Houston Judge Calls Out Texas Supreme Court’s Simplistic “Textualist” Approach to TCPA

Houston Judge Calls Out Texas Supreme Court’s Simplistic “Textualist” Approach to TCPA

I don’t know if Justice Terry Jennings is one of my Fivers, but apparently he agrees with a lot of Five Minute Law’s past propaganda regarding textualist application of the Texas Citizens’ Participation Act (TCPA).

In a concurring opinion issued just before Christmas 2018, Justice Jennings criticized the Texas Supreme Court’s overly broad and literal interpretation of the TCPA, urging both the legislature and the Texas Supreme Court to fix the problem. His opinion echoes some of the points I made in past hits like It’s Alive, It’s ALIVE! How to Kill a TCPA Motion in a Trade Secrets Lawsuit.

But what’s the problem? First let’s back up a little and recap:

  • The TCPA was intended as an “anti-SLAPP” statute, i.e. to discourage a litigation bully from filing a lawsuit against a “little guy” in retaliation for the little guy exercising his free speech rights.
  • When the TCPA applies, it gives the defendant the valuable procedural right to file a motion to dismiss that puts the burden on the plaintiff to support its claims with evidence, before the plaintiff has had any opportunity to take discovery.
  • The TCPA applies when the plaintiff’s claim “is based on, relates to, or is in response to” the defendant’s exercise of the “right of free speech” or the “right of association.”
  • The statute defines the “exercise of the right of free speech” broadly as a “communication made in connection with a matter of public concern,” with “matter of public concern” also defined broadly to include an issue related to “a good, product, or service in the marketplace.”[1]
  • The statute defines the “exercise of the right of association” broadly as “a communication between individuals who join together to collectively express, promote, pursue, or defend common interests.”[2]

You can see from this language how the TCPA could lead to good results. A neighborhood group forms to stop a nearby refinery from releasing toxic gases. Global Oil Conglomerate instructs its BigLaw minions to sue the group for defamation based on posts on its Facebook page. Rather than buckling under the weight of enormous legal fees, the plucky neighborhood group hires a small town lawyer to file a TCPA motion to dismiss. The judge grants the motion, orders Global to pay the group’s legal fees, and Matthew McConaughey wins an Oscar for his portrayal of the lawyer.

Everyone’s happy. Alright, alright, alright.

But you can also see how the broad language of the TCPA could apply to lawsuits the legislature never had in mind. Imagine a porn star sues the President for defamation. The judge dismisses the case and orders the porn star to pay the President’s legal fees. It could happen.

That was at least a defamation case, which is clearly the type of case the legislature had in mind when it passed the TCPA. It seems much less likely that the legislature intended to fundamentally change the way departing employee cases are litigated.

Departing employee litigation is near and dear to my heart because it’s the kind of lawsuit I often handle. This is the type of case where an employee or group of employees leaves a company and either forms a competing company or goes to work for a competitor. Usually the first company asserts claims like breach of a non-compete and misappropriation of trade secrets.

These cases usually don’t raise any true “free speech” or “free association” issues. The “right of association” is not a defense to enforcement of a non-compete (provided the non-compete is reasonable and enforceable), and there is no First Amendment right to communicate your employer’s trade secrets to a competitor.

So what should the judge do in a departing employee case where the defendant files a TCPA motion to dismiss? On the one hand, the TCPA applies when a claim is based on “a communication between individuals who join together to collectively express, promote, pursue, or defend common interests.” Construed literally, that language applies to the allegation that an employee joined a competitor and disclosed his former company’s trade secrets.

On the other hand, the purpose of the statute is to protect constitutional rights, and a claim of trade secret misappropriation really doesn’t implicate such rights. Should the judge apply the statute literally, even though the result is not what the legislature intended?

Enter textualism.

We are all textualists now

Textualism is somewhat controversial. In part this is because in practice textualism is popular with one particular political party and ideology. But everyone who works in the law—at least everyone who is serious—is a textualist to some extent. No one seriously argues that the text of a statute—or a Constitution—should be ignored.

The fact that we are all textualists to some extent is apparent in the absence of any real “-ism” that is the opposite of “textualism.” No group identifies itself as the “Non-Textualists” or the “Anti-Textualists.” (The same point applies to “originalism,” but I won’t open that can of worms here.)

No, we all agree that when you interpret a text, the starting point is, duh, the text. You might find some radical academic types who question that premise, but no one who works in the law would seriously say “the text of the statute is totally irrelevant to me.”

On the other side of the spectrum, even the most committed textualist will concede that sometimes a judge should look to extrinsic sources to interpret the text. For example, if a statute is ambiguous, even after applying canons of statutory construction, then just about everyone would agree you can look to the purpose of the statute, or some other extrinsic source, to  decide which of two reasonable constructions of the statute makes more sense.

Similarly, even the strict textualist camp would concede the principle—recognized in many court decisions—that extrinsic sources should be consulted when the literal application of a statute would produce a truly absurd result.

So if we all agree on these basic principles, what’s all the controversy about?

Here’s where it gets hard: when literal application of a statute would produce a result that, while not rising to the level of absurd, is contrary to the intended purpose of the statute. That’s where I think the dividing line is.

In this scenario, the true textualist bites the bullet and says “no, the judge should not look outside the text of the statute just because the result doesn’t make sense to the judge.”[3]

This is where textualism loses me, and I’m not the only one. When the literal application of a statute would produce a result at odds with the intended purpose of a statute, I tend to side with the non-textualists who say “no, in this case we’re not going to apply the literal meaning of the statute.” As I’ve written before, following the literal text in this situation “thwarts the intent of the legislature in the name of deference to the legislature.” See A SLAPP in the Face to Texas Trade Secrets Lawsuits – Part 2.

And I’ll give you a good example: application of the TCPA to departing employee litigation.

