Welcome to the final exam in Advanced Remedies: Departing Employee Litigation. Before we get to the exam question, let me remind you what we learned this semester about Texas law on expert witness fees:
“It is the general rule in Texas that expenses incurred in prosecuting or defending a suit are not recoverable as costs or damages unless recovery of those items is expressly provided for by statute, is available under equitable principles, or is expressly provided for by contract. The rule [applies] to attorney’s fees, costs of experts, and other expenses in preparation for trial.”
Shenandoah Assocs. v. J&K Props., Inc., 741 S.W.2d 470, 486 (Tex. App.—Dallas 1987, writ denied).
The fact pattern
With that in mind, here’s our hypothetical:
Dawn Davis is a sales person for Paula Payne Windows. One day Dawn warns Paula, the owner, that she is not going to send inflated bills to customers. The next morning, Paula walks into Dawn’s office and tells Dawn she’s fired. Dawn leaves her company-issued laptop on her office desk, packs up her personal belongings, and leaves.
A few days later, Paula finds out that Dawn has started working for a competitor, Real Cheap Windows. Paula calls up her lawyer who files a lawsuit against Dawn claiming she breached her confidentiality agreement and non-compete.
Paula’s lawyer also hires a forensic expert to examine Dawn’s laptop for evidence of wrongdoing. The expert finds no evidence of wrongdoing, but in the lawsuit the jury finds that Dawn breached her employment agreement.
Assume that Dawn’s employment agreement does not provide for recovery of expert witness fees.
That’s Scenario A. If Paula Payne Windows prevails on the breach of contract claim, can it recover the expert’s fees for examining Dawn’s laptop?
Now consider Scenario B. This time, Paula Payne hires the forensic expert after discovering that Dawn took the laptop home when she was fired. Dawn returns the laptop four days later. Does that change your answer? Remember, no fidgeting or looking away from your computer while you decide.
How about Scenario C: Assume the same facts as Scenario B, except this time Paula Payne specifically tells Dawn to leave the laptop in her office, even threatening to call the police, but Dawn walks off with the laptop anyway. Does that justify recovery of the forensic expert’s fees?
And finally, consider Scenario D: In addition to Scenario C, suppose the forensic expert conducts an extensive investigation and discovers that Dawn copied numerous confidential Paula Payne Windows files to a USB drive the night before she got fired. The expert’s fees for the investigation alone are about $22,000.
Assume the jury finds that Dawn Davis breached her employment agreement and finds actual damages of $22,000 based on the evidence of the expert’s fees. Should the court enter judgment awarding the $22,000?
And just to make it a little more interesting, suppose the jury also finds that Paula Payne Windows’ reasonable and necessary attorney’s fees through trial were $1.3 million. So if Paula Payne Windows gets the $22,000 in actual damages, it also gets the $1.3 million in attorney’s fees.
Under this last scenario, the answer is yes. Paula Payne Windows gets the $22,000 in expert fees as actual damages, plus a cool $1.3 million for the legal fees.
At least that’s what Dallas Court of Appeals said in a case with similar facts, Sandberg v. STMicroelectronics, Inc., 600 S.W.3d 511 (Tex. App.—Dallas 2020, pet. filed).
The Sandberg case
ST was a semiconductor company, not a windows company, and Sandberg, the employee, was a tax attorney and CPA. He signed an agreement that required him to promptly deliver all ST documents to ST on termination of employment. Id. at 519.
Sandberg became concerned that ST was cooking the books. He reported his concerns to ST’s management, telling them he would not sign tax returns and other documents he suspected contained incorrect numbers. ST’s HR manager, Quill, then met with Sandberg and told him to clear out. Id.
So far Sandberg sounds like a straight shooter he got canned because he wouldn’t vouch for fraudulent financials, right?
But then Sandberg made a series of unfortunate decisions.
During the meeting, Quill specifically told Sandberg he needed to return ST’s laptop without copying any files from it. But shortly after that meeting, Sandberg began downloading emails and other files onto three thumb drives. Id.
(Caveat: I’m just taking the facts stated in the opinion at face value. Who knows what actually happened.)
When Quill came back to conduct an exit interview, Sandberg handed over his security badge, keys, and company cell phone, but he refused to return the laptop. Quill threatened to call the cops, but Sandberg held firm and walked out of the building with the laptop. Id.
Quill then sent Sandberg an email telling him you’d better (1) return the computer by noon the next day, (2) not copy any files, and (3) certify that you have not copied any computer files. Id.
Sandberg did not comply. Instead, he copied more files from the computer to a thumb drive. Id. at 519-20.
When Sandberg did not return the computer, ST emailed him that he was terminated for cause and sued him. Sandberg eventually dropped off the laptop with ST’s receptionist four days after his termination, but without telling ST he had copied files and without providing the requested certification. Id. at 520.
The same day Sandberg returned the laptop, ST hired an expert to conduct a forensic examination of the computer to determine whether Sandberg had copied any files after his termination. The expert found that Sandberg had copied files to the three thumb drives. Id. 520.
This is starting to look worse for Sandberg, right? But wait, there’s more.
ST demanded that Sandberg turn over any files he had copied, but Sandberg did not turn over the thumb drives to ST until after the trial court ordered him to do so. The forensic expert then found that Sandberg had used some other computer to copy files, and that files had been deleted from one of the thumb drives. Id.
This looks pretty bad for Sandberg.
But ST’s trial counsel apparently had one major problem: damages. It does not appear that there was any evidence of actual damages other than the expert fees for the forensic examination.
