Slow Your Roll: Texas Judges Need Guidance on Ordering Direct Access in TROs

Slow Your Roll: Texas Judges Need Guidance on Ordering Direct Access in TROs

If you watch the news or even Law and Order, you’ve seen images of the police or FBI raiding a target’s home or office and seizing laptops or smartphones for forensic examination. I only handle civil litigation, where we don’t really get to do that.

Clients sometimes wonder about this when they get sued. Is somebody going to confiscate my phone? Can they search my Gmail without me even knowing it?

The short answer is no, that’s not how it usually works in civil litigation. Unlike criminal cases, the civil litigation system generally relies on the parties themselves to produce documents. You send a “request for production” to the other side, they make a bunch of objections, you argue about the objections, and then the other side produces documents.

Generally, you don’t get to go to the other party’s office or home and rummage through their file cabinets looking for relevant documents.

It didn’t necessarily have to be like that. The lack of “direct access” in civil discovery is a policy choice. There’s an obvious downside: depending on a litigant to produce documents that will hurt that litigant’s case creates a danger that relevant documents will be withheld. (Lawyers sometimes joke about the “bad document” exception to discovery.) But in civil litigation, we’ve chosen to balance that risk against the disruption and invasion of privacy that direct access would cause.

The same principle applies to documents in electronic form. So, generally we don’t allow civil litigants to demand “direct access” to the other party’s computer, smartphone, or other electronic device.

I say “generally,” because of course there are exceptions. You can get direct access in civil discovery under some circumstances.

There is plenty of guidance from the Texas Supreme Court on this, including In re Weekley Homes, 295 S.W.3d 309 (Tex. 2009), and In re Shipman, 540 S.W.3d 562 (Tex. 2018). I covered this in “Direct Access” to Computers in Departing Employee Litigation.

In the simplest terms, the guidance from SCOTX is this: to get direct access through discovery, you have to show that the other party has somehow defaulted on its discovery obligations, and that lesser means of curing the default would be inadequate.

An End Run Around Weekley Homes?

That’s a tough standard to meet. But there’s a potential way to get around this: ask for direct access through a temporary restraining order (TRO) or temporary injunction.

(For non-lawyers, a TRO is an emergency order that typically lasts only a couple weeks, until the court can hold a temporary injunction hearing, which is like a mini-trial. A temporary injunction lasts until the case goes to trial. In federal court it is called a preliminary injunction.)

You see, the Weekley Homes standard technically does not apply to a TRO or temporary injunction. At least that’s what one Texas Court of Appeals recently said.

That means we’re going to see a lot of requests for direct access through TROs or temporary injunctions, especially in departing employee lawsuits, the focus of my law practice.

The problem is that some lawyers and judges seem to think that direct access orders should be routinely granted in any case where a company claims its former employee took confidential information or violated a non-compete. That’s wrong. A TRO is supposed to be an “extraordinary” remedy, and the risk of getting direct access wrong in a TRO is high.

But what is the standard for granting direct access through a TRO or temporary injunction?

The current standard is essentially “it’s within the trial court’s discretion.”

This is a problem. Texas judges need more specific guidance on when to grant a TRO or temporary injunction allowing direct access, especially in departing employee litigation.

The Wolfe Standard for Direct Access Orders

Never fear, your friendly neighborhood thought leader is here. I propose the following general rules for direct access orders in departing employee lawsuits:

1. A direct access order should almost never be granted in an ex parte TRO hearing (a hearing where only the party seeking the TRO is present).

2. Even in a TRO hearing where the defendant’s lawyer is present, a direct access order should very rarely be granted.

3. The standard in a TRO hearing should be this: is there evidence of some imminent emergency that will cause actual irreparable harm if the judge postpones a decision on direct access to a temporary injunction hearing, which can be held as soon as a few days later.

