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]

Alfa Romeo

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]

AMG

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 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]

Processed with VSCO with hb2 preset

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

Shakespeare’s view of anti-SLAPP statutes

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

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

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

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

I’ll cover that in Part 3.

______________________________________________________________________________________

head-shot-photo-of-zach-wolfeZach Wolfe is a Texas trial lawyer who handles non-compete and trade secret litigation. His firm Fleckman & McGlynn, PLLC has offices in Austin, Houston, and The Woodlands. You can probably tell his son picked this week’s photos.

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

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

[2] Id.

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

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

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

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

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

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

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

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

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 of 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.

______________________________________________________________________________________

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

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

[1] 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).

Book Review: The New Texas Pattern Jury Charge on Trade Secrets

Book Review: The New Texas Pattern Jury Charge on Trade Secrets

How well does the new Texas Pattern Jury Charge perform in a typical soft trade secrets case?

I recently received a mysterious package in the mail. After tearing open the cardboard, I saw a shiny new paperback in plastic shrink-wrap: the new Texas Pattern Jury Charges – Business, Consumer, Insurance & Employment (2016).

My heart raced. Yes, I already had the 2014 edition, but the 2016 edition has something new: questions and instructions on trade secret misappropriation. In the words of Joe Biden, this is a big f**ng deal!

You see, when I last tried a trade secret case to a jury, there were no Pattern Jury Charge questions for trade secrets, so we had to make up our own. That case was a typical “soft” trade secrets case.

“It’s a dirty story of a dirty man”

Soft trade secrets? Well, there are two paradigmatic types of “hard” trade secrets: secret technology and “secret sauce.” If your company develops new technology that allows you to drill for oil sideways at half the cost of your competitors, and you keep it secret, that’s a trade secret. If you have the secret formula for Coke, or the Colonel’s secret herbs and spices, those are trade secrets. Understanding why these things are trade secrets is not rocket science.

Soft trade secrets, on the other hand, are the type of information almost every business has: names and contact information for customers, information on what the customers buy, prices charged to the customers, names and contact information for vendors, prices charged by vendors, etc. The king of the soft trade secrets is the customer list, which may or may not be a trade secret, depending on the facts (see Customer List Confusion).

In the typical soft trade secrets case involving a departing employee, there are usually four key issues:

  1. Did the employee take information from the former employer?
  1. Was the information actually “trade secrets”?
  1. Did the employee actually use the information to compete with the former employer?
  1. What amount of damages did the employee cause the former employer by using the information to compete?

Experts on good writing may cringe at my repeated use of the intensifier “actually,” but it’s appropriate here. It’s a reminder to approach trade secrets claims with a healthy skepticism. As one federal judge said in a recent opinion, “Many plaintiffs allege trade secret misappropriation, but few prove it.”[1]

So how do the new Pattern Jury Charge (PJC) questions compare to these key issues in a typical soft trade secrets case?

“It took me years to write, would you take a look?”

Like other PJC sections, most of the new section on trade secrets consists of commentary on the applicable statute and case law. The questions themselves are quite short. They boil down to this:

  1. Did Paul Payne own a trade secret in the ___ listed below? [the jury answers separately for each thing alleged to be a trade secret]
  1. Did Don Davis misappropriate Paul Payne’s trade secret?
  1. What amount of damages . . . etc. [the standard damages question that applies to all kinds of claims]

This would be simple for a jury to understand but for one problem: How does the jury know what “trade secret” and “misappropriate” mean?

The PJC solves this problem with instructions. The question on ownership of a trade secret is followed by the statutory definition of a trade secret from the Texas Uniform Trade Secrets Act (affectionately known as “TUTSA”). The question on misappropriation is followed by the statutory definition of misappropriation.[2]

This sticks to the basic template for most PJC questions: ask a really simple question, then give detailed instructions that define the terms used in the question. The detailed instructions are, in effect, a mini-tutorial on the area of law at issue.

The questions tend to be broad, rather than focusing on specific facts. For example, in a breach of contract case, the PJC is going to ask “did Don Davis fail to perform the contract?” rather than “did Don Davis fail to deliver the truckload of bricks to the green house on Pecan Street on the date stated in the contract?”

Similarly, the PJC question on trade secret misappropriation asks “did Don Davis misappropriate Paul Payne’s trade secret?” rather than “did Don Davis email himself Paul Payne’s confidential customer list and use it to sell bricks to Paul Payne’s customers?”

