Texas Supreme Court Opens Door to Voting by Mail

Texas Supreme Court Opens Door to Voting by Mail

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. See In 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.”

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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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IMG_4571Zach 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.

 

What is “Knowing Participation” in Breach of Fiduciary Duty?

What is “Knowing Participation” in Breach of Fiduciary Duty?

TexasBarToday_TopTen_Badge_VectorGraphicThe knowing participation in breach of fiduciary duty theory in departing employee litigation

Conspiracy. Cooperation. Participation. “Collusion.” Which of these will get a company in legal trouble when it hires an employee away from a competitor?

A recurring problem in the law is deciding when a third party, let’s call it a “secondary” actor, is liable for the wrongful conduct of a “primary” actor. There are numerous legal theories for this, but in essence they all share two common elements:

(1) some level of knowledge or intent by the secondary actor

(2) some level of action taken by the secondary actor

The arguments usually center around how much knowledge and what level of action.

Let’s apply this to a common legal theory in departing employee litigation: breach of fiduciary duty. When an employee leaves a company to work for a competitor, the first company will often claim that the employee breached her fiduciary duty to the company, and that the subsequent employer “knowingly participated” in the employee’s breach of fiduciary duty.

What kind of evidence is necessary to prove such a claim?

An employee’s “fiduciary” duty

Before we get to that, let’s back up a bit and ask a more fundamental question: does an employee owe her employer a fiduciary duty?

The short answer: “sort of.” In Texas, where I practice law, an employee owes a kind of “fiduciary” duty to her employer, which I call Fiduciary Duty Lite.

I say “kind of” because a true fiduciary duty would include a duty to put the employer’s interests first and to disclose all material facts to the employer, but no one says an employee owes that kind fiduciary duty.

Texas courts have said that it is not a violation of the employee’s fiduciary duty to make plans to compete with the employer and even to conceal those plans from the employer. See Johnson v. Brewer & Pritchard, P.C., 73 S.W.3d 193, 201 (Tex. 2002); Wooters v. Unitech Int’l, Inc., 513 S.W.3d 754, 763 (Tex. App.—Houston [1st Dist.] 2017, pet. denied); Abetter Trucking Co. v. Arizpe, 113 S.W.3d 503, 510 (Tex. App.—Houston [1st Dist.] 2003, no pet.). This policy recognizes the need for employee mobility.

So what kind of conduct violates an employee’s “fiduciary” duty? There are two key categories:

(1) misappropriating the company’s confidential information or trade secrets*

(2) soliciting the company’s employees or customers while still employed by the company

Why the asterisk on the first category? The problem is that the Uniform Trade Secrets Act expressly preempts common-law civil remedies for misappropriation of trade secrets. See Tex. Civ. Prac. & Rem. Code § 134A.007.

So, despite references to misappropriation of trade secrets in the fiduciary duty cases, in Texas you cannot assert a common-law breach of fiduciary duty claim based on allegations of taking or using trade secrets. Super Starr Int’l, LLC v. Fresh Tex Produce, LLC, 531 S.W.3d 829, 843 (Tex. App.—Corpus Christi 2017, no pet.).

The open question is whether TUTSA also preempts a fiduciary duty claim that is based on alleged misappropriation of information that is confidential but not a trade secret. So far, courts in Texas are split on that question. See Embarcadero Technologies, Inc. v. Redgate Software, Inc., No. 1:17-cv-444-RP, 2018 WL 315753, at *2-4 (W.D. Tex. Jan. 5, 2018).

That means in most cases the fiduciary duty claim is going to focus on allegations of solicitation of employees or customers.

Why does fiduciary duty matter?

But why does this matter when employment agreements often prohibit such solicitation? There are a few reasons.

First, in some cases the employee may not have a contract that prohibits soliciting employees and customers.

Second, even if the employee already has a contractual non-solicitation obligation, a breach of fiduciary duty claim gives the employee a potential remedy that a breach of contract claim typically does not: forfeiture or “disgorgement” of compensation as an alternative to actual damages. For a recent case awarding forfeiture on this theory, see Orbison Case Shows Need for Texas Courts to Limit Employee “Fiduciary” Duties.

Third, the fiduciary duty theory gives the first employer a potential claim against the second employer, who is usually a deeper pocket. The first employer can assert a claim for “knowing participation” in breach of fiduciary duty, which allows recovering damages from the second employer.

Knowing participation in breach of fiduciary duty

That brings us back to my original question: how does the first employer in a departing employee lawsuit prove knowing participation? I glean three essential elements from the case law:

  1. The employee solicited while still employed by the company
  2. The second employer knew about the solicitation
  3. The second employer participated in the solicitation

In practice, the knowledge element is somewhat redundant. If the second employer participates in the solicitation, it will almost always have knowledge of the solicitation. You are rarely going to find a case of “unknowing” participation. So the second employer’s participation is really the key element.

“Participation” sounds simple enough, but like “collusion” it can be more difficult to define in practice. To understand participation better, let’s take a look at a couple recent Texas cases applying knowing participation in breach of fiduciary duty to typical departing employee scenarios.

At the bottom of the deep blue sea . . .

In Wooters v. Unitech International, Inc., 513 S.W.3d 754 (Tex. App.—Houston [1st Dist.] 2017, pet. denied), Unitech operated in the offshore and subsea oil and gas production industry. Two Unitech employees made plans with Wooters, who has not a Unitech employee, to form a competing business called Infinity Subsea.

The jury found that Wooters conspired with the Unitech employees to breach their fiduciary duties, but the Court of Appeals held that the evidence was insufficient to support the jury’s verdict.

In reaching this decision, the court emphasized what is and is not a breach of an employee’s “fiduciary” duty. As we’ve seen already, making secret plans to compete with your employer is not a breach of fiduciary duty, even if it violates a contractual duty. Therefore, even though there was evidence that Wooters communicated with the employees about their plans to compete, that was no evidence that Wooters participated in any breach of fiduciary duty.

What about misappropriation of confidential information and trade secrets? As pointed out earlier, that can be a breach of fiduciary duty (putting aside the preemption problem).