Application of the TCPA to departing employee litigation

Step one was the Texas Supreme Court holding in Coleman that the plain meaning of the TCPA’s broad definitions must be applied.[4] The Texas Supreme Court reaffirmed this plain meaning approach in Adams.[5]

Step two was the Austin Court of Appeals holding in Elite Auto Body that the TCPA applies to a claim that a departing employee disclosed trade secrets to his new employer. The court reasoned that a literal reading of the statute’s definition of “communication” would clearly include alleged communications among the departing employees and their new enterprise through which they allegedly shared or used the confidential information at issue.[6]

Elite Auto Body acknowledged that it would be reasonable to limit the statute to its stated purpose of protecting constitutional rights, but it found that argument foreclosed by Coleman’s plain meaning approach.[7]

One more note about Elite Auto Body: the court did not address the argument that the claims fell under the TCPA’s “commercial speech” exemption because it found that issue had been waived.[8] More about this exemption later.

Application of the TCPA to departing employee cases has since expanded. In Craig v. Tejas Promotions, the Austin Court of Appeals held that the TCPA applies to a claim of conspiracy to misappropriate trade secrets. The court reasoned that the claim rested on allegations that included “communications” between the alleged co-conspirators.[9]

In Morgan v. Clements Fluids, the Tyler Court of Appeals held that the TCPA applies to a claim based on departing employees’ communications among themselves and within the competitors, through which they share or utilize the alleged trade secrets.[10]

And that brings us to Gaskamp.

Gaskamp applies the TCPA to departing employee claims

In Gaskamp v. WSP, the WSP companies sued a group of former employees for allegedly starting a competing company while employed by WSP and then taking WSP’s trade secrets to the new company. WSP alleged that the former employees violated the Texas Uniform Trade Secrets Act (TUTSA) by using and disclosing WSP’s trade secrets, including proprietary design software used to create architectural designs.[11]

WSP argued that the TCPA did not apply. First, WSP said its lawsuit was based on theft and use of its trade secrets, not the employee’s right to freely associate or right of free speech as required by the TCPA. Second, WSP argued that the TCPA’s commercial-speech exemption applied.

The Court of Appeals rejected the first argument. The court cited WSP’s allegations that the employees used and disclosed WSP’s trade secrets to establish a competing engineering firm called Infinity MEP. The court reasoned that the alleged “transfer and disclosure” of WSP’s trade secrets to Infinity MEP “required a communication.” In addition, the allegation of inducing customers to reduce their business with WSP would “necessarily involve communications as defined by the TCPA.” And the allegation that the employees conspired among themselves to misappropriate trade secrets and interfere with WSP’s business also necessarily involved a communication.[12]

“All these communications were made by individuals who ‘join[ed] together to collectively express, promote, pursue, or defend common interests,” the court said, “the common interest being the business of Infinity MEP, operating as WSP’s competitor.” The alleged interference with customers involved communication “made in connection with a matter of public concern.” Thus, the claims related to the employees’ exercise of their rights of association and free speech, respectively, as broadly defined by the TCPA.[13]

This part of Gaskamp is important because the same reasoning would apply in almost any suit against departing employees that involves misappropriation of trade secrets. A plaintiff might be able to avoid this part of Gaskamp by alleging use of the trade secrets without any allegation of disclosure or communication of the trade secrets, but even in that case the employee could argue that the allegation necessarily relates to communications with the customers. The argument that the TCPA does not apply to trade secret misappropriation seems unlikely to succeed.

But the second argument in Gaskamp may be more promising for plaintiffs in departing employee cases. WSP argued that the statute’s commercial-speech exemption applied. That exemption states that the TCPA does not apply to a suit against “a person primarily engaged in the business of selling or leasing goods or services, if the statement or conduct arises out of the sale or lease of goods, services, or an insurance product, insurance services, or a commercial transaction in which the intended audience is an actual or potential buyer or customer.”

The Court of Appeals agreed with this argument (although for narrow procedural reasons).[14] Thus, the commercial-speech exemption applied, and the trial court was correct to deny the employees’ motion to dismiss under the TCPA as to two of the WSP plaintiffs.

This was no consolation for a third WSP plaintiff that failed to file a response to the TCPA motion (believing it had already been non-suited from the case). As to that entity, the Court of Appeals held that the motion to dismiss should have been granted.[15]

But at least one justice thought this result was “manifestly unjust.”

Justice Jennings questions the “textualist” approach to the TCPA

Justice Jennings wrote a concurring opinion. He joined in the majority opinion but wrote separately “to warn of the inherent dangers to Texas Jurisprudence posed by a rigid adherence to the ideological doctrine of so-called ‘textualism’ in construing our Constitution and statutes.”[16]

By applying the literal text of the TCPA’s definitions without considering the purpose of the statute, Justice Jennings said, the Texas Supreme Court has interpreted the TCPA “much more broadly than the Texas Legislature ever intended.” Applying the Texas Supreme Court’s literal interpretation of the statutes definitions necessarily led to a “manifestly unjust and absurd result,” but he and his colleagues were required to apply the definitions as instructed by the higher court.[17]

Still, Justice Jennings wanted to make his own view clear:

I respectfully disagree with the Texas Supreme Court’s unnecessarily broad interpretation and application of the TCPA to matters that exceed its expressly stated purpose to protect only the constitutional rights of free speech, to petition, and of association. A reasonable interpretation of the TCPA, when read in its entirety, reveals that it was never intended to apply to any of the claims at issue in this case. It should go without saying that communications allegedly made in furtherance of a conspiracy to commit theft of trade secrets and breaches of fiduciary duties do not implicate “citizen participation.”[18]

Justice Jennings went on cite the statute’s stated purpose “to encourage and safeguard the constitutional rights of persons to petition, speak freely, associate freely, and otherwise participate in government,” language indicating “the legislature intended to protect only constitutionally-protected freedoms that rise to such a level that they can be considered participation in government.”[19]

He acknowledged that the statute’s “awkward” definitions, standing alone, appear to include communications that are not constitutionally protected but said “we cannot read these definitions in isolation.” While the plain meaning is the best expression of legislative intent, that is not the case when “a different meaning is apparent from the context or the plain meaning leads to absurd or nonsensical results.”[20]

In Justice Jennings’ view, the broad definitions in the TCPA should be limited by the statute’s expressly-stated purpose of safeguarding constitutional rights. “Here, unfortunately, the Texas Supreme Court, in construing the TCPA by focusing like a laser on the literalness of the bare words of its pertinent definitions, has effectively strangled the real meaning and purpose of the statute.”[21]

But again, Justice Jennings was careful to concede that the Court of Appeals is bound by the decisions of the Texas Supreme Court. That’s why he wrote a concurring opinion rather than a dissent.

