How long does a trade secret injunction last in Texas?

downloadAccording to a recent decision from the Dallas Court of Appeals, a permanent injunction should last forever, unless the company or the person accused of misappropriating the trade secrets provides sufficient proof that a lesser time period is adequate.  What does this mean? Well, it means that a business suing for a theft of trade secrets will be able to permanently prevent the thief from using its trade secrets, unless the thief can prove that its competing product incorporating the stolen trade secrets is a simple product, the construction of which is obvious and easily imitated.

In other words, if the competing product that was made using the stolen trade secrets is complex and would have required reverse engineering or complex research to make, then a perpetual injunction is proper.  If the competing product is a simple one, then the defendant can prove in court that an injunction should last only a short period of time, so as to eliminate any advantage the thief gained in the market place by stealing the trade secrets.

If you are facing a trade secret misappropriation claim or are suspecting that a theft of trade secrets occurred at your company, contact Leiza Dolghih at

Common Defenses to a Breach of Contract Claim in Texas

Dallas Business Litigation Attorney

Leiza Dolghih
Attorney, Godwin Lewis PC

Being sued for a breach of contract can be unpleasant, but it is not the end of the world. Texas recognizes dozens of statutory and common law defenses to a breach of contract claim, one or more of which may be available to a party who is being accused of breaching an agreement.

Depending on the terms of the contract and the dealings between the parties, a breach of contract claim may be straightforward or very complicated, and it may involve one or two events or multiple events spanning over a long period of time. However, regardless of how simple or complicated the case is, the defenses are the same.  Not all of them apply in each case, and their application, of course, depends on the facts of each case, but here is a quick list of the most commonly used ones:

1.  The contract was required to be in writing (State of Frauds) - Certain contracts in Texas must be in writing and signed. If they are not, they are not enforceable in court.  For example, a contract for the sale of real estate, a lease of real estate for a term longer than one year, or an agreement which is not to be performed within one year from the date of making the agreement, must be in writing and signed by the party against whom a breach of contract claim is being asserted.

2.  The contract is missing essential terms (Indefinite) - For example, if a contract is missing pricing information or the length of the term, and it is not clear what the parties intended such terms to be, such contract might not be enforceable.

3. A party entered into a contract because it relied on fraudulent information (Fraudulent Inducement) - A party who enters a contract based on misrepresentations of material facts made by the other party may be able to defends itself on the grounds of fraudulent inducement.

4. A required condition failed to happen (Condition Precedent) - If a contract specifies that a certain event must happen before the parties or a party must perform its obligations under the contract and such event has not occurred, the party accused of breaching the contract may claim failure of condition precedent.

5.  Too much time has passed since the breach (Statute of Limitations) - in Texas, a breach of contract claim must be filed within four years, unless a contractual provision lessens it to two years.

6.  The circumstances have drastically changed (Impracticability) - if, since the contract has been created, the circumstances beyond one of the party’s control have changed so drastically that it is no longer possible for it to perform its duties under the contract, the party may claim a defense of impracticability.  For example, if the house subject to a lease has burnt down, or the goods were destroyed by a force of nature, or the person that was supposed to perform has died or become incapacitated, such circumstances may give rise to a defense of impracticability.

7.  The party now suing had earlier indicated that it will not perform under the agreement (Repudiation) - if one party to a contract has repudiated the contract, the other party may be able to raise that repudiation as a defense to any claim of breach by the repudiating party.  Repudiation occurs if, without a just excuse, a party to a contract indicates by unconditional words or actions that it will not perform its contractual obligations.

8.  The party now suing has already accepted a lesser payment (Accord and Satisfaction) - where the parties now involved in the lawsuit have entered into an express or implied agreement, in which they agreed to discharge an existing obligation by means of a lesser payment tendered and accepted, the defense of accord and satisfaction may apply. 

9.  Waiver - where a party to a contract has acted inconsistent with that agreement, it may have waived its right to enforce the contract.

10. Mistake (Mutual or Unilateral) - in a situation where either both parties were mistaken about the terms of the contract, or one party was mistaken and the other party knew about that mistaken belief, a party may claim that the agreement is not enforceable due to a mistake.

11. The contract in dispute has been replaced by a new one (Novation) - if the parties had entered into a new valid agreement, the old agreement between them might not be enforceable.