4. At the temporary injunction hearing, the standard for granting direct access should be this:

a. Has the plaintiff presented evidence to make at least a prima facie case that specific confidential information on the device meets the legal definition of a trade secret?

b. Is there evidence the defendant has already spoliated evidence by altering or deleting potentially relevant documents?

c. Is there evidence the defendant has already used confidential information on the device to compete with the plaintiff? (Mere evidence that the defendant has competed with the plaintiff is not evidence of such use.)

d. Is there evidence the defendant has already disclosed confidential information on the device to a competitor? (Mere evidence the defendant has gone to work for a competitor is not evidence of such disclosure.)

e. If the answer to one or more of (a) through (d) is yes, then the judge should consider whether some lesser means of preservation would be sufficient. Lesser means would include:

(i) ordering the defendant not to spoliate evidence,

(ii) ordering the defendant not to use or disclose confidential information, and/or

(iii) ordering the defendant to have a qualified service provider make a forensic image of the device for evidence preservation, subject to further orders of the court.

f. The judge should only grant the plaintiff direct access if the plaintiff shows that such lesser means would be inadequate under the circumstances.

g. If the judge orders direct access, the order must contain sufficient provisions to protect from disclosure:

(i) private personal, medical, or financial information not relevant to the issues in the lawsuit,

(ii) communications protected by the attorney-client privilege or other privileges, and

(iii) information the defendant or a third party claims is confidential and proprietary.

I hereby grant Texas judges an irrevocable, non-exclusive license to copy this standard into their orders and opinions. You can download it here:

I’m sure people will quibble with the specifics, but in general, the standard I’ve outlined seems pretty basic and non-controversial to me.

It’s certainly better than the current standard. In a TRO hearing, the current standard is “anything goes.” There is no appeal from a TRO, so the trial court judge can do anything she wants. That means the law on direct access in a TRO is effectively whatever the judge says it is.

(I will leave it to philosophy of law students to debate whether this means the law is what the judge says it is, or if this just means the law is effectively what the judge says it is as a practical matter.)

An Actual Direct Access Order Sighted in the Wild

Anecdotal evidence suggests this can be a problem. In a recent TRO hearing, the plaintiff sought a TRO against a former employee who left and joined a company that the plaintiff viewed as a competitor. The judge allowed the lawyers to argue for almost 30 minutes, which is more time than you usually get.

The lawyers debated whether the products sold by the defendant’s new employer actually competed with the products sold by the former employer. They argued about the proper scope of the defendant’s non-compete under Texas law. They argued about a lot of things. The judge tried to get the parties to agree on an order, but when the defense counsel respectfully declined, the judge said, “well in that case, I’m signing the TRO.”

And wouldn’t you know it, tucked within the paragraphs of the TRO drafted by the plaintiff’s lawyer was an order for the defendant to turn over his personal devices to the plaintiff for forensic examination. This issue was never even mentioned in the hearing. (I thought about disclosing for non-litigators that in many cases the judge simply signs the form of TRO that the plaintiff’s lawyer prepared, but I don’t know if y’all are ready for that.)

That should give you some sense of the current standard for a direct access TRO, as a practical matter.

Here’s another example that is less anecdotal.

The Crossmark Case

In Retail Services WIS Corp. v. Crossmark, Inc., No. 05-20-00937-CV, 2021 WL 1747033, at *15 (Tex. App.—Dallas May 4, 2021, pet. filed), the court held that the requirements for direct access stated in Weekley Homes do not apply to a temporary injunction and upheld the part of a temporary injunction ordering direct access.

Crossmark was in some ways a typical departing employee case. Crossmark and Product Connections were competitors in the business of providing large retailers with “in-store consumer experience” services, such as in-store demonstrations by brand spokespersons. Id. at *1. I’m picturing something with Teflon pans and a stove, but who knows.

One of those large retailers was apparently so secret that the court sealed portions of the record and called the retailer “Client X.” Id. at *2. I’m guessing JC Penney.

Anyway, Crossmark claimed it had a confidential playbook on best practices, operating procedures, and manuals that took decades to develop. Id. at *1. A group of employees left Crosssmark and joined Product Connections. Some of them had non-competes. Id.

So far, that is pretty plain vanilla stuff for a departing employee lawsuit. But there was some additional forensic flavor.

