The Sunk-Cost-Fallacy Fallacy

The Sunk-Cost-Fallacy Fallacy

Donald Trump made news when he suggested it might be time to pull American troops out of Afghanistan. U.S. military forces have been there about 18 years. That’s an easy number for me to remember because my daughter is 18 years old. She was born in 2001. Then 9-11 happened, and I’m kind of glad she wasn’t old enough to remember it.

Going into Afghanistan seemed like a no-brainer at the time. The Taliban controlled Afghanistan and were harboring Al-Qaeda. It seemed the only people who opposed President George W. Bush’s decision to send U.S. troops into Afghanistan were the kind you can count on to oppose virtually any U.S. military action (far left with a sprinkle of libertarian types). In the wake of the worst attack on American soil in my lifetime, W’s approval rating was high even among Democrats.

Of course, that didn’t last. Opinions on the Iraq war were more divided, and today it seems there is a broad consensus that Iraq was a mistake. Not only that, people are even questioning whether it makes sense to stay in Afghanistan. Eighteen years later the Al-Qaeda threat looks significantly diminished, yet Afghanistan seems like an endless quagmire.

More traditional hawks tend to reject this Afghanistan revisionism. If we leave Afghanistan now, aren’t we admitting that going in to get Bin-Laden and Al-Qaeda was a mistake? After all the dollars spent and American lives lost, how can we just give up?

This, of course, is the Sunk Cost Fallacy. It’s primarily a principle of economics, but it applies in a wide range of scenarios. The idea is that in deciding whether to spend additional money or resources on a project that is in progress, a rational actor should consider whether the future benefits are likely to outweigh the future costs. It is a fallacy to consider costs incurred in the past—the “sunk” costs—because there is nothing you can do to change them.

In other words, it’s a fallacy to continue pursuing a venture that is not going to be profitable on the ground that you’ve already invested time and money in it.

Sound familiar, litigators? If you have any experience with litigation, you have probably experienced the sunk-costs fallacy firsthand. Let’s consider an example from my favorite hypothetical lawsuit, Paula Payne Windows v. Dawn Davis.

The Sunk Cost Fallacy in Litigation

Dawn Davis was the top sales person at Paula Payne Windows, but she became disgruntled when her business development budget was cut and she couldn’t do her annual trip to Vegas with her best customers. So she accepted a job offer from Paula Payne’s fierce competitor, Real Cheap Windows.

Then Paula Payne sued Dawn, claiming breach of contract and misappropriation of trade secrets. But the judge thought the non-compete was too broad and denied Paula Payne’s motion for a temporary injunction.

Six months later, Paula Payne had obtained no relief and spent over $50,000 on legal fees. Documents produced by Real Cheap showed that Dawn had brought several customers to Real Cheap, generating about $100,000 in revenue. Paula Payne’s CFO estimated that Paula Payne would have made about $20,000 in profit on those sales if the customers had stayed with Paula Payne.

“Paula, we’ve got to make a decision,” the company’s lawyer said to the founder and CEO. “Our trial date is only six months away,” he said, “and we need to hire a CPA as a damages expert.” And here’s the kicker: “I know a good one we can use, but he’ll need a deposit of $15,000.”

Paula grimaced. “Ok, and how much are your fees going to be from now through the trial?” she asked. “Hard to say,” her lawyer said, “but you’re looking at paying us at least another $50,000.” “So you may want to think about settling,” he said, “especially considering your damages may be less than $50,000.” He added that Real Cheap’s lawyer already indicated Real Cheap would be willing to do a walk-away settlement.

“No way,” Paula shot back. “What was the point of suing Dawn and Real Cheap and paying you $50,000 if I’m just going to quit now?”

And there it is. The Sunk Cost Fallacy. A rational business person would coldly look at the cost of going forward (around $65,000), the potential benefit (let’s assume a recovery of around $50,000), and the chance of success. Even assuming a better than even chance of success, it looks like the smart move for Paula Payne would be to settle for whatever she can get, or even to walk away.

The Sunk-Cost-Fallacy Fallacy

But of course real people—even sophisticated business people—don’t think like that. It doesn’t feel right to spend $50,000 on a project and then decide to shut it down. It’s easy to understand that emotion.

If want to put it in economic terms, you could say there is a psychological cost to giving up on a venture when you have already invested your time, money, and energy in it. The mental pain that Paula will feel if she quits is real, and in theory you could assign a dollar value to it. Isn’t that similar to what juries do when they consider “mental anguish” damages?

When you take that pain into account, then maybe the economic critique of the Sunk Cost Fallacy is itself a fallacy. The economic problem with the critique is that it doesn’t take all of the relevant costs into account.

Putting aside economics, there’s a more practical problem for Paula Payne’s lawyer. If he approaches the issue from purely an economic standpoint, he’s going to under-appreciate the importance of Paula’s emotions, and he won’t have a happy client. In other words, presenting the issue to Paula as purely dollars and cents doesn’t reflect high “emotional intelligence.”

It turns out there is a second principle at play: the Sunk-Cost-Fallacy Fallacy. It’s a fallacy to think that a client who has sunk costs should make decisions based purely on a rational assessment of the future economic costs and benefits. After all, Paula’s not a robot. In the words of Bob Schneider, she’s only blood and bones.