IMG_1670

For my non-lawyer readers, this is part of what we call “broad-form” submission. Historically, the main reason for broad-form submission was to reduce the likelihood that the jury’s verdict would be reversed on appeal. There is a mountain of case law and articles on what broad-form submission means. It will suffice to say that the rule in Texas is this: broad-form submission is required, except when it isn’t.

“It could make a million for you overnight”

So what’s the alternative to the broadly stated trade secrets questions in the PJC? In the jury trial I mentioned above, we handled it differently. We submitted these questions (I’ve changed the names and the product):

  1. Was any of the information Dawn Davis obtained from Paula Payne trade secrets?
  1. Did Dawn Davis use Paula Payne’s trade secrets to make window sales at Real Cheap Windows?
  1. What sum of money . . . would fairly and reasonably compensate Paula Payne for her damages, if any, proximately caused by Dawn Davis’s use of Paula Payne’s trade secrets at Real Cheap Windows?

Like the PJC, the instructions included the statutory definition of “trade secret” taken straight from TUTSA.

Unlike the PJC, there was no question about “misappropriation,” because it was undisputed my clients had taken the information at issue. My argument was (1) the information wasn’t trade secrets, and (2) my clients didn’t use the information to make the sales. Those were the real issues in dispute, so I argued for submitting those specific questions, and the judge agreed.

I like my questions better than the PJC questions. They get right to the point and are easier for the jury to understand. They don’t require a jury to puzzle over a definition of “misappropriation.” But I admit the form of my questions won’t work in every case.

Why?

First, in my case there was no real dispute about what information was taken. I had asked the plaintiff in discovery to identify the alleged trade secrets, and it identified a specific stack of documents my clients admitted taking. The question was whether the information in those documents was trade secrets.

IMG_1671

Second, there was no dispute that my clients had sold products to customers of the first employer after leaving. The dispute was whether they made those sales by using the alleged trade secrets.

So the format we used for the trade secrets questions in that case may not work in your case. But that only proves my point. The PJC should only be a starting point. Judges and lawyers should not be afraid to adapt it to the specific facts of their case.

“It’s a thousand pages, give or take a few”

The new questions and instructions on trade secret misappropriation do what the Pattern Jury Charge is supposed to do. They provide a template for submitting trade secrets misappropriation questions that is consistent with Texas law and broad enough to apply to different kinds of cases.

But that’s all they do. There is a danger of rote use of the PJC questions when more specific questions tied to the facts of the case would be more appropriate and more understandable to the jury.

If the real issue is whether a customer list was a trade secret or not, then why not just ask the jury that? Or if the dispute is about whether the former employee used the employer’s customer list, why not just ask “did Don Davis use Paul Payne’s customer list?”

Of course, the problem is that there is usually a fight between the lawyers over the wording of the jury questions. When the parties don’t agree, the safer thing for the judge to do is to follow the PJC and submit a broad question, rather than a question tied to the specific facts in dispute. This is “safe” in the sense that it reduces the judge’s chance of getting reversed on appeal.

But the safe thing is not always the best thing. Actually.

Don’t forget to like our Facebook page

________________________________________________

head-shot-photo-of-zach-wolfeZach Wolfe is a Texas trial lawyer who handles non-compete and trade secret litigation. His firm Fleckman & McGlynn, PLLC has offices in Austin, Houston, and The Woodlands. It’s a steady job, but he wants to be a paperback writer.

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] Kuryakyn Holdings, LLC v. Ciro, LLC, No. 15-cv-703-jdp, 2017 WL 1026025, at *7 (W.D. Wis. Mar. 15, 2017).

[2] The definitions are in Section 134A.002 of the Texas Civil Practice and Remedies Code.

Agree on These Litigation Rules to Level the Playing Field

Agree on These Litigation Rules to Level the Playing Field

TexasBarToday_TopTen_Badge_VectorGraphicThe “Fiver Rules” Recognize the Reality of Modern Litigation Practice

WARNING: Typically, I try to write posts that will interest lawyers and non-lawyers alike. But this post is for attorneys only, particularly Texas attorneys. If you don’t have a “JD” or an “Esq.” after your name, DO NOT READ THIS. It is “inside baseball” exclusively for us lawyers.

The high-powered litigation firm Susman Godfrey popularized the practice of “Trial by Agreement,” a process where lawyers on both sides of a lawsuit agree on certain procedures up front to minimize gamesmanship and unnecessary discovery disputes.

