surely, Justice Alito’s interpretation of “because of sex” to mean “because the person is male or female but not because of that person’s sexual orientation” is at least one reasonable interpretation, even if you ultimately disagree with it.
Failure to Deliver
If I’m right—if both Justice Gorsuch and Justice Alito have reasonable interpretations of the statute—then Bostock shows that Strict Textualism fails to deliver on its central promise, at least in practice.
Remember, the promise was that Strict Textualism would provide an objective, determinate way to decide Hard Cases, i.e. a method that would yield only one correct answer. But Strict Textualism had its chance in Bostock, and it failed spectacularly.
Instead of a single correct answer, there was a reasonable textualist argument for construing the statute one way (Gorsuch’s) and a reasonable textualist argument for construing it the other way (Alito’s). That left each side to pick the reasonable interpretation that would yield the result it wanted. The fact that each side acted like its interpretation was the only reasonable one did not change this.
Thus, Strict Textualism did not provide any constraint on the justices choosing the interpretation they considered fair or just. In other words, it did not prevent them from making a political judgment about the better outcome.
Objection, the Strict Textualist says, Bostock proves no such thing. The mere fact that judges will sometimes disagree over the result of applying Strict Textualism does not mean that Strict Textualism fails to provide a determinate answer, the Strict Textualist will protest. Remember the medical analogy.
This argument strikes me as plausible in theory, but unpersuasive in practice. I’m not saying Strict Textualism must provide a determinate answer that is obvious to everyone. But if Strict Textualism cannot yield an answer that can be demonstrated to people skilled in the law to be the single correct answer, I just don’t see how it provides any meaningful constraint on judges. In practice, it simply fails to provide the special legitimacy it claims.
But doesn’t this leave us in an untenable state of affairs? If Strict Textualism fails to deliver on its central promise, doesn’t that mean that judges will be allowed to do what Justice Alito accused the Bostock majority of doing, legislating instead of judging? And if judges decide cases based on what they think is fair or just, do we even have the “rule of law”?
Fair questions, but there are no easy answers. Trouble is, there’s just no avoiding this problem. You can argue that judges shouldn’t decide cases by picking the interpretation they think is fair and then reasoning their way into that interpretation. But isn’t that effectively what judges are already doing–what they’ve always done–regardless of the label they put on it, and even if they sincerely think they are doing something else?
We just have to muddle through somehow.
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Zach Wolfe (zwolfe@fleckman.com) is a Texas trial lawyer who handles non-compete and trade secret litigation at his firm Fleckman & McGlynn, PLLC. Follow @zachwolfelaw on Instagram to keep up with his latest shenanigans.
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.
When you hear “misappropriation of trade secrets,” you might picture some elaborate heist where the thief is lowered into the secure underground vault from an opening in the AC duct, like Tom Cruise in Mission Impossible. The thief hacks into the company’s server, downloads the secret weapons technology, then boards a plane to China where he hands the flash drive to a shadowy figure in exchange for a briefcase full of cash.
Of course, most trade secrets lawsuits are nothing like that.
For one thing, the typical trade secrets claim involves boring “soft” trade secrets like customer lists, pricing, and other customer information. And even in cases involving “hard” trade secrets like the literal or figurative secret sauce, the parties to the dispute usually had some legitimate business or employment relationship with each other before things went south.
That means in most trade secrets lawsuits, the person who allegedly “misappropriated” the trade secrets initially acquired them lawfully.
For example, in the typical departing employee dispute, an employee legitimately acquires the company’s trade secrets while working for the company. Another typical scenario is a contract between two companies containing an NDA. It might be an agreement between a vendor and a customer, or an agreement between two companies pursuing some kind of joint venture. They voluntarily share confidential information with each other, agreeing not to use it outside of that particular transaction.
In these situations, the initial acquisition of the trade secrets is not tortious. The claim is that misappropriation happened later, when the person did something with the trade secrets that he wasn’t supposed to do.
Both the Texas trade secrets statute and the federal trade secrets statute anticipate this kind of claim in the same way: a complicated multi-pronged definition of “misappropriation.”
“Misappropriation” means stealing, using, or disclosing
The definition of “misappropriation” is the same in both the Texas and federal trade secrets statutes. SeeTex. Civ. Prac. & Rem. Code § 134A.002(3); 18 U.S.C. § 1839(5). I would quote it but that would just confuse you. Instead, I’ll just sum it up as Wolfe’s Second Law of Trade Secrets Litigation: You can’t steal a trade secret, and you can’t use or disclose a trade secret without the owner’s consent.
