How (Not) to Handle Bad Emails in Litigation

How (Not) to Handle Bad Emails in Litigation

TexasBarToday_TopTen_Badge_VectorGraphicBad emails. Trial lawyers love them and hate them. When your client sends them, there’s nothing worse. When the person you’re suing sends them, there’s nothing better.

Scratch that. There is one thing better: when the person you’re suing changes his story after you confront him with bad emails he didn’t know you had.

Let’s consider a hypothetical.

Paula Payne Windows v. Dawn Davis

Dawn Davis was a salesperson for Paula Payne Windows, a wholesaler that supplies windows to builders in the construction industry. Paula Payne maintained a Master Customer List containing detailed information about all of its customers.

Dawn had a friend, Bob Coldstone, who did marketing for Real Cheap Windows, one of Paula Payne’s competitors. In June 2016, Bob emailed Dawn to set up a meeting with Natalie Vessel, the owner of Real Cheap. Bob said Natalie wanted to discuss Dawn joining Real Cheap.

The series of ensuing emails between Dawn and Natalie included these statements:

  • Dawn: “I can get you all the pricing information you want. I know my way around the network here like nobody else.”
  • Natalie: “Will you be able to bring all the information you need with you?”
  • Dawn: “The master customer list is password-protected, but guess who has the password?”
  • Natalie: “I hope Paula Payne will drop this idea of going after our customers.”

One month later, in July 2016, Paula Payne had a senior sales staff meeting to discuss moving more aggressively into a sales territory dominated by Real Cheap. Dawn Davis pushed back on the idea, saying that it would be difficult to compete with Real Cheap on prices, and that Paula Payne should focus on its existing customers. Heeding Dawn’s advice, the sales team dropped the idea.

In November 2016, Dawn announced to Paula Payne that she was leaving the company. A day before leaving, Dawn emailed Paula Payne’s master customer list to her personal gmail account and copied all of Paula Payne’s sales records for the past 90 days to a USB drive.

After Dawn left, most of her customers stopped buying windows from Paula Payne. The company then discovered Dawn was working for Real Cheap. Dawn was selling windows to her customers from Paula Payne and starting to solicit additional Paula Payne customers.

Dawn’s Deposition Testimony

Paula Payne sued Dawn Davis and Real Cheap Windows, claiming breach of Dawn’s non-compete, breach of fiduciary duty, and misappropriation of trade secrets. When Paula Payne’s lawyer took Dawn’s deposition, this exchange happened:

Screen Shot 2017-07-15 at 9.33.02 AM

Screen Shot 2017-07-15 at 9.34.45 AM

At trial, Paula Payne’s lawyer played the video of this portion of Dawn’s deposition. After finding that Dawn and Real Cheap misappropriated trade secrets, the jury found lost profits damages of $989,000, the amount calculated by Paula Payne’s expert.

Afterwards, one member of the jury commented to Dawn’s lawyer, “your client seemed pretty nice, but those emails just killed her.”

So where did Dawn Davis and her lawyer go wrong?

How Not to Handle Bad Emails

Paula Payne v. Dawn Davis is a case study in how not to handle bad emails in litigation. If you want to maximize your client’s exposure at trial, here’s what you should do.

1. Don’t find bad emails ahead of time and discuss them with your client

The first time Dawn’s lawyer focused on the emails marked as deposition exhibit 7 was in the deposition. By then, Dawn had already blown her credibility by making statements in conflict with the obvious import of the emails.

You need to know about the bad emails ahead of time. This point is obvious, but neglected more often than you might think.

Plus, even when lawyers are diligent, reviewing every email isn’t always feasible. Sometimes the volume of documents is just too large. Some clients can’t afford to pay for a team of BigLaw associates to review and code every document.

If finding all the bad emails ahead of time isn’t practical, then at least admonish your client to tell the truth and not to trust her memory too much. People have a great capacity to remember things happening in a way that supports their position. (This is true—I’m not just being sarcastic). When Dawn said Natalie never asked about prices, she may have thought that was true, but that’s the kind of statement a witness shouldn’t make unless she’s absolutely sure.

2. Conceal and delay as long as possible

If you do find the bad emails ahead of time, what do you do with them? Let’s assume that Dawn’s lawyer found the bad emails on Dawn’s hard drive but didn’t produce them in discovery. The problem was that Paula Payne’s forensic expert found them by restoring deleted emails on Paula Payne’s server.

This leads to the worst of both worlds: the bad emails eventually come out and they look even more incriminating because Dawn concealed them.