The First Law of Holes

Let’s assume that Paula Payne’s lawyer gets that. He has high emotional intelligence and is aware of the Sunk-Cost-Fallacy Fallacy. That means he will not be too quick to dismiss Paula’s objection that she has already spent $50,000 on the lawsuit. He will understand that for Paula, simply giving up is not an option, even if walking away makes economic sense. He will “feel her pain.”

dark-excavation-graphic-1601495
I’m fixing a hole, where the rain gets in

So, full speed ahead! Forget the fact that Paula Payne may have to spend over $65,000 on lawyer and expert fees to go to trial on a $40,000 lost profits claim. At least she’ll be able to look herself in the mirror and know she stood up for the rights of her company. Right?

Maybe. But here’s the problem. Chances are, the case is still going to settle. I’ve taken a non-compete case to trial before, but it’s rare. A trial of any kind of case is rare. Nine times out of ten (or more), it’s just a question of when the case settles, and for how much.

Let’s assume that six months in, Paula Payne Windows decides to keep moving forward. Then she spends another $30,000 on legal fees over the next three months. At that point, Real Cheap offers $20,000 to settle the case. Now Paula has an even more difficult decision. Settling is going to be even more painful because now she’s spent over $80,000.

This brings us to a third principle: the First Law of Holes. The First Law of Holes says when you find yourself in a hole, stop digging.

Yes, the pain of walking away after spending a lot of money is real. But that pain is only going to increase after you’ve spent even more money. In our hypothetical, Paula would have been better off—and probably felt better about the outcome—if she had stopped digging at the six-month mark.

So we’ve come full circle. In a sense, the First Law of Holes is just a version of the Sunk Cost Fallacy. But the First Law of Holes brings home the crucial point that sunk costs keep increasing. Better to cut your losses now than later.

That doesn’t necessarily mean the U.S. was wrong to go into Afghanistan, or that Paula Payne made a mistake when she decided to sue Dawn Davis and Real Cheap Windows. She understandably felt she had to do something to protect her company. And it is not to say that business people should never press forward with a lawsuit. Then I would be out of a job.

But whether we’re dealing with litigation, foreign policy, or day-to-day business decisions, we should be self-aware enough to recognize when the Sunk Cost Fallacy is tugging at our heart strings. Even if it’s just human nature, we should resist that pull. And sometimes the right decision will be to stop digging.

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IMG_4571Zach Wolfe (zwolfe@fleckman.com) is a Texas trial lawyer who handles non-compete and trade secret litigation at his firm Fleckman & McGlynn, PLLC.

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.

Can You “Plead Around” the TCPA?

Can You “Plead Around” the TCPA?

Does the First Amendment protect the right to burn the American flag? Well, it depends. Consider three scenarios:

  1. A Boy Scout troop burns a worn-out American flag because that is the proper and respectful way to dispose of it. See 4 U.S.C. § 8(k) (“The flag, when it is in such condition that it is no longer a fitting emblem for display, should be destroyed in a dignified way, preferably by burning.”)
  2. A radical burns the flag at a lawful protest while yelling “down with American imperialism” (which tells you the radical is probably old enough to qualify for Medicare).
  3. A teenager lights an American flag in the school gym as a prank, setting off the sprinkler system and fire alarm.

One of these things is not like the other. The first two examples arguably involve some expressive component. Burning the flag is intended to express a certain viewpoint. But in the third example, there is no real communication, just conduct. Thus, the teenager would be hard pressed to argue that his flag-burning was a communication protected by the First Amendment.

But of course, communication is conduct, so we shouldn’t overstate the distinction. The point is that some conduct does not involve communication.

Conduct vs. communication in TCPA litigation

This point is important in other areas of law, too. Like, oh I don’t know, the Texas Citizens Participation Act (TCPA).

Coincidentally, I may be arguing about the TCPA in court today, and I will give a presentation on it tomorrow for the Houston Bar Association.

The conduct vs. communication distinction can be critical in TCPA litigation. How? First, let’s back up and review what we’ve learned before:

  • The TCPA is an “anti-SLAPP” statute that allows a defendant to file a motion to dismiss that requires the plaintiff to offer evidence to support all elements of its claim.
  • The TCPA applies to any lawsuit that is based on a communication about a “matter of public concern,” which can be just about anything.
  • The TCPA is not limited to its stated purpose of protecting constitutional rights; Texas courts have interpreted the TCPA’s definitions broadly to apply to just about any type of lawsuit.

As a result, the TCPA has fundamentally changed Texas litigation, including departing employee litigation, which I often handle. It has also produced some of Five Minute Law’s greatest hits, like A SLAPP in the Face to Texas Trade Secrets Lawsuits, How to Kill a TCPA Motion, and Houston Judge Calls Out Texas Supreme Court’s Simplistic “Textualist” Approach to TCPA.

As the promotional announcement for my presentation says, the TCPA has “swept through the Texas litigation world like a prairie fire.” Now that’s good marketing.

But sooner or later, you know the Empire is going to strike back. Companies that want to enforce their non-competes and protect their (alleged) trade secrets are going to push back on broad application of the TCPA. But what can they do?

One option is to try to “plead around” the TCPA. I touched on this in Much Ado About Nothing? The TCPA broadly applies to claims that are based on communications. So maybe you can avoid the TCPA by alleging conduct, not communication.

Does the TCPA apply to securities litigation?

This approach was successful in a recent case that involved yet another type of lawsuit, Texas Securities Act litigation. I also have some experience with that, having co-authored Claims and Defenses Under the Texas Securities Act, which critics have praised as the longest Texas Securities Act paper they have ever seen. But I digress.

The case was Smith v. Crestview.[1] It involved a failed investment in a scheme to develop a vaginal rejuvenation product derived from human amniotic cells.

This reminds me of the sage advice my grandpappy gave me before he passed: “Put your money into real estate. They can’t make any more of it. Oh, and one more thing. Don’t ever invest in an unproven vaginal rejuvenation product derived from human amniotic cells.”