(In case you missed it, Wolfe’s First Law of Trade Secrets Litigation says whatever company information the employee takes on the way out the door will be the alleged “trade secrets” in the company’s subsequent lawsuit.)
My Second Law is, of course, an oversimplification. And the statute doesn’t use the word “steal.” But Wolfe’s Second Law does capture the essence of “misappropriation.”
What I call stealing is what the statute calls “acquisition” of a trade secret by someone who knows or has reason to know that the trade secret was acquired by “improper means.”
The statute has a non-exclusive definition of “improper means” that includes “theft, bribery, misrepresentation, breach or inducement of a breach of a duty to maintain secrecy, to limit use, or to prohibit discovery of a trade secret, or espionage through electronic or other means.”
As you can see, “acquisition” through “improper means” is not limited to stealing a trade secret. It also includes getting a trade secret from someone you know (or should know) stole it. But for simplicity, let’s stick with “stealing.”
Stealing is fundamentally different from the other kind of misappropriation, use or disclosure. If you steal a trade secret, you can be held liable, even if you never do anything else with it. In other words, if you steal a trade secret in the woods and nobody hears it, it still makes a sound.
Is this where they keep the trade secrets?
This distinction between stealing and using/disclosing becomes important in litigation. If you’re thinking ahead, you can see where this is going: the use or disclosure of a trade secret will often cause compensable damages to the owner of the trade secret, but how does mere acquisition of a trade secret harm the owner?
To make this more concrete, suppose an employee walks out the door on his last day with the company’s entire secret customer list, throws it in a drawer, and never looks at it again. How does that cause any damages?
Hold that thought.
The Casteel problem in jury trials
In most cases, the trade secrets damages question will be for a jury to decide, if the case gets that far. The Court’s Charge will give the jury questions, definitions, and instructions to guide the decision.
Typically, a trade secrets charge will have three key questions: (1) is the information actually a trade secret? (2) did the defendant “misappropriate” the trade secret? (3) what damages, if any, did the misappropriation cause?
But why only three questions? What if there are multiple trade secrets at issue in the case? And what if there are multiple ways the defendant allegedly “misappropriated” the trade secrets? In cases like that, it seems like it would be more precise to break these broad questions down into more specific questions.
Well, that’s not the way we typically do it. Texas law requires “broad-form” submission of questions to the jury, at least when “feasible.” There is a mountain of literature on what broad-form submission means, but to save you time I’ll sum it up as follows: the trial court should submit one broad question on each element of a cause of action, except when there is a good reason not to.
Let’s apply this to the most ordinary kind of lawsuit, a personal injury claim arising from a car accident. Typically, there will be one damages question that combines multiple elements of recoverable damages. The instruction might look like this:
In determining the damages Big Trucking caused Ms. Smith, you may consider:
Physical pain and mental anguish.
Loss of earning capacity.
Physical impairment.
Medical care.
Yawn. What could be more ordinary?
But suppose during the trial Ms. Smith’s lawyer offered no evidence whatsoever regarding loss of earning capacity. And suppose Big Trucking’s lawyer specifically objected to this instruction ahead of time, saying “Your Honor, you can’t include loss of earning capacity in the instruction because there’s no evidence.”
The judge brushes aside the objection, the jury returns a verdict for $90,000 in damages, and the trial court enters judgment for Ms. Smith in that amount. What should the Court of Appeals do with that?
A. Affirm the judgment. Any error is harmless, because the jury could have based the $90,000 on the other three elements of damages.
B. Reverse the judgment and order that Ms. Smith gets nothing. Her lawyer shouldn’t have included loss of earning capacity in the charge.
C. Reverse the judgment and remand for a new trial. Including an element for which there was no evidence is reversible error because there is no way for Big Trucking to show whether the $90,000 improperly included some amount for loss of earning capacity.
There is a case to be made for A, emphasizing judicial economy and respect for jury verdicts. If you picked B, you might be a sociopath. But if you picked C, you are in sync with the Texas Supreme Court.
These were essentially the facts of Harris County v. Smith, 96 S.W.3d 230 (Tex. 2002), except the defendant was Harris County, not Big Trucking. Harris County held that it was an error for the trial judge to submit a broad-form question that included an element for which there was no evidence, and that this was a harmful error because it prevented the appellate court from determining whether the jury based its verdict on an invalid element of damages. Id. at 234.
The court based this decision on a precedent from two years earlier, Crown Life Ins. Co. v. Casteel, 22 S.W.3d 378 (Tex. 2000). Casteel had followed the same reasoning, except that Casteel involved a liability question (not damages), and the objectionable element in Casteel was improper because it was legally invalid (not because of lack of evidence).