So what is to be done? Justice Jennings urged two potential solutions: (1) the legislature should revise the TCPA’s definitions to include qualifying language repeating the stated purpose of the TCPA to protect constitutional rights, and (2) the Texas Supreme Court should “revisit and correct is overly-broad interpretation of the TCPA.”[22]

Those sound like reasonable suggestions. But convincing the Texas Supreme Court to change its approach sounds like an uphill battle. And the legislature? Who knows. I’m not sure there’s any powerful interest group that has enough of a stake in reigning in the TCPA. Maybe business groups who want to make it easier to protect trade secrets and stop employees from competing?

But in the meantime, as we’ve already seen, the Gaskamp opinion suggest a simpler way to limit the application of the TCPA to departing employee litigation.

A textualist solution to the TCPA problem?

The solution I have in mind is right out of Shakespeare. The Merchant of Venice teaches us that when the bad guy goes textualist, the way to beat him is to go hyper-textualist. When Shylock insists on enforcing the plain meaning of a “pound of flesh,” Portia responds that his contract means exactly a pound—no more, no less. And only a pound of “flesh”—nothing else.

The commercial-speech exemption applied in Gaskamp could offer plaintiffs in departing employee cases a similar way out of the TCPA. The exemption applies when the defendant’s “statement or conduct” arises out of the sale or lease of goods or services.

What if we apply that definition literally? One could argue that a departing employee’s use or disclosure of the employer’s trade secrets always arises from the sale or lease of goods or services. What the TCPA giveth as “communication,” it taketh away as “commercial speech.”

Maybe that could work. But strangely enough, the Texas Supreme Court has not construed the commercial speech exception literally, instead adopting a four-part test based on the “context” of the exemption. See Castleman v. Internet Money Ltd., 546 S.W.3d 684, 688 (Tex. 2018).

What’s up with that?

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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. So far no videos of him dancing on a rooftop in college have surfaced.

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] Tex. Civ. Prac. & Rem. Code § 27.001(3), (7).

[2] Tex. Civ. Prac. & Rem. Code § 27.001(2).

[3] The realists—another camp!—might question how many “textualists” actually do this in practice when applying the literal text would yield a result they don’t like. But in theory this is what the true textualist is supposed to do.

[4] ExxonMobil Pipeline Co. v. Coleman, 512 S.W.3d 895, 901 (Tex. 2017).

[5] Adams v. Starside Custom Builders, LLC, 547 S.W.3d 890, 894-97 (Tex. 2018).

[6] Elite Auto Body LLC v. Autocraft Boywerks, Inc., 520 S.W.3d 191, 205 (Tex. App.—Austin 2017, pet dism’d).

[7] Id. at 204.

[8] Id. at 206 n.75.

[9] Craig v. Tejas Promotions, LLC, 550 S.W.3d 287, 296-97 (Tex. App.—Austin 2018, pet. filed). See also Grant v. Pivot Tech. Solutions, Ltd., 556 S.W.3d 865, 881 (Tex. App.–Austin 2018, pet. filed) (TCPA applied to claims similar to those in Elite Auto Body based on hiring of competitor’s employees and alleged sharing and use of confidential information).

[10] Morgan v. Clements Fluids South Texas, Ltd., No. 12-18-00055-CV 2018 WL 5796994, at *3 (Tex. App.—Tyler Nov. 5, 2018, no pet. h.).

[11] Gaskamp v. WSP USA, Inc., No. 01-18-00079-CV, at *1-3 (Tex. App.—Houston [1st Dist.] Dec. 20, 2018).

[12] Id. at *11.

[13] Id. at *12 (citing Tex. Civ. Prac. & Rem. Code §§ 27.001(2), (3), 27.003(a)).

[14] Id. at *9.

[15] Id. at *13.

[16] Id.

[17] Id.

[18] Id. at *14 (citation omitted).

[19] Id.

[20] Id. at *15 (citing Molinet v. Kimbrell, 356 S.W.3d 407, 411 (Tex. 2011)).

[21] Id. at *16.

[22] Id.

It’s Alive, It’s ALIVE! How to Kill a TCPA Motion in a Trade Secrets Lawsuit

It’s Alive, It’s ALIVE! How to Kill a TCPA Motion in a Trade Secrets Lawsuit

It’s Franken-steen

First let’s get something out of the way. The Texas Citizens Participation Act (TCPA) is a Frankenstein’s monster that the legislature created and now needs to reign in (not that they listen to me).

As I explained in a three-part series back in the summer of 2017, the TCPA grants defendants in certain cases the unusual right to require the plaintiff to prove its case before taking any discovery. In litigator jargon, it effectively lets the defendant file a “no-evidence” motion for summary judgment without first requiring an adequate time for discovery.

The statute was intended to curtail “SLAPP” lawsuits, e.g. where a big company sues a “little guy” in retaliation for exercising his right to publicly criticize the company. The idea was to stop litigation bullies from using groundless lawsuits to grind ordinary people into submission under the weight of crushing legal fees.

But the legislature in its wisdom used broad language in the TCPA, and the Texas Supreme Court applies the plain meaning of statutes (in theory). So the TCPA has taken on a bizarre life of its own. It can apply to just about any kind of lawsuit, including “departing employee” lawsuits where a company claims its former employees misappropriated trade secrets or other confidential information.

This really makes no sense. There is no compelling public policy reason why some defendants should have a right to file a motion to dismiss before any discovery takes place and others should not, depending on whether the lawsuit falls under the byzantine definitions in the TCPA.