But seriously, while the product was unusual, the basic fact pattern was all too familiar. The crucial conversation went something like this:[2]

Armstrong: Hi, Mr. Crestview Managing Partner. I’m Mary Armstrong. I’ve got a great investment opportunity for your company.

Crestview: Well, that sounds interesting, but we adhere to a conservative investment strategy, so I’ll need a lot of information.

Armstrong: No problem. I own a startup called NuVivo Bioscience Solutions. We’ve got a novel product derived from human amniotic cells.

Crestview: That sounds like a pretty speculative investment. How do I know we’ll get a good return?

Armstrong: Let me tell you what we’ve already done. We’ve manufactured prototypes. We’ve hired doctors at Stanford to test it. We have a sales force ready to go. Several surgeons have verbally committed to using the product, and we should be ready to sell it in less than 120 days.

Crestview: 120 days? What about FDA approval?

Armstrong: That’s the beauty of it. It’s a human-cellular or tissue-based product, so it’s not subject to federal testing, approval, and labeling regulations.

Crestview: Ok, that sounds good, but what if it doesn’t work?

Armstrong: Oh, I know it works. I had myself injected with the product, and it worked just like we expected.

Crestview: I’m glad to hear that but still, you’re just one person. I don’t think I can risk our partners’ money on something this risky.

Armstrong: Wait, did I mention that Dr. Jesse Smith has agreed to provide the product? We even have his name on our proposed website design.

Crestview: Dr. Smith, the renowned Fort Worth plastic surgeon? Why didn’t you say so?

Crestview then decided to invest and wired $500,000 to Armstrong’s company.

Let’s just pause here for a moment. Those of you who have experience with securities litigation probably know where this is going.

The rest of you will be shocked to learn that:

  • After receiving the half-million-dollar investment, Armstrong stopped communicating with Crestview.
  • Armstrong spent almost half of the 500 grand, mostly on personal expenses, including a trip to Vegas where she met Dr. Smith. [I will omit the joke my wife cracked when I shared this fact from the case.]
  • Armstrong’s company made no sales of the product.

If these allegations are true, then Crestview probably has a pretty good case against Armstrong. But do you think Armstrong is good for a judgment in excess of $500,000? Probably not.

Does aiding and abetting require a communication?

So, Crestview did what investors often do in these cases. It found a deeper pocket, suing Dr. Smith for aiding and abetting Armstrong’s securities fraud.[3]

Dr. Smith’s lawyers apparently read Five Minute Law, because they knew that Texas courts have broadly applied the TCPA. They filed a TCPA motion to dismiss, contending that the Texas Securities Act claim was “designed to chill Dr. Smith’s First Amendment rights of free speech and association.” The trial court denied the motion, and Dr. Smith appealed.

Crestview’s lawyers, no doubt remembering the flag-burning case from their Con Law course, responded with the conduct vs. communications distinction. They argued that the securities claim was based on Smith’s conduct, not his communications, and the Fort Worth Court of Appeals agreed.

The Court of Appeals relied heavily on Crestview’s pleading:

In this case, Crestview specifically and narrowly alleged that Smith’s actions aided Armstrong in her violations of the TSA, not his communications. None of the allegations leveled against Smith referred to communications with Armstrong. Rather, Crestview focused on Smith’s actions and inactions . . .

Aha! So you can plead around the TCPA. Just be sure to allege only conduct, not communication, by the defendant. For example, in a trade secrets case just allege that the former employee used the employer’s trade secrets after going to work for the competitor, rather than pleading that the employee disclosed the trade secrets to the competitor.

Not so fast. The Crestview court was careful to “recognize that artful pleading cannot be a detour around the TCPA.” Still, the court rejected Smith’s argument that the “actual, yet unpleaded” nature of Crestview’s claim was based on communications with Armstrong.

It appears two factors were important to the court. First, while Smith testified at his deposition that he had discussions with Armstrong about the product, “these discussions are not the basis of Crestview’s narrow claim against him.”

Second, the court did not want to open the floodgates: “The practical effect of Smith’s position—any action he took as an aider under the TSA necessarily involved communications—would seem to extend the definition of communication, and thus the reach of the TCPA, to noncommunications.”

So, Crestview teaches us that the TCPA does not apply to a claim for aiding and abetting liability that is not expressly based on communications between the “aider” and the primary actor.

We can build, a beautiful city . . .

The Crestview holding does not strike me as unreasonable. But it’s a little unsatisfying.

The first problem with the Crestview approach is that communication is implicit in just about any conduct someone can get sued for, but the case doesn’t really tell us how to distinguish between a claim that is based on the communication and one that isn’t. Perhaps the test is whether the cause of action could survive without proof of the communication. Or is it whether the communication was a factor that motivated the plaintiff to sue? We don’t know.

The second problem is more practical. The Crestview holding seems to open the door to plaintiffs “pleading around” the TCPA through “artful pleading.”

Imagine that I burn an American flag outside the Houston City Hall to protest the City’s rules against food trucks parking on downtown streets. To retaliate, the City charges me with burning property without a permit and, to try to get around the First Amendment, the City doesn’t say anything about any communication. Would that legal action be based on communication, or conduct?

As much as I like taco trucks, let’s not test it.

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IMG_4571Zach Wolfe (zwolfe@fleckman.com) is a Texas trial lawyer who handles non-compete and trade secret litigation at his firm Fleckman & McGlynn, PLLC. The only time he was part of any flag-burning was in Boy Scouts.