3. Pretend bad emails don’t mean what they obviously mean

It’s a deposition ritual to ask the witness to admit that a bad email means what it obviously implies, even if it doesn’t say it explicitly. Take Natalie’s statement, “I hope Paula Payne will drop this idea of going after our customers.” What should Dawn say when asked if Natalie was asking her to make sure Paula Payne dropped the idea?

It always depends on the circumstances, but if it’s obvious that Natalie was asking Dawn to stop Paula Payne from going after Real Cheap’s customers, then Dawn should freely admit that. Don’t pretend a bad email doesn’t mean something that everyone on the jury will know it means.

4. Dispute everything rather than focusing on your strong points

There is a certain type of litigator that follows an easily recognizable playbook: Contest every issue. Concede nothing. Attack on all fronts.

That approach can have short-term benefits, but it usually doesn’t end well. Plus, it tends to cost the client more money. It is usually better to concede the bad facts you ultimately can’t avoid, and to focus your efforts on the good facts that help you.

For example, Dawn Davis didn’t want to concede that she took Paula Payne’s master customer list to her new employer, Real Cheap. Perhaps a better approach would be for Dawn to admit she took the list, but to focus on the argument that the list is not a trade secret. If it’s true that anyone in the industry can readily construct the same list of builders who buy windows, then Dawn and her lawyer should focus on that fact.

5. Don’t have your client practice answering questions about bad emails

The first four tips are great in theory, but they won’t help your client much if you don’t practice. Answering tough questions about bad emails is not easy. Rehearse how your client will answer hard questions about bad emails ahead of time.

And be careful responding to emails after 10 pm when you’ve had a long day at work. That’s how bad emails are born in the first place.

*Nominations for the ABA Journal’s Web 100 (formerly the Blawg 100) are open through July 30. You can submit your nominations here. Please, no wagering.

____________________________________________________

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.

“Is that a yes? Uh, yes” inspired by Lin-Manuel Miranda, “We Know,” Hamilton.

It’s All In Your Head: Customer List Cases Under the Defend Trade Secrets Act

It’s All In Your Head: Customer List Cases Under the Defend Trade Secrets Act

TexasBarToday_TopTen_Badge_VectorGraphicThis is part two of my four-part series commemorating the one-year anniversary of the Defend Trade Secrets Act. The series will culminate with a live webcast from the Texas State Bar on May 16: “One Year of Defend Trade Secrets Act Litigation.”

Has the Defend Trade Secrets Act put a stop to corporate espionage by foreign governments and companies?

The NFL draft was last week, so it was a time for predictions. My Dallas Cowboys used their first two picks on guys named Taco and Cheeto. I predict TV commentators will have fun with that.

Speaking of predictions, back in May 2016 when the federal Defend Trade Secrets Act became law, I wrote this:

People think of a shadowy foreign company smuggling sophisticated plans for the next iPhone out of the country.  But the typical trade secrets lawsuit is more mundane.  Given the fact that a “customer list” can be a trade secret, an employer can sue for misappropriation of trade secrets just about every time a low-level sales employee leaves the company with the names and numbers of her customers on her smartphone.  Are routine customer list cases now headed for federal court?  We will see.

A customer list case is a “soft trade secrets” case. Soft trade secrets are the kind almost every company has or claims to have: customer lists, customer information, pricing, business strategies, etc.

“Hard” trade secrets are what people commonly think of as trade secrets: secret technology, secret sauce. This is the kind of thing most members of Congress probably had in mind when the Defend Trade Secrets Act passed with bipartisan support. It is probably also what the press had in mind when they hailed the DTSA as the dawn of a new era of protection of U.S. companies.

Indications from the first opinion applying the DTSA

Henry Schein, Inc. v. Cook was the first opinion I saw applying the Defend Trade Secrets Act. It augured that the typical DTSA case would be a soft trade secrets case. As I reported here, Henry Schein involved customer information in the sale of medical, dental and veterinary supplies and equipment.

Of course, that was just one case. But at that time I made this prediction:

A year from now when we look back at the cases filed in federal court under the Defend Trade Secrets, many more of them will be ordinary “customer list” cases like Henry Schein than complex schemes involving sophisticated secret technology. It will turn out that the first case applying the Defend Trade Secrets Act was the typical case.

So has the first year of litigation under the Defend Trade Secrets Act proven me right? Largely, yes. Judging by the opinions available on Westlaw (an admittedly unscientific sample), most Defend Trade Secrets Act lawsuits have been soft trade secrets cases like Henry Schein. I haven’t seen a single DTSA case that involved a foreign government or company stealing secret technology from a U.S. company.*

Another customer list case: First Western

Another good example is First Western Capital Management v. Malamed.[1] It was a classic customer list case.

The customer lists in trade secrets lawsuits usually fall into two categories: (1) a “big” list covering the company’s entire clientele; (2) a shorter list of the employee’s own customers.