This was an admirable goal, but as a practicing Texas litigator, I find that the suggested stipulations on “Trial by Agreement” don’t always match the reality of modern litigation practice. Having closely observed the way Texas lawyers actually handle lawsuits, I propose that readers of Five Minute Law agree on the following “Fiver Rules” for Texas litigation.

  1. Every response to a written discovery request must begin with three pages of detailed “general” objections. If the responding law firm is from California or New York, the requirement is increased to five pages. These general objections must state that they apply to every request, but most of them must not actually apply to every request.
  1. In state court, the response to each request for production must include an objection that the documents are privileged. Texas Rule of Civil Procedure 193.2(f) says that the responding party should withhold privileged documents, not object to the request, but the parties will be required to ignore this rule.
  1. Contention interrogatories must ask for “all facts” supporting the responding party’s contentions. Texas Rule of Civil Procedure 197 is clear that phrasing a contention interrogatory this way is objectionable, but the requesting party must ignore this rule. Conversely, an interrogatory asking for the basic factual grounds for a claim in a party’s pleading must be met with the objection that it improperly requires “marshaling evidence.”
  1. The “conference” requirement for discovery disputes may be satisfied by stating to opposing counsel in writing that all of his objections are unfounded. The statement must be in the form of a letter attached to an email to emphasize its seriousness. Alternatively, the procedure for resolving discovery disputes will be a conference call with at least three participants on each side. The lead lawyers are expected to use the conference call to train their associates on how to show the lawyers on the other side how tough and smart they are.
  1. Motions for summary judgment will be decided based on which side brings a larger binder of documents for the judge. If the binders are the same size, the tie-breaker will be which side has more PowerPoint slides.
  1. Every document produced in discovery must be designated “Confidential – Attorneys’ Eyes Only,” regardless of actual confidentiality. This includes documents found on the internet and copies of pleadings from publicly available court files.
  1. No one is allowed to smirk or make a sarcastic comment when a lawyer interrupts a difficult deposition question to “confer on a privilege issue.” If there is no plausible reason the question would raise any privilege issue, the remedy for the questioning lawyer will be limited to resuming the deposition with a snarky comment like “now that you’ve had a chance to confer with your lawyer . . .”
  1. The parties stipulate that every witness met with his lawyer five times for a total of 20 hours to prepare for the deposition. How many hours of your life have you spent listening to detailed deposition questions about who the witness met with, where, and for how long to prepare for the deposition? How many times has this questioning resulted in discovering a fact that will make any difference whatsoever at trial? This stipulation will save time for everyone.
  1. Each side’s first request for production will include a request for every document generated by the other side’s expert witness. Never mind that the “new” Texas discovery rules (which are now almost 20 years old) provide for only two exclusive methods of obtaining discovery about testifying experts (read Rule 195.1 if you don’t believe me). Why waste those forms your firm has been saving since the Reagan administration?
  1. In federal court, the defendant must file a motion to dismiss raising every possible factual defense to the plaintiff’s claims. A lot of court opinions say the judge should decide a motion to dismiss based only on the facts alleged in the plaintiff’s complaint. Those courts obviously do not appreciate the number of billable hours that a thorough motion to dismiss can generate for the benefit of both sides.

Agreeing on these rules up front will level the playing field for everyone. Nerds who take the Rules of Civil Procedure seriously will no longer be at a disadvantage. If the judge reprimands a lawyer for following one of the Fiver Rules, it will be socially acceptable for that lawyer to point at opposing counsel and say “he started it!”

And if you are a non-lawyer who has gotten this far and is now saying, “I wish I had that five minutes of my life back,” all I can say is, “you were warned.”

________________________________________________________

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

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

Track These Changes: Ethics of Inadvertent Disclosure of Metadata

Track These Changes: Ethics of Inadvertent Disclosure of Metadata

Texas Ethics Opinion 665 says lawyers have an ethical duty to avoid inadvertently disclosing confidential metadata, but not an ethical duty to disclose they received inadvertently-sent metadata

Does a lawyer have an ethical duty to avoid sending opposing counsel a document containing metadata that reveals confidential client information? Does the receiving lawyer have a duty to inform the sending lawyer of the receipt of confidential metadata and to refrain from using the information obtained therefrom?

Did I really just use the word “therefrom” in Five Minute Law? Please don’t report me to Bryan Garner.