Crossmark’s forensic expert from KPMG testified that one of the employees did some sneaky stuff shortly before leaving, including:

  • emptying her recycling bin of more than 1,800 files
  • copying 13 files from her Crossmark laptop to a thumb drive
  • plugging the thumb drive into a personal Mac computer and accessing the files
  • doing a Google search for “how to delete Google Chrome cache”
  • deleting 57,000 Chrome cache entries

Id. at *2. Now, I’ve been doing this long enough to know there’s likely another side of the story, but facts like this certainly don’t look good for the departing employee.

Plus, there was also evidence suggesting that the employees who went to Crossmark used knowledge they had gained at Product Connections. Crossmark’s Executive VP testified that less than a week after Crossmark launched a digital demo product, he saw on social media that Product Connections was launching a product that “mirrored almost identically” what Crossmark had done in its Client X digital demo. Id. at *3.

Again, I wouldn’t necessarily take the company VP’s word for it, but this kind of testimony will at least get you in the door of the Temporary Injunction House.

Was the evidence sufficient to justify a mandatory injunction granting direct access? (A “mandatory” injunction is one that orders a party to do something, rather than not to do something.)

The trial court judge thought so.

The trial court included a “Device Turnover Order” in the temporary injunction. Based on “efforts of deception and concealment and actual misappropriation of CROSSMARK Confidential Information by at least one Former Employee,” the court ordered the Defendants to produce to opposing counsel for forensic inspection “any company or personal laptops, hard drives, thumb drives . . . or other digital storage devices.” Id. at *6.

Thus, the order in Crossmark implied a certain standard for direct access injunctions: direct access is warranted if there is evidence of “deception and concealment” and/or “actual misappropriation” of confidential information by at least one Defendant.

That’s a lower bar than the Weekley Homes standard. It doesn’t require showing that the Defendants defaulted on their discovery obligations. It doesn’t require considering whether lesser means would be adequate to preserve or obtain relevant evidence. And it doesn’t require any mechanism to protect private personal documents or privileged documents.

So did the Court of Appeals reverse the direct access order for failing to meet the Weekley Homes standard?

Nope. Weekley Homes involved discovery under Rule 196.4 of the Texas Rules of Civil Procedure, the Court of Appeals reasoned, not a temporary injunction. Plus, Weekley Homes was not a trade secrets case. So, the Court of Appeals concluded that if the requirements for an injunction are met, Texas law does not preclude “mandatory injunctions requiring production of digital storage devices.” Id. at *15.

The Problem with the Crossmark Approach

This seems too clever by half. In a narrow, technical sense, I think the Crossmark court was right. Weekley Homes was a discovery case, not an injunction case, so sure, you can say it doesn’t apply to an injunction, strictly speaking.

But the broader question is whether the principles of Weekley Homes should apply.

Those principles include:

(1) allowing direct access to electronic devices is akin to allowing a party to search an opposing party’s file cabinets,

(2) direct access should only be ordered when the ordinary discovery process would somehow be inadequate,

(3) the court should consider lesser means to obtain the discovery before ordering the drastic measure of direct access, and

(4) the direct access order should contain means to protect private personal information and privileged information.

By focusing entirely on whether Weekley Homes “applies” to a temporary injunction, the Crossmark court effectively ignored these concerns. I think that was a mistake.

I’m not saying the Crossmark court was entirely wrong. I think the court was right to say that the ordinary discovery process is not the only way to get a direct access order. The reason we have TROs and temporary injunctions is to address extraordinary situations where the ordinary processes would be inadequate.

But the situation should be truly extraordinary. The standard I outlined earlier would ensure that judges only grant direct access TROs or temporary injunctions when warranted by truly unusual circumstances. Direct access orders should not be routine. 

Otherwise, I fear the exception opened up by Crossmark could become the general rule. And then I may have to tell my civil litigation clients, yes, it is like Law and Order.

Dun-DUN!

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Zach Wolfe (zach@zachwolfelaw.com) is a Texas trial lawyer who handles non-compete and trade secret litigation at Zach Wolfe Law Firm. Thomson Reuters named him Texas “Super Lawyer”® for Business Litigation in 2020 and 2021.

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.