The customer list in First Western was a big list: 130 pages, printed from the company’s “CRM” system, containing roughly 5,000 names, including 331 current company clients. The employee also printed out 22 pages of spreadsheets listing names of clients, the total market value of their holdings under management, the management fees being charged by the company, and “similarly sensitive information.”

In short, the customer list in First Western provided the identity of the customers, their specific preferences, and the prices charged to them. These are commonly the alleged trade secrets in a customer list case.

The issue in First Western was whether the company was entitled to a preliminary injunction barring the employee from using the alleged trade secrets to compete for the company’s clients. It’s a good DTSA case to study because it addresses so many interesting issues.

1. Witness credibility

First Western illustrates the paramount importance of witness credibility. The employee, Malamed, instructed his assistant by email to print three copies of the company’s “Client book” that was “on the disc.” Malamed admitted keeping a copy of the printout but said he never looked at it.

The district judge was not impressed with Malamed’s testimony at the temporary injunction hearing. Malamed said he had no idea how the last 22 pages of the printout were included, denied those pages contained highly sensitive client information, and claimed he was not sufficiently computer literate to use a disk or to “really know what a disk is.”

The judge wryly observed: “All of these examples, and others, lead this Court to conclude that Malamed has become willing to make statements or take positions with reference to what he believes will prevent liability in this case.”

Ouch. You could tell it was going to go downhill from there.

Lawyers, push hard on your clients when they plan to offer testimony that is going to raise judicial eyebrows. For example, if your client is going to deny that a customer list contains sensitive confidential information, test that assertion. If it holds up, and that’s really what the client thinks, then prepare the client to stick to his guns. But if not, persuade your client not to deny the obvious.

2. Employee intent

Malamed denied the client list contained trade secrets, claimed he could use public sources or his own memory to recreate a similar list, and did not deny his intent to go to work for a competing firm and service clients on the list. This was enough to convince the judge that Malamed would use the client information to compete with the company if not enjoined.

Again, as First Western illustrates, the lawyer representing the employee who took a customer list has a difficult choice. If you admit the customer list is a trade secret, you’ve helped the plaintiff prove half of its trade secret claim. But if your client denies the list is a trade secret, the judge may see that as evidence your client intends to use it.

3. Price undercutting

The judge in First Western saw a real threat of the employee using his knowledge of the company’s pricing to take its clients:

[W]ithout making any explicit comparison to FWCM, [Malamed] can offer management fees that are, say, a quarter of a percent lower than what he knows the individual was paying at FWCM, and thereby entice the client—who almost certainly would recognize that he or she was being offered a discount as compared to FWCM.

This is the usual “price undercutting” theory. I’ve made the same kind of argument for my clients. But this theory has some problems that the First Western opinion doesn’t address. I’ll have to save that for another blog post.

4. Is a customer list a “trade secret” in the first place?

A trade secret must have “independent economic value” to a competitor in the industry. The judge found that the company’s big customer list had value in two ways. First, the identity of the clients had value. The judge said a compilation of wealthy individuals willing to consider the financial management services the company provided was a valuable asset because it would at least save a competitor the time of identifying prospects by, for example, cold-calling individuals employed in high-paying professions.

Second, the judge found that information about the clients had value: their management fee percentages, preferences regarding risk, time horizon, communication style, etc. These were “informational assets” that a competitor would find “especially valuable.”

Ok, that sounds plausible. But riddle me this, Batman. Couldn’t Malamed just call up a client and say, “Hey, Jim Bob, it’s your buddy Kenny. Can I ask you something? What is your investment manager charging you for management fees? What’s your risk preference? What’s your time horizon?”

That’s the other side of the coin in customer list cases.

5. Does a trade secret have to be on paper, or can it be in your head?

What if the employee credibly testifies that he doesn’t have the customer list anymore and isn’t going to use it? Does that get the employee off the hook?

The judge in First Western didn’t think so. He found it sufficient that Malamed would remember the names of clients and the information about them. “Thus, the Court finds that Malamed, at a minimum, remembers trade secret information, even if he does not possess any trade secrets in physical or digital form.”

What does First Western tell us about the effect of the DTSA?

These were just some of the issues in First Western. None of these issues are unique to the Defend Trade Secrets Act. They are the same issues that would have come up under Colorado’s version of the Uniform Trade Secrets Act.

There was one issue in First Western that was particular to the DTSA, but you’ll have to tune in to our May 16 webcast to hear about that.

While the issues in First Western are interesting, the case is further confirmation that the main effect of the DTSA has been to shift some typical customer list cases from state court to federal court.