In any case, the Professional Ethics Committee for the State Bar of Texas recently addressed these questions in Opinion No. 665, which appeared in the January 2017 Texas Bar Journal. The Committee said yes, a Texas lawyer generally has an ethical duty to avoid transmission of confidential metadata, and no, a Texas lawyer generally does not have an ethical duty to notify opposing counsel of the inadvertent receipt of confidential metadata.

In short, you could say the Texas rule on inadvertent disclosure of metadata is don’t disclose. If you’re the sending lawyer, don’t disclose confidential metadata. If you’re the receiving lawyer, you don’t have to disclose that you received it.

The Committee included this important qualification: the opinion applies only to the “voluntary transmission of electronic documents outside the normal course of discovery.” Disclosure of metadata in discovery—an issue currently before the Texas Supreme Court in the State Farm case—is an entirely different subject.

IMG_1616
 I read these things on the weekend so you don’t have to

The second part of Opinion 665 is consistent with Opinion 664, which I covered here. Opinion 664 said generally Texas lawyers do not have an ethical duty to notify opposing counsel they have inadvertently received confidential information. You might even say Opinion 665 simply applies Opinion 664 to metadata.

Once again, this puts Texas at odds with the ABA’s Model Rule of Professional Conduct 4.4(b), which  requires a lawyer to promptly notify the sender of the receipt of inadvertently-sent electronically stored information. This is Texas, the home of rugged individualism. If the other guy inadvertently sends you confidential information, that’s his problem.

But there is a limit. Would you believe the Texas ethics rules require lawyers to be honest? It’s right there in Rule 8.04(a)(3), which says a lawyer shall not “engage in conduct involving dishonesty, fraud, deceit or misrepresentation,” and Rule 3.03(a)(1), which requires that a lawyer shall not knowingly “make a false statement of material fact or law to a tribunal.” You can use confidential metadata opposing counsel inadvertently sent you; you just can’t lie about it.

In the Committee’s words:

[A]lthough the Texas Disciplinary Rules do not prohibit a lawyer from searching for, extracting, or using metadata and do not require a lawyer to notify any person concerning metadata obtained from a document received, a lawyer who has reviewed metadata must not, through action or inaction, convey to any person or adjudicative body information that is misleading or false because the information conveyed does not take into account what the lawyer has learned from such metadata.

That sounds reasonable. But it’s so abstract. What does it really mean?

Application of the Texas “don’t disclose” rule to metadata in a settlement agreement

Let’s make this concrete with my favorite hypothetical non-compete lawsuit, Paula Payne Windows v. Dawn Davis. Suppose Dawn’s lawyer sends Dawn Paula Payne’s proposed settlement agreement in Microsoft Word. Dawn revises it and inserts some confidential comments, such as “change this to a one-year non-compete, but I’ll agree to two years if that’s what it takes—I just want this nightmare to be over!”

Dawn’s lawyer emails Paula Payne’s lawyer, Sam Sneaky, a Word document containing metadata that allows Sam to recover and review Dawn’s comments, including the comment about the length of the non-compete. Sam decides not to tell Dawn’s lawyer about the inadvertent disclosure. Knowing that Dawn is desperate to settle and will cave on the non-compete, Sam sends back a demand for more money and a two-year non-compete.

So has anyone broken any ethical rules under Opinion No. 665?

Dawn’s lawyer probably failed to meet his duties of competent representation (see Rule 1.01) and maintaining confidentiality of client information (Rule 1.05).  According to Opinion 665:

Lawyers . . . have a duty to take reasonable measures to avoid the transmission of confidential information embedded in electronic documents, including the employment of reasonably available technical means to remove such metadata before sending such documents to persons to whom such confidential information is not to be revealed pursuant to the provisions of Rule 1.05.

Let’s assume Dawn’s lawyer knew the original Word document had sensitive client communications in it and should have known those communications could be recovered from the metadata in the new document. In that case, Dawn’s lawyer should have taken reasonable measures such as using a common metadata-scrubbing program when emailing the document to opposing counsel.

Screen Shot 2017-03-12 at 8.29.01 AM
Be careful what you send opposing counsel

On the other hand, Dawn’s lawyer only has to take reasonable measures. “Not every inadvertent disclosure of confidential information in metadata will violate Rule 1.05.”

What about Sam Sneaky? Under the ABA Rule, you could argue Sam had a duty to promptly notify Dawn’s lawyer that the confidential metadata was inadvertently sent. But under Opinion 665, he’s fine in Texas.