There was evidence that the two employees misappropriated Unitech’s secret design information, and the jury even found that the two employees committed theft. But the jury answered “no” when asked if Wooters conspired with the employees to commit theft. So the jury’s “yes” answer to the conspiracy to breach fiduciary duty question had to be based on something else.

The only thing left was the possibility that Wooters participated in solicitation of Unitech customers or employees. But there was no evidence of this. “[N]othing in the record shows that Wooters possessed knowledge of and was complicit in Pennington and Kutach’s solicitations of employment of any Unitech employees,” and “Infinity Subsea did not hire any Unitech employee.” Id. at 766.

So the Court of Appeals reversed the trial court’s judgment against Wooters and rendered judgment that Unitech take nothing against Wooters. A big win for Wooters, obviously. (And this summary of the case does not do justice to the juicy facts, which included things like video surveillance of an employee and an office break-in.)

The practice tip I derive from Wooters is that if you represent the plaintiff claiming “knowing participation,” you need to tie the secondary actor’s participation to the part of the scheme that breached the employee’s fiduciary duty, not just to the scheme in general.

In other words, it’s not enough to show that the “participator” joined in a plan for the employees to compete with their employer. You’ve got to show he participated in the solicitation of employees or customers, or some other conduct that violated the employees’ fiduciary duties. This was the evidence that was lacking in Wooters.

But what if there had been evidence like that? Let’s say the Unitech employees, while employed by Unitech, had solicited a key Unitech engineer to go to a competing company they planned to join. Generally, that would be a breach of their fiduciary duty. And let’s suppose the new venture, Infinity Subsea, had communicated with the Unitech employees about the solicitation and hired the key engineer away from Unitech.

Surely, that would be sufficient evidence of the second employer’s “participation” in the employees’ breach of fiduciary duty, right?

I went down to the Crossroads . . .

Not necessarily. In Crossroads Hospice, Inc. v. FC Compassus, LLC, __ S.W.3d __, 2020 WL 1264188 (Tex. App.—Houston [1st Dist.] March 17, 2020), the same Court of Appeals held that facts like these were insufficient to prove that the second employer participated in the employee’s solicitation of another employee.

In the Crossroads case, Clement was the executive director of Compassus, a hospice care provider. Clement and several colleagues discussed leaving Compassus, Clement discussed those plans with a competitor, Crossroads, and Crossroads expressed hope that Clement could “bring her whole team.” While still employed by Compassus, Clement emailed Crossroads a list of staff and an introduction to another Compassus employee, Dr. Lee.

Here’s the kicker: when Crossroads later hired Dr. Lee, a Compassus VP asked Clement if she knew what was going on, and Clement pulled a Sargent Schultz: I know nothing.

Those facts were probably sufficient to make a case for breach of fiduciary duty against Clement, but the question was whether those facts established knowing participation by Crossroads. The Court of Appeals said no, for two reasons.

First, every one of the actions cited by Compassus was taken by Clement, not by Crossroads. Id. at *8.

Second, the fact that Crossroads knew what Clement was doing was not evidence that Crossroads participated in what Clement was doing.

“That Crossroads knew about Clement’s actions, and even approved of and benefited from them,” the court reasoned “does not constitute interference in the employment relationship or participation in the solicitation of these employees.” Id. The fact that Crossroads hired employees from Compassus was not “in and of itself” evidence that Crossroads knowingly participated in soliciting those employees. Id.

Thus, the Crossroads opinion sets the bar pretty high for evidence of participation. Perhaps too high. It seems clear from the emails that Clement and Crossroads were cooperating–perhaps even “colluding”?–in a plan for Clement to bring her “team” to Crossroads, with Crossroads at least implicitly encouraging Clement to do so. Is that not “participation”?

Wherever you come down on this, you probably agree that the decision in Crossroads slices the cheese pretty thin on what constitutes “participation.”

Don’t encourage him

That leads to my second practice tip. If you represent Employer 1 in this scenario, you need to try to obtain evidence that Employer 2 contributed to causing Employee 1 to solicit Employee 2. It may not be enough to show that Employee 1 and Employer 2 talked about soliciting Employee 2. Ideally you want to offer evidence that Employee 1 would not have solicited Employee 2 if Employer 2 had not encouraged it.

In a deposition or courtroom cross-examination of Employee 1, it might go something like this:

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It won’t always go this smoothly in practice. But if you can get testimony like this, it may be enough to clear the “participation” hurdle the Crossroads opinion sets up.

On the other hand, if you represent Employer 2, you want to prepare Employee 1 for this kind of questioning.

Of course, there is only so much you can do. If the fact is that Employer 2 caused Employer 1 to solicit Employer 2, there may be no way around that. But if the second employer didn’t encourage the solicitation, you want to make sure the witness doesn’t stumble into saying it did.

Or maybe just tell the witness to repeat “there was no participation” a hundred times. It’s the new “collusion.”

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IMG_4571

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.

Recent Case Illustrates Catch-22 for Texas Non-Compete Injunctions

Recent Case Illustrates Catch-22 for Texas Non-Compete Injunctions

They say the early bird gets the worm, but they also say all good things come to those who wait. In Texas non-compete litigation, both things can be true.

Let’s illustrate with a hypothetical. Dawn Davis leaves her sale job at Paula Payne Windows and goes to work for a fierce competitor, Real Cheap Windows. Company president Paula Payne calls her outside counsel and says, “Johnny, you’ve got to do something before Dawn takes her customers with her.”

“Have any of them left yet,” he asks. “No,” Paula says, “but it’s only a matter of time.” (#Hamilton)

“Here’s the problem,” Johnny says. “To get an injunction, I’ve got to show imminent harm, and the mere fact that she joined a competitor may not be enough.”

Paula Payne Windows reluctantly decides to wait. Then, over the next four weeks, half of Dawn’s customers stop ordering from Paula Payne and start buying their windows from Real Cheap.

Desperate to stop the bleeding, Paula Payne assigns a new sales guy, Eric Boonster, to the rest of Dawn’s accounts. But Eric doesn’t have Dawn’s experience, or her personal relationships with the customers. Two more customers jump to Real Cheap.

That’s the last straw. Paula Payne Windows sues Dawn and Real Cheap in Texas state court. Paula Payne asks the judge for a temporary injunction barring Dawn from doing business with any of the customers she serviced while working for Paula Payne.