That is a significant change for lawyers who handle trade secret litigation, but it doesn’t show there was any compelling need to place a federal trade secrets statute on top of the trade secrets laws already found in 50 states.

The defensive line of the Dallas Cowboys generating a more disruptive pass rush next season? Now that’s a compelling need.

______________________________________________________________________

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. His client list is not 130 pages long.

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] First Western Capital Mgmt. Co. v. Malamed, No. 16-cv-1961-WJM-MJW, 2016 WL 8358549 (D. Colo. Sept. 30, 2106).

*After publishing this post, I saw a case where a Chinese company allegedly received a secret recipe for caramel popcorn coating. I’m not kidding.

Recent Case Shows How to Enforce the Typical Texas Non-Compete

Recent Case Shows How to Enforce the Typical Texas Non-Compete

Some Basic Issues in Texas Non-Compete Law Remain Unresolved

First of all, I don’t understand why the Texas non-compete statute says “geographical” when “geographic” would do. More about that later.

The typical Texas non-compete follows a predictable pattern, and there are thousands of them in circulation in Texas. As I explained here, as a Texas litigator I look for five key things to decide whether a typical Texas non-compete is enforceable.

But the answer is often cloudy. The recent case Orchestratehr, Inc. v. Trombetta shows that basic questions about Texas non-compete law remain unanswered, and that minor factual distinctions can make all the difference to whether a Texas non-compete will be found enforceable. As we will see, this makes witness preparation especially critical in a Texas non-compete lawsuit.

Thomas Jefferson
Can we get back to non-compete law? Please?

Most Texas lawyers who deal with non-competes know the two basic requirements for enforceability: (1) the non-compete must be “ancillary to an otherwise enforceable agreement,” and (2) the non-compete must be reasonable in time period, geographic area, and scope. But lawyers who don’t have practical experience actually litigating these issues can get tripped up easily.

“Ancillary to an Otherwise Enforceable Agreement”

Whether the non-compete is “ancillary to an otherwise enforceable agreement” often comes down to whether the employee admits that (a) he needed confidential information to do his job, and (b) he received confidential information. Why? Here is how it usually plays out:

  1. The employer’s agreement to provide confidential information to the employee can be an “otherwise enforceable agreement” supporting a non-compete, if the employer actually provides the confidential information.[1]
  1. If the confidentiality agreement contains no express promise by the employer to provide confidential information (which, inexplicably, is sometimes the case), the question is whether there is an implied promise to provide confidential information.[2]
  1. There is an implied promise if the nature of the work to be performed by the employee requires providing him confidential information.[3]
  1. The confidentiality agreement, drafted by the employer, will typically define confidential information to include virtually every kind of information the employee receives in the course of employment.
  1. The typical Texas non-compete will have a time period of one to three years. Despite the requirement of a reasonable geographic limitation, it will often have no express geographic limitation. Sometimes the non-compete will be limited to the employer’s existing customers, or the customers the employee personally dealt with.

It is safe to say this scenario—or some variation of it—has occurred in thousands of Texas lawsuits. So Texas courts by now must have a standard answer to whether the non-compete is enforceable in this scenario, right?

Well, not really. Even this cookie-cutter scenario raises at least two unresolved legal issues, and an important factual issue that varies from case to case.

Legal Issue #1: Does it Matter if the Information is Not Really Confidential?

The first unresolved legal issue is this: does it matter whether the information the employer provided the employee was actually confidential? The employer will argue that it is sufficient for the agreement to define the information as confidential and will cite this statement from the Texas Supreme Court:

Concerns that have driven disputes over whether a covenant is ancillary to an otherwise enforceable agreement—such as the amount of information an employee has received, its importance, its true degree of confidentiality, and the time period over which it is received—are better addressed in determining whether and to what extent a restraint on competition is justified.[4]

In other words, the degree of confidentiality of the information goes to the reasonableness requirement, not the “ancillary” requirement. Yet, despite this statement, it remains clear that a confidentiality agreement is only an “otherwise enforceable agreement” if the employer actually provides confidential information.

a man wearing a suit showing a document with the text confidenti
A non-compete is enforceable if it is stamped “Confidential” at the top. Just kidding. Sort of.

In the recent Orchestratehr case, the employee made the typical argument that the non-compete was not ancillary to an otherwise enforceable agreement because the employer did not give the employee any actual confidential information. Although the court implicitly accepted the employee’s legal premise, it rejected the employee’s argument based on two facts. First, the agreement had a typical clause that defined virtually everything as the employer’s confidential information.[5] Second, the employee admitted in his deposition that the information was confidential.[6]

Obviously, the second reason deserves more weight than the first. The fact that the agreement defines virtually all information as confidential should receive little, if any, weight. If employers could satisfy the “ancillary” requirement simply by reciting the right “magic words,” it would render the requirement meaningless.