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] Smith v. Crestview NuV LLC, __ S.W.3d __, No. 02-18-00220-CV, 2018 WL 6215763 (Tex. App.—Fort Worth Nov. 29, 2018, no pet. h.).

[2] Obviously I’m making up this dialog and have no knowledge of how the discussion actually went. But this does give you the gist of the facts recited in the court’s opinion.

[3] The Texas Securities Act does not actually use the words “aiding and abetting,” but the traditional phrase just has a nice ring to it.

Lordy, There are Text Messages! Lessons from the Roger Stone Indictment

Lordy, There are Text Messages! Lessons from the Roger Stone Indictment

Like most lawyers, I still recall the very first lawsuit I worked on. It was an insurance coverage case arising from a huge jury verdict. I remember going through the correspondence from the underlying case, mainly looking for evidence about why the insurance companies didn’t settle the case.

That’s thrilling stuff for one group: insurance coverage lawyers. For everyone else, not so much.

But here’s one thing I remember about that correspondence you might find interesting: there was not a single email or text message.

That was 1997. There were a lot of letters in that file, most of them by fax. We had email, of course, but I wasn’t surprised that the file had no emails. And very few people were texting then (certainly not about business or legal matters).[1]

Fast forward two decades, and emails are ubiquitous in litigation. Of course this change has not gone unnoticed. I remember a few years ago a senior litigator lamenting how emails had ruined litigation (he was mainly referring to the time and expense of e-discovery battles). But the degree of the change really hit me when I read the Roger Stone indictment last week: 90% of it is about emails and text messages.

The Stone Indictment

I’m sure you’ve heard about the Roger Stone indictment, but if you haven’t read it, first you’ll need a players list:

“Organization 1”: WikiLeaks

“Head of Organization 1”: Julian Assange

“Person 1”: political commentator Jerome Corsi

“Person 2”: radio personality Randy Credico

“Senior Trump Campaign official”: Steve Bannon

“Supporter involved with the Trump Campaign”: I’m not sure who this is.

For better readability I’m just going to use the proper names in my references below.

The seven-count indictment accuses Stone of three things: obstructing a Congressional investigation (Count 1), false statements to Congress (Counts 2-6), and witness tampering (Count 7).

If you’ve paid any attention to the Mueller investigation, or if you’ve just watched Law and Order, you’re familiar with Mueller’s “flipping” strategy. It’s the same approach prosecutors take to organized crime. You start by charging the lower-level people and getting them to flip on the people above them. You work your way up the ladder until you get the boss.

But the striking thing about the Stone indictment is that Mueller doesn’t need anyone to flip on Stone. Why not? Because he can prove his case against Stone with Stone’s own emails and text messages. Let’s break it down.

Count 1: The Special Counsel alleges that Stone obstructed the Congressional investigation by giving false testimony, failing to turn over responsive documents, submitting a false letter to Congress, and attempting to have Credico testify falsely to Congress. (¶ 41)

This count can be proven simply by the existence of emails and text messages that Stone either failed to produce or falsely stated did not exist. That’s before we even get to the substance of what they said.

Count 2: “STONE testified falsely that he did not have emails with third parties about Assange, and that he did not have any documents, emails, or text messages that refer to Assange.”

The emails show that Stone had communications with Jerome Corsi and Randy Credico about Assange. For example:

7/25/16 Email from Stone to Corsi: “Get to Assange [a]t Ecuadorian Embassy in London and get the pending WikiLeaks emails.” (¶ 13a)

8/2/16 Email Corsi to Stone: “Word is friend in embassy plans 2 more dumps.” (¶ 13c)

Count 3: “STONE testified falsely that his August 2016 references to being in contact with Assange were references to communications with a single ‘go-between,’ ‘mutual friend,’ and ‘intermediary,’ who STONE identified as Randy Credico.”

The emails between Stone and Corsi show that Credico was not the only intermediary. See the examples under Count 1 above.

Count 4: “STONE testified falsely that he did not ask the person he referred to as his ‘go-between,’ ‘mutual friend,’ and ‘intermediary,’ to communicate anything to Assange and did not ask the intermediary to do anything on STONE’s behalf.”

In fact Stone sent text messages and emails to Credico asking him to communicate specific requests to Assange. For example:

9/18/16 text message from Stone to Credico: “I am e-mailing u a request to pass on to Assange.”

9/18/16 email from Stone to Credico: “Please ask Assange for any State or HRC e-mail from August 10 to August 30 . . .”

Count 5: “STONE testified falsely that he and the person he referred to as his ‘go-between,’ ‘mutual friend,’ and ‘intermediary’ did not communicate via text message or email about WikiLeaks.”

Stone and Credico did communicate via text message and email about WikiLeaks, as shown by the examples above.

Count 6: “STONE testified falsely that he had never discussed his conversations with the person he referred to as his ‘go-between,’ ‘mutual friend,’ and ‘intermediary’ with anyone involved in the Trump Campaign.”

The emails and text messages show that, in fact, Stone discussed what he was learning from his intermediary with a “high-ranking Trump Campaign official” (Bannon) and a “supporter involved with the Trump Campaign”:

10/4/16 email from Bannon asking about the status of future releases by Organization 1. Stone replied that Assange had a “[s]erious security concern” but that WikiLeaks would release “a load every week going forward.” (¶ 16c)

10/4/16 text message from the supporter involved with the Trump Campaign to Stone, asking “hear anymore from London”? Stone replied, “Yes – want to talk on a secure line – got Whatsapp?” (¶ 16d)

Count 7: Stone “knowingly and intentionally corruptly persuaded and attempted to corruptly persuade another person, to wit: Randy Credico, with intent to influence, delay, and prevent the testimony of any person in an official proceeding.” (¶ 45)

You’d think this count would depend on the testimony of Credico. In that case, Stone’s strategy would be to deny pressuring Credico and to attack Credico’s credibility. But the problem for Stone is that he pressured Credico in his own text messages.