That is, unless he conveys information that is false or misleading because it doesn’t take into account what he learned from the metadata. For example, after reviewing the confidential metadata, Sam couldn’t say to Dawn’s lawyer, “I have no idea what length of non-compete your client is willing to agree to, but my client insists on two years.” That would be dishonest. It’s a statement Sam could truthfully make before seeing the confidential metadata, but not after.

Admittedly, this hypothetical is pretty contrived. Who talks like that?

Let’s imagine something more subtle and realistic. Can Sam say to Dawn’s lawyer, “we have to insist on a two-year non-compete because anything less than that won’t adequately protect my client”? That statement is misleading, you could argue, because it omits the material fact that Sam is insisting on the two-year non-compete because he knows from the inadvertently-disclosed metadata that Dawn will agree to it.

The bottom line seems to be this: when Texas lawyers receive confidential metadata from opposing counsel, they don’t have to disclose they received it, and they can use it to their advantage. They just have to be careful what they say after receiving it.

Is this the Cowboy Way?

I’ll be honest. I don’t like this. Ethics Opinion 665, like Opinion 664 before it, seems to make Texas an outlier, and in the wrong direction. I prefer the approach of the ABA Model Rule.

Rodeo
Let’s rustle up some metadata

Yes, Texas is the Lone Star State, where the legacy of Old West rugged individualism is strong. But we should also remember “Tejas” means “friendship.” And last I checked, Texas was still part of the Bible Belt. The Bible says “do unto others as you would have them do unto you.” If you inadvertently sent a document containing confidential metadata and opposing counsel discovered it, wouldn’t you want him to tell you?

I’m not saying Ethics Opinion 665 is wrong. It’s a reasonable interpretation of the existing disciplinary rules. But using confidential information that opposing counsel inadvertently sends you just doesn’t feel like the Cowboy Way. If your neighbor’s cattle wander onto your ranch because he wasn’t careful, you don’t keep them and say “that’s his problem.”

Perhaps this comes down to the difference between “professionalism” and “ethics.” Ethics, in this context, means complying with a specific set of rules. Professionalism, on the other hand, is a higher—and admittedly fuzzier—standard. Telling a lawyer he accidentally sent you something you know he didn’t mean to send you is good professional courtesy, even if the Rules of Professional Conduct don’t require it.

It’s just following the Golden Rule. And the principles derived therefrom.

Texas lawyers: register for my March 22 webcast covering this very issue here.

________________________________________________________

head-shot-photo-of-zach-wolfeZach Wolfe is a Texas trial lawyer who handles non-compete and trade secret litigation. His firm Fleckman & McGlynn, PLLC has offices in Austin, Houston, and The Woodlands. You can probably tell from this week’s image that his son is into Lamborghinis.  

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.

Horizon Case Addresses Causation Conundrum in Departing-Employee Litigation

Horizon Case Addresses Causation Conundrum in Departing-Employee Litigation

Oral argument in Horizon Health v. Acadia Healthcare illustrates difficulties with proving lost profits damages when employment is at-will

Last week I wrote about a new Texas Supreme Court opinion that had to draw the line between sexual harassment and sexual assault. Just days later, the Texas Supreme Court confronted an even more difficult issue in oral argument in Horizon Health v. Acadia Healthcare: how to draw the line between reasonable assumption and speculation when an expert witness testifies about lost profits damages in a departing-employee case.

This is a difficult issue, because the typical departing-employee case involves at-will employment. Let’s assume a group of employees does all kinds of bad things before leaving to go to work for a competitor. And let’s assume the employer lost sales after the group left. Those facts are relatively easy for a jury to understand.

But this leaves out a critical issue that is harder for the average person to grasp: causation.  It’s not enough to prove the defendants did bad things and the plaintiffs were damaged. You have to prove that the bad things caused the damage. And you have to quantify the damage.

Let’s say the bad conduct is soliciting a key employee to join a competitor, and the damage is the loss of sales the key employee would have made for the company if she had not been solicited. The problem for the plaintiff is obvious: if the key employee is an at-will employee, she could have left the company at any time regardless of whether she was solicited. How do you quantify the amount of lost profits caused by the wrongful solicitation?

That, in simplified form, is the problem confronting the Texas Supreme Court in Horizon Health v. Acadia Healthcare. I call this the Causation Conundrum for departing-employee cases.