The employee’s admissions, on the other hand, are hard to ignore. At the least, these admissions raised a fact issue for the jury on whether the employee actually received confidential information. This shows the importance of witness preparation in non-compete cases.

Factual Issue: Did the Employee Testify That He Received Confidential Information?

As Orchestratehr shows us, whether a non-compete meets the “ancillary” requirement can often turn on whether the employee admits that the information he received was confidential. This makes witness preparation critical.

If you represent an employee who signed a typical non-compete tied to a confidentiality agreement, you need to thoroughly debrief the employee early in the case about the kind of information needed to do the job and the type of information the employer actually provided. Go into detail, and review the documents (if available). It’s important to do this early so you can answer two crucial questions.

First, if the non-compete does not have an express agreement to provide confidential information to the employee, did the nature of the work required confidential information? If the answer is no, you need to prepare your client to say so and to explain why.

Second, can the employee reasonably contend that the information he received was not really confidential? If the answer is no, then don’t waste your time and effort trying to argue the employer failed to provide confidential information. Ultimately, a half-hearted or frivolous argument that the information was not confidential will not help your client.

But the answer is often yes. Customer lists, customer information, and prices are the information most commonly claimed to be confidential. I sometimes call this kind of information “soft” trade secrets. Employers always think this information is extremely valuable and confidential. In reality, it is often readily ascertainable by competitors. The real value is usually in the personal relationships the employee has with his customers.

Don’t get me wrong. There are legitimate cases where these “soft” trade secrets are truly confidential. (The cases where I represent the employer typically fall into this category.) But those cases are rare.

orchestra
Orchestratehr shows the importance of witness preparation in non-compete litigation

There is almost always at least a reasonable argument that the price and customer information the employee received is not really confidential. If you represent the employee, push hard to test whether that is really true, and if it is true, then prepare your client to make that argument and to stick to his guns. It does no good to take the position that the information was not confidential if your client is going to fold under pressure in his deposition and concede that “yeah, I guess that was sort of confidential.” That’s the kind of testimony likely to be cited in a later opinion—like the one in Orchestratehr—holding that the non-compete is enforceable.

Conversely, if you represent the employer who is trying to enforce the non-compete, you need a plan for getting the employee to admit that the information he received was confidential. I would give you some tips on this, but I can’t give away all my secrets.

Legal Issue #2: Do You Really Have to Have a Geographic Limitation?

Like a lot of typical non-competes, the non-compete in Orchestratehr had no express geographic limitation. As the federal district court correctly noted, some Texas appellate courts have held that limiting a non-compete to certain customers can substitute for a geographic limitation. The Orchestratehr court held that, despite the absence of a geographic limitation, limiting the non-compete to existing customers of the company was sufficient.[7]

This is certainly a plausible position, but it is troubling. I am not aware of the Texas Supreme Court ever adopting this position, and the reasonable geographic limitation is an express requirement in the non-compete statute. It would be a little odd for our current Texas Supreme Court, which seems fond of “strict” textual construction of statutes, to interpret the plain language “geographical area” as meaning “geographical area or some reasonable substitute for it.”

Until the Texas Supreme Court definitively resolves the issue, lawyers for Texas employees should continue to argue that, by statute, a Texas non-compete must have an express geographic limitation.

Or “geographical.” If you insist.

____________________________________________

head-shot-photo-of-zach-wolfe

Zach 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 Alex Sheshunoff Mgmt. Servs., L.P. v. Johnson, 209 S.W.3d 644, 655 (Tex. 2006).

[2] Mann Frankfort Stein & Lipp Advisors, Inc. v. Fielding, 289 S.W.3d 844, 850 (Tex. 2009).

[3] Id.

[4] Sheshunoff, 209 S.W.3d at 655 (emphasis added).

[5] The agreement defined Confidential Information as “any information of any kind, nature, or description concerning any matters affecting or relating to Employee’s services for COMPANY, the business or operations of COMPANY, and/or the products, plans, pricing models, customer lists, marketing plans, processes, or other data of COMPANY.”

[6] Orchestratehr, Inc. v. Trombetta, No. 3:13-CV-2110, 2016 WL 4563348, at *3 (N.D. Tex. Sept. 1, 2016).

[7] Id. at *4.

Injunction Junction, What’s Your Function?

Injunction Junction, What’s Your Function?

TexasBarToday_TopTen_Badge_VectorGraphicA Recent Case Shows What it Takes for a Texas Trade Secrets Injunction to Hold Up on Appeal

I previously wrote here about how not to enforce an injunction in a non-compete lawsuit. But when an employee takes your client’s confidential information or trade secrets, what evidence do you need to get an injunction in the first place?