At the hearing, Paula Payne Windows argues that its new sales guy can service Dawn’s customers, and that the customers will stick with Paula Payne Windows if the court orders Dawn to stop doing business with them. But on cross examination, Paula admits the customers are free to go to any company they want, and that she could quantify the amount of lost profits from any sales the company loses to Real Cheap.

Dawn doesn’t buy it. She gets on the stand and says, “I’ve known most of these customers for years, and there’s no way they will stay with Paula Payne if the court tells them they’re not allowed to keep buying from me.”

So, under Texas law, what is the correct ruling by the trial court judge?

(A) Grant a temporary injunction prohibiting Dawn from doing business with any of her former customers from Paula Payne Windows from that point forward. The loss of sales and customer goodwill establishes irreparable injury.

(B) Grant a temporary injunction prohibiting Dawn from soliciting or doing business with any of her former customers who have not yet left Paula Payne Windows, because there is insufficient evidence the customers who have already left would go back to Paula Payne Windows.

(C) Deny a temporary injunction. There is no evidence the customers at issue will buy from Paula Payne if they can’t buy from Dawn, and any sales Paula Payne loses can be adequately compensated with damages.

Personally, I tend to favor answer C, for reasons I explained in The Problem With Non-Competes. But to be fair, you can make a case for each one of these choices. You can find Texas cases to support any one of them.

In one recent case, the court chose answer B, the intermediate option. There is some logic to that choice, as we will see, but it results in a dilemma for the employer who is trying to enforce the non-compete and hold on to customers.

The Gallagher Case

In Gallagher Benefit Services v. Richardson, No. 6:19-cv-00427, 2020 WL 1435111 (E.D. Tex. March 24, 2020), Richardson admitted she was servicing over 60 former Gallagher insurance clients, despite her two-year non-compete. Gallagher sued Richardson for breach of non-compete and sought a preliminary injunction in federal court.

A preliminary injunction requires proof of a substantial threat of irreparable harm. The judge’s ruling on this element was mixed.

As to clients who were still doing business with Gallagher, the court found that Richardson’s admitted possession of a Gallagher producer report and servicing of former Gallagher clients established a threat of irreparable harm. Id. at *6.

But why would this harm be irreparable if Gallagher could obtain lost profits damages for the loss of client business?

“As to the violation of the noncompete clause,” the court said, “irreparable harm may be shown where future damages would require quantification estimates that can be avoided by an injunction that prevents the damages in the first place.” That harm could be avoided, and the status quo preserved, by enjoining Richardson from recruiting or working for any current Gallagher clients. Id.

If those clients leave Gallagher as a result of Richardon’s competition, the court acknowledged, Gallagher could attempt to quantify its damages. “But that quantification will involve estimates and thus potential undercompensation,” the court said. That irreparable harm can be avoided by an injunction against competition for current Gallagher clients, the court reasoned, noting that courts “routinely” enjoin prohibited competition in these circumstances. Id. (citing federal district court cases).

On the other hand, the court rejected Gallagher’s irreparable harm argument as to clients Richardson was already servicing. The court had specifically asked what evidence supported Gallagher’s argument that Richardson’s current clients would have stayed with Gallagher, id. at *2, and Gallagher argued that the court could “infer” that some of the clients would return to Gallagher if the court enjoined Richardson. Id. at *6. But the court said Gallagher did not prove sufficient facts to support that inference, including its capacity to service those clients.

Therefore, as to clients who had already left Gallagher for Richardson, the court found there was not enough risk to warrant disrupting the status quo with an injunction. Id. at *7.

“Without evidence of how many additional competitors Gallagher faces in the marketplace, or of Gallagher’s ability and realistic prospects of regaining any of the clients now with Richardson,” the court said, “Gallagher has not met its burden of showing more than this minimal extent [of] irreparable injury.” Id. at *8.

The court noted that “other courts have also been hesitant to eliminate a defendant’s book of business where the plaintiff has not offered sufficient evidence that the clients in question would return to the plaintiff.” Id. (citing First W. Capital Mgmt. Co. v. Malmed, No. 16-cv-1961-WJM-MJW, 2016 WL 8358549, at *11-12 (D. Colo. Sep. 30, 2016)).

Based on this reasoning, the court entered a preliminary injunction that prohibited Richardson from doing business with any Gallagher clients she serviced during her last two years at Gallagher, except for accounts she was already servicing as of the date of the injunction. Id. at *7.

The Gallagher Dilemma

Gallagher v. Richardson illustrates a Catch-22 facing an employer who wants to get an injunction to stop a former employee from taking customers with her. If the employer files suit and asks for an injunction before customers have left, it may be difficult to prove imminent harm, because the employee hasn’t violated the non-compete yet. But if the employer waits until after customers have left, the judge may take the Gallagher v. Richardson approach and say it’s too late to get an injunction to stop the employee from doing business with those customers.

So what is the employer with the non-compete to do?

Ideally, the employer would offer testimony that it has the ability to service the customers even without the ex-employee and that the customers are likely to continue doing business with it.

If the employer can get some of the customers to vouch for this, even better, but that’s usually hard to pull off. The last thing you want to do when you’re trying to hold on to customers is drag them into a lawsuit, especially when you’re asking them to testify against the sales person they like. And if the customer already wants to stay with you, why would you need an injunction?

So the employer may have trouble persuading the trial judge the customers will come back, and it may get stuck with the intermediate result of Gallagher v. Richardson. For that reason, some might say the lesson of the Gallagher case is that the employer should immediately file suit when the employee leaves to join a competitor.

That’s a plausible position, but it strikes me as too simplistic. What if you go to the temporary injunction hearing before any customer has left, and the employee testifies that she only plans to go after new customers? How are you going to show imminent harm? This approach strikes me as too hot.

Perhaps the “just right” approach is to monitor the situation closely and file suit as soon as two or three customers jump ship. Then you can point to those defections as evidence of imminent harm, but you can try to get an injunction to stop the employee from taking any other customers.

This still leaves the question of why damages would be inadequate.  But the employer at least has cases it can cite on that issue—as the Gallagher opinion illustrates.

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IMG_4571Zach 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.