Facts of Horizon v. Acadia: the distilled version

Horizon was a somewhat complex case with multiple defendants, numerous causes of action, and a 55-page jury charge (see Court of Appeals opinion here). But the basic facts, in simplified form, follow a familiar pattern:

  • Horizon managed mental-health programs for hospitals.
  • Four of Horizon’s executives, the Saul group, began negotiating to join a Horizon competitor, Acadia, while they were still working for Horizon.
  • While still employed by Horizon, the Saul group solicited John Piechocki, a successful Horizon salesman, to work for the competitor.
  • The Saul group and Piechocki left Horizon to work for Acadia.
  • Before leaving Horizon, the Saul group said things in their emails that must have made their trial lawyers cringe later. Our departures will leave Horizon “dead,” they said, and our business strategy at Acadia will be “hurting Horizon early and often.”
  • The Saul group also did things that would not look good to the jury. Saul, for example, copied a massive amount of Horizon files from his work computer to an external hard drive before leaving Horizon.[1]

Given these facts, Horizon’s lawyers had a lot to work with on liability. But how could they prove the Saul group caused damage to Horizon by bringing Piechocki to the new company? And how could they quantify that damage?

Startup Stock Photos
Emails about “hurting Horizon early and often” certainly didn’t help the defendants at trial

These challenges were compounded by a couple pesky facts. First, Horizon’s profits continued to go up after the employees departed, even exceeding Horizon’s own targets. Second, there was no evidence that any existing Horizon customer left and went to Acadia.

How could Horizon prove lost profits given all these difficulties? The answer is that Horizon tried to prove causation and damages the old-fashioned way: they hired an expert.

Horizon’s expert dares to pose hypotheticals and make assumptions

Horizon designated Jeff Balcombe, a qualified CPA, to testify on damages. Balcombe’s assignment was to quantify Horizon’s future lost profits resulting from the loss of Piechocki. In the words of the Court of Appeals:

Balcombe testified as to the “lost production” damages Horizon suffered as a result of the individual defendants’ wrongful actions. In doing so, he attempted to determine what would have happened but for the wrongful actions—as opposed to what actually happened—by considering (1) how long Piechocki would have remained an employee of Horizon but for the alleged wrongful conduct, (2) how many contracts Piechocki would have sold “but for being an employee of Horizon,” and (3) what the average profit for each of those contracts would have been had he remained with Horizon.[2]

The court’s interjection “as opposed to what actually happened” is dripping with skepticism. But in fairness to Horizon, let’s pause here to consider the nature of causation and damages in a lost profits case involving departing employees.

Proving lost profits damages necessarily requires entering a hypothetical world. To prove how the defendants caused your company to lose profits, you must ask the hypothetical question “what amount of profits would we have made but for the defendants’ wrongful conduct?” There is no other way to do it. So when Horizon’s expert tried to figure out what would have happened, he was doing his job.

The harder part for the damages expert is deciding what assumptions to make. Balcombe based his lost profits analysis on three assumptions:

  1. “Balcombe analyzed the average amount of time Horizon retained its higher-level employees and ‘conservatively elected to assume’ that Piechocki would have stayed at Horizon two or four more years but for the alleged wrongful conduct.”
  1. “Piechocki would have sold six contracts in each year he stayed, up to four years, but for the wrongful conduct because other Horizon salespeople sold four contracts per year.”
  1. “He concluded that $247,000 per year for each contract was ‘a conservative and reliable figure for a mature contract price.’”[3]

This is where the Court of Appeals thought the damages expert went wrong. “We conclude that Balcombe’s opinion was too speculative based on an analytical gap between the data and his opinion; thus, it was no evidence of lost profits suffered by Horizon.” For example, the assumption that Piechocki, an at-will employee, would have stayed employed by Horizon was “nothing more than speculation.” Experts are allowed to make assumptions, but the Court of Appeals found that Balcombe’s factual assumptions were “unsupported” and “not admitted into evidence.”[4]

Wait a minute. Does this mean lost profits damages are never recoverable in a case based on solicitation of an at-will employee? Is the Court of Appeals saying a damages expert is never allowed to make assumptions about how long an at-will employee would have stayed at a company? And does the plaintiff have to offer evidence during the trial to support every factual assumption made by the damages expert?

Surely the Court of Appeals did not mean to go that far. But where to draw the line? That is what the Texas Supreme Court will have to decide.

Fortunately I have the answers to these difficult questions

Does the fact that a wrongfully-solicited employee was also an at-will employee legally bar the company from obtaining lost profits damages? The answer has to be no. That the employee could have left at any time is certainly a relevant fact for the jury to consider, but it can’t mean that lost profits damages are never recoverable in such a case.

