Even before I went to law school, one of my favorite Shakespeare plays was The Merchant of Venice, and now that I’m a trial lawyer I like it even more. The climactic scene is basically a courtroom drama. More about that later.

In my last post, I set the stage for Elite Auto Body v. Autocraft Bodywerks, a recent case holding that the Texas anti-SLAPP statute allows a defendant in a trade secrets lawsuit to file an early motion to dismiss before the plaintiff has any real chance to take discovery.

To recap Part 1:

  • Despite its literal language, the First Amendment’s protection of “freedom of speech” generally does not apply to communication of trade secrets.
  • The Texas Citizens Participation Act (TCPA) is an “anti-SLAPP” statute intended to protect free speech rights.
  • The problem with the statute is that its literal text goes far beyond speech protected by the First Amendment.
  • Elite Auto Body is therefore an interesting test case for the “textualist” approach to interpreting statutes.

So how did the court interpret the statute, and what does it mean for trade secrets litigation?

A typical trade secrets lawsuit

For a case raising important First Amendment and statutory interpretation issues, the facts of Elite Auto Body were about as ordinary as you can get.

Autocraft Bodywerks was an auto-repair shop specializing in high-end collision repair services. Precision Auto Body was a competing auto-repair business founded by a former Autocraft employee. When two Autocraft employees left to join Precision, Autocraft sued, claiming the employees provided Autocraft’s confidential information and trade secrets to Precision.[1]

The alleged trade secrets were typical internal company information: salary and personnel information, financial information, proprietary compilations of technical information, and proprietary client forms. Like every company that files this kind of trade secrets suit, Autocraft claimed that Precision and the former employees used the information to obtain an unfair advantage.[2]

The usual defense would be to challenge the trade-secret status of the information, and/or to claim the defendants did not take or use the information. But Precision asserted an additional defense: it filed a motion to dismiss under the TCPA.

So does the statute apply to an ordinary trade secrets misappropriation case?

The plain language of the TCPA applies to disclosure of trade secrets

The language of the statute is quite simple about when it applies: “If a legal action is based on, relates to, or is in response to a party’s exercise of the right of free speech, right to petition, or right of association, that party may file a motion to dismiss the legal action.”[3]

If that was all the statute said, you could easily argue that these “rights” mean constitutional rights. But the statute has more expansive definitions:

  • “Exercise of the right of association” means “a communication between individuals who join together to collectively express, promote, pursue, or defend common interests.”
  • “Exercise of the right of free speech” means a “communication made in connection with a matter of public concern.”
  • “Communication” includes “the making or submitting of a statement or document in any form or medium, including oral, visual, written, audiovisual, or electronic.”
  • “Matter of public concern” is defined broadly and includes an issue related to “a good, product, or service in the marketplace.”[4]

Under the broad definition of “right of association,” when employees of one company go to work for a competitor and communicate the first company’s confidential information to the competitor, that is a “communication between individuals” who are joining together to “pursue common interests,” i.e. making money by competing with the first company.

This was the defendants’ argument in Elite Auto Body, and the Austin Court of Appeals agreed. The court reasoned that the statute would not apply to allegations of using the alleged trade secrets that did not involve communication of the information. But the plain language of the statute would clearly apply to the alleged disclosure of the trade secrets:

Yet it would also be true, at least under a literal reading of the “communication” definition, that Autocraft also bases each of its claims, at least in part, on two types of alleged “communications”—(1) appellants’ “communications” (so defined) among themselves and others within the Precision enterprise through which they have allegedly shared or utilized the information that Autocraft claims is its trade secrets or confidential information; or (2) “communications” (so defined) by appellants to current Autocraft employees to induce them to leave Autocraft and come work for Precision.[5]

So what do you do if you’re Autocraft, the plaintiff in Elite Auto Body, and you want to avoid the motion to dismiss? You argue against a literal reading of the statute. The court should interpret the statute based on its larger context and purpose, you argue, which is to protect constitutional rights and provide a remedy for “SLAPP” lawsuits.

But how do we know the purpose of the statute?

The purpose of the TCPA is to protect constitutional rights

In this case, the legislature made it easy for us by expressly stating the purpose of the statute:

The purpose of this chapter is to encourage and safeguard the constitutional rights of persons to petition, speak freely, associate freely, and otherwise participate in government to the maximum extent permitted by law and, at the same time, protect the rights of a person to file meritorious lawsuits for demonstrable injury.[6] (emphasis added)

The statute also says it “shall be construed liberally to effectuate its purpose and intent fully.”[7]

This gives you Autocraft’s argument: the statute has a First Amendment “overlay.” Despite the broad definitions of “right and association” and “right of free speech,” you should limit the statute to its stated purpose of protecting constitutional rights. There’s no constitutional right to communicate trade secrets, so the statute shouldn’t apply to trade secrets lawsuits.

This is a plausible argument, the Austin Court of Appeals said, but it is foreclosed by the Texas Supreme Court’s recent decision in ExxonMobil Pipeline Co. v. Coleman.