 

One Weird Trick for Stunning Blog Results

One Weird Trick for Stunning Blog Results

After almost four years of blogging, I want to talk about what I have learned, the hard-won wisdom I have earned. For my 150th blog post I thought it was about time I “gave back” to the community that has so generously enabled my crazy blogging habit. So, here are my top five tips for any lawyer—or really any kind of professional—who is thinking about starting a blog.

Five Minute Law, five tips. See what I did there?

Tip number five is a variation on the Nike slogan: just don’t do it. Blogging will consume your life. Every new judicial opinion you see will become a potential blog post. You’ll start steering every conversation towards your last blog topic. You will become almost as insufferable as appellate lawyers arguing about fonts on Twitter.

And forget about more important things, like spending time with your kids on the weekend, exercising, or catching up on Tiger King. In laboratory testing, nine out of ten mice chose checking their number of blog views over food pellets, until they eventually starved to death.

So take a tip from Nancy Reagan and just say no. As Ronald Reagan famously said, once you start down the dark path, forever will it dominate your destiny. Or maybe that was Yodah. I don’t know, the 80s are kind of a blur to me. Too much crack, I guess.

Anyway, my number four blogging tip is if you must have a law blog, then outsource it. There are plenty of good consultants who will write the blog posts for you. The downside is that they often demand money. But it’s a good deal, because all you do is tell them your practice area, and then they do the work. Just make sure your consultant’s firm is “Fair Blog” certified and doesn’t use child labor from New England prep schools to write the posts.

Speaking of harsh labor conditions, if you’re a partner at a law firm and don’t want to pay a consultant, just make an associate write your blog. You’ll be sure to get at least one post every three months, and associates love non-billable projects that give them free “exposure.”

My number three tip is related to number four. Don’t put too much of your own personality into your blog posts, especially if you’re looking for corporate clients. Studies show that sophisticated clients prefer lawyers who have no children or other personal problems, no sense of humor, and above all, no sense of irony. They also like guys named “Chad” who bought Peloton for their wives last Christmas. So the more generic your posts, the better.

Think of your blog post as the navy suit every law school student wore to on-campus interviews, but with better results.

Oh, and no opinions. Let’s make that tip number two: avoid expressing a view on any controversial issue. For all you know, that next potential client might think injecting people with light and disinfectant is a great idea.

I wouldn’t even give your opinion on a bland legal issue. What if you have to argue that issue in court, and opposing counsel doesn’t even do you the courtesy of reading  your blog post and citing it against you? How embarrassing.

Finally, my number one tip for law bloggers: don’t start your blog until all conditions are ideal. A blog is serious business. Don’t try to start one while you’re still swamped with client work, trying to fit into those pre-pandemic suit pants again, and dealing with surly toddlers or screaming teenagers at home. You must be able to focus.

So first get caught up on all those other things, achieve “In Box Zero,” and complete the Marie Kondo plan. Only then can you devote all your attention to researching the best blog template, choosing the optimal blog name, and constructing the perfect blog distribution list.

What then? Pick up a pen, start writing.

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IMG_4571Zach Wolfe (zwolfe@fleckman.com) is a Texas trial lawyer who handles non-compete and trade secret litigation at his firm Fleckman & McGlynn, PLLC. He’s joking about the crack, of course.

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.

 

Can a Non-Compete Grant an Injunction by Stipulation?

Can a Non-Compete Grant an Injunction by Stipulation?

Listen. Do you want to know a secret? It doesn’t really matter whether a contractual stipulation to an injunction is binding on a court.

Still, most non-competes contain some kind of stipulation that a breach will cause the company irreparable injury, and the company is therefore entitled to an injunction in the event of a breach. Let’s call this an “ipso facto” clause.

There are essentially four ways courts can approach an ipso facto clause:

  1. Find it enforceable and dispositive.
  2. Consider it as a factor favoring an injunction.
  3. Cite it as a factor, but without really giving it any weight.
  4. Disregard it entirely.

In my personal opinion, no. 4 is the correct approach. I don’t think a judge should give this kind of stipulation any weight. We wouldn’t let private parties stipulate to their own rules of evidence or procedure. And it seems especially inappropriate for a temporary injunction, which is both an “extraordinary” remedy and, traditionally, an “equitable” remedy left to the discretion of the judge.

You might cite “freedom of contract.” Ok, but how much weight would you give a clause that says “in the event of any litigation between Company and Employee, the court shall declare Company the winner”?

No, I don’t think this is the kind of decision we let private parties dictate in advance, and that may explain why you won’t find many Texas cases saying an ipso facto clause is dispositive and binding on the court.

In Wright v. Sport Supply Group, Inc., 137 S.W.3d 289, 293-94 (Tex. App.—Beaumont 2004, no pet.), the court said it was unaware of any Texas case holding that an ipso facto clause alone establishes, for injunction purposes, that remedies at law will be inadequate. And in Shoreline Gas, Inc. v. McGaughey, No. 13-07-364-CV, 2008 WL 1747624, *11 (Tex. App.—Corpus Christi 2008, no pet.) (mem. op.), the court, citing Wright, said the employer cited no Texas case holding that an ipso facto clause proves there is irreparable injury or no adequate remedy at law.

But Texas courts have sometimes cited ipso facto clauses as a factor to consider. In Wright, the court held that an ipso facto clause provided some “substantive and probative evidence” to support the trial court’s temporary injunction, citing the strong public policy of Texas favoring freedom of contract. Wright, 137 S.W.3d at 294.

This kind of “punting” seems to be the most common approach. See South Plains Sno, Inc. v. Eskimo Hut Worldwide, Ltd., No. 07-19-00003-CV, 2019 WL 1591994, at *6 (Tex. App.—Amarillo April 12, 2019, no pet.) (mem. op.) (citing ipso facto clause, in addition to evidence of irreparable injury, in support of affirming trial court’s temporary injunction); Poole v. U.S. Money Reserve, Inc., No. 09-08-137CV, 2008 WL 4735602, at *8 (Tex. App.—Beaumont Oct. 30, 2008, no pet.) (mem. op.) (citing ipso facto clause as “but one consideration in our analysis”).