12.  Approval of an act or non-act by the party who is now being sued (Ratification) - if a party being sued for breach of contract can establish that its action or non-action was approved by the party who is now suing, it may establish a defense of ratification.

This above list is by no means exhaustive, and there are dozens of other defenses that a party facing a breach of contract claim may use depending on whether the contract was for provision of goods or services, whether it was in writing or established through the parties conduct, and many other circumstances that are different in each case.

If you have been sued in Texas on a breach of contract claim, contact Leiza Dolghih at

The Texas Supreme Court Declares That Forfeiture Provisions in Executive Stock Incentive Programs Are Not Covenants Not to Compete

Dallas Business Litigation Attorney

Leiza Dolghih
Attorney, Godwin Lewis PC

The Texas Supreme Court in ExxonMobil Corp. v. Drennen held that forfeiture provisions in non-contributory profit-sharing plans are not covenants not to compete, but stopped short of opining on whether they constitute an unreasonable restraint of trade in violation of Tex. Bus. Code 15.05.

In Drennen, ExxonMobil’s engineer and Exploration Vice President of Americas, was awarded restricted stock options through the company’s incentive program, which allowed the company to terminate Drennen’s outstanding awards if (among other conditions) he engaged in activities “detrimental” to the company, including working for ExxonMobil’s competitors.

Drennen retired from ExxonMobil in 2007, after working there for 31 years. At the time of his retirement, he had 73,900 shares (approximately $6.2 million) of stock through the company’s incentive program.  When he went to work for a competitor shortly after his retirement, ExxonMobil notified him that his incentive awards were cancelled. Drennen filed a declaratory action seeking a declaration from the district court that the “detrimental activity” forfeiture provision in ExxonMobil’s incentive program was an unenforceable covenant not to compete under Texas law because it did not contain geographic, time, or scope limitations.

Although the incentive program stated that it was governed by New York law, the Court of Appeals decided that Texas had a materially greater interest and a strong public policy interest in the dispute involving the enforceability of a covenant not to compete used against Texas employees, and, therefore, applied Texas law in ruling that the forfeiture provision was unenforceable under Section 15.50 because it did not contain reasonable time, scope, and geographical limitations.  The Texas Supreme Court  disagreed, ruling that New York law governed the forfeiture provision, but even if Texas law applied, the forfeiture provision used by ExxonMobil was not a covenant not to compete subject to Section 15.50 requirements.

The Supreme Court explained that covenants not to compete are generally defined as “covenants that place limits on former employees’ professional mobility or restrict their solicitation of the former employers’ customers and employees.”  Such covenants are governed by the Texas Covenants Not to Compete Act (TCNCA) and, pursuant to it, must be: (1) ancillary to or part of an otherwise enforceable agreement at the time the agreement is made; and (2) contain limitations as to time, geographical area, and scope of activity to be restrained that are reasonable and do not impose a greater restraint than is necessary to protect the goodwill or other business interest of the promisee.

The forfeiture of stock provision contained in ExxonMobil’s incentive program, however, did “not fit the mold” of covenants not to compete because it did not limit Drennen’s professional mobility or restrict his future employment opportunities. Instead, according to the Court, the provision simply rewarded Drennen and other employees for continued employment and loyalty to ExxonMobil. Unlike a non-compete, where employer would have to bring a breach of contract suit to enforce the clause, the forfeiture provision simply allowed the employer to stop the incentive program, which belonged to the employer in the first place. Thus, forcing an employee to chose between competing with the former employer without restraint from the former employer and accepting benefits of the retirement plan to which the employee contributed nothing, does not create a covenant not to compete.

The Court concluded this part of the analysis as follows:

Whatever it may mean to be a covenant not to compete under Texas law, forfeiture clauses in non-contributory profit-sharing plans, like the detrimental-activity provisions in ExxonMobil’s Incentive Programs, clearly are not covenants not to compete.  . . . Whether such provisions . . . are unreasonable restraints of trade under Texas law, such that they are unenforceable, is a separate question and one which we reserve for another day.

