The Fifth Circuit Issues Its First Decision on the Defend Trade Secrets Act

trade secrets label on folder

Two and a half years after the Defend Trade Secrets Act (DTSA) became effective, the Fifth Circuit has issued its first opinion addressing the statute.  Earlier this month, the Court ruled that: (1) a party must “prevail” before it can recover any attorney’s fees under the DTSA and (2) a plaintiff’s dismissal of its claims without prejudice does not confer the “prevailing party” status on defendants. 

Dunster Live, LLC v. Lonestar Logos Management Company, LLC involved a situation where the plaintiff, Dunster, having lost an injunction hearing in a trade secrets case in federal court, wanted to dismiss the case without prejudice and refile it in a state court sans the DTSA claim.  Under 41(a)(2) of the Federal Rules of Civil Procedure, if a defendant has already answered the lawsuit or filed a motion for summary judgment, plaintiff is required to file a motion with the court asking for a permission to dismiss its claims without prejudice. The district court granted Dunster’s motion to dismiss, and the plaintiff proceeded to file an almost identical trade secrets lawsuit but without the DTSA claim in a state court.

After the dismissal, Lonestar sought to recover its attorney’s fees of over $600,000 on the basis that Dunster had brought its federal lawsuit in “bad faith.” The district court denied Lonestar’s request for attorney’s fees holding that a dismissal without prejudice of Dunster’s claims did not make Lonestar a “prevailing party” under the DTSA.

Lonestar furter argued that Dunster sought to evade paying attorneys fees by strategically seeking a dismissal without prejudice once it realized that its lawsuit was doomed, and that the DTSA’s “bad faith” provision supported a fee award even when a defendant had not officially prevailed.  The DTSA’s provision upon which Lonestar relied states the following:

[i]f a claim of the misappropriation is made in bad faith, which may be established by circumstantial evidence, a motion to terminate an injunction is made or opposed in bad faith, or the trade secret was willfully and maliciously misappropriated, [a court may] award reasonable attorney’s fees to the prevailing party.  18 U.S.C. 1836(b)(3)(D).

The district court rejected this argument as well denying Lonestar’s request for attorney’s fees.

The Fifth Circuit affirmed the district court’s ruling finding that a dismissal without prejudice under the DTSA did not confer the status of a “prevailing party” on Lonestar, similar to other federal statutes that allow prevailing parties to recover attorney’s fees, such as the Equal Access to Justice Act, Patent Act, Civil Rights Act, or Individuals with Disabilities Education Act.

The Court also rejected Lonestar’s argument that the DTSA only required a showing of “bad faith” by a plaintiff in filing a lawsuit and not a showing that a defendant was a “prevailing party.”  It explained that “[a]llowing bad faith alone to support a fee award would improperly read the concluding language of Section 1836(b)(3)(D) – ‘the prevailing party’ – out of the statute.”  Thus, a party seeking attorney’s fees under the DTSA must establish both: (1) that it is a prevailing party and (2) one of the three qualifying scenarios described in 1836(b)(3)(D).

TAKEAWAY:  With the DTSA becoming effective on May 11, 2016, plaintiffs in Texas now have a choice of whether to seek redress for trade secrets misappropriation in state courts or federal courts.  Dunster makes it clear that as long as plaintiff has brought its DTSA claim in good faith in federal court, it may have a chance to change the strategy down the road and explore its claims in state court without facing the penalty of having to pay defendant’s attorneys fees as the result of dismissing its federal lawsuit without prejudice.

Leiza Dolghih is a partner at Lewis Brisbois Bisgaard & Smith LLP in Dallas, Texas and a Co-Chair of the firm’s Trade Secrets and Non-Compete Disputes national practice Her practice includes commercial, intellectual property and employment litigation.  You can contact her directly at Leiza.Dolghih@LewisBrisbois.com or (214) 722-7108.

An Injunction in a Theft-of-Trade-Secrets Case Cannot Prohibit a Party From Using Publicly Available Information

downloadCompanies suing for trade secrets theft often want not just the monetary compensation for the stolen trade secrets, but also a court order – an injunction – prohibiting the other side from using the stolen information.  

In order to be enforceable, however, under the Texas Rules of Civil Procedure, an injunction must be “in clear, specific and unambiguous terms” so that the party enjoined can understand the duties and obligations imposed by the injunction and so that the court can determine whether the injunction has been violated.  Additionally, an injunction cannot prohibit a defendant from doing something he has a legal right to do, e.g., use publicly available information along with the trade secret information. Thus, a court order prohibiting a defendant from using trade secrets must be broad enough to cover all possible circumstances while narrow enough to include only the illegal activities.   This is easier said than done.

In a recent case, the Houston Court of Appeals reversed a permanent injunction order which could be read to cover both – the trade secret data and publicly available information.  In TMRJ Holdings, Inc. v. Inhance Techs., LLC, the injunction at issue prohibited defendant from:

(1) “using, disclosing, transferring, or possessing, in whole or in part, [plaintiff’s] trade secret information,” which was defined as “compilation of specified data” for various plaintiff’s processes; and

(2) “operating, manufacturing, designing, transferring, selling, or offering for sale” certain processes that “contain, are based on, or utilize, in whole or in part, [plaintiff’s] trade secrets.” 