Citing the ipso facto clause as a non-dispositive factor is kind of an easy way out, so I get why courts would do it. But I wonder. In these cases where courts cited an ipso facto clause as a factor, did the clause actually make a difference? In other words, would the case have come out the same way if the agreement had no such clause?

I suspect the answer is yes, but of course there is no way to be sure.

I do know of at least one Texas case that seemed to find an ipso facto clause conclusive. In Henderson v. KRTS, Inc., 822 S.W.2d 769 (Tex. App.—Houston [1st Dist.] 1992, no writ), the buyer of a radio station obtained a temporary injunction prohibiting the seller from interfering with the buyer’s efforts to move the station. Id. at 771-73. On appeal, the seller argued the temporary injunction was improper because damages would be an adequate remedy. The Court of Appeals disagreed, citing the ipso facto clause. The court held that the seller, “by agreement, stipulated that [the buyer] could seek injunctive relief without the necessity of proof of actual damages.” Id. at 776. But the opinion simply decreed this without any analysis.

In a more recent case, the First Court of Appeals reached the opposite conclusion, without citing Henderson. In Malone v. PLH Group, Inc., No. 01-19-00016-CV, 2020 WL 1680058 (Tex. App.—Houston [1st Dist.] Apr. 7, 2020, no pet. h.) (mem. op.), the court said an ipso clause had no effect.

The employment agreement in Malone contained restrictive covenants prohibiting the employee from competing against the company, soliciting the company’s employees, and using or disclosing the company’s confidential information. Id. at *1. The agreement also contained an ipso facto clause, stating any breach of the restrictive covenants would cause “irreparable damage” to the company, and the company “will be entitled as a matter of right to equitable relief, including temporary or permanent injunction, to restrain such breach.” Id.

After a bench trial, the trial court found that the employee breached the confidentiality clause by forwarding a bid log report to his private email account, but the trial court also found the company failed to prove a “continuing violation” of the confidentiality provision, and it therefore denied equitable relief. Id. at *6.

On appeal, the company argued that it was entitled to an injunction under the ipso facto clause based on the breach of the confidentiality requirement. The Court of Appeals disagreed, for two reasons. First, there was sufficient evidence to support the trial court’s finding that there was no continuing violation. Second, the court said “a contracting party’s acknowledgment that the other contracting party has a right to equitable relief does not bind judicial actors or require a court to grant the equitable relief ultimately requested.” “Trial courts are afforded discretion in granting equitable relief,” the court explained, and the company “cannot remove that discretion by eliciting a contractual term from Malone authorizing injunctive relief.” Id. at *6 (citing Shoreline Gas).

So the same Court of Appeals has reached the opposite conclusion on this issue? What gives?

Here’s a hint. In both cases, the Court of Appeals affirmed the trial court’s ruling. In Henderson, the trial court granted an injunction, and the Court of Appeals affirmed. In Malone, the trial court denied an injunction, and the Court of Appeals affirmed.

Similarly, in Shoreline Gas, the case cited in Malone, the trial court denied a temporary injunction, and the Court of Appeals affirmed.

You might deduce (or is it induce?) that the rule in non-compete injunction cases is that the party who wins in the trial court wins.

That would be pretty close to accurate, but the truth is a little more complicated. Here’s what I think the “real” rules are:

1. If the trial court grants a temporary injunction to enforce a non-compete, and there is some evidence to support it, the Court of Appeals will usually affirm the injunction and might cite the ipso facto clause as a factor supporting it (although it wouldn’t be necessary, because there would be some evidence to support it anyway).

2. If the trial court denies a temporary injunction, and had some reasonable basis to do so, the Court of Appeals will usually affirm the denial and either say the ipso facto clause had no effect (as in Malone), or say that it was just one factor to consider (as in Wright).

These two rules will apply in the vast majority of cases. And in both scenarios, the Court of Appeals can punt because it doesn’t really have to decide whether the ipso facto clause is dispositive.

In the rare case where the trial court grants an injunction and there is really zero evidence of irreparable injury, then the Court of Appeals might have to bite the bullet and decide whether the ipso facto clause establishes irreparable injury, despite the lack of any evidence. But that will be rare.

So should employers continue to include ipso facto clauses in their non-competes? Well, as much as I hate to include language that I personally think should have no effect, I do include an ipso facto clause in my form non-compete. See The Plain-Language Non-Compete.

For one thing, there’s no real harm in including it. And some judges might consider the clause as a factor, or even find it dispositive, although that would be a mistake.

There’s one more reason I like to include an ipso facto clause in my form non-compete. If I later have to go to court to try to get an injunction enforcing that non-compete, the employee’s stipulation to an injunction can be useful. Why?

Sorry, you can’t expect me to give away all my secrets.

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IMG_4571Zach 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.

 

Top 10 COVID-19 Employment Law Tips

Top 10 COVID-19 Employment Law Tips

I’ll be honest. I don’t really like employment law.

Wait a minute, Wolfe. Your little profile at the end of these posts says you do non-compete and trade secret litigation. Isn’t that “employment” law?

Not really. I see departing employee litigation as essentially contract and tort law (with a statutory overlay). In contrast, when you say, “employment law,” I think of a 100-page employee manual nobody reads that spells out how sick leave accrues and what happens to it when an employee quits.

Blah, blah, blah . . .

Here’s when it hit me. Years ago, I was leaving a big law firm to go to work for a much smaller firm, and the big firm sent out an email attaching the new office dress code with thanks to the Dress Code Committee.

Dress Code Committee, I thought. Seriously? They had to have a whole committee for this? And the dress code really got down in the weeds. There’s something comical about an official memo from a team of elite lawyers using terms like “spaghetti straps” and “crop top.” Employment lawyers live for stuff like that. Me, not so much.

I think it boils down to two reasons. First, I don’t like authority and nit-picky rules. My employee manual would just say “dress appropriately and be cool to each other.”

Second, I don’t like the whole “paper the file” feel to employment law. Who actually reads that 100-page handbook? It feels like it’s just there for the employer to cite if there’s a problem.

But I get it. Obviously, my attitude isn’t going to cut it in corporate America. Employers are trying to avoid liability, and a vague directive that sounds like something from Bill and Ted’s Excellent Adventure creates too much space for discrimination. If the manager was cool with the white male employee wearing Birkenstocks with wool socks, why did he have a problem when the minority employee did it? A detailed dress code avoids this problem.