Might this have been avoided by construing the statute “liberally”–rather than literally–as the statute itself tells courts to do?[1]

Maybe. But that ship has sailed. As Justice Pemberton wrote in a recent dissent, Texas courts now apply the TCPA as written, even when the implications “sound crazy.” As he noted, unintended consequences are likely when courts interpret statutes “superficially in a mistaken perception of plain-meaning textualism.”[2] So here we are.

The bottom line is that the TCPA will apply to most trade secrets lawsuits in Texas state court. And maybe in federal court too.

This raises several strategic questions in a Texas trade secrets lawsuit:

1. Can the plaintiff avoid the TCPA by filing the trade secrets lawsuit in federal court under the federal trade secrets statute?

2. Can the plaintiff in a trade secrets suit avoid the TCPA by “pleading around” it?

3. When should the defendant in a trade secrets case file a TCPA motion to dismiss?

4. What evidence does a trade secrets plaintiff need to offer to defeat a TCPA motion to dismiss?

In the words of MC Hammer, let’s “break it down.”

Some trade secrets strategery

First, it’s possible that the plaintiff may be able to avoid the TCPA by filing the trade secrets lawsuit in federal court rather than state court. The federal Defend Trade Secrets Act (DTSA) allows a plaintiff to file a trade secrets lawsuit in federal court as long as the case has some connection to interstate or foreign commerce, which means virtually every case.

Courts are divided about whether the TCPA applies in a federal case, and the Fifth Circuit has not yet resolved the issue.[3] It turns on whether the TCPA is considered “procedural” or “substantive,”[4] which is kind of like asking whether the Beatles were a rock band or a pop band.

Law professors and people who were on law review love this kind of question. Personally, I’m less intrigued. I initially assumed the TCPA was procedural and would not apply in federal court, but there are people smarter than me who argue it is substantive, and I’ll concede you can make a reasonable case for that. (If you want more details on this issue see the good summary in this Law360 article by April Farris and Matthew Zorn.)

If I had to predict, I’d say the Fifth Circuit will hold that the TCPA does not apply in federal court. But for now it remains an open question.

That means that filing your trade secrets lawsuit in federal court won’t necessarily get you out of the TCPA woods. Your choice of state or federal court will likely depend on other considerations, i.e. whether you prefer a judge appointed for life who can do whatever the *#$% he wants, or a judge with no experience who got swept into office because he picked the right political party.

Regardless of where you file your trade secrets suit, you can try to avoid a TCPA motion by pleading around the TCPA. Without getting too much into the weeds, the TCPA applies to claims that relate to “communications” about a matter of public concern. So one theory is that the plaintiff in a departing employee case can avoid the TCPA by pleading only use of the trade secrets rather than disclosure of the trade secrets. Disclosing a trade secret to the new employer is obviously “communicating” the information, so just don’t say anything about disclosure.

That’s what I mean by “pleading around” the TCPA. But this may be easier said than done. Even if the plaintiff does not expressly plead that the employee disclosed the trade secrets to the new employer, that allegation will often be implied.

Plus, the mere allegation that the employee has joined another company and used the plaintiff’s trade secrets may be enough to ensnare the plaintiff in the TCPA’s definitional web. The TCPA covers “a communication between individuals who join together to collectively express, promote, pursue, or defend common interests.”[5] Arguably, any time an employee goes to work for a competitor, there is necessarily going to be communication between employee and employer to “collectively . . . pursue . . . common interests.”

So, omitting allegations of trade secrets disclosure from your pleadings may not be sufficient to avoid the TCPA.

Defense wins championships

Now let’s look at it from the other side. If you represent the defendant in a trade secrets case, should you file a motion to dismiss under the TCPA? I see three potential benefits:

(1) obviously, the potential early dismissal of the lawsuit;

(2) smoking out the plaintiff and making him put his cards on the table (talk about mixed metaphors); and

(3) slowing down the plaintiff’s momentum.

Also, if you win the motion you have the right to recover legal expenses “as justice and equity may require.”[6]

The potential downside of filing a TCPA motion in a trade secrets case is that, if the court finds your motion was “frivolous or solely intended to delay,” you will lose the motion and be ordered to pay the plaintiff’s attorneys’ fees for responding to the motion.[7] That’s a momentum shift like throwing a pick-six in the first quarter.

So, deciding whether to file a motion to dismiss a trade secrets case will likely come down to whether you think the plaintiff has enough evidence to prove the claim.

This gets us to the last question: if the defendant files a motion to dismiss, what evidence does the plaintiff need to offer to defeat the motion?

As a threshold matter, the plaintiff can try to prove the TCPA does not apply to the lawsuit. But if the TCPA applies, the plaintiff will need to offer evidence of three essential elements:

(1) the information at issue is a “trade secret”;

(2) the defendant “misappropriated” the trade secret; and

(3) the misappropriation caused some injury to the plaintiff.

I cover the key points of these elements in my Trade Secrets 101 memo (soon to be updated and published in the Texas Journal of Business Law). And a recent opinion from the Tyler Court of Appeals provides a roadmap for offering evidence to support these elements.

But if that salt has lost its flavor . . .