Most lawyers can recite the buzzwords courts have used thousands of times: “imminent harm,” “irreparable injury,” “no adequate remedy at law.” But let’s face it. Courts have a hard time coherently explaining these concepts. The recent Texas case Daugherty v. Highland Capital Management is no exception.[1]

dangling-car
Imminent harm? Yes. Irreparable injury? Probably not.

Lawyers who handle these cases should understand that imminent harm and irreparable injury mean two different things:

  • “Imminent harm” means that harm is about to happen if the court doesn’t stop it. This has nothing to do with whether the harm is “irreparable.”
  • “Irreparable injury” means that awarding damages would be an inadequate remedy for the harm. This has nothing to do with whether the harm is about to happen or not.

Unfortunately, courts often confuse these two requirements. For example, a court will cite evidence that a competitor is in a position to use a company’s trade secrets as establishing “irreparable injury,” when that fact actually goes to the issue of “imminent harm.”[2]

Another recurring problem is that when courts cite evidence of “irreparable injury” in a trade secrets case, they often cite evidence that is either tautological or generic. In other words, they tend to cite evidence that is either (a) true by definition or (b) recited in virtually every trade secrets case. This renders the analysis less than satisfying.

Let’s use Highland Capital as an example. The basic facts were typical: Employee signs confidentiality agreement with Employer, Employee leaves Employer, Employer sues Employee for taking Confidential Stuff.

steam-locomotive-wreck
Imminent harm, or irreparable injury?

The jury verdict, on the other hand, was a little unusual. The jury found that Employee breached the confidentiality agreement, Employer’s damages were zero dollars, and Employer’s reasonable attorneys’ fees were $2.8 million. The judge awarded Employer the attorneys’ fees plus an injunction against retaining, using, or disclosing Employer’s confidential information.

This raises important questions. First, where can I find one of these clients who will pay $2.8 million to try a confidentiality agreement case? Second, what does Highland Capital teach us about what evidence is necessary for a trade secrets injunction to hold up on appeal?

Evidence of Imminent Harm?

Here are six things the Highland Capital court cited as evidence of imminent harm, followed by my questions:

1. The court said there was “evidence that [Employee] took, kept, and used confidential information.”

This is evidence that the employee breached his confidentiality agreement, but is it evidence of imminent harm?

2. The court cited “demands and protracted litigation.”

Saying the litigation was “protracted” reminds me of what Nathan Arizona said when the police asked if he had any disgruntled employees. “Hell, they’re all disgruntled . . .”

3. Employer’s expert testified: “this information goes to the core of what [Employer] does as a business and what [Employer] is in terms of its value.”

This is fairly generic. Believe me, every company thinks the information the employee took “goes to the core” of the company’s value.

4. Employer’s expert: the information’s “existence away from [Employer] harms [Employer] because there’s always the possibility that it can get into general distribution . . . or to a competitor.”

This seems tautological. By definition, doesn’t the fact that someone else has the confidential information create a “possibility” that it could become public or known by a competitor?

grand-central
Does the “possibility” of harm establish irreparable injury?

5. Employer’s expert: the harm “may not be immediate, but the harm may occur over a long period of time.”

Doesn’t the fact that the harm may occur over a long period of time suggest it is not imminent?

6. Employer’s expert testified “I cannot quantify the total harm,” and “it may be that I can’t measure the specific relationship of these documents to that harm. . . you can’t measure things that you don’t know have occurred.” Asked if he performed “any sort of statistical analysis to try to put a number to this harm,” the expert said, “We did not and could not.”

Do these statements go to whether the harm is imminent, or whether the harm is irreparable? It seems like the court put this evidence in the wrong section of the opinion.

Evidence of Irreparable Injury?

As for irreparable injury, the Highland Capital court cited these key points from the testimony of Employer’s co-founder:

1. “A specific document [Employee] took and failed to return revealed [Employer]’s current and prospective investment strategies.”

In other words, Defendant misappropriated confidential information. But does that make the injury irreparable?

2. There was “[a] particular document [Employee] failed to return in which one of [Employer]’s investors was identified as well as names of our other clients and the investment objectives which are confidential.”

Again, this is evidence of misappropriation of confidential information, but how is it evidence of irreparable injury?

train-time-lapse
The harm from losing confidential information can be difficult to quantify

3. “Some of the people in the marketplace can replicate our firm strategies and our investment objectives and form competing funds with these materials like marketing materials.”

This could be evidence of imminent harm, but how does it show that the harm could not be compensated by damages?

4. “If our investors see that we don’t have enough safeguards over our confidential information they would refuse to invest with us, we would be violating our agreements with them, we would be violating the law.”