Coleman held that the TCPA applied to a former employee’s defamation claim based on internal company statements about his job performance. The Coleman court based this holding on a textbook formulation of textualism. “We do not substitute the words of a statute in order to give effect to what we believe a statute should say,” the court said, but “instead, absent an ambiguity, we look to the statute’s plain language to give effect to the Legislature’s intent as expressed through the statutory text.”[8]

Let me pause here to note that the TCPA itself seems to instruct courts not to construe it this way; the statute says it should be liberally construed to effectuate its purpose. Oh well.

Citing this language, Elite Auto Body construed Coleman as an instruction that Texas courts must adhere to a “plain-meaning” construction of the statute, “notwithstanding an acknowledged expansiveness and breadth.”[9]

Reading between the lines, Justice Pemberton’s opinion in Elite Auto Body seems to be saying “we know this result is kind of crazy, but that’s what the statute says, and the Texas Supreme Court says we have to apply the statute literally, so our hands our tied.”

That’s a reasonable position, but is this really the result the legislature would have wanted?

Elite Auto Body shows us the problem with strict textualism

I haven’t researched the legislative history of the Anti-SLAPP Statute. But I think it is safe to say that the legislature did not intend the statute to apply to ordinary claims for misappropriation of trade secrets.

Let’s assume I’m right, and (1) the literal terms of the statute apply to trade secrets lawsuits, but (2) the legislature did not intend the statute to apply to trade secrets lawsuits, because there is no constitutional right to disclose trade secrets.

So what is a judge to do? Apply the “plain meaning” of the text even though it leads to a result the legislature didn’t intend?

This is where the true textualist must bite the bullet. Yes, the strict textualist would say, you apply the plain meaning of the statute, even if the result is bad public policy or not what the legislature intended. You do that because the plain meaning of the text is objective, while the subjective intent of the legislature is too easy for litigants and judges to manipulate to serve their own agendas. Focusing on “purpose” rather than the text would allow courts to substitute their own policy judgments for the decisions of the legislature.

There is some merit to this line of argument, but on the whole I think it is wrong, and the odd result in Elite Auto Body illustrates why.

The problem with this kind of strict textualism is that it thwarts the intent of the legislature in the name of deference to the legislature.[10]

In practice, strict textualism tends to undermine the legislature’s purpose—and can lead to absurd results. When courts strictly apply the “plain meaning” of a statute, in conflict with its obvious purpose, they are effectively saying to the legislature, “we know what you were trying to do, but you screwed up in the language you used, and we’re going to hold you to your sloppy language.” Hey, if you don’t like it, amend the statute.

Shakespeare’s view of anti-SLAPP statutes

This kind of textualism reminds me of the final “courtroom” scene in Shakespeare’s Merchant of Venice, where Portia, posing as a man and a legal scholar, thwarts Shylock’s purpose by strictly construing his contractual right to a “pound of flesh.” The audience, typically, is rooting for Portia because she is trying to save Antonio from the horrific results of an unjust contract. But there is no denying that she effectively deprives Shylock of the remedy intended by the parties to the contract.

Texas courts are doing something similar with the TCPA when they say we’re going to hold you to your incredibly broad definitions, even when they conflict with your obvious purpose.

As in The Merchant of Venice, this may lead to a just result in some cases. Instinct tells me the information at issue in Elite Auto Body probably did not deserve trade-secret protection, so maybe early dismissal of part of the trade secrets claim was a good thing. But as a broader matter of public policy, applying the TCPA to trade secrets lawsuits that do not involve any constitutional rights seems like a mistake.

Ok, you say. That’s all very interesting, Mr. Smarty Pants. But what if I’m a litigator who sometimes handles non-compete and trade secret cases? What are the practical consequences?

I’ll cover that in Part 3.

______________________________________________________________________________________

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

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

[1] Elite Auto Body LLC v. Autocraft Bodywerks, Inc., No. 03-15-00064-CV, 2017 WL 1833495, at *1 (Tex. App.—Austin May 5, 2017, no pet. h.).

[2] Id.

[3] Tex. Civ. Prac. & Rem. Code § 27.003.

[4] Tex. Civ. Prac. & Rem. Code § 27.001.

[5] Elite Auto Body, 2017 WL 1833495 at *4.

[6] Tex. Civ. Prac. & Rem. Code § 27.002.

[7] Tex. Civ. Prac. & Rem. Code § 27.011.

[8] ExxonMobil Pipeline Co. v. Coleman, 512 S.W.3d 895, 901 (Tex. 2017). The qualification “absent an ambiguity” further complicates the issue, but I don’t have time to address that here.

[9] Elite Auto Body, 2017 WL 1833495 at *7.

[10] Personally, I have little confidence in the Texas legislature doing anything right, especially when it meddles with the civil justice system, but as a general proposition I agree that courts should interpret statutes to effectuate the legislature’s purpose.

3 thoughts on “A SLAPP in the Face to Texas Trade Secrets Lawsuits – Part 2

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