In Morgan v. Clements Fluids South Texas, three employees left Clements, an oil and gas services company, to work for two competitors. Clements claimed it trained the employees on its proprietary system for well completion and production called “salt systems.” It sued the former employees in state court for breach of their NDAs and misappropriation of trade secrets, and the employees filed a motion to dismiss under the TCPA.[8]

The defendant employees met their initial burden to show that the trade secrets claim was factually predicated on conduct that falls within either the “exercise of the right of association” or the “exercise of free speech,” as defined by the TCPA. The court reasoned that the claim was “based on, relates to, or is in response to,” at least in part, the employees’ communications among themselves and within the competitors through which they allegedly “shared or utilized” the alleged trade secrets.[9]

The court then turned to the plaintiff’s burden to establish by “clear and specific” evidence a prima facie case for each element of its trade secrets claim. The TCPA “does not impose an elevated evidentiary standard,” the court said, “and circumstantial evidence and rational inferences may be considered.”[10]

To prove the information at issue was a trade secrets, Clements claimed it had a confidential method for salt systems that gave it a competitive advantage. Its vice president signed an affidavit stating that Clements invested millions of dollars for almost 33 years on research, development, training, and testing of its salt systems, that its system was not available through any outside source, that the system was not available outside the company, and that the system had made Clements the industry leader. The Court of Appeals concluded this was sufficient “clear and specific” evidence of a trade secret.[11]

Whether the employees misappropriated the trade secrets was a closer call. The defendants argued that Clements failed to prove misappropriation because it did not show the employees actually used the trade secrets. The employees signed affidavits denying that Clements provided them with any training they did not have before working for Clements, and denying they shared any Clements information with any third party.[12]

But the court found that Clements offered sufficient evidence of misappropriation to avoid dismissal. Specifically, Clements established:

(1) The employees had no experience in salt systems before working for Clements.

(2) Clements trained the employees to perform salt systems and disclosed its proprietary formula to them.

(3) The employees left Clements to go to a company, Greenwall, that was not doing salt systems.

(4) Shortly after that, Greenwell launched a salt systems business, announcing it in a website post authored by one of the employees.

(5) Greenwell then performed a salt systems job for Pioneer, one of Clements’ customers.

“Given Clements’ description of the time, money, and effort dedicated to the development of its salt systems,” the court said, “it is reasonable to conclude from the totality of the circumstantial evidence that [the employees] used Clements’ proprietary and confidential information in concert with Greenwell to launch its salt systems business.”[13]

Finally, Clements had to offer evidence it was injured by the trade secrets misappropriation. “The burden of proof on damages for misappropriation of trade secrets is liberal,” the court said, “and is satisfied by showing the misappropriation, the defendant’s subsequent commercial use, and evidence by which the jury can value the rights the defendant obtained.” The Texas Supreme Court does not require the plaintiff to establish a specific amount of damages in response to a TCPA motion. Clements was only required to offer evidence supporting a “rational inference as the existence of damages, not their amount or constituent parts.”[14]

The defendants argued that Clements failed to link its loss of the Pioneer job to the alleged misappropriation of trade secrets, but the court disagreed. Greenwell did not previously do salt systems jobs, it performed a salt systems job for Pioneer shortly after the Clements employees joined, and Clements had previously performed all of Pioneer’s salt systems jobs. This was sufficient circumstantial evidence to link the alleged misappropriation to Clements’ loss of Pioneer’s business, establishing an injury to Clements.[15]

The Morgan case teaches us that, while speculation and assumption are not evidence of trade secret misappropriation, you don’t need surveillance camera footage of the employee handing over the secret formula either. It’s enough to offer circumstantial evidence creating a reasonable inference that an employee has used the information to help a competitor take business from the plaintiff.

But Morgan was somewhat unusual. The plaintiff had actual evidence of a secret method that other competitors (allegedly) did not know or practice.

Most trade secrets cases don’t have this. The typical case involves “soft” trade secrets like customer lists, prices, and customer information. And usually the two competitors both do the same kind of non-confidential business before and after the employee changes jobs. In these cases, the fact that a customer follows an employee from one company to another doesn’t necessarily prove the employee used any confidential information. It could just mean the employee has a good relationship with the customer.

So plaintiffs in soft trade secrets cases beware. You will probably need “something more” than losing a customer to defeat a TCPA motion. At least until the legislature fixes the monster it created.

*Update: The TCPA has arrived in the oilfield. See McDonald Oilfield Operations, LLC v. 3B Inspection, LLC, No. 01-18-00118-CV, 2018 WL 6377432 (Tex. App.–Houston [1st Dist.] Dec. 6, 2018) (reversing trial court’s denial of TCPA motion to dismiss in departing employee case involving competitors in the pipeline monitoring business). 

___________________________________________________________________

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. Most of his posts don’t have so many footnotes.

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] Tex. Civ. Prac. & Rem. Code § 27.011(b) (“This chapter shall be construed liberally to effectuate its purpose and intent fully”).

[2] Hawxhurst v. Austin’s Boat Tours, 550 S.W.3d 220, 233-35 (Tex. App.—Austin 2018, no pet.).

[3] Thoroughbred Ventures, LLC v. Disman, No. 4:18-CV-00318, 2018 WL 3472717, at *3 (E.D. Tex. July 19, 2018).

[4] Even if the TCPA is substantive, it may not apply in federal court because it conflicts with Federal Rules of Civil Procedure 12 and 56. Id. at *3.

[5] Tex. Civ. Prac. & Rem. Code § 27.001(2).

[6] See Tex. Civ. Prac. & Rem. Code § 27.009(a)(1). A successful movant also has the right to recover sanctions sufficient to deter the plaintiff from filing similar lawsuits, see § 27.009(a)(2), but it will probably be a rare trade secrets case where the court finds such sanctions are needed in addition to attorneys’ fees.

[7] See Tex. Civ. Prac. & Rem. Code § 27.009(b) (“If the court finds that a motion to dismiss filed under this chapter is frivolous or solely intended to delay, the court may award court costs and reasonable attorney’s fees to the responding party”).

[8] Morgan v. Clements Fluids South Texas, Ltd., No. 12-18-00055-CV, 2018 WL 5796994, at *1 (Tex. App.—Tyler Nov. 5, 2018, no pet. h.).

[9] Id. at *3.

[10] Id. at *4 (citing In re Lipsky, 460 S.W.3d 579, 586 (Tex. 2015)).

[11] Id. at *5-6.

[12] Id. at *7.

[13] Id. at *8. However, as to a third employee, Laney, the court held that Clements did not meet its burden. Unlike the evidence concerning the first two employees, Clements offered no evidence, circumstantial or otherwise, that Laney disclosed or used the trade secrets at his subsequent employer, ChemCo. And there was no evidence of whether Chemco had performed salt systems before, or that Laney performed any salt systems jobs with ChemCo. Id.