The same points apply to all this COVID-19 employment law stuff. Everybody’s got a COVID-19 blog post, a COVID-19 webinar, a COVID-19 client alert. I’m sure there’s a COVID-19 employment law podcast. Everybody’s jumping on the bandwagon, but it just doesn’t excite me.

If I ran the zoo, most office employers would use this crisis as an opportunity to ditch their expensive office leases and have more people work from home. I’ve got a friend in the business world who recently told me that’s exactly what he’s doing with the company he runs. Think how much time and gas money his employees will save.

Plus, as Brett Holubek reports in Remote Work and COVID-19, one comparative study found that working from home resulted in a big boost in productivity and a significant reduction in employee attrition.

But again, I get it. WFH won’t work for everybody. Most employers will eventually need guidance on how to bring employees back to work, and other employment law issues raised by the pandemic.

Fortunately, I don’t have to reinvent the wheel. Instead, I present this curated list of the best COVID-19 employment law tips I’ve gathered from lawyers who actually like employment law.

I remember when “curated” only applied to museums. Here, it means I went through a rigorous process of scrolling through my LinkedIn feed and Googling some employment lawyers I know.

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

It’s the 10 COVID commandments.

#1 Avoid WARN Act issues

The WARN Act generally applies to employers with 100 or more employees, and it requires giving 60 days’ notice of mass layoffs. If you have a hundred or more employees and laid off 50 or more of them temporarily, you may need to act quickly to bring employees back to avoid violating the WARN Act. Holubek’s Texas Labor Law Blog covers the details at How to Reopen a Business and Recall Employees.

#2 Offer a severance agreement

I often get calls from employees who lost their jobs and want to know if the employer is required to pay severance compensation. The short answer is no. Unless the employee has a contract that says otherwise, the employer can lay off the employee and doesn’t have to pay a dime more than what the employee earned before the layoff.

As my friend Stanley Santire once put it, Texas follows the at-will employment rule like most states, but the difference is that Texas really means it. Generally, you can fire an employee for any reason or no reason.

I say generally, because of course there are exceptions. Certain kinds of discrimination and retaliation are unlawful. For that reason, it’s often in the employer’s interest to get a release from the employee.

The employer should consider offering severance in exchange for a release. This lets the employer do something good—cushioning the blow of a layoff—while getting something in return. In the words of Alexis de Tocqueville, it is intérêt personnel bien compris.

If you require employees to sign a release, be sure your form of release complies with the Age Discrimination in Employment Act (ADEA), including a 21-day notice period and a seven-day revocation period.

#3 Be selective about enforcing non-competes

Speaking of severance agreements, sometimes employers try to include a non-compete in the severance agreement. If the employee didn’t already have a non-compete, this is going to be hard to enforce. I’m not saying it’s impossible, but it’s difficult.

On the other hand, if the employee already had a non-compete, then in theory the fact that the employer laid off the employee does not prevent the employer from enforcing the non-compete. I say “in theory” because if you have to file a lawsuit to enforce it, the judge is going to have a lot of discretion, and most judges will be sympathetic to laid off employees in this crisis, as they should be. I explained this in my recent post Can They Lay Me Off *And* Enforce My Non-Compete?

So think about whether you really need to enforce the non-compete. Do you have evidence the employee has taken truly confidential information? Is the employee trying to divert key customers to a competitor? Then you may have no choice. Otherwise, maybe you’ve got bigger fish to fry.

#4 Protect real trade secrets

There’s always a chance a disgruntled former employee will try to use a company’s confidential information against it. Even if the employee doesn’t have a non-compete, you can use trade secrets law to try to prevent this. See my posts When Is a Customer List a Trade Secret? and The Price Undercutting Theory in Texas Trade Secrets Litigation for guidance on some common scenarios.

#5 Manage remote workers reasonably

Here’s another one where I’m probably not the best guy to ask. My Work From Home policy would be something like “stay in touch and keep doing great work.” My philosophy is if you want employees to act like adults, don’t treat them like children.

But I realize some employers will need a little more than that. So you may need to adopt some specific policies setting out expectations about things like responding to emails, Zoom conference etiquette, and returning phone calls.

Just don’t make the policies too rigid. Don’t be “that guy” who expects his midnight email to be answered immediately, and don’t be that company that requires employees to install webcams so you can keep tabs on them.

There is one work from home issue where employers may need to be more strict: cyber-security. It will be even more important for employees to use secure internet connections, take common-sense precautions with devices containing company data, and be on the lookout for scams like “spear-phishing.”

Pro tip: an early morning email from your managing partner simply stating “can you do me a favor?” may not be what it seems.

And if you’re the managing partner, never send an email like this.

You can learn more about data privacy issues with employees working from home in this episode of the Vorys at Work podcast with Jackie Ford and Lisa Reisz. (I told you there would be a podcast!) And Brett Holubek addresses a host of work from home issues at his blog post, including making sure hourly employees know they are not to work “off the clock.”

#6 Keep employees safe and minimize potential liability

Protecting employees from contracting the virus when they return to work breaks down into two categories: (1) screening, and (2) social distancing.

The challenge with screening is to protect employees from the virus while respecting employee privacy and avoiding discrimination. Haynes & Boone has a helpful checklist with suggestions on how employers can screen applicants and employees for symptoms of COVID-19 the right way:

  • To avoid discrimination, the employer should follow the same screening practice for all employees in the same type of job.
  • For consistency and documentation, consider using a written questionnaire.
  • Keep the results of any screening confidential.

Should screening include temperature checks? This strikes me as a little too much. If you’re still that concerned, maybe it’s a sign you should not be bringing employees back yet. But if you must bring them back, and especially if social distancing is not feasible in your workplace, temperature checks may be a necessary part of your screening.

The checklist cited above has some helpful Do’s and Don’ts for this. It also has good common-sense suggestions for on-site safety and social distancing strategies. Also check out Seyfarth Shaw’s Strategies for Developing a Return to Work Action Plan.