CONCLUSION:  Because the Texas Supreme Court ruled that forfeiture provisions of that type used by ExxonMobil are not covenants not to compete, they do not have to comply with the requirements of TCNCA, i.e. such forfeiture provisions do not have to be “ancillary to an otherwise enforceable agreement” or be limited in scope, time or geographical reach. The question remains whether such forfeiture provisions constitute an unreasonable restraint of trade under the Section 15.05 of the Texas Free Enterprise and Antitrust Act of 1983, which states that “every contract, combination, or conspiracy in restraint of trade or commerce is unlawful.”  However, the Court’s decision took away an easy way for employees to fight the forfeiture provisions by pointing to the fact that they don’t contain limitations.

In light of this opinion, employers should take a close look at ExxonMobil’s incentive plan and determine whether their own programs have the same characteristics, and employees with significant stock option or profit sharing arrangements as part of the compensation package should carefully review the forfeiture provisions before agreeing to them and, where possible, negotiate their reach.

For more information regarding non-competition agreements in Texas, contact Leiza Dolghih at

A Reminder from the Dallas Court of Appeals That Non-Compete Agreements Without Time Limit Are Unenforceable

Dallas Business Litigation Attorney

Leiza Dolghih
Attorney, Godwin Lewis PC

Earlier this week, the Dallas Courts of Appeals sided with an employee in Richard P. Dale, Jr., d/b/a Senior Healthcare Consultants v. Hoschar in ruling that her non-competition agreement was unenforceable because it did not contain a reasonable time limitation.

Hoschar, who worked as an insurance sales agent for SHR had the following clause in her independent contractor agreement:

Upon Termination of the Agreement, the Agent shall return to General Agent any and all information and supplies provided to Agent including any and all information and agrees to take no action either directly or indirectly, as an agent, employees, principal, or consultant of any third party or to utilize and [sic] third party, to attempt to replace business with any policyholder by soliciting or offering competing policies of insurance to any policyholder to which Agent sold any policy of insurance pursuant to the terms of this Agreement.  During the bench trial, the trial court held that the non-competition agreement was unenforceable as a matter of law because it did not contain reasonable time and geographic limitations.

SCR argued that the covenant not to compete was reasonable. Hoschar argued the opposite. No other arguments were raised, and the Court of Appeals sided with Hoschar.  It explained that in Texas, Tex. Bus. Com. Code §15.50(a) requires that a covenant not to compete must contain limitations as to time, geographical area, and scope of activity to be retsrained that are reasonable.  The Dallas Court of Appeals and many other Texas courts have previously interpeted Section 15.50 and ruled that a covenant not to compete in an employment agreement that is indefinite in its time limitation is unreasonable and therefore unenforceable as a matter of law.  Neither party challenged the application of Section 15.50 to independent contractors, and, therefore the Court of Appeals applied it to the covenant not to compete at hand here.

At the oral argument, SCR argued that the phrase, “attempt to replace business . . . by soliciting or offering competing policies of insurance,” reasonably limits the restrain on Hoschar to the duration of the current policy held by the insured. Thus, the “replace business” restriction was limited to the current policy held by each policyholder and did not restrict Hoschar from soliciting policyholders after they renewed their coverage.  Hoschar argued that the language of the non-compete agreement did not contain an express exclusion of renewal policies, which policy holders could renew repeatedly for decades, and, therefore, was indefinite as to time and unenforceable.

Having decided that the covenant not to compete was unenforceable because it did not contain a time limitation, the Court of Appeals did not consider whether it also failed to contain reasonable geographic limits.

TAKEAWAY: Non-competition agreements are enforceable only if they contain reasonable time, scope, and geographic limitations (and meet a few other requirements).  A vague, sloppy, one-size-fits-all, or simply an overreaching non-compete, can backfire on an employer when it comes to enforcing the agreement in court.   A non-compete covenant may be clear when the company first begins its business, but it can become less than clear as the company expands or begins to operate new businesses. Updating agreements to make sure that time limits, geographic limits, and the scope of activities restricted under the agreement are clear and reasonable is key to maintaining competitive advantage.

For more information on drafting, enforcing or fighting the enforcement of non-compete and non-solicitation agreements please contact Leiza Dolghih at

An Employee Claiming Unlawful Discharge Based on Religious Beliefs Must Show That the Management and not Coworkers Knew About Such Beliefs – Explains the Fifth Circuit

Dallas Business Litigation Attorney

Leiza Dolghih
Attorney, Godwin Lewis PC

The Fifth Circuit Court of Appeals is notorious for being pro-business and pro-employer, and its last week’s ruling in Nobach v. Woodland Village Nursing Center, Inc., et al. does little to change that reputation.