[14] Id.

[15] Id. at *8-9.

A SLAPP in the Face to Texas Trade Secrets Lawsuits, or Much Ado About Nothing?

A SLAPP in the Face to Texas Trade Secrets Lawsuits, or Much Ado About Nothing?

Part 3 of 3 in my series

Fivers, you may be wondering why I have not yet reported on the Texas legislature’s recent amendments of the Texas Uniform Trade Secrets Act. I like trade secrets law. I like litigation. And I like making fun of whatever the Texas legislature does. So what gives?

Well, three things. First, you can already find other good reports on this topic, like Leiza Dolghih’s blog post here. Second, the recent changes to the Texas trade secrets statute, while important, are not that big of a deal. And third, I predict that recent court decisions applying the Texas Citizens Participation Act (TCPA) are going to be a bigger deal for Texas trade secrets litigation.

That’s because filing a motion to dismiss under the TCPA is likely to become a routine move by defendants in Texas trade secrets lawsuits.

Texas courts have held that the TCPA applies to claims based on disclosure of alleged trade secrets

So how did we get here? To recap Part 1 and Part 2:

  • The TCPA is the Texas “anti-SLAPP” statute intended to protect the “little guy” from nuisance litigation filed in retaliation for exercising free speech rights.
  • The TCPA allows the defendant to file a motion to dismiss that stays discovery and requires the plaintiff to offer evidence proving each element of its claims.
  • The purpose of the statute is to protect constitutional rights, but the Texas Supreme Court has instructed Texas courts to apply the “plain meaning” of the text, which is much broader.
  • In Elite Auto Body, the Austin Court of Appeals followed the Texas Supreme Court’s instructions and held that the TCPA applied to a company’s claim that its former employees communicated the company’s confidential information and trade secrets to a competitor.[1]

In Part 1, I explained how this issue provides a sort of case study for the “textualist” theory of statutory interpretation, which has received some airplay recently with Neal Gorsuch filling the Merrick Garland seat on the Supreme Court. In Part 2, I hypothesized that the holding in Elite Auto Body is inconsistent with the legislature’s intent and suggested that this illustrates a problem with strict textualism.

But if you’re a lawyer or a party in a trade secrets lawsuit, you don’t care about all that. You want to know what Elite Auto Body means for your lawsuit.

Will it become routine for defendants in Texas trade secrets lawsuits to file motions to dismiss under the TCPA?

It seems likely that defendants in trade secrets lawsuits will now routinely file motions to dismiss under the TCPA. First, because Elite Auto Body says they can. Second, because it will usually be good strategy.

The crux of the Elite Auto Body decision was the statute’s broad definition of the “exercise of the right of association” as “a communication between individuals who join together to collectively express, promote, pursue, or defend common interests.”[2]

The court found that the plaintiff alleged two kinds of communications falling under the statute’s broad definitions: (1) communications between the departing employees and the second employer disclosing confidential information or trade secrets; and (2) communications with employees of the first employer to induce them to work for the second employer.[3]

So, in any case where the plaintiff alleges either (1) communication of the plaintiff’s trade secrets or (2) solicitation of the plaintiff’s employees, the defendants have the option to file a motion to dismiss under Elite Auto Body. I will even provide this Form Motion to Dismiss you can use if you want.[4]

Filing a motion to dismiss will often have benefits for the defendant:

  • The motion will take the wind out of the plaintiff’s sails by immediately staying discovery until the court rules on the motion.[5]
  • It requires the plaintiff to respond with evidence of each element of its claims.[6] This will force the plaintiff to put its “cards on the table” early in the case.
  • In some cases, it will be difficult for the plaintiff to meet its burden before it has had any meaningful discovery.

Of course, there are potential disadvantages to filing a motion to dismiss. Despite the Texas Supreme Court’s instruction to apply the plain meaning of the statute, some trial court judges will still be reluctant to dismiss trade secrets claims that do not implicate constitutional free speech rights. Fighting over the motion to dismiss will often be expensive, and if the judge denies the motion, it will tend to embolden the plaintiff, which could make settlement more difficult. Worst case, if the judge finds that the defendant’s motion was frivolous or solely intended to delay, the court can award attorneys’ fees to the plaintiff.[7]

Despite these concerns, in most cases filing an early motion to dismiss under the TCPA will be good strategy for defendants, if the plaintiff alleges “communication” of the alleged trade secrets.

But that’s a big “if.”

Will it become routine for plaintiffs to plead around the TCPA?

If it becomes routine for defendants to file a motion to dismiss in Texas trade secrets lawsuits, plaintiffs will catch on.

And Elite Auto Body suggests a solution for them. As I pointed out in Part 2, the court in Elite Auto Body said that the TCPA does not apply to allegations of using the alleged trade secrets, as opposed to communication of the trade secrets. That’s why the Austin Court of Appeals only dismissed the plaintiff’s claims in part. It did not dismiss the claims based on conduct that does not constitute “communications” as defined by the TCPA.[8]

So, as Patrick Keating suggested on his trade secrets blog here, it may become routine for plaintiffs to avoid a motion to dismiss by pleading only use of the alleged trade secrets rather than disclosure of the alleged trade secrets. (Here is a Form Original Petition that does just that.) If that happens, then case law applying the TCPA to trade secrets claims may become, as Keating says, “much ado about nothing.”

But I’m not sure this maneuver will become totally routine. First, the plaintiff doesn’t always have a basis to claim use of the trade secrets. Second, the disclosure of the trade secrets is sometimes just too good a part of the story to leave out.

*Update: The Austin Court of Appeals returned to applying the TCPA to a trade secrets claim in Craig v. Tejas Promotions, LLC, No. 03-16-00611-CV, 2018 WL 2050213 (Tex. App.–Austin May 3, 2018), holding that the TCPA applied to a claims for conspiracy to misappropriate trade secrets. This case suggests that, as I predicted, some plaintiffs will continue to plead communication of the alleged trade secrets, which invites a TCPA motion to dismiss.