And this is where it gets juicy. Not only does Mueller have text messages where Stone leans on Credico, he has text messages with flavor. Here are some highlights:

Stone texts Credico: “‘Stonewall it. Plead the fifth. Anything to save the plan’ . . . Richard Nixon.” (¶ 37a)

Stone texts Credico to do a “Frank Pentangeli,” the character in The Godfather: Part II who testifies to a congressional committee that he doesn’t know anything. (¶ 37e)

More texts from Stone to Credico: “And if you turned over anything to the FBI you’re a fool.” “If you testify you’re a fool. Because of tromp I could never get away with a certain [sic] my Fifth Amendment rights but you can. I guarantee you you are the one who gets indicted for perjury if you’re stupid enough to testify.” (¶ 37f)

“I’m not talking to the FBI and if your smart you won’t either.” (¶ 39a)

My personal favorites: “You are a rat. A stoolie. You backstab your friends-run your moth my lawyers are dying Rip you to shreds.” I’m going to “take that dog away from you” (referring to Credico’s therapy dog Bianca). “I am so ready. Let’s get it on. Prepare to die [expletive].” (¶ 39b)

“You are so full of [expletive]. You got nothing. Keep running your mouth and I’ll file a bar complaint against your friend” (¶ 39c)

Dang! If you’re a civil litigator like me, can you imagine finding dynamite emails like this? Not only do they prove Stone pressured Credico to stonewall Congress, they are the kind of zingers that a jury is going to remember. In the words of Bob Schneider, “the flavor’s too strong.”

There is also a sober lesson here. As the senior litigator lamented, fighting over discovery of emails may have taken the fun out of litigation. But the emails themselves—as well as the text messages—may have saved litigation.

The Emails Will Set You Free

Imagine a world where Roger Stone didn’t have email or text capability. Would he have written letters saying all that stuff to Corsi, Credico, and Bannon? Highly unlikely. And then it would come down to testimony from Corsi and Credico, with Stone claiming they made the whole thing up.

But no, Stone can’t reasonably dispute the emails and text messages. That’s why he and his lawyer have already signaled a different strategy. They will have to concede the false statements but argue that the statements were immaterial and unintentional. I’m no criminal law expert, but those arguments sound pretty weak to me. So the big lesson of the Stone indictment is the importance of the defendant’s emails and text messages.

But does such a strange case really tell us anything about ordinary litigation? The defendants in most cases are not so brazen, right?

Yes, we could dismiss Stone as an oddball. I mean, the dude has a tattoo of Nixon’s face on his back and dresses like a villain from an M. Night Shyamalan movie.

Still, let’s not be too quick to treat the Stone indictment as a special case. I admit I’ve never seen an email in a business lawsuit where a guy threatens to take you’re little dog too (!) But I have seen some doozies. You’d be surprised the things people will put in an email. See, for example, the case featured in How Not to Handle “Bad” Emails in Litigation.

And with text messages it’s even worse. Just as people feel comfortable saying things in an email they would never say in a letter, they will put stuff in a text message they would never say in an email.

On the other hand, someone who never uses email or text messages doesn’t have to worry.

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IMG_4571Zach Wolfe (zwolfe@fleckman.com) is a Texas trial lawyer who handles non-compete and trade secret litigation at his firm Fleckman & McGlynn, PLLC.

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.

photo credit: Eric Yi-Jun Wolfe

[1] According to this history, the first text message was sent in 1992, but texting did not become widespread until around 2000, eventually passing phone calls in 2007.

MLK Day Lessons from the Movie “Selma”

MLK Day Lessons from the Movie “Selma”

If you’ve read my morning routine you know that one piece of it is listening to sports talk radio to find out for the final time if Lebron James is better than Michael Jordan. Another perennial drive-time debate is whether Bill Belichik has won so many games with the New England Patriots because he has Tom Brady as his quarterback, or if Brady has won so much because he has Belichik.

Wherever you come down in this debate, you have to admit the Patriots have had an amazing run in the Brady-Belichik era. Thirteen AFC Championship appearances. Eight Super Bowl appearances. Five Super Bowl wins. So far.

This is infuriating for fans of other teams because the NFL is supposedly built for “parity.” In contrast to college football, it rewards winners by giving them worse draft picks. Perhaps this is why, sadly, the Patriots have replaced my Dallas Cowboys as the NFL’s most hated team.

Haters will claim it’s the cheating. But some part of the credit for the Patriots’ astounding run should go to the well-known philosophy posted in their practice facility: Do Your Job.

This is a great mantra because in three little words it conveys two distinct messages, one of exhortation, the other of relaxation. “Do Your Job” says first, take care of your responsibilities. Your teammates are counting on you. But second it tells you not to worry too much. You don’t have to do anything spectacular, just do your job. Trust that if your teammates do their jobs too, the team will succeed.

As I wait to watch the Patriots play on the day before Martin Luther King Day, this reminds me of a scene from the 2014 historical drama Selma, directed by Ava DuVernay and starring David Oyelowo as Martin Luther King, Jr.

Selma tells the story of Dr. King leading the protests that culminated in the famous march(es) across Edmund Pettus Bridge, and ultimately, the Voting Rights Act of 1965. If you haven’t seen the movie, I highly recommend checking it out on Netflix.[1]

The scene that sticks in my mind takes place about 18 minutes into the movie, in the modest kitchen of the King home in Atlanta. Mrs. King is folding laundry at the kitchen table. The phone rings.