In Harris County the Texas Supreme Court found these distinctions immaterial. It therefore established a general principle for Texas jury trials: If a question to the jury includes an element that should not have been submitted, either because it is legally invalid or there is no evidence to support it, and if the complaining party timely and specifically objects to that defect, then the jury’s affirmative answer cannot stand.
Appellate lawyers now call this a Casteel error. They could call it a Harris County error, but that doesn’t have the same ring to it.
Ok, but what does this appellate procedure detour have to do with trade secrets litigation?
The definition of “misappropriation” is custom-designed to create a Casteel problem
It is easy to see how a trade secrets lawsuit could create a Casteel error. This is likely to happen in several ways.
First, suppose the plaintiff claims that it has two kinds of trade secrets. Maybe one is a customer list and the other is a proprietary software program. Suppose there is evidence that the software is a trade secret, but insufficient evidence that the customer list is a trade secret. If the judge submits a single broad question asking whether the plaintiff owned a trade secret and the jury answers “yes,” how do we know if the jury improperly based that answer on the customer list?
Second, let’s assume the court submits a single damages question, but the plaintiff advances multiple theories about what was a trade secret and how the trade secrets were misappropriated, some of which have no evidence to support them. How do we know which theory the jury based the damages on?
Third, and most to the point here, there is the question on “misappropriation.” Let’s say the plaintiff claims both kinds of misappropriation, i.e. stealing and using/disclosing. What if there is no evidence of stealing? If the jury answers yes, there was misappropriation, there is no way to know if the jury based that answer on stealing or not.
The Texas Pattern Jury Charge tracks the statute’s definition of “misappropriation”
A committee of the State Bar of Texas publishes the Texas Pattern Jury Charges, affectionately known as the PJC. The PJC provides standardized jury questions, definitions, and instructions. It is not legally binding on judges, but most judges will follow it most of the time.
The 2016 PJC included trade secrets questions for the first time
In 2016 the PJC added new questions specifically addressing trade secrets claims. These questions line up with the three questions I outlined earlier, i.e. (1) existence of a trade secret, (2) “misappropriation” of a trade secret, and (3) damages.
The new questions and instructions on trade secret misappropriation do what the Pattern Jury Charge is supposed to do. They provide a template for submitting trade secrets misappropriation questions that is consistent with Texas law and broad enough to apply to different kinds of cases.
Above all, the one thing you want to avoid in a jury instruction is misstating the law. The PJC question on misappropriation of trade secrets tries to avoid this by asking one simple question, “Did Don Davis misappropriate Paul Payne’s trade secret,” and following that question with instructions that track the statutory definition of “misappropriation.” This is a common PJC approach.
You can see the appeal of this. How can the other side complain about your proposed jury instruction if it quotes the language of the statute verbatim?
The problem with the Pattern Jury Charge approach to “misappropriation”
Still, tracking the language of the statute is not always the best approach, and sometimes it’s even the wrong approach, as we will see.
The problem is that the statutory language may not fit the facts of the case. As one reviewer noted back in March 2017:
There is a danger of rote use of the PJC questions when more specific questions tied to the facts of the case would be more appropriate and more understandable to the jury. . . . If the dispute is about whether the former employee used the employee’s customer list, why not just ask “did Don Davis use Paul Payne’s customer list?”
Ok, I confess. That reviewer was me. But still, it’s a valid point.
As I explained in my review, I tend to prefer more factually-specific trade secrets questions. “I like my questions better than the PJC questions,” I wrote. “They get right to the point and are easier for the jury to understand.”
But I neglected to mention another benefit of a trade secrets question that is specifically tailored to the facts of the case: it helps you avoid a Casteel problem.
A case study on “misappropriation” and the Casteel problem: Title Source v. HouseCanary
The San Antonio Court of Appeals applied Casteel to a trade secrets claim in Title Source, Inc. v. HouseCanary, Inc., No. 04-19-00044-CV, 2020 WL 2858866 (Tex. App.—San Antonio June 3, 2020, no pet. h.). The jury question tracked three alternative elements of the statutory definition of “misappropriation” and quoted the statutory definition of “improper means.” The problem, Title Source argued, was that there was no evidence to support one of those elements.
The stakes for this technical issue of appellate procedure? Only a $706 million verdict, the largest in Bexar County history (according to Title Source’s brief).
The case arose from a contractual relationship in which acquisition of the alleged trade secrets was initially lawful. Title Source, a company affiliated with Quicken Loans that provides services including real estate appraisals, contracted with HouseCanary, a real estate analytics company, to develop an iPad app that could be used to perform appraisals more efficiently. The parties signed several contracts that included nondisclosure obligations.