In many cases, the employer will discover that an employee has taken company information and joined a competitor, but the employer will not have any direct knowledge that the employee has used the information. And it is not unusual for employees to take company information when they leave but to refrain from using it after coming to their senses (or talking to a lawyer).

In cases like that, it may be dangerous for the employer to plead that the employee has used the alleged trade secrets. The plaintiff must have a good-faith factual basis for the allegation. Look for more plaintiffs to plead “on information and belief” that the defendant has used the alleged trade secrets.

In other cases, the plaintiff will really want to plead disclosure of the trade secrets, because that will be the juiciest part of the story. When an employee secretly emails confidential company information to his next employer, who can resist emphasizing that fact in the lawsuit? In those situations, the plaintiff’s lawyer will have to weigh the value of pleading bad acts by the defendants against the possibility of inviting a motion to dismiss.

Or just make a federal case of it

On the other hand, the plaintiff’s lawyer can simply avoid this dilemma by filing suit in federal court under the federal Defend Trade Secrets Act. All you need is a sufficient connection to interstate or foreign commerce, and any claim you would make under the Texas trade secrets statute can be made under the federal statute. And then the TCPA would not apply.

Or would it? I will let the appellate lawyers and former law review editors discuss among themselves. (Narrator: whether you can file a TCPA motion in federal court would actually become a hot issue and even be raised in a suit involving the President.)

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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. 

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. The provided forms are only for the convenience of other lawyers. Every case is different, so don’t rely on this post or the forms as legal advice for your case. 

[1] Elite Auto Body LLC v. Autocraft Bodywerks, Inc., No. 03-15-00064-CV, 2017 WL 1833495, 520 S.W.3d 191 (Tex. App.—Austin 2017, pet dism’d).

[2] Tex. Civ. Prac. & Rem. Code § 27.001(2).

[3] Elite Auto Body, 2017 WL 1833495 at *8.

[4] See my disclaimer about forms above.

[5] Tex. Civ. Prac. & Rem. Code § 27.003(c). Under Section 27.006(b), for good cause the court may allow “specified and limited discovery” relevant to the motion.

[6] See Tex. Civ. Prac. & Rem. Code § 27.005(c).

[7] Tex. Civ. Prac. & Rem. Code § 27.009.

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

A SLAPP in the Face to Texas Trade Secrets Lawsuits – Part 2

A SLAPP in the Face to Texas Trade Secrets Lawsuits – Part 2

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 cover that in Part 3.

*Update: The Austin Court of Appeals addressed the TCPA’s application to a trade secrets claim again in Craig v. Tejas Promotions, LLC, No. 03-16-00611-CV, 2018 WL 2050213 (Tex. App.–Austin May 3, 2018). The court held that the TCPA applied to a claim for conspiracy to misappropriate trade secrets. This was a fairly straightforward application of Elite Auto Body. The court also held, for somewhat esoteric reasons very specific to the case, that the TCPA did not apply to a declaratory judgment claim.

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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. 

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., 2017 WL 1833495, 520 S.W.3d 191 (Tex. App.—Austin 2017, pet dism’d).

[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.

A SLAPP in the Face to Texas Trade Secrets Lawsuits – Part 1

A SLAPP in the Face to Texas Trade Secrets Lawsuits – Part 1

In Elite Auto Body v. Autocraft Bodywerks, the Austin Court of Appeals held that the Texas anti-SLAPP statute applies to a company’s claim that a former employee communicated confidential information and trade secrets to a competitor. This meant that the company was required to produce evidence to support every element of the claim at the beginning of the lawsuit—a significant burden.

This sounds like a fairly technical issue, but it’s an important development, with potentially far-reaching consequences for departing employee litigation—and other kinds of litigation. Elite Auto Body is also a great case to read if you’re fascinated by questions of statutory interpretation. And who isn’t?

Textualism vs. originalism

Interpreting the text of a statute or constitution is a fundamental challenge in the law.  The “textualist” would say that courts should apply the “plain meaning” of the text of a statute, without resort to any extrinsic sources such as the intent of the legislature or what would make better public policy.

This view probably resonates with the average “man on the street,” but in its strict form, textualism borders on the absurd.  If hard cases could really be decided by simply applying the plain text, we wouldn’t need judges schooled in the law.

Textualism is often associated with “originalism,” which is the view that a statutory or constitutional provision should be interpreted based on the original understanding of the text. But the two are not the same. In fact, originalism shows that textualism is insufficient (at least in hard cases). If the text alone were sufficient to resolve disputes, then resort to the original understanding of the text would be unnecessary.

Trade secret protection vs. freedom of speech

Let’s take an example everyone knows: the First Amendment protection of “freedom of speech.” Then let’s take a statute pertinent to the Elite Auto Body case: the Texas Uniform Trade Secrets Act (TUTSA). TUTSA provides civil remedies for “misappropriation” of “trade secrets.”[1]  Emailing your employer’s trade secrets to a competitor would be a clear violation of TUTSA.

So does TUTSA violate the First Amendment? If I can’t email my employer’s confidential information to another company, doesn’t that restrict my “freedom of speech”?

The “vulgar textualist” would say no, under the plain meaning of the First Amendment, sending an email is not “speech,” so the First Amendment doesn’t apply. But no serious person in the law, even a “textualist,” would apply such a hyper-literal interpretation. Obviously, the First Amendment is intended to protect forms of communication broader than actual “speech.”

And it is well established that there are certain categories of communication that do not enjoy full First Amendment protection: fraudulent statements, intentionally defamatory statements, communications between participants in a criminal conspiracy, just to name a few. People may disagree on the exact contours of the categories of expression that do not enjoy First Amendment protection, but no one seriously questions the basic premise that some kinds of communication are not protected (even though the premise is not derived from the “plain meaning” of the text).

Similarly, just about everyone would agree that communication of trade secrets is one of these categories. People may argue about where to draw the line on trade secret protection, but few would seriously dispute the general principle that the First Amendment allows laws that prohibit the communication of trade secrets.