“Direct Access” to Computers in Departing Employee Litigation

“Direct Access” to Computers in Departing Employee Litigation

Imagine a criminal case where the government sends the defendant’s lawyer a request to produce emails between the alleged conspirators, bank records showing payments to the defendant’s offshore account, or a recording of a key meeting. You wouldn’t expect to get much, would you? That’s why we have search warrants.

Civil litigation is different. In a civil case, the system largely relies on the parties themselves to search for and produce documents that the requesting party can then use to prove its case. Generally, you don’t get to search the opposing party’s office for relevant documents.

The same general rule applies to computer files: you don’t get to search the other side’s computers or other devices. There are exceptions, but the Texas Supreme Court has set the bar high for obtaining an order authorizing “direct access” to an opposing party’s electronic files.

In In re Weekley Homes, 295 S.W.3d 309 (Tex. 2009), the court held that intrusive measures such as direct access to a computer or other electronic storage device require, at a minimum, that the benefits of the discovery outweigh the burden imposed. Permitting direct access “is particularly intrusive and should be generally discouraged,” the court said, “just as permitting open access to a party’s file cabinets for general perusal would be.” To obtain direct access, “the requesting party must show that the responding party has somehow defaulted in its obligation to search its records and produce the requested data.”

More recently, the Texas Supreme Court applied Weekley in In re Shipman, 540 S.W.3d 562 (Tex. 2018). The court held that the responding party’s late production of responsive documents and testimony that some files had been deleted years earlier was insufficient to justify direct access. The responding party testified by affidavit that he had searched both electronic and paper files and produced all responsive documents, and the requesting party made no showing that the responding party was incapable of searching his computer.

Weekley Homes and Shipman were not “departing employee” cases—the type of case I handle most often—but direct access is an important issue in departing employee litigation. Let’s look at the transcript of a hypothetical hearing to see how these cases might apply in a typical departing employee case.

Hearing Transcript

Judge Lansing: Alright, next case up is Cause Number 19-24601, Paula Payne Windows v. Dawn Davis. Mr. Livingston, who are you here for?

Livingston: Good morning, judge. I’m here with Phil Hamilton for the plaintiff on a motion to compel.

Reynolds: Maria Reynolds here for the defendants, Your Honor.

Judge: Good morning, Ms. Reynolds. Was there a response to the motion?

Reynolds: Yes, we filed a response yesterday.

Judge: Well if I can get this computer on, maybe I can pull it up. Can you . . .

Reynolds: I have a binder with the motion and response if that would make it easier.

Judge: Sure, I’ll take your binder. This looks like a lot of material. Have y’all talked about this already?

Reynolds: Not really. All I got was an email from Mr. Hamilton demanding we turn over Ms. Davis’s laptop. That’s part of the problem, we’ve been trying . . .

Hamilton: Your Honor, that’s not exactly right. We talked about these issues at Ms. Davis’s deposition. That’s when she said . . .

Judge: Ok, well, I’ll hear your arguments on the motion. But first back up a little and remind me what this case is about. Mr. Hamilton?

Hamilton: Yes, of course. This is a case about theft of trade secrets. Dawn Davis worked for my client, Paula Payne Windows, for five years. She was very well paid. She rose up their top sales position, and she had access to all of their confidential information and trade secrets. Then about six months ago she suddenly left and went to work for a competitor, and that’s the other Defendant, Real Cheap Windows.

Judge: Ok, I remember this case now. But what kind of trade secrets does a windows company have?

Hamilton: There are two things we’re most concerned with, Your Honor. First, Paula Payne has a Master Customer List spreadsheet that has detailed information about every one of their customers. Second, for each customer there is a Sales History spreadsheet that has every sale including price, quantity, date, margins—everything a competitor would need to try to undercut my client.

Judge: I see. So you want me to compel Ms. Davis to produce those documents?

Hamilton: Actually, you already did that. If you take a look at tab C, that’s your order requiring Defendants to produce “all documents Davis received from Paula Payne during her Employment Period, including all customer lists and sales records.” We’re asking you to order her to produce her laptop so our forensic expert can see if our Master Customer List and Sales History spreadsheets were on it.

Judge: Ok, hold that thought. I want to hear from Ms. Reynolds.

Reynolds: Thank you, judge. I’ve been biting my tongue. This is an outrageous demand for direct access to my client’s computer. It is no different than a request to rifle through her file cabinets.