Coretta: Hello? [We hear a man speaking in ominous tones over the receiver, she hangs up as Martin walks in.]

Martin: Same thing? [She looks at him knowingly then turns away.] 

Coretta: When are y’all heading out? 

Martin: We, uh, head back to Selma at 5 am. Turned out to be an ideal staging ground. There’s a . . . a full couple of weeks planned, quite a bit to be done.

Coretta: [drinks from a glass of water] I see.  [Martin takes the trash bag out of the kitchen trash can.] That highway is nice now, get you there in a couple of hours. Good people in those parts, though. [She hands him a new garbage bag.][2] 

Martin: Well, I’m worried about the ones who ain’t so good. [He puts a new bag in the trash can]. This local sheriff, Jim Clark,[3] is supposed to be bad business. Won’t go down without a fight, they say. And since we don’t fight . . . Well, good a place to die as any, I guess. 

Coretta: I wish you wouldn’t talk like that.

Martin: It just takes the edge off. 

Coretta: You and your friends can joke about that. I don’t joke about that.

Martin: You’re right. I’m sorry.

Coretta: I’ll uh, put these things away in your bag now, I didn’t realize you were leaving so early [she walks out carrying some folded clothes]. 

[Martin turns off kitchen light, hesitates.]

This is a great, economical scene. It conveys a lot of information without a lot of action or dialog. You know the Kings are receiving harassing phone calls. You sense tension in their marriage. You get the exposition about what’s happening with the sheriff in Selma. And, perhaps most important, you see that Dr. King is a real flesh and blood person who has to balance his family life with the very real possibility that his activism could get him killed.

But there’s one part of this scene that really resonated with me. Did you spot it? Remember, this is Martin Luther King, who we see in the opening scene preparing to accept the Nobel Peace Prize. Martin Luther King, the hero who led the Civil Rights movement. I mean, today the dude has his own national holiday. Yet in this scene we see him taking out the trash?

Why did the director or screenplay writer include this detail? The Kings could have simply stood in the kitchen, or sat at the kitchen table, talking.

Maybe it was just to give the actors something to do so the dialog would sound more natural. But I suspect there was more to it. When we see Dr. King emptying the trash can, it’s a reminder. Even a person who is doing great things still has to deal with the mundane necessities of daily life.

Of course, when the people doing the great things are rich, they pay other people to do the tedious things. The wealthy can’t be bothered with even the simplest of tasks, like folding their own umbrellas.

But still, even Very Important People have to do a lot of the same things ordinary people do. They put their pants on one leg at a time just like the rest of us. Or to vary a common saying, their trash stinks too.

And seeing Martin Luther King take out the trash was a small but important lesson for white-collar “professionals.” It was especially necessary for me because I work in the profession with the whitest of collars: the law. There is a tendency for us lawyers—especially lawyers in the more “elite” firms—to think we’re above everyone else. We have advanced degrees. We have licenses. We don’t take out the trash; we have people who come through the office after 5:30 to do that.

And when your hourly rate is $500 or higher, you start to think your time is more valuable than other people’s. Why should you spend an hour doing yardwork when you could be billing that time?

I’m not saying lawyers–or other busy professionals–shouldn’t pay someone else to mow the grass. I’m more concerned with the mindset. Do you get frustrated with the time you have to spend doing “ordinary” things when you’re trying to accomplish something important? I know I do. And all I’m trying to do is build a law practice. It’s not like I’m leading a movement to overcome 100 years of state-sponsored terror and voter suppression.

But maybe we shouldn’t look at household chores as a hindrance. Why should we expect to be trusted with great things when we can’t be trusted with the little things? Selma reminds us that taking care of minor tasks we don’t really want to do is perhaps the simplest form of morality.

So do your job. Take out the trash. Or whatever the equivalent responsibility is for you.

And trust that if you do your job, and other people do theirs, great things can happen.

___________________________________________________________________

IMG_4571Zach Wolfe (zwolfe@fleckman.com) is a Texas trial lawyer who handles non-compete and trade secret litigation at his firm Fleckman & McGlynn, PLLC. Like most lawyers he’s still at the office when the housekeepers empty the trash.

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] I recommend the movie with one significant caveat. As you may recall, there was some controversy over the film’s historical accuracy, particularly its portrayal of President Lyndon Johnson as a reluctant ally who King had to pressure into supporting the Voting Rights Act. Former Johnson aide Joe Califano blasted this portrayal as inaccurate. Director Ava DuVernay responded that she was telling a story, not making a documentary. This raises thorny questions: How much historical inaccuracy we should accept as artistic license? Do factual inaccuracies lessen the quality of a historical drama? Are minorities held to a double standard when they use artistic license? Interesting issues that I will save for another day.

[2] Apparently the clear plastic trash bag in the scene was an anachronism; such bags were not used in 1965. Also, you can see the blender on the counter is plugged into an outlet that has a green LED light. But let’s not quibble.

[3] Sheriff Clark was an ardent segregationist known for recruiting a horse-mounted posse of KKK members, wearing military style clothing, and carrying a cattle prod that he infamously used on black protestors. In his later life, Clark sold mobile homes, got accused of embezzlement, and even served time for conspiring to smuggle marijuana from Colombia. He was unrepentant to the end. In a 2006 interview, Clark said “I’d do the same thing today if I had to do it all over again.” See Jim Clark, Sheriff Who Enforced Segregation, Dies at 84.

Do Narcissists Make Better Lawyers?

Do Narcissists Make Better Lawyers?