In this case, Kelsey Nobach, a nursing home activities aide was discharged by Woodland Village Nursing Center after she refused to pray the Rosary with a resident, which was a regularly scheduled activity when requested.  She sued Woodland for violating Title VII of Civil Rights Act of 1964 by unlawfully discharging her because of her religion. The jury found in Nobach’s favor and awarded her $69,584 with $55,200 being for emotional distress and mental anguish, but the Fifth Circuit Court of Appeals reversed.

On September 19, 2009, a certified nurse assistant (“CNA”), a non-supervisory employee with no responsibilities over Nobach, told Nobach that a resident requested that the Rosary be read to her. Nobach told the CNA that she could not read it because it was against her religion.

The resident complained to management, and five days later, the Woodland’s activities director called Nobach into her office and told her she was fired for failing to assist a resident with a prayer.  She told Nobach: “I don’t care if it’s your fifth write-up or not. I would have fired you for this instance alone.” Nobach—for the first time—then informed the director that performing the Rosary was against her religion, stating: “Well, I can’t pray the Rosary. It’s against my religion.” The director’s response was: “I don’t care if it is against your religion or not. If you don’t do it, it’s insubordination.” After Nobach was fired, she explained that she was a former Jehovah’s Witness and still adhered to many of their beliefs.

The Court explained that Title VII makes it unlawful for an employer to discharge an individual “because of such individual’s . . . religion.” 42 U.S.C. § 2000e-2(a)(1). An employee may prove intentional discrimination “through either direct or circumstantial evidence.” Nobach argued that she offered direct evidence of Woodland’s discriminatory animus that motivated her discharge, which was evidenced by Woodland’s acknowledgement that she was fired for not praying the Rosary with the resident, and the Woodland’s director’s statement that she did not care if performing the Rosary was against Nobach’s religion, she still would have been fired because to refuse to perform the Rosary was insubordination.

The Fifth Circuit, however, found that Nobach failed to provide even one piece of evidence that showed that Nobach ever advised anyone involved in her discharge that praying the Rosary was against her religion. Nor did she claim that the CNA told any of Nobach’s supervisors that her refusal was based on her religion. The only time that Nobach actually advised her supervisor that her refusal to perform a job duty was motivated by her religious beliefs, was after she had already been discharged. As the Court said, “[i]n sum, she has offered no evidence that Woodland came to know of her bona-fide religious beliefs until after she was actually discharged.”

TAKEAWAY FOR EMPLOYEES:  When requesting a religious accommodation such as a deviation from a job duty that would violate their religious beliefs, employees must convey their request to their supervisors or the management and not just other coworkers.

TAKEAWAY FOR EMPLOYERS: When firing or letting go an employee, saying less is almost always better. It is possible that if the director who discharged Nobach used less inflammatory language instead of telling Nobach that she didn’t care if reading the Rosary was against her religion, Nobach would have been less likely to file a lawsuit. Firing an employee can get emotional, especially if there is a troubled history with the employee, however, it is important to remain cool and collected and not make any statements that the employee can later use as an ammunition to bring an unlawful discharge claim.

Leiza Dolghih frequently advises employers on how to handle troublesome employees, assists with responding to E.E.O.C. charges, and litigates employment disputes. For more information, e-mail

When Can a Franchisor Be Liable for Overtime and Minimum Wage Violations at a Franchisee’s Business?

Dallas Business Litigation Attorney

Leiza Dolghih
Attorney, Godwin Lewis PC

Earlier this month, the Fifth Circuit Court of Appeals addressed when a franchisor might be liable for its franchisee’s overtime and minimum wage violations as a “joint employer” under the Fair Labor Standards Act (FLSA).  Given the recent rise in the FLSA litigation and rather sizable penalties and damages awards assessed against the violators, Orozco v. Plackis serves as a reminder to franchisors that the more control they retain over their franchisees’ employees the more likely they are to share liability under the FLSA.