Judge: Well hold on, let’s take this one step at a time. Did your client comply with my previous order?

Reynolds: Absolutely. Ms. Davis searched her home office and produced a banker’s box full of documents. But she didn’t find any customer list or sales history documents. Now they’re asking for native Excel files, but they never specifically requested those. If I could approach, here is a copy of Rule 196.4:

Screen Shot 2019-05-11 at 5.26.40 PM.png

Judge: What the hell is “magnetic” data?

Reynolds: Honestly, judge, I think that was a little before my time, but the issue here is electronic data. Paula Payne wants to search my client’s computer for electronic files, like Excel spreadsheets, but they never specifically asked for electronic files.

Hamilton: Actually, we did. This is from our First Request for Production:

Screen Shot 2019-05-12 at 9.32.38 AM.png

Judge: That’s pretty general. Wouldn’t it be better practice to include the electronic files you want in the specific request for production? You could have said “including native Excel spreadsheets and other electronic files” in your request, right?

Hamilton: We could have, Your Honor, but the two leading cases on this, Weekley Homes and Shipman, both say it’s sufficient if we clarify in our motion to compel that we’re asking for electronic files. Here is an excerpt from Shipman, citing to Weekley:

Screen Shot 2019-05-11 at 6.57.07 PM.png

Hamilton: The situation here is the same. Our definition of “documents” included electronic files, and our motion makes it abundantly clear what we’re asking for.

Judge: Ok, I think you’ve sufficiently asked for computer files, so let’s talk about direct access. What’s your basis for that?

Hamilton: We are allowed to obtain direct access to an electronic device if we “show that the responding party has somehow defaulted in its obligation to search its records and produce the requested data.” That’s straight out of Shipman, quoting from Weekley. And that’s exactly what we have here. After Ms. Reynolds produced the box of hard copy documents, we sent her a letter pointing out that her production did not include any electronic files, and we specifically asked if Ms. Davis had searched her laptop. She responded in an email and said “my client has conducted a reasonably diligent search and has produced all responsive non-privileged documents.”

Judge: So she doesn’t have the documents. What’s the problem?

Hamilton: Later we took Dawn Davis’s deposition, and here’s what she said:

Screen Shot 2019-05-11 at 8.43.04 PM.png

Hamilton: It’s obvious from her evasive answers that she did not conduct a diligent search of her laptop for the documents we requested, even after we specifically inquired about electronic files. That’s a default in her obligation to search her records and produce the requested records.

Judge: Alright, let me hear from Ms. Reynolds on this.

Reynolds: Your Honor, there is no default. This case is just like Weekley and Shipman, where the Texas Supreme Court ruled against direct access. In Weekley the court said you cannot rely on “mere skepticism or bare allegations that the responding party has failed to comply with its discovery duties.” That is all we have here, just mere skepticism and speculation. There is no proof that Ms. Davis failed to search her laptop.

Judge: Mr. Hamilton, how is this case any different from those cases?

Hamilton: It’s totally different. Weekley was about whether deleted emails were specifically requested; that’s not our issue. Shipman was a case about late production. Here is an excerpt from Shipman with its key facts:

Screen Shot 2019-05-11 at 8.47.27 PM.png

Screen Shot 2019-05-11 at 8.48.09 PM.pngHamilton: So there are two key differences. First, Shipman searched his computer and produced documents he found. Second, Shipman signed an affidavit specifically stating that he searched his computer files and produced all responsive documents. We don’t have either one here.

Judge: Ms. Reynolds, do you have an affidavit from your client saying she searched her computer?

Reynolds: No, Your Honor. But that’s not my burden. If you look closely at Shipman, the court made it clear that the requesting party has the burden to prove that the responding party has defaulted on its discovery obligations. “Mere skepticism” doesn’t meet their burden:

Screen Shot 2019-05-11 at 7.52.04 PM.png

Screen Shot 2019-05-11 at 7.52.40 PM.png

Reynolds: It’s the same thing here. Paula Payne hasn’t offered any evidence that my client is incapable of searching her computer or that she hasn’t conducted a diligent search. You have to say no to this.