With this point established, we have set the stage for the Texas anti-SLAPP statute, the recent Elite Auto Body case, and an interesting test for textualism.

The Texas anti-SLAPP statute

Texas adopted its anti-SLAPP statute in 2011. SLAPP stands for Strategic Lawsuit Against Public Participation. The term SLAPP doesn’t actually appear in the statute, but the “anti-SLAPP” purpose of the statute is widely recognized. (For background, see A Primer on the Texas Anti-SLAPP Statute and Five Years of Anti-SLAPP in Texas.)

The idea was to give defendants the right to seek early dismissal of unfounded lawsuits that plaintiffs file to punish Texas citizens for exercising their free speech rights. When the statute applies, the defendant can require the plaintiff to produce evidence to support each element of its claims at the beginning of the lawsuit. If the plaintiff fails to meet this burden, the lawsuit gets dismissed.[2]

This is a big deal. As Texas litigators will recognize, a SLAPP motion is equivalent to a “no-evidence” motion for summary judgment. The Texas Rules of Civil Procedure allow a defendant to file a no-evidence motion for summary judgment, which places the burden on the plaintiff to come forward with evidence to support the challenged elements of its claims. If the plaintiff fails to respond with evidence, the claim gets dismissed.

That’s effectively the same thing the anti-SLAPP statute does. So why is it such a big deal? The key difference is that you can’t file a no-evidence motion for summary judgment until after the plaintiff has had adequate time for discovery.[3] This is a significant limitation.

The anti-SLAPP statute, in contrast, allows the defendant to file a motion to dismiss at the beginning of the case, before the plaintiff has had any time for discovery.[4] This is a major strategic advantage for the defendant. Often the plaintiff needs discovery in order to obtain evidence to support all of the elements of its claims. If the legislature gave defendants the right to file this kind of motion in every case, it would be a tectonic shift in the balance of power between Texas plaintiffs and defendants.

But the anti-SLAPP statute only applies to SLAPP lawsuits, right?

The problem with the anti-SLAPP statute

The problem is that it is not so easy to distinguish between a SLAPP lawsuit and an ordinary lawsuit. A SLAPP, as the term is commonly used, has two distinguishing characteristics, one going to the merits of the lawsuit and the other going to the motive behind it. First, a SLAPP lawsuit has no merit, meaning no evidence to back it up. Second, a SLAPP lawsuit is filed for an improper motive—i.e. to silence or punish the defendant by forcing the defendant to spend money defending a lawsuit.

But defendants say these things about all kinds of lawsuits. So the first problem with the anti-SLAPP statute is that it singles out one type of litigation, when the problem it purports to address applies to all kinds of litigation.

In my view, this sort of thing is generally a bad idea. I haven’t seen a compelling explanation for why defendants in SLAPP lawsuits should get to file an early motion to dismiss while defendants in other kinds of unfounded lawsuits don’t.

Of course, there is a long tradition of the Texas legislature singling out certain types of litigation for special treatment. For example, plaintiffs in medical malpractice cases have to get an expert report just to file a lawsuit, before any discovery, while plaintiffs in other cases don’t. Defendants in residential construction lawsuits have special statutory rights that defendants in other lawsuits don’t. But why? Why should special rules apply to medical malpractice lawsuits and not, say, architectural malpractice suits?

The answer is pretty obvious. You don’t have to be a political scientist or a reporter covering the Texas legislature to understand that laws like this get passed in response to pressure from interest groups seeking protection from lawsuits. That doesn’t necessarily mean that these laws are bad public policy. We could debate all day whether the limits on medical malpractice suits are good policy or not.

But it does mean that we should approach these special-interest statutes with some skepticism. The same is true of the anti-SLAPP statute. Granted, it appears that a wide range of groups from across the political spectrum backed it, but we should still ask whether it makes sense to single out one type of lawsuit for special treatment.

While it is clear that the anti-SLAPP statute singles out one type of lawsuit, it is not so clear what type of lawsuit that is. This gets to the second problem with the statute: it tries to do surgery with a meat cleaver. The “cancer” it tries to cut out is the “big guy” filing a frivolous lawsuit against the “little guy” to try to deter the little guy from exercising his First Amendment right to criticize the big guy.

The statute does say that its purpose is to safeguard constitutional rights, but the operative language of the statute–particularly the definition of the “right of association”–is much broader than that. Nothing in the statute expressly limits its reach to “big guy vs. little guy” lawsuits, or even to lawsuits involving the exercise of First Amendment rights.

Perhaps the language of the statute could be made more precise so that it cuts like a scalpel. But no, this second problem is almost unsolvable. It would be very difficult to come up with language that would apply only to “true” SLAPP lawsuits and not to ordinary lawsuits. Like obscenity, a SLAPP is hard to define with precision. You just “know it when you see it.” That doesn’t make for a good statutory definition.

Does the anti-SLAPP statute apply to trade secrets lawsuits?

And that brings us to the question presented in Elite Auto Body v. Autocraft Bodywerks.

Misappropriation of trade secrets is not protected by the First Amendment, and it does not appear that the Texas legislature had trade secrets lawsuits in mind when it passed the anti-SLAPP statute. Yet the plain language of the statute is broad enough to apply to a claim that an employee communicated a company’s trade secrets to a competitor she has joined. So, can the defendant in that kind of trade secrets case file a motion to dismiss under the statute?

Stay tuned. I’ll address that in Part 2.

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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.

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] See Tex. Civ. Prac. & Rem. Code § 134A.002-004.

[2] Tex. Civ. Prac. & Rem. Code §§ 27.001-011.

[3] Tex. R. Civ. Pro. 166a(i).

[4] The defendant must serve the anti-SLAPP motion within 60 days of service of the lawsuit. Tex. Civ. Prac. & Rem. Code § 27.003(b). On the filing of such a motion, all discovery is suspended until the court has ruled on the motion. Tex. Civ. Prac. & Rem. Code § 27.003(c). For good cause, the court can allow specific limited discovery relevant to the motion. Tex. Civ. Prac. & Rem. Code § 27.006(b).