Again, this is evidence of the possibility of injury, but how does it establish irreparable injury?

5. “Putting a dollar value is almost impossible. But it’s very valuable to us. It’s very, very important.”

Now we’re getting somewhere. This goes to the issue of irreparable injury. But this testimony seems generic. Very, very generic.

Based on this testimony, the court said there was “evidence of harm that could not be quantified,” and therefore, evidence of irreparable injury.

What Did We Learn Today? 

So what do you think? Does the analysis of imminent harm and irreparable injury in Highland Capital support my point that courts often get these two requirements confused? Does it show that courts often rely on tautological or generic statements to uphold an injunction?

train-stop-lights
Understand what you need to prove to stop the use of your client’s confidential information

The more practical lesson for litigators is this: If you are trying to get an injunction for your client, offer evidence showing that the defendant is going to use or disclose the confidential information soon if an injunction is not granted (imminent harm), and that damages would be an inadequate remedy because the harm is inherently difficult to quantify (irreparable injury). Even if courts get confused, don’t mix up these concepts in your own mind.

Irreparable injury can be tricky. You need to show that quantifying the damage is inherently difficult, but without conceding that the damage is speculative. This balancing act is especially difficult when, as in Highland Capital, you are also trying to persuade the jury to award lost profits or some other form of damages.

Don’t forget to prepare your witnesses to say the right “magic words,” like “putting a dollar value on this is almost impossible” (if that’s true). But take it a step further and have your witnesses explain why quantifying the damage is difficult. Because it’s not enough to have some generic testimony to uphold the injunction on appeal. It’s also important to persuade the trial court judge to grant the injunction in the first place.

Very, very important.

_________________________________________________________________

cropped-head-shot-photo-of-zach-wolfe.jpg

Zach 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] Daugherty v. Highland Capital Mgm’t, L.P., No. 05-14-01215-CV, 2016 WL 4446158 (Tex. App.—Dallas Aug. 22, 2016).

[2] For example, in Tranter, Inc. v. Liss, No. 02-13-00167-CV, 2014 WL 1257278 (Tex. App.—Fort Worth March 27, 2014, no pet.), the court said that “[a] highly trained employee’s continued breach of a noncompete agreement creates a rebuttable presumption that the employer is suffering an irreparable injury.” While the fact that an employee is competing in violation of his non-compete suggests imminent harm, it does not show that the harm is irreparable.

What the Ken Starr Interview Can Teach Lawyers About Witness Preparation–and Golf

What the Ken Starr Interview Can Teach Lawyers About Witness Preparation–and Golf

By now you have probably heard about ex-Baylor University President Ken Starr’s disastrous interview with Waco TV station KTWX.  I joked about it on LinkedIn and Twitter, but I have to admit I had a mixed reaction when I saw it.  Part of me said, “wow, I can’t believe Starr and his consultant performed so poorly and made themselves look so bad!”  But another part of me—the trial lawyer who has had to prepare witnesses to answer difficult questions in depositions and in the courtroom—felt something bordering on sympathy, a sense of “there but for the grace of God go I.”  This got me thinking that trial lawyers—and the witnesses they prepare—can learn a lot from the Starr interview debacle.

The question concerned an email a former Baylor student sent Starr with the subject line “I was Raped at Baylor.”  Reporter Julie Hays asks, “what about the victim that came forward saying that she had personally sent you an email – and Art Briles an email – saying in the subject line that she was raped at Baylor, did you ever see that email?”

After Starr gives his first answer, his crisis management consultant Merrie Spaeth interrupts the interview and says she needs to speak to Starr.  After Starr returns and answers the question a second time, he turns to Spaeth (who is off camera) and says “is that ok?”  Spaeth responds, “don’t look at me, look at her.”  Starr later answers the question a third time.

It’s worth recapping exactly how Starr answered:

  1. “I honestly may have. I’m not denying that I saw it.”
  1. “All I’m going to say is I honestly have no recollection of that.”
  1. “I honestly have no recollection of seeing such an email, and I believe that I would remember seeing such an email. The president of a university gets lots of emails.  I don’t even see a lot of the emails that come into the office of the president.”

These are really three different ways of saying “I don’t remember.”  Here are the three answers rephrased:

  1. “I don’t remember seeing that email. But I may have seen it, and I’m not denying that I saw it.”
  1. “I don’t remember seeing that email” [period].
  1. “I don’t remember seeing that email. But I believe I never saw that email, because there were a lot of emails to the president’s office I did not see, and I would remember seeing an email like that.”