Title Source hired HouseCanary to create an iPad app for real estate appraisers
The facts detailed in the opinion are worth reading, but suffice to say that Title Source claimed the app didn’t work, while HouseCanary claimed that in the course of the relationship Title Source misappropriated HouseCanary’s trade secrets to develop its own app, called MyAVM. The jury answered yes to the misappropriation question and then found actual damages of $235.4 million and punitive damages of $470.8 million. Id. at *1-6.
There were also some juicy allegations that came out after the trial, including alleged collusion between HouseCanary and a Title Source officer and “hush money” paid to HouseCanary employees. You can read about that in Title Source’s Brief. (I would also include HouseCanary’s brief, but it was filed under seal.)
The Court of Appeals didn’t need to reach these spicier issues, because it focused on the Casteel problem presented by the misappropriation question. That question told the jury it could find misappropriation based on either a “use” theory” or an “acquisition by improper means” theory (my “stealing”). Id. at *9.
HouseCanary argued that the evidence showed that Title Source used HouseCanary’s trade secrets by relying on the information to assist or accelerate its own research and development. Id. at *10. And there seemed to be at least some evidence to support this argument.
The problem was that the jury question on misappropriation included elements for which HouseCanary had no evidence, i.e. a Casteel error.
The question went wrong in two ways. First, it quoted the statutory definition of “improper means” verbatim. It was therefore a correct statement of the law, but the definition of “improper means” included “bribery” and “espionage,” and there was no evidence that Title Source acquired the trade secrets through bribery or espionage. Because there was no evidence to support those theories, they should have been omitted from the “improper means” definition submitted to the jury. Id.
Hold on a minute. In HouseCanary’s defense, what if no one ever said anything about bribery or espionage in the trial? What is the chance that the jury actually based its answer on a theory that was included in the definition but never argued? This seems like a hyper-technical application of Casteel.
HouseCanary argued this very point, citing a Casteel exception: “a Casteel issue is not reversible if the reviewing court can be ‘reasonably certain’ the jury did not base its findings on the invalid theories.” Id. (citing Romero v. KPH Consol., Inc., 166 S.W.3d 212, 227-28 (Tex. 2005)). HouseCanary never pursued bribery or espionage theories at trial, it argued, so it was reasonably certain the jury did not base its answer on those theories.
But the Court of Appeals sidestepped this argument by focusing on the second problem with the misappropriation question. The question allowed the jury to find misappropriation based on acquisition of the trade secrets through “breach of inducement of a breach of a duty to maintain secrecy, to limit use, or to prohibit discovery of a trade secret.” And HouseCanary argued that theory throughout the seven-week trial, and on appeal. Id.
“But there is no evidence that TSI actually acquired the trade secrets through those breaches,” the Court of Appeals said. “Instead, the evidence shows those breaches, if any, occurred after HouseCanary willingly turned over its data under the NDA, the licensing agreement, and Amendment One.” Therefore, “those breaches do not support a misappropriation finding.” Id.
This was harmful error under Casteel, especially considering the arguments made by HouseCanary’s counsel in the trial. “[B]ecause HouseCanary so heavily emphasized the evidence it presented to the jury of TSI’s alleged post-acquisition breaches, we cannot rule out the possibility that the jury found misappropriation based on those breaches.” Thus, including the acquisition by improper means language in the charge was reversible error. Id.
The result: the Court of Appeals poured out the $700+ million trade secrets verdict and remanded the trade secrets claim for a new trial. Id. at *11. (According to legal-lingo.net, “pour out” is slang for “to deny (a claimant) damages or relief in a lawsuit.”)
Suppose instead that HouseCanary had submitted a simpler misappropriation question like the one I suggested in my review of the PJC, something like “did Title Source use HouseCanary’s trade secrets to aid or accelerate development of its own app?”
Do you think the jury still would have answered yes? Would the verdict and judgment have stood up on appeal?
We’ll never know for sure, and most of my cases don’t involve $700 million verdicts, so what do I know. But I can at least say this simpler question might have avoided the Casteel problem that got the judgment reversed.
Does the Pattern Jury Charge do more harm than good?
To be fair, the PJC question on trade secrets misappropriation anticipates the kind of problem illustrated by Title Source v. HouseCanary. Tucked away in the Comment section to PJC 111.2 (Question and Instructions on Trade-Secret Misappropriation), you will find these nuggets:
For further discussion, see PJC 116.2 regarding broad-form issues and the Casteel doctrine.
The above instruction lists these six alternative improper methods of acquisition, use, or disclosure in brackets, but only the method(s) supported by the pleadings and evidence should be submitted.