Judge: What about her deposition testimony? Isn’t that evidence she didn’t do a diligent search.

Reynolds: She said she wasn’t sure if she transferred the customer list or sales histories to her laptop. That’s just like Shipman. The court said that Shipman’s “equivocation about the existence of discrete documents at his deposition” did not “transform general skepticism into discovery default.” Shipman was asked about “discrete, individual documents” from more than five years before the deposition and stated he was “unsure if they existed.” My client’s testimony was similar.

Judge: I understand, but did she search her computer? The defendant in Shipman signed an affidavit that specifically said he searched both electronic and hard copy records.

Reynolds: I don’t know all the details of her search. She has stated that she conducted a diligent search and produced all the responsive documents she found. If Paula Payne wants to ask her about all the little details, they can do that in a deposition.

Hamilton: Your Honor, we tried! We asked . . .

Judge: You can sit down, Mr. Hamilton. I’ve heard enough. I’m going to grant the motion to compel and order Ms. Davis to turn over her laptop to Paula Payne’s expert. Counsel are to confer on the details of a forensic protocol and put it in a proposed order. If y’all can’t work that out, come back and see me.

Reynolds: Your Honor, I really think it would be error to do this. The Texas Supreme Court has been clear.

Judge: Well that’s my ruling. And if y’all have to take it up to the Court of Appeals on mandamus, I won’t be offended. Good to see all of you. Even you, Mr. Livingston [laughter in courtroom]. So did you catch any bass last weekend?

Livingston: I’m afraid not. Nothing biting last weekend except the mosquitoes.

Judge: Well that’s too bad. Anyway, give Connie my best.

Livingston: Thank you, judge, I’ll do that.

Judge: Alright, everyone can be excused.

What Did We Learn Today?

As this hypothetical illustrates, Weekley and Shipman are pretty simple in principle: you have to show the other party defaulted on its discovery obligations before you get direct access. But in practice this can be a difficult principle to apply.

An End Run Around Weekley?

Maybe you can avoid these difficulties by asking for a temporary restraining order or temporary injunction. That’s what the plaintiff did in Retail Services WIS Corp. v. Crossmark, Inc., No. 05-20-00937-CV, 2021 WL 1747033 (Tex. App.—Dallas May 4, 2021, no pet. h.), a case involving alleged misappropriation of trade secrets. The trial court’s injunction included a “Device Turnover Order” ordering the defendants to turn over their devices to the plaintiff’s counsel for forensic inspection. Id. at *6. The defendants argued this was an end run around the Weekley requirements, but the court of appeals disagreed. Id. at *14-15. “Weekley involved rule 196.4 discovery rather than a temporary injunction and was not a trade secrets case,” the court said. Id. at *15. “[W]e cannot conclude Texas law entirely precludes mandatory injunctions requiring production of digital storage devices when the applicable standards—including rule 683’s specificity and irreparable injury requirements—are met.” Id.

That makes sense in theory, but in practice it’s a recipe for making direct access orders routine in departing employee cases. Keep in mind, not every judge is a stickler for the requirements of the “extraordinary” remedy of a TRO or temporary injunction. Some judges will sign whatever TRO is put in front of them once they conclude the plaintiff has a case. I fear cases like Retail Services will only encourage the trend of routinely including direct access in proposed TROs. That may not violate the letter of Weekley‘s limitations on direct access, but it certainly violates their spirit.

*Update 1: In re Methodist Primary Care Group, 553 S.W.3d 709 (Tex. App.—Houston [14th Dist.] 2018, orig. proceeding), applied Weekley in a departing employee case. The court held there was sufficient evidence the responding party did not fully comply with its obligation to search electronic records, but that the trial court abused its discretion ordering direct expert access, where less intrusive means could suffice and the trial court’s order would require production of documents that were not requested. Id. at 721-22.