In Book III of his Metamorphoses, the ancient Greek poet Ovid tells the story of Narcissus, the child of a naiad, Liriope, and the river-god Cephisus. Narcissus was “most beautiful” but had a “pride so fierce no boy, no girl, could touch him.”

One day a rejected youth prayed for Narcissus to get his comeuppance, and Nemesis, the Goddess of Vengeance, “judged the plea was righteous.” So she cursed Narcissus to fall in love with his own reflection in a pool. Narcissus endlessly stared at the pool, even pressing his lips to the water to kiss his own image. But “the vision is only shadow, only reflection, lacking any substance.”

Eventually, Narcissus figured out what was going on: “The truth at last. He is myself! I feel it, I know my image now. I burn with love of my own self; I start the fire I suffer.” But it was too late. “As the white frost is gone in morning sunshine, Narcissus, in the hidden fire of passion, wanes slowly . . . fading away.”[1]

This of course is the origin of the Klingon expression “revenge is a dish best served cold.” See Star Trek II: The Wrath of Khan (Paramount 1982). It’s also where we get the term narcissism, which Webster’s defines as “excessive interest in or admiration of oneself and one’s physical appearance.”

Narcissistic personality disorder

The Greek myth of Narcissus is also the origin of a modern medical term: Narcissistic personality disorder. As with any psychological condition, it is largely a matter of degree, and there is no single dispositive factor.

But while there is no single defining characteristic of narcissistic personality disorder, the Mayo Clinic publishes this list of symptoms. I’ve grouped them into four categories:

  1. What a narcissist thinks about himself
  • “Inflated sense of their own importance”
  • “Have an exaggerated sense of self-importance”
  • “Have a sense of entitlement”
  • “Believe they are superior and can only associate with equally special people”
  • “Fragile self-esteem that’s vulnerable to the slightest criticism”
  1. What a narcissist desires from others
  • “Require constant, excessive admiration”
  • “Expect to be recognized as superior even without achievements that warrant it”
  • “Expect special favors and unquestioning compliance with their expectations”
  • “Insist on having the best of everything – for instance, the best car or office”
  1. How a narcissist feels about others
  • “Lack of empathy for others”
  • “An inability or unwillingness to recognize the needs and feelings of others”
  • “Envious of others and believe others envy them”
  1. How a narcissist treats others
  • “Troubled relationships”
  • “Exaggerate achievements and talents”
  • “Monopolize conversations and belittle or look down on people they perceive as inferior”
  • “Expect special favors and unquestioning compliance with their expectations”
  • “Take advantage of others to get what they want”
  • “Behave in an arrogant or haughty manner, coming across as conceited, boastful and pretentious”

One more thing. Narcissists tend to be of a certain gender. But I won’t open that can of worms here.

I just want to distill the essence of narcissism and figure out if being a narcissist makes one a better lawyer. Because I’m a lawyer, and I like distilling essences.

I think the essential features of a narcissist are the same flaws the mythical Narcissus had: excessive self-love and excessive pride. In the workplace, these essential features of narcissism manifest as (1) an excessively high opinion of one’s abilities in relation to others and (2) excessive concern for getting credit from others.

Now that we’ve got a more precise working definition of narcissism, we can figure out if narcissists make better lawyers.

Are narcissists better lawyers?

The short answer is no. I don’t think narcissists make better lawyers.

But all else being equal, I’d bet that narcissists make more successful lawyers.

I posed a similar question in my post Are “Aggressive” Litigators More Effective? In both cases, the difficulty is disentangling the trait at issue from other traits that tend to coincide with it.

So first let’s separate narcissism from some positive traits it often accompanies: ambition, drive, boldness, to name a few. Those things can make you a more effective lawyer, but you can have them without being a narcissist.

So the question becomes: is a narcissist likely to be a better lawyer all else being equal? Assume two lawyers have the same experience, talents, and intelligence, but only one of them is a narcissist. Would you pick the narcissist to be your lawyer?

When we put it this way, I say no, for three reasons.

First, the narcissist’s inflated sense of self-importance is not helpful to the kind of work lawyers typically do. Despite what you see in movies and TV shows, good lawyering is not all bluster and bluffing. It takes discipline, organization, and diligence. The lawyer who thinks he’s hot shit—pardon my French—is less likely to be patient and methodical.

Second, narcissists just rub people the wrong way. A pompous or arrogant lawyer is usually a less persuasive lawyer.

Third, at the risk of mixing ancient Greek metaphors, lack of empathy is the narcissist’s Achilles’ heel. This is not to say that narcissists don’t get what makes people tick. I would bet the narcissist is better than most at understanding how to manipulate people. But the narcissist doesn’t really understand—or care—how other people feel. And that’s a big disadvantage. Excellent lawyers have a keen ability to put themselves in the other guy’s shoes.

But if I’m right, why does it seem like so many successful lawyers are narcissists?

Adam Grant may have some answers. He’s the top-rated professor at the Wharton School of Business and has written extensively on personality types in business leadership. In his article Tapping into the power of humble narcissism, Grant says “narcissists are more likely to rise up the ranks of the corporate elite and get elected to political office.” He chalks this up to the fact that people are drawn to the confidence that narcissists exude.

So should we strive to be more narcissistic to get ahead? Not necessarily. Grant touts a kinder, gentler version of narcissism: “Humble narcissists bring the best of both worlds: they have bold visions, but they’re also willing to acknowledge their weaknesses and learn from their mistakes.”

Makes sense to me. But to paraphrase another ancient text, what does it profit a man to be a narcissist, if he loses his own soul? On this question I think it’s useful to consult another ancient Greek, one who is less entertaining than Ovid, but perhaps more insightful.