#7 Comply with the Family First Coronavirus Response Act

The Families First Coronavirus Response Act makes certain employees eligible for paid sick leave and expanded family medical leave, and it provides refundable tax credits to small and midsize employers to reimburse them for the costs of leave related to COVID0-19.

I don’t touch tax law, see Most Smug Areas of Law Practice, so I won’t try to interpret the FFCRA, but the IRS has a helpful summary and list of FAQs.

#8 Don’t underreact or overreact to COVID-19 positive employees

Don’t let an employee who tests positive for COVID-19 come to work. That should be obvious. Then again, I thought it would be obvious that injecting yourself with disinfectant is not the optimal treatment.

In theory, you also need to keep an employee’s positive COVID-19 status confidential. I say in theory because, let’s be real, his co-workers are going to know. I suppose the point is that people should hear it from the employee himself, not from management. As explained on the Vorys at Work podcast, employers should prepare managers ahead of time on how to handle this.

For employees who get the virus, the Haynes & Boone checklist recommends following CDC guidelines regarding the appropriate time to return to work, and that makes sense to me.

#9 Avoid disability discrimination

The Americans with Disabilities Act (ADA) and other employment laws still apply, but reasonable employer responses to COVID-19 are likely to be accommodated. The best resource on this topic is probably this EEOC page with FAQs and the updated publication Pandemic Preparedness in the Workplace and the Americans With Disabilities Act.

My main takeaways: employers may screen employees and applicants for COVID-19 because it poses a direct threat to health in the workplace, the ADA does not prevent employers from requiring employees with COVID-19 to leave the workplace, and a medical exam is permitted after a conditional offer of employment.

The EEOC page also addresses reasonable accommodations for employees who, due to an existing disability, are at higher risk from COVID-19. “Reasonable accommodation” is always a difficult and fact-intensive issue, but the bottom line is that employers should be flexible.

#10 Be flexible

Flexibility. That seems to be the theme of the day. We’re all going to have to find new ways to be flexible, especially when more people go back to work.

A Very Special Cinco de Mayo Special

If you want more details, mark your calendar for May 5th. You can’t go to your favorite Tex-Mex joint for margaritas, but you can tune in to a great webcast from TexasBarCLE called Top 10 COVID-19 Employment Law Issues. Hosted by Brett Holubek of the Texas Labor Law blog and Zach Wolfe of Five Minute Law.

Wait a minute. Wolfe? He doesn’t even like employment law.

I know, I know. It’s a dirty job. But someone’s got to do it.

_______________________________

IMG_4571Zach Wolfe (zwolfe@fleckman.com) is a Texas trial lawyer who handles non-compete and trade secret litigation at his firm Fleckman & McGlynn, PLLC. This post is dedicated to all the 80s kids who stayed up too late to watch Late Night with David Letterman.

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.

How to Get Sanctioned for Deleting Facebook Posts

How to Get Sanctioned for Deleting Facebook Posts

I social media. I don’t know how I’d get through this pandemic without it. That live performance by the Rolling Stones that I saw on Twitter last week was just what I needed.

Social media in litigation, on the other hand, can really cause lawyers some headaches. Here are some of the questions it raises:

  • Does the duty to preserve evidence apply to material a client posts on social media?
  • Should lawyers give clients guidance about preservation of social media during a lawsuit?
  • Can a party’s social media posts be used against the party in court?
  • Should lawyers give clients guidance about what they post on social media during a lawsuit?
  • Should lawyers prepare their clients to testify about what they did with social media?
  • If a client deletes relevant social media content during a lawsuit, should the client’s lawyer lie about it?

I’m willing to bet most of my Fivers already know the answers to these questions.

But I bet a smaller number of my lawyer readers regularly do the following:

(1) Specifically advise the client in writing to preserve relevant social media content at the beginning of a litigation matter

(2) Specifically advise the client to avoid posting anything on social media that could be used against the client in the lawsuit.

(3) Specifically prepare the client to answer deposition questions about use and preservation of social media.

This could be a problem. Let me share a couple cautionary tales.

The “Hot Moms” T-Shirt Case

You may have heard about Allied Concrete v. Lester. The case had some funny facts, but it arose from a real tragedy: a concrete truck crossed the center line on the Thomas Jefferson Parkway in Virginia, tipped over, and crushed a vehicle driven by Isaiah Lester, injuring him and killing his wife Jessica. Lester sued the concrete company. Allied Concrete Co. v. Lester, 736 S.E.2d 699, 701 (Va. 2013).

So far, this sounds like a typical, though tragic, personal injury suit. But it had a social media angle. When Lester filed suit in in May 2008, he had an account with Facebook, which had first become available to the public less than two years earlier.

Lester’s lawyer was the managing partner of his firm’s Charlottesville office and had over 30 years of experience. But he was apparently not an “early adopter” of social media. His lack of experience with social media may have contributed to the following chain of events:

1/9/09: Lester sent a Facebook message to Allied Concrete’s lawyer.

3/25/09: Allied Concrete requested production of all pages from Lester’s Facebook page, attaching a photo from Lester’s Facebook page. The photo showed Lester “accompanied by other individuals,” holding a beer can, and wearing a T-shirt emblazoned with “I hot moms.”

3/26/09: Murray instructed his paralegal, Marlina Smith, to tell Lester to “clean up” his Facebook page cause “we don’t want any blow-ups of this stuff at trial.” She emailed Lester about the photo and also said there were “some other pics that should be deleted” from his Facebook page.

4/14/09: Lester told Smith he had deleted his Facebook page.

4/15/09: Lester signed a discovery response stating “I do not have a Facebook page on the date this is signed.”

5/11/09: After Allied Concrete filed a motion to compel, Lester reactivated his Facebook page, the paralegal printed copies of it, and Lester then deleted 16 photos from it.

5/14/09: Murray produced the printouts of the Facebook page to Allied Concrete.

12/16/09: Lester testified in his deposition that he had never deactivated his Facebook page. This resulted in Allied Concrete serving a subpoena on Facebook and hiring an expert who determined that Lester deleted 16 photos. All 16 photos were ultimately produced to Allied Concrete.

9/28/10: Allied Concrete requested production of emails between Lester and Smith between 3/25/09 and 5/15/09.