So, if lost profits damages are available in such cases, is it legally impermissible for a damages expert to make assumptions about how long a solicited employee would have stayed at the company?

Some might argue that making an assumption about how long an employee would have worked for the company is always speculative, and therefore impermissible. How can an expert know with absolute certainty how long an at-will employee would have stayed?

The answer, of course, is that he can’t. But absolute certainty is not required. The Texas Pattern Jury Charge asks the jury to decide the amount of lost profits “that, in reasonable probability, will be sustained in the future.” Reasonable probability is the standard.

SAMSUNG CAMERA PICTURES
There is always some hypothetical element to the calculation of lost profits damages

So, even if the employment is at-will, a damages expert can make assumptions based on reasonable probability. That much is clear. But what assumptions?

Again, the question almost answers itself. The assumptions must be reasonable and must be supported by some evidence. No one would argue that an expert can base a damage calculation on unreasonable assumptions. And a damages expert should not be allowed to assume facts that have no evidence to support them.

A harder question is whether the facts assumed by the expert must be offered in evidence at trial. Texas Rule of Evidence 703, like the corresponding Federal Rule, allows an expert to reasonably rely on facts he has been made aware of, even if those facts are not admissible. But the Court of Appeals in Horizon was troubled by the fact Balcombe’s underlying information was not admitted into evidence.

The Texas Supreme Court also seemed troubled. In oral argument, one of the justices asked whether there was any evidence other than the expert testimony to support the amount of damages found by the jury. The Court of Appeals assumed the answer was no. But Horizon’s counsel argued to the Supreme Court that the answer was yes.

So perhaps the Texas Supreme Court will sidestep the entire expert testimony issue and find that there was other evidence sufficient to sustain the damages verdict.

It’s hard to predict what this Texas Supreme Court will do in a departing-employee lawsuit. This is a court that likes defendants and doesn’t like big speculative damage awards (see Southwestern Energy for example). But this is also a court that likes employers and non-competes.

If I had to predict, I would bet that the court’s aversion to speculative damage awards will outweigh its warm fuzzy feelings for employers, meaning a win for the defendants on the lost profits damages issue.

But it is a conundrum.

*UPDATE: The Texas Supreme Court issued its opinion on May 26, 2017, ruling that the evidence was legally insufficient to support any award of lost profits. Stay tuned for analysis in an upcoming post.

____________________________________________________

head-shot-photo-of-zach-wolfeZach Wolfe is a Texas trial lawyer who handles non-compete and trade secret litigation. His firm Fleckman & McGlynn, PLLC has offices in Houston, Austin, and The Woodlands. He can’t remember the last time he wrote a post with as many rhetorical questions as this one.

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] Acadia Healthcare Co. v. Horizon Health Corp., 472 S.W.3d 74, 79-82 (Tex. App.—Fort Worth 2015, pet. filed).

[2] Id. at 88.

[3] Id. at 88-89.

[4] Id. at 89-90 (emphasis added).

Texas Employees Can Still Sue Employers for Common-Law Assault

Texas Employees Can Still Sue Employers for Common-Law Assault

Steak N Shake: Texas sexual harassment statute does not preempt a common-law assault claim if the “gravamen” of the claim is assault 

I had a friend in college who liked to end every argument around the dining hall table by saying “it’s really just a question of where you draw the line.”[1] It was supposed to be a joke. He was making fun of the overuse of that line—it had become the academic version of the cliché “it is what it is” on sports talk radio. But the funny thing is that he was often right.

The Texas Supreme Court’s decision last week in B.C. v. Steak N Shake proves that legal issues often do come down to a question of where you draw the line. The Steak N Shake court had to decide how to draw the line between sexual harassment and sexual assault in the workplace.

It’s a distinction that has important legal consequences in Texas. If the court classifies the claim as sexual harassment, then the claim will be subject to limits imposed by the Texas Commission on Human Rights Act (TCHRA), including a cap on damages. If the court classifies the claim as sexual assault, then it’s governed by common law, which means no cap on damages.

You can already guess which one a savvy plaintiff’s lawyer is going to pick. If the harassment involved any objectionable physical contact, the plaintiff will typically plead the claim as sexual assault, not sexual harassment, to get around the limits of the TCHRA. The plaintiff will also sue the employer for common law negligence, such as negligent hiring or retention.