Is narcissism a character virtue?

In his bestselling Nichomachean Ethics, Aristotle doesn’t address narcissism per se, but he does discuss vanity.

Vanity comes up in the course of Aristotle examining the major character virtues. Aristotle sees each virtue as a mean between two opposite vices. So, for example, with respect to how one responds to danger, the two extremes are cowardice and foolhardiness. Courage is the golden mean between them.

When it comes to claiming external rewards for oneself, vanity is the obvious vice:

Vain people . . . are foolish and do not know themselves; and they make this obvious. For they undertake commonly honored exploits, but are not worthy of them, and then they are found out. They adorn themselves with clothes and ostentatious style and that sort of thing; and since they both wish for good fortune and wish it to be evident, they talk about it, thinking it will bring them honor.

It’s easy to understand why vanity is a vice. But what’s the opposite of vanity? Aristotle uses a word usually translated as “pusillanimity,” which means timid or cowardly, but that’s really not the opposite of vanity, is it?

No, we don’t have a simple modern English word for the opposite of vanity. And that tells us something: we don’t think of the absence of vanity as a character flaw.

Aristotle, on the other hand, thought failing to claim the honor you deserve is a real character defect:

For the pusillanimous person is worthy of goods, but deprives himself of the goods he is worthy of, and would seem to have something bad in him because he does not think he is worthy of the goods. Indeed he would seem not to know himself; for if he did, he would aim at the things he is worthy of, since they are goods. For all that, such people seem hesitant rather than foolish.

But this belief of theirs actually seems to make them worse. For each sort of person seeks what [he thinks] he is worth; and these people hold back from fine actions and practices, and equally from external goods, because they think they are unworthy of them.

While we don’t tend to fault people for a lack of vanity, we can at least grasp Aristotle’s point. We see a version of this idea in contemporary self-help advice for professionals, especially women. See, for example, the bestseller Knowing Your Value: Women, Money, and Getting What You’re Worth by Mika Brzezinski.

So, while we don’t like vanity, we understand why hesitating to claim the “external goods” you are worthy of is a problem.

But don’t most people–men and women–have the opposite problem? You see this sentiment in the clichéd lament that Millennials are too “entitled.” And it’s not just Generation Y. It feels like it’s human nature to claim more than you deserve, not less. So you’d think vanity would be more common than pusillanimity, and worse.

But surprisingly, Aristotle says precisely the opposite. He claims that pusillanimity arises more often, and is worse.

To understand why, consider what lies between vanity and pusillanimity. Remember, Aristotle defines each character virtue as a mean between two vices. In this case, the Greek word for the mean between vanity and pusillanimity is megalopsychia.

This word is often translated as “magnanimity,” which Webster’s defines as generous or high-minded. A more literal translation is “greatness of soul” (megalo = great, psychia = soul). This better captures what Aristotle means, but “great-souled-ness” is kind of awkward, so I’ll stick with “magnanimity.”

“The magnanimous person,” Aristotle says, “seems to be the one who thinks himself worthy of great things and is really worthy of them.” So far, this sounds ok to our modern ears, though maybe a little elitist.

But then Aristotle goes a step further. The thing the magnanimous person is most concerned about claiming is honor, “the greatest of the external goods.” “Hence the magnanimous person has the right concern with honors and dishonors.”[2]

Now he’s gone too far. This “magnanimous” person sounds a little, dare I say, narcissistic.

Today the prevailing attitude about claiming  honor is more egalitarian. Yes, we want people who have traditionally been oppressed to claim more external rewards. Know your worth! But at the same time, we bristle at the notion of “great” people claiming great honors. Who do they think they are?

I have to admit my bias tends to run in this direction too. But that’s all the more reason to ponder Aristotle’s view that magnanimity is a virtue and pusillanimity a greater vice than vanity. If you’re hard-wired not to make a big a deal about your own accomplishments, maybe you’re not “living your best life.” You may need to compensate by watching how successful narcissists do it.

Learn how to claim credit. Just don’t stare too long at your own reflection.

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IMG_4571Zach Wolfe (zwolfe@fleckman.com) is a Texas trial lawyer who handles non-compete and trade secret litigation at his firm Fleckman & McGlynn, PLLC. His fragile self-esteem is vulnerable to the slightest criticism.

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] Translation by Rolfe Humphries (Indiana University Press 1983).

[2] Translation by Terence Irwin (Hackett 1985).

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

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

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

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

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

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

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

Everyone’s happy. Alright, alright, alright.

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

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

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

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

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

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

Enter textualism.

We are all textualists now

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

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

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

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

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

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

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

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

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

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

Application of the TCPA to departing employee litigation

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

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

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

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

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

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

And that brings us to Gaskamp.

Gaskamp applies the TCPA to departing employee claims

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

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

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

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

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

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

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

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

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

Justice Jennings questions the “textualist” approach to the TCPA

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

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

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

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

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

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

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

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

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

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

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

A textualist solution to the TCPA problem?

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

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

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

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

What’s up with that?

___________________________________________________________________

IMG_4571Zach Wolfe (zwolfe@fleckman.com) is a Texas trial lawyer who handles non-compete and trade secret litigation at his firm Fleckman & McGlynn, PLLC. So far no videos of him dancing on a rooftop in college have surfaced.

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

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

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

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

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

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

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

[7] Id. at 204.

[8] Id. at 206 n.75.

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

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

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

[12] Id. at *11.

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

[14] Id. at *9.

[15] Id. at *13.

[16] Id.

[17] Id.

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

[19] Id.

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

[21] Id. at *16.

[22] Id.