*Update 2: In re Wilcox, No. 09-20-00271-CV, 2021 WL 1031141 (Tex. App.—Beaumont March 18, 2021, orig. proceeding) focused on the “proportionality” and “least intrusive” elements of Weekley. There was evidence that the responding party, Wilcox, failed to produce emails that another party produced, but the trial court abused its discretion by ordering Wilcox to “turn over his electronic devices and home computer, as well as his personal account and storage information to a third-party, and to allow intrusive discovery of personal electronic devices that contain vast amounts of information totally unrelated to any legitimate inquiry when it could have simply required Wilcox to run specific searches and produce responsive data narrowly tailored to the parties’ dispute.” Id. at *4.

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IMG_4571Zach Wolfe (zach@zachwolfelaw.com) is a Texas trial lawyer who handles non-compete and trade secret litigation at Zach Wolfe Law Firm. Thomson Reuters named him a Texas Super Lawyer® for Business Litigation in 2020 and 2021.

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

You Must Tackle This Issue First When Key Employees Leave to Compete

You Must Tackle This Issue First When Key Employees Leave to Compete

Defense May Win Championships, But What Wins Litigation?

I love Christmas, and I love football, so with Christmas lights up and football season heating up, I’m feeling good. I also love football clichés, like “defense wins championships.” Another one is that the team that wins the turnover battle will usually win the game. More about that later.

The question I’m posing for my Fivers[1] this week is this: when a key employee or executive leaves a company to compete against the company, what is the very first issue the company and its lawyer should address? (I mean other than the lawyer’s hourly rate and the amount of the retainer.)

Regular readers of this blog can probably think of some obvious candidates:

These are important issues, but there is something else you should think of first. When a key employee or executive leaves a company to compete, the most immediate issue for the company and its lawyer is preservation of evidence. Specifically, preservation of electronically stored information (ESI).

There are three reasons why preserving potentially relevant ESI is the first issue to address.

1. Preservation of ESI is a time-sensitive issue

First, preservation of ESI is the most pressing issue because it is the most time-sensitive. Preservation of paper evidence—does that even exist anymore?—is not as pressing. Absent a flood or fire, paper evidence will probably still be there unchanged in a month, or even a year. Kind of like a box of Twinkies. But evidence in electronic form can easily be lost, altered, or damaged in the short term, even without any deliberate effort to delete it.

raspberry-preserves
Preservation. It’s not just for jelly.

The most obvious way that relevant ESI can be lost is for the departing employee to take it or destroy it. I had a case where my client got wind that an employee was about to leave and violate his non-compete. The first thing I told my client to do was “get his laptop—now.” As a result, my client was able to recover evidence from the employee’s laptop that was highly damaging to the employee in the ensuing litigation. Had we waited, that evidence might have been lost forever. (It was a company-issued laptop; obviously, the issue is more complicated if the employee is using his own computer.)

So, if a key employee leaves and the company expects there may be a lawsuit, typically the first thing the company needs to do is get its hands on the employee’s company-issued computer and smartphone (if any). Make a simple “chain of custody” form to keep track of who has physical possession of the devices. Follow up with a litigation hold notice to key players at the company, etc. There is of course a wealth of literature from experts like Craig Ball on how to do this. But the key thing is to act quickly before relevant ESI is lost or destroyed.

2. Preserving relevant ESI cuts across all the issues in a lawsuit.

The second reason that preserving relevant ESI is so important is that it potentially affects all other issues in a case:

  • Is the employee’s non-compete enforceable? As I explained here, that may depend on whether the company actually provided the employee confidential information, which may have been done by email. It could depend on the sales territory the employee actually worked, which could be revealed by the employee’s text messages to customers.
  • Did the employee plug a USB drive into his company computer a week before leaving and download the company’s confidential information and trade secrets? Forensic experts can probably find out, if the computer has been properly preserved.
  • Did an employee breach his Fiduciary Duty Lite™ by crossing the line from preparing to compete to actually competing?[2] You might need an expert to recover deleted emails from six months earlier to find out.

laptop-and-cappucino
Get the laptop and smartphone. Leave the cappuccino.

In short, it doesn’t matter how well you understand the typical legal issues that come up when a key employee leaves to compete. If you lose critical evidence necessary to prove your client’s claim—or to defend your client against the other party’s claim—then you are dropping the ball.