Only those [improper] means raised by the evidence should be submitted.
Only the methods or means raised by the evidence should be submitted! It’s right there in the PJC comments. They even mention Casteel by name.
So, defenders of the PJC could say, with some justification, that the problem in Title Source v. HouseCanary was not that the judge followed the PJC on “misappropriation,” but that the judge didn’t follow the PJC closely enough.
Still, it makes me wonder. Does the PJC question on misappropriation of trade secrets do more harm than good? Might it be better just to tell trial courts to look at the statute and then apply it to the specific facts in dispute?
Keep in mind, it is likely that most Texas trial court judges have never submitted a trade secrets case to a jury. This is based on purely anecdotal evidence, but I’d be willing to bet money on it. Even if I’m wrong, I guarantee most of them could count their trade secrets jury trials on one hand.
I don’t mean this as a criticism, just to point out that jury trials on trade secrets claims are very rare.
As a result, most trial court judges may feel a little unsure of themselves when deciding how to charge the jury on a trade secrets claim. They will tend to fall back on the PJC and the language of the statute, because that feels like the safer thing. It wouldn’t surprise me if that is what happened in Title Source v. HouseCanary.
But the safer thing is not always the best thing.
Just ask Tom Cruise in Mission Impossible.
*Update: The San Antonio Court of Appeals issued a new opinion on rehearing on August 26, 2020. Stay tuned for analysis.
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Zach Wolfe (zwolfe@fleckman.com) is a Texas trial lawyer who handles non-compete and trade secret litigation at his firm Fleckman & McGlynn, PLLC. Follow @zachwolfelaw on Instagram to keep up with his latest shenanigans.
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.
There’s a scene in The Incredibles where Mr. Incredible, working a desk job as a civilian for a bureaucratic insurance company, loudly informs the proverbial little old lady that her claim is rejected. But this is just for the benefit of his superiors. He then whispers instructions on how she can get her claim approved. It’s a great moment.
Well, the Texas Supreme Court pulled a Mr. Incredible this week.
While loudly proclaiming that lack of immunity to COVID-19 is not a “disability” entitling a voter to an absentee ballot, the Texas Supreme Court quietly rejected Texas Attorney General Ken Paxton’s petition for a writ of mandamus. Paxton had asked for an order prohibiting county clerks from informing the public that lack of immunity to COVID-19 alone is a “disability” entitling a voter to an absentee ballot. But the court said no. SeeIn re State of Texas (Tex. May 27, 2020).
(A writ of mandamus is essentially an order from a court requiring a government official to perform some official act.)
It was not a complete loss for Paxton, as the Court agreed in principle with his argument that a voter’s lack of immunity to COVID-19, “without more” or “by itself,” is not a “disability” as defined by the Texas Election Code. But the court emphasized that “a voter can take into consideration aspects of his health and his health history that are physical conditions in deciding whether, under the circumstances, to apply to vote by mail because of disability.”
Thus, the court clearly left the door open for individual voters to decide that lack of immunity plus some other risk factor—such as a heart condition, asthma, being overweight, you name it—is a “disability.”
And perhaps the most important part: The court emphasized that it is up to each voter to decide whether to apply to vote by mail based on a disability, and that county clerks have no duty to look beyond the face of the application, which simply has a box to check for “disability.” No explanation required.
As the court said, the county clerks “do not have a ministerial duty, reviewable by mandamus, to look beyond the application to vote by mail.” While the AG claimed that clerks are accepting “improper applications,” the court said “there is no evidence in the record that any has accepted a faulty application.” Because the clerks assured the court they would discharge their duty to follow the law, the court rejected Paxton’s petition for a writ of mandamus.
This means county clerks can’t tell Texas voters that lack of immunity to COVID-19 alone is enough to get an absentee ballot. That would be like an insurance company telling its policyholders how to get their claim approved.
But what does this mean for Texas voters?
As a practical matter, the Texas Supreme Court’s ruling clears the way for voters who claim lack of immunity to COVID-19 plus some other risk factor to request an absentee ballot if they decide that is a “disability.”
In effect, the Texas Supreme Court whispered instructions to voters who fear contracting COVID-19 at the ballot box: “just decide you have a disability because of some other risk factor and check the box . . . shhh!”
Mr. Incredible would be proud.
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Zach Wolfe (zwolfe@fleckman.com) is a Texas trial lawyer who handles non-compete and trade secret litigation at his firm Fleckman & McGlynn, PLLC. Follow @zachwolfelaw on Instagram to keep up with his latest shenanigans.
These are his opinions, not the opinions of his firm or clients, Do not rely on this post as legal advice for your particular situation. Consult your own lawyer.