The real difference in these answers is the conclusion drawn from the fact that Starr does not remember the email.  Answer no. 1 draws the conclusion that it’s possible he saw it.  Answer no. 2 draws no conclusion.  Answer no. 3 draws the conclusion that Starr never saw the email.

Starr later issued a statement saying “the answers are entirely consistent, and they are truthful.”  In a narrow sense, Starr is right.  If in fact Starr does not remember seeing the email, then his statements were accurate.

But the damage has been done.  Starr went wrong in the interview in two different ways.  First, he should not have given three different answers.  The fact that the three answers can be reconciled with each other doesn’t help him much in the court of public opinion.

This reminds me of another public figure, one well known to Starr, who was ridiculed for testifying “it depends on what the definition of ‘is’ is.”  The funny thing about that answer is that it was actually accurate.  The statement he was asked about—“there is absolutely no sex of any kind”—was ambiguous.  It could have meant two different things: (1) there is no current sexual relationship or (2) there has never been a sexual relationship.  So from a very technical perspective, the answer was correct.  But that didn’t matter, because the answer sounded ridiculous and evasive.  A better answer would have been “I understood that statement to mean there is no current sexual relationship, and that was absolutely true.”  When a question is ambiguous, it is usually better to define it on your own terms than to quibble with it.

But I digress.  The second way that Starr went wrong was looking at his handler and asking “is that ok?”  As bad as it is to give three different answers, this is the more damaging part of the interview, especially when it happens right after Starr took a break to talk to Spaeth.  It makes Starr look like he is just answering the question the way Spaeth told him to—even if his answers are truthful.  This of course undermines his credibility, leading the audience to question whether any of his statements can be trusted.

So what does this teach lawyers who must prepare witnesses to face difficult questions in depositions or in the courtroom?  Here are four and a half key lessons for witness preparation from the Starr interview:

Lesson 1 is obvious: be prepared.  It is painfully apparent that Starr was not adequately prepared for a key question that should have been anticipated.  I’m not casting blame; perhaps there was simply not enough time.  But if you have the time, use it.  And don’t just lecture the witness for two hours.  Practice asking the hard questions and having the witness answer.

Lesson 2 may be less obvious: keep it simple.  I’m surprised at the complexity of the witness preparation advice you can find, especially from professional consultants with PhDs and other impressive credentials.  After reading a professional’s long list of pointers, I sometimes find myself wondering “has this person ever had to prepare a real flesh and blood person to testify?”

The problem is that most witnesses, even sophisticated and educated ones, simply do not have the necessary skill and control of their emotions to keep all this nuanced advice straight in their heads, especially in a high pressure situation like a deposition or trial.  Too often, the result is that the witness gets confused because he is trying too hard to follow a complicated list of pointers, some of which may seem contradictory.  Golfers will understand this.  It’s like telling someone on the golf course “here are 15 things you need to keep in mind while you’re swinging the golf club.”

It is better to keep it simple.  Realistically, a golfer can only think about one or two things while he’s swinging the club, like “keep your head down.”  It’s the same with testifying: you want the witness to focus on two or three simple things.  What those things are will vary based on the witness and the situation, but they can be procedural, such as “listen carefully to the question before you answer,” or substantive, such as “whatever you do, don’t let her get you to admit you read that email” (unless of course, the witness did read that email).  And if you practice with the witness, some of your tips may become automatic, like muscle memory in the golf swing.

Lesson 2.5 is related to keeping it simple: I don’t know” or “I don’t remember” should usually end with a period.  I recognize this one is hard to follow.  There is perhaps no greater urge in human nature than to follow the statement “I don’t know” with an explanation or some speculation about what the answer might be.  But the witness has to learn to fight this urge.  If the answer to the question “did you ever see this email?” is “I don’t remember,” then teach the witness to say “I don’t remember” period.  Admittedly, that approach may not work so well in public relations, but it is usually the safer approach in litigation.

But what if the witness merely saying “I don’t remember” is not going to be persuasive to a jury?  This leads to Lesson 3: If you’re going to take an aggressive position on a difficult issue, commit to it and stick to it.  For example, if whether the witness saw a particular email is a crucial trial issue, and if you decide to take the position that he never saw the email, then prepare the witness to say this: “I don’t believe I ever saw that email, because there were a lot emails to my office I didn’t see, and I would have remembered seeing an email like that.”  Teach the witness to repeat this answer when the question is asked again (and it will be). It is similar to Starr’s Answer No. 3 above, but it is more assertive.  If the witness really does not remember seeing the email, then the answer is truthful, and it sounds more confident because it states the conclusion first.

Finally, Lesson 4 is this: make sure your witness knows never to turn to you and say “was that ok?”

_________________________________________________________________

cropped-head-shot-photo-of-zach-wolfe.jpg

Zach 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.