That sounds like a case that should have settled, right?
Apparently not. ST claimed breach of contract and misappropriation of trade secrets, seeking as actual damages the fees it paid the expert for the forensic investigation, plus attorney’s fees, and the case went to trial.
(Remember the part about refusing to cook the books? Well, Sandberg asserted what we call a Sabine Pilot claim in Texas, but Texas courts have made it all but impossible to prevail on such a claim, and the court dismissed the claim, so I’m setting that aside.)
The jury found that yes, Sandberg breached the contract but no, he did not misappropriate trade secrets. The jury found actual damages for the breach of contract of $22,034.46 and attorney’s fees through trial of $1,346,658.79.
Look, I’m no math genius, but that’s an attorney’s fee award that is 61 times the amount of actual damages. More about that later.
One of the issues on appeal was whether ST could recover the expert fees as actual damages. Sandberg cited the general rule that costs of experts and other expenses in preparation for trial are not recoverable. But ST argued that in this case, it could recover the expert fees not as litigation expenses, but as actual damages caused by Sandberg’s breach of contract.
The Court of Appeals agreed with ST and said the evidence of Sandberg’s conduct was sufficient to support the jury’s finding of actual damages. “The jury could find that, when Sandberg returned the computer four days later without certifying that he had not copied any files, ST had to have the computer examined to determine whether Sandberg had copied any files.” In other words, there was sufficient evidence that the forensic examination fees were the “natural, probable, and foreseeable consequence” of Sandberg keeping the computer and not returning it until four days later. Id. at 528.
Specifically, “[t]he jury could conclude that Sandberg’s taking the laptop computer with its confidential information home with him after he was terminated and not returning it for four days created a need for ST to know whether Sandberg had compromised the confidentiality of its data by copying it.” Id. at 529.
Thus, the Court of Appeals rejected Sandberg’s argument and affirmed the award of expert fees.
Oh, and Sandberg’s argument that awarding attorney’s fees of 61 times the actual damages was excessive and unreasonable? The Court of Appeals rejected that argument too. It said the relationship between the amount of attorney’s fees and the amount recovered is just one factor in assessing the reasonableness of the fees, and Sandberg failed to address the other factors.
Why the Sandberg opinion is scary for employees
I’ll be honest, this is a scary opinion, especially for a lawyer like me who often represents employees who are sued by their former employers for alleged violations of their employment agreements and misappropriation of trade secrets.
A lot of times the employee makes bad decisions about copying company files and returning company documents and devices. Sometimes these decisions are part of a deliberate scheme, other times they are totally innocent, and sometimes they are somewhere in between.
But regardless of the motive, it is a common scenario that the employee’s failure to comply with the employment agreement to the letter does not cause the employer any actual damages. “No harm, no foul,” is a common refrain when you represent employees in these cases.
As it should be. Contract law doesn’t care about the employer’s feelings. The purpose of contract damages in these cases is to compensate the employer for any cold hard financial harm caused by the breach, not to punish the employee for breaking the agreement.
The employer’s ability to recover forensic expert fees as actual damages shifts the balance of power significantly. Now, even a technical breach of the employee’s agreement could open up the employee to a claim for actual damages.
And a claim for actual damages for breaching the contract provides a basis for recovering attorney’s fees which, as we see in the Sandberg case, can easily reach a sum that is financially ruinous for most employees.
This is a problem.
On the other hand, maybe we don’t need to worry too much. The Sandberg case had some pretty egregious facts:
- The HR manager specifically told the employee to return his laptop without copying any files from it.
- After getting fired, the employee downloaded multiple company files from his computer to thumb drives.
- The employee refused to return the laptop and left the building with it, even when the HR manager threated to call the police.
- The employee failed to comply with the HR manager’s email demanding the laptop be returned the next day.
- The employee copied more files from the computer to a thumb drive after bringing it home.
- The employee failed to return the laptop for four days, without any reason.
- The employee did not provide the requested certification that he had not copied any files.
There’s no way to know which of these facts were essential to upholding the award of expert fees as damages, but take away some of these facts, and the result could change.
Suppose the delay in returning the laptop was only one day. Would that justify sticking the employee with the entire cost of a forensic examination? Maybe not.
Suppose Sandberg immediately lawyered up, and there was some legitimate wrangling between the lawyers over a protocol for returning the laptop and preserving evidence, causing a delay of a week. Would that excuse the failure to return the laptop immediately?
Or suppose the employee’s lawyer got the HR manager to admit under cross examination that the company would have hired the expert to do the forensic exam regardless of when the laptop was returned—a likely scenario in most cases. That would suggest a lack of causation between the delay in returning the laptop and the company incurring the expert fees.
Finally, there’s an odd fact about the Sandberg case that I’ve left out. Remember the opinion said Sandberg was a tax lawyer? Well, I looked him up and the curious thing is, he’s not just a tax lawyer. He’s also Board Certified in Civil Appellate Law.
That’s right, the employee defendant in Sandberg is a bona fide appellate lawyer. Wait until #AppellateTwitter hears about this.
And guess who represented Sandberg in his appeal to the Dallas Court of Appeals?
That’s right, Sandberg.
It appears the final exam in appellate law may have left out a key question: is it a good idea to represent yourself?
Zach Wolfe (firstname.lastname@example.org) is a Texas trial lawyer who handles non-compete and trade secret litigation at his firm Fleckman & McGlynn, PLLC. Thomson Reuters named him a 2020 Texas “Super Lawyer”® for Business Litigation.
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.