Not so fast, the Texas Supreme Court said in 2010. In Waffle House v. Williams, the court held that the TCHRA’s statutory framework for sexual-harassment claims preempted an employee’s common law negligent supervision and retention claim.[2] “If [the employee’s] common-law claim for negligent supervision and retention is allowed to coexist with the statutory claim,” the Waffle House court reasoned, “the panoply of special rules applicable to TCHRA claims could be circumvented in any case where the alleged sexual harassment included even the slightest physical contact.”[3]

In other words, Waffle House said you can’t get around the limits of the TCHRA by calling sexual harassment something else, like common law assault.

The problem with the distinction is obvious. In many cases, as in Waffle House, the conduct alleged by the plaintiff qualifies as both harassment and assault. The Waffle House court adopted the “gravamen” test to address this problem. “Where the gravamen of a plaintiff’s case is TCHRA–covered harassment,” the court said, “the Act forecloses common-law theories predicated on the same underlying sexual-harassment facts.”

Gravamen is a fancy legal word for “essence,” or the most substantial part of a grievance.

The “boorish and objectionable conduct” alleged in Waffle House included both non-physical harassment and objectionable physical contact.  The manager allegedly pushed the employee, held her arms with his body pressed against her, rubbed against her breasts with his arm while she reached up to put plates away, and “cornered” her on several occasions.[4] The court said that the gravamen of this alleged conduct was harassment, not assault.

Personally, I disagree with the preemption rule adopted in Waffle House. I would have joined the two dissenting justices. The Texas legislature knows how to say that a statute preempts the common law–as it did in the Workers Comp statute. The TCHRA, in contrast, doesn’t expressly state that it preempts common-law claims based on the same facts, so I would have held that the plaintiff can still pursue the common-law claims. But I can at least see the logic of the preemption argument.

And the rest of the Waffle House decision makes some sense to me. If you’re going to say that the statute preempts common-law claims that are based on allegations of harassment, then the “gravamen” test is probably the most workable way to distinguish between harassment and assault.

And Waffle House seemed to get it right when it said that the essence of the manager’s boorish conduct was harassment, even though the conduct would also meet the definition of assault. You have to draw the line somewhere.

But what if the manager’s conduct in Waffle House had been more violent and egregious?

Let’s say the male supervisor attacked a female employee in a restaurant restroom during an overnight shift. He pushed her against a sink, grabbed her by the back of the head, and tried to kiss her. During the struggle, the supervisor allegedly exposed himself, pulled the woman’s pants down, and put his hand up her shirt.  Although the supervisor and employee had socialized before—such as sharing beer and cigarettes in the restaurant parking lot—there was no sexually suggestive conduct by the supervisor prior to the alleged assault.

What would the gravamen of those allegations be, harassment or assault?

That was the issue in Steak N Shake. Applying Waffle House to these more egregious allegations, the Texas Supreme Court found that the gravamen or “essence” of the claim was assault, not harassment. Therefore, the common-law assault claim was not preempted by the TCHRA.

You could see this coming. Even this pro-business court doesn’t want to see the headline “Texas Supreme Court Says Victim of Bathroom Attack Can’t Sue Employer.” But where does this leave Texas law?

Putting Waffle House and Steak N Shake together, the “gravamen” test seems to turn on two factors. First, how violent or egregious is the physical assault? The alleged physical contact in Waffle House, while offensive and objectionable, was not shockingly violent.  In contrast, the assault alleged in Steak N Shake was a violent struggle in a restroom. Second, was the assault part of a pattern of harassing conduct, or was it an isolated incident? Where the assault is part of a pattern, as in Waffle House, the gravamen of the claim is more likely to be “hostile work environment,” a type of sexual harassment.

Of course, it’s easy to imagine harder cases. The next case that goes up on appeal will likely involve allegations that are more egregious than the pattern of boorish behavior in Waffle House, but not as violent as the conduct alleged in Steak N Shake. It’s not always easy to know where to draw the line.

I for one look forward to a day when workplace incidents like these are a thing of the past, regardless of whether you call them assault or harassment. But sadly, that day is probably a long way off.

It is what it is.

______________________________________________________________

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

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

[1] Yeah, we got pretty wild and crazy back then. Don’t tell my kids.

[2] Waffle House, Inc. v. Williams, 313 S.W.3d 796, 812 (Tex. 2010).

[3] Id. at 807.

[4] Id. at 799.