11/28/10: Murray filed a privilege log that intentionally omitted any reference to his 3/26/09 email to Smith.

Id. at 701-3.

You can see from this chronology that Murray, Smith, and Lester went wrong in several obvious ways:

(1) Lester deleting potentially relevant posts and deactivating his Facebook page.

(2) Lester falsely testifying that he had never deactivated his Facebook page.

(3) Murray filing a privilege log that intentionally omitted the most damning email.

You don’t need to know a lot of details about social media, legal ethics, or the duty to preserve evidence to know that these things were wrong.

And the consequences were severe. As sanctions, the trial court ordered Murray to pay $542,000 and Lester to pay $180,000 to cover Allied Concrete’s attorney’s fees and costs to address the misconduct. Id. at 703. The trial court also allowed the jury to see all the spoliated evidence and twice instructed the jury on Lester’s misconduct. Id. at 705.

And when it was all over, Murray had to agree to a five-year suspension of his law license. You can read the Virginia State Bar Disciplinary Board’s order here.

You might think the lesson is obvious: don’t let your client spoliate evidence and then lie to the court about it.

But there’s a less obvious lesson in the Allied Concrete case. From the start, Lester’s lawyer got off on the wrong foot by issuing the vague directive to “clean up” the Facebook page. He could have avoided later problems by giving the client specific written advice on (1) what he needed to do to comply with the duty to preserve relevant evidence and (2) what to avoid posting.

But I don’t want to be too hard on the lawyer. From his suspension order, you get the feeling that this was his first rodeo as to Facebook. Today we all understand how Facebook works, but did we know that 11 years ago? Today, how many of us know about wickr? Or Whisper? Or confide? Heck, most us probably don’t even know how to post a “story” on Instagram.

Screen Shot 2020-04-19 at 10.42.15 PM.png
Sure, you know Facebook. But do you know all of these?

Yes, the conduct in Allied Concrete was egregious, especially the lying. But my big takeaway is that even now, we’re all just a couple bad decisions away from getting in hot water over social media evidence.

A more recent case really brings this home.

The “I have the right to do whatever I want” case

In Nutrition Distribution LLC v. PEP Research, LLC, No. 16-CV-2328, 2018 WL 3769162 (S.D. Cal. Aug. 9, 2018), the court sanctioned a defendant for deleting relevant social media posts after the case was filed. The case teaches the importance of preserving social media evidence and preparing your client to testify about social media.

Nutrition Distribution was, from what I gather from the pleadings, sort of a “false advertising troll.” In other words, it sounds like it was more in the business of filing lawsuits against other companies for false advertising than marketing its own products. So you know the defendant, an online seller offering a controversial weight-loss supplement called Clenbuterol, was already highly irritated about getting sued in the first place.

This frustration boiled over in the deposition of Brent Reynders, an individual defendant and representative of the corporate defendant. Here’s a taste (I’m paraphrasing some of the questions):

Q: And since the lawsuit was filed in September 2016, have you deleted any posts from your Facebook?

A: Yes.

Q: Did the deleted posts have anything to do with this lawsuit?

A: It’s possible. Actually, it was—I think it had more to do with any copycat companies, law firms like yours trying to file the same frivolous lawsuit.

Q: Did you delete posts related to the marketing of Clenbuterol?

A: I have the right to do whatever I want to do with my Facebook account, regardless of a lawsuit or not. If I wanted to—if I want to delete every single post on my Facebook page, I have the right to do so.

Id. at *16.

I can just picture Mr. Reynders’ lawyer cringing. You’re not fully a litigator until you’ve had to sit quietly while your client gives deposition testimony like this.

And that was just the beginning. Nutrition Strategies filed a motion for sanctions for spoliation of evidence, asking for the dreaded “adverse inference instruction.” That’s an instruction telling the jury that a party failed to preserve evidence and that the jury can presume the evidence would have been unfavorable to that party.

In the Ninth Circuit, the sanction of an adverse inference instruction requires proof that “(1) the party having control over the evidence had an obligation to preserve it at the time it was destroyed; (2) the records were destroyed with a culpable state of mind; and (3) the evidence was ‘relevant’ to the party’s claim or defense such that a reasonable trier of fact could find that it would support that claim or defense.” Id. at *15. The standards in other jurisdictions are pretty similar.

The magistrate judge found that each element was met. The defendant deleted relevant social media posts after the case was filed. The posts allegedly contained the very false advertising that the plaintiff was suing for, so there was no question the defendant had a duty to preserve them. The plaintiff showed that the deleted evidence was relevant because it included ads, photos, marketing, and the misleading statements at issue in the suit. Therefore, even if there was no bad faith, the plaintiff established prejudice. Id. at *16.

The defendants argued there was no prejudice because the plaintiff already had copies of the deleted posts, but the magistrate judge disagreed. There was evidence that plaintiff only had some of the posts, which it obtained in its pre-suit investigation. Id.

The magistrate judge therefore recommended an adverse inference instruction that “the social media posts deleted were false advertising of products that compete with Plaintiff.” Id. at *18.

The district court judge largely agreed. See 2018 WL 6323082 (S.D. Cal. Dec. 4, 2018). But he found that the recommended jury instruction went a little too far. Because the plaintiff’s claim was false advertising, the instruction that the deleted social media posts were false advertising that competed with plaintiff’s products was “tantamount to entry of judgment.” Or as we say in Texas, a “death penalty” sanction.

Noting that the plaintiff preserved some social media posts and that defendants offered to stipulate to the content of the posts, the district judge decided to give a less harsh instruction to the jury:

Defendants have failed to preserve social media posts for Plaintiff’s use in this litigation after Defendants’ duty to preserve arose. You may, but are not obligated to, infer that the deleted social media posts were favorable to Plaintiff and unfavorable to Defendants.

Id. at *5-6.

That’s much better for the defendants, but still pretty bad. A jury trial is hard enough. It’s near impossible when the judge gives the jury an instruction like this against your client.

So what did the jury decide? Well, actually it didn’t. There was no jury trial, because the district judge later granted summary judgment that the defendants did not publish any false advertising that competed with the plaintiff. See Order on MSJ.

You can’t always get what you want.

_______________________________

IMG_4571Zach 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.