In this case, Craig Plackis owned several Craig O’s restaurants around Austin, Texas. In 2005, he entered into a franchise agreement with the Entjers to open a location in San Marcos. In 2011, Ben Orozco, a cook at the San Marcos location, filed a lawsuit against the Entjers and their company alleging that he was not paid overtime or minimum wages as required under the FLSA. After the Entjers settled, Orozco added Craig Plackis as a defendant alleging that the franchisor was also his employer.  The jury agreed with Orozco, but the Fifth Circuit reversed after finding that there was legally insufficient evidence for a reasonable jury to find that Plackis was Orozco’s employer.

Under the FLSA, covered nonexempt workers are entitled to a minimum wage of not less than $7.25 per hour effective July 24, 2009, and overtime pay at a rate not less than one and one-half times the regular rate of pay for hours worked above 40 hours in a workweek. The FLSA defines an employer as “any person acting directly or indirectly in the interest of an employer in relation to an employee.” 29 U.S.C. §203(d).

Often, when an employee works for a subsidiary, a franchise, or a professional employer organization (PEO), the question arises which entity is considered the employer for purposes of the FLSA. The courts, therefore, use the “economic reality test” to answer that question.  They look at “whether the alleged employer: (1) possessed the power to hire and fire the employees, (2) supervised and controlled employee work schedules or conditions of employment, (3) determined the rate and method of payment, and (4) maintained employment records.” A party need not establish every element in every case, and the dominant theme in the case law is that those who have operating control over employees within companies may be individually liable for the FLSA violations committed by the companies. In joint employer contexts, each employer must meet the economic reality test.

Did the franchisor possess the power to hire and fire employees? 

Orozco testified that the Entjers, and not Plackis, hired him and had the authority to fire him.  He also failed to introduce any evidence showing that Plackis ordered the Entjers to pay Orozco a particular amount or work for a specific number of hours.  Furthermore, Orozco’s attorney admitted during oral argument that there was no direct evidence to support that Plackis had authority to hire or fire Orozco.

Regardless, Orozco argued that the following indirect evidence could have supported the jury’s finding that Plackis was the employer:  (1) several employees worked at both the San Marcos location and the location owned by Plackis; (2) Plackis provided advice to the Entjers regarding how to improve the profitability of the San Marcos location, which resulted in the Entjers adjusting the schedule of their employees.  The Fifth Circuit found such indirect evidence legally insufficient to show “power to hire and fire” on behalf of the franchisor.

Did the franchisor supervise and control employees’ work schedule and conditions? 

Orozco argued that because the Entjers changed their employees’ schedule after a meeting with Plackis, the original franchisor had the authority to supervise or control employees’ work schedule and conditions at the San Marcos location. However, aside from the temporal connection between the meeting and the changes in the schedule, Orozco failed to introduce any other evidence of control.  To the contrary, both the Entjers and Plackis testified that the franchisor’s advice to the franchisee was non-binding, and Orozco himself admitted that Plackis did not set his schedule and never discussed his responsibility or position.

Importantly, the Fifth Circuit explained that the mere fact that the franchisor trained the owners of a particular franchise or reviewed their employees’ schedule in order to increase the franchisee’s profitability, or met with the franchisees and their shift managers frequently, did not mean that the franchisor controlled employees’ work schedule and conditions.

The Fifth Circuit also found that the franchise agreement stating that the Entjers had to follow “policies and procedures promulgated by the franchisor for ‘selection, supervision, or training of personnel,” was insufficient to support a finding that Plackis fired or hired employees or supervised or controlled their work scheduled or employment conditions.

Did the franchisor determine the rate and method of payment? 

Orozco testified that Plackis did not control his rate of pay and the Entjers set his rate and method of payment.

Did the franchisor maintain the employment records? 

Orozco conceded that Plackis did not maintain his employment records.

CONCLUSION:  Things worked out well for the franchisor in this case, but consider the following statement by the Fifth Circuit: “We do not suggest that franchisors can never qualify as the FLSA employer for a franchisee’s employees; rather, we hold that Orozco failed to produced legally sufficient evidence to satisfy the economic reality test and thus failed to prove that Plackis was his employer under the FLSA.”  Had Plackis maintained the employment records for the San Marcos location or directed the Entjers regarding how much they should pay their employees or what work schedule they should implement at their franchise location, the outcome of this case could have been different.