3. The failure to preserve relevant ESI can mean sanctions for spoliation

The third reason for moving quickly to preserve evidence is that the failure to preserve relevant ESI can result in spoliation sanctions. When a company expects there is going to be litigation with a key employee who left to work for a competitor, preserving potentially relevant ESI isn’t just smart litigation tactics. It’s the law.

As the Texas Supreme Court reaffirmed in Brookshire Brothers, a legal duty to preserve relevant evidence arises when a party “knows or reasonably should know” that there is a “substantial chance” that a claim will be filed.[3] In other words, a party must preserve relevant evidence when it reasonably anticipates litigation. The failure to preserve relevant evidence when there is a duty to preserve is spoliation of evidence.

“Spoliation” comes from the Latin word spoliare. Roughly translated, it means, “oh, crap, the judge is going to hammer us.”

The last thing a company wants is to be sanctioned by the judge for spoliation of evidence. The worst kind of sanction—other than outright dismissal of your claim or defense—is the “adverse inference” instruction to the jury. It goes something like this: “Ladies and gentleman of the jury, you are instructed that Plaintiff HMC (Huge Multinational Corporation) failed to comply with its duty to preserve relevant evidence, and you may presume that the lost evidence would have been favorable to Defendant Bob Bluecollar.”

Good luck winning over that jury, HMC’s counsel. It’s kind of like trying to get to the Super Bowl with your backup quarterback. Hmm. Strike that. It’s actually much worse.

The good news for companies that screw up preservation is that Brookshire Brothers sets the bar for obtaining spoliation sanctions fairly high. The general rule in Texas is that a finding of intentional spoliation is required to obtain a spoliation instruction to the jury. The standard in federal court is similar. Courts in the Fifth Circuit have required the party asking for an adverse inference instruction to prove the spoliation was in bad faith,[4] and Federal Rule of Civil Procedure 37(e) now requires a finding that the party acted with “intent to deprive another party of the information’s use in the litigation.”

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Brookshire Brothers. It’s not just a grocery store in Giddings.

But do you really want to rely on the defense that your client lost relevant evidence in good faith? Instead, have an expert make a forensic image of the departing employee’s computer and smartphone, which is now fairly routine and cheap. It’s like an insurance policy against a spoliation claim. It will certainly cost less than the hours of attorney time it will take to litigate whether the company’s spoliation of evidence was intentional or not.

And remember, it’s pronounced “spoh-liation,” not “spoil-ation.” I mean, you can be a stubborn Texan and say “spoil-ation” if you want, and hey, I kind of respect that, but it’s kind of like saying “nuke-yuh-ler” weapons.

Back to Football

So what does all this have to do with football? Well, as I said, it has become a football cliché that winning the turnover battle is the key to winning the game. Winning the turnover battle means having more “takeaways” than “giveaways.” If your team fumbles the ball away once but intercepts the ball three times, your turnover ratio is +2, and you’ve won the turnover battle. A high turnover ratio in your team’s favor is no guarantee of winning, but it’s pretty darn close.

Preservation of evidence is like winning the turnover battle. It’s not necessarily the most exciting part of the game. But if you fail to preserve relevant evidence and open yourself up to spoliation sanctions, it’s like fumbling the ball away to the other team. (For my white collar readers at big law firms, it’s like an unforced error in tennis.) If the spoliation is bad enough that the judge gives the jury the dreaded adverse inference instruction, it’s like throwing an interception that the defense returns for a touchdown. In the fourth quarter. With the game on the line.

Preserving evidence, on the other hand, is like a takeaway in football. If you act quickly to preserve ESI and discover a “smoking gun” document that proves your case, it’s as good as taking the ball away from the other team.

So think of preserving evidence as your best defense. And defense wins championships.

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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.

[1] fiver [fiy-ver] noun. 1. A regular reader or fan of the blog Five Minute Law. 2. A celebrity who hosts Saturday Night Live for the fifth time.

[2] Could I successfully register FIDUCIARY DUTY LITE as a trademark with the USPTO?

[3] Brookshire Bros., Ltd. v. Aldridge, 438 S.W.3d 9 (Tex. 2014).

[4] See Rimkus Consulting Group, Inc. v. Cammarata, 688 F.Supp.2d 598, 614 (S.D. Tex. 2010).