Injunction Junction, What’s Your Function?

Injunction Junction, What’s Your Function?

TexasBarToday_TopTen_Badge_VectorGraphicThe Highland Capital 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]

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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.

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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?

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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?

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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?

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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.

*Update: If the plaintiff goes to trial on a trade secrets claim and presents expert testimony on actual damages, there is some risk the court will say that the damages evidence shows that there is an adequate remedy at law and therefore “irreparable injury.” This seems to be what happened in Pike v. Texas EMC Mgm’t, LLC, No. 17-0557, 2020 WL 3405812, at *23-24 (Tex. June 19, 2020).

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Zach Wolfe (zwolfe@fleckman.com) is a Texas trial lawyer who handles non-compete and trade secret litigation at his firm Fleckman & McGlynn, PLLC. Thomson Reuters named him a 2020 Texas Super Lawyer® for Business Litigation.

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?”

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Zach Wolfe (zwolfe@fleckman.com) is a Texas trial lawyer who handles non-compete and trade secret litigation at his firm Fleckman & McGlynn, PLLC. Thomson Reuters named him a 2020 Texas Super Lawyer® for Business Litigation. His golf game has really suffered since he started blogging.

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.