Thus, to avoid a potential exposure under the FLSA as a “joint employer” with its franchisees, a franchisor should make sure that the franchise agreement makes it clear that the franchisees and not the franchisor control the hiring and firing process, employees’ work schedule and conditions, determine the rate and method of payment, and maintain the employment records for their operations. Also, the franchisor should make it absolutely clear that any type of training, advice or guidance that it provides to the franchisees is non-binding and cannot be interpreted as an expression of control over their employees.

For more information regarding minimum and overtime wage requirements, contact Leiza Dolghih.

The Texas Supreme Court Pays Lip Service to Minority Shareholders While Nixing the Common Law Minority Shareholder Oppression Claims

Dallas Business Litigation Attorney

Leiza Dolghih
Attorney, Godwin Lewis PC

In a surprising move last month, the Texas Supreme Court overturned 25 years of legal precedent when it ruled[1] that Texas does not recognize a common-law cause of action for minority shareholder oppression, leaving the appointment of a rehabilitative receiver as the only remedy for oppressive actions by corporate management.

In Ritchie v. Rupe, Rupe, a minority shareholder in a closely held corporation alleged that the corporation’s other shareholders, who were also on the board of directors, engaged in “oppressive” actions and breached fiduciary duties by, among other things, refusing to buy her shares for fair value or meet with prospective outside buyers. The directors essentially admitted to this conduct but insisted that they were simply doing what was best for the corporation. For the most part, the jury sided with the minority shareholder, and the trial court ordered the corporation to buy out her shares for $7.3 million. The Dallas Court of Appeals agreed that the directors’ refusal to meet with prospective purchasers was “oppressive” and upheld the buy-out order.

The Supreme Court reversed and held that the directors’ conduct was not “oppressive” under the Texas Business Organizations Code §11.404, but even if it was, the statute did not authorize courts to order a corporation to buy out a minority shareholder’s interest. Moreover, the Court “decline[d] to recognize or create a Texas common-law cause of action for ‘minority shareholder oppression.'” Whereas before Ritchie, a minority shareholder could use a threat of a court-ordered buyout to force the majority to buy him or her out a certain price, now the minority shareholders’ only relief for “oppressive” conduct by the company is to seek an appointment of a rehabilitative receiver under Section 11.404.

In addition to abrogating the common law claims for minority shareholder oppression, the Supreme Court also narrowed the definition of “oppressive” conduct, which is not defined in the statute, to include only those instances where the majority “abuse[s] their authority with intent to harm the interests of one or more shareholders in a manner that does not comport with the honest exercise of their business judgment.”  Thus, to obtain an appointment of a receiver under Section 11.404, a minority shareholder must show that the majority intended to harm him or her through their actions, and courts must apply the “business judgment” rule instead of the “fair dealing” and “reasonable expectations” tests to determine whether any oppression occurred.  Furthermore, because the appointment of a receiver is a “harsh” remedy and is meant to be used only in “exigent circumstances,” a minority shareholder seeking such appointment must show that all other lesser available remedies based on other claims or other provisions of the statute are not adequate.

In reviewing the various forms of conduct that minority shareholders have often alleged as giving rise to a common-law oppression claims, including the denial of access to books and records, the withholding of dividends, termination of employment, misapplication of funds, diversion of corporate opportunities, and manipulation of stock price, the Supreme Court concluded that other available causes of actions adequately addressed such wrongdoing and, therefore, a common law oppression cause of action was not necessary.  A minority shareholder, for example, can bring derivative lawsuits on behalf of the corporation, and claims for accounting, breach of fiduciary duty, breach of contract, fraud, constructive fraud, conversion, fraudulent transfer, conspiracy, unjust enrichment, and quantum meruit.

BOTTOM LINE: The Texas Supreme Court recognized that there is a gap in protection afforded to minority shareholders in Texas, but refused to create a new common law cause of action that would address this gap because the standard for what constitutes “oppressive” conduct outside of the statute is “so vague and subject to so many different meanings in different circumstances,” that creating an independent legal remedy for “oppressive” actions would be “bad jurisprudence” and would only “foster litigation.”

[1] Justices Guzman, Willett and Brown dissented from the majority opinion.

For more information regarding business litigation in Texas, contact Leiza Dolghih.

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