The Court concluded that the injunction was not specific enough because failure to define “specified data” and the general description of “trade secrets” did not give adequate notice of the prohibited conduct to defendant.  Specifically, the injunction did not distinguish between the unique, protected elements of plaintiff’s data compilations, processes, or equipment from that which plaintiff’s competitors use throughout the industry.  As the result, the Court reversed the permanent injunction in this case and remanded it to the trial court to consider in light of its opinion. 

TexasBarToday_TopTen_Badge_VectorGraphicCONCLUSION:  In trade secrets theft cases, in addition to proving the elements of an injunction, plaintiffs must also make sure the injunction order’s language is specific enough, without giving away the trade secrets information, to provide defendant with a clear notice of what it can and cannot do.

Leiza Dolghih is a partner at Lewis Brisbois Bisgaard & Smith LLP in Dallas, Texas and a Co-Chair of the firm’s Trade Secrets and Non-Compete Disputes national practice Her practice includes commercial, intellectual property and employment litigation.  You can contact her directly at Leiza.Dolghih@LewisBrisbois.com or (214) 722-7108 or fill out the form below.

Enforcing Non-Compete Agreements in Texas with an Injunction Requires Proper Timing

Enforcing Non-Compete Agreements in TexasCompanies often contact me wanting to know what they can do to stop a former employee from competing in violation of his/her non-compete agreement. One of the available remedies that can provide an immediate relief to the company is a temporary injunction (state court) or a preliminary injunction (federal court).

An injunction is a court order that can require an employee to comply with his or her non-compete restraints while the parties litigate their case.  Its purpose is to provide an immediate and temporary relief and prevent any irreparable harm that a company may suffer if its employee is allowed to compete.

What a lot of companies do not realize, however, is that if they wait too long to ask for an injunction after finding out about their employee’s competitive activities, a court may deny their request simply because they waited too long. 

A recent opinion from the U.S. District Court in the Western District, where the judge denied the company’s request for a preliminary injunction, provides a perfect explanation of why waiting too long to seek an injunction in a non-compete lawsuit can backfire:

“The company waited almost six months after it found out that its former employee was working for a competitor to file a lawsuit.  They waited another month to file a brief in support of the injunction and another month after that to set a hearing on the injunction. When the Court set the hearing, they requested a delay of the hearing for another two months.

[The company’s] delay in seeking injunctive relief is fatal to their request for a preliminary injunction. To the extent they have suffered any harm as a result of the events underlying their claims, much of that harm will have already occurred due to the delay; the appropriate remedy is therefore damages. The delay exhibited by [the company] in seeking a preliminary injunction also casts doubt upon the supposed irreparability of the harm alleged.”

Thus, while the company could proceed with the case and attempt to recover damages caused by the employee’s competition in violation of his breach of the non-compete agreement, the company’s ability to obtain an order prohibiting the employee from competing while the case was being litigated had evaporated due to the company’s delay in asking for it.

Embarcadero Techs., Inc. v. Redgate Software, Inc., No. 1:17-cv-444-RP, 2017 U.S. Dist. LEXIS 191317, at *1 (W.D. Tex. 2017).

TexasBarToday_TopTen_Badge_VectorGraphicBOTTOM LINE: A company should act as soon as possible after finding out that a former employee may be violating his or her non-compete agreement if the company wants to prevent the employee from competing. The wait-and-see approach to obtaining an injunction can result in the forfeiture of that legal remedy. 

Leiza Dolghih is a partner at Lewis Brisbois Bisgaard & Smith LLP in Dallas, Texas and a Co-Chair of the firm’s Trade Secrets and Non-Compete Disputes national practice Her practice includes commercial, intellectual property and employment litigation.  You can contact her directly at Leiza.Dolghih@LewisBrisbois.com or (214) 722-7108 or fill out the form below.

 

What Should a Company do When it Suspects That an Employee Stole Its Trade Secrets?

preciousEmployees take their employers’ trade secrets all the time. It’s a fact of life.  No matter what systems an employer has in place, sooner or later a key employee will depart and take some trade secret information, data, or documents with them. Most employees take trade secrets because that information will help them land a better job or open a competing business. Some take it because they believe that the information belongs to them since they worked on it or created it. Whatever their reasons may be, the loss of competitive advantage resulting from the disclosure of trade secrets to competitors or release of that information in the open market may cause significant, and often irreparable, damage to the former employer.

So, what should a company do if it suspects trade secrets theft by a former employee?

First, the company should identify and collect all of the employee’s electronic devices in its possession – desktop computers, laptops, tablets, company-issued phones, and any other devices that the employee used during his work and that may contain company information.

Second, the company should have a qualified forensic examiner image the devices to preserve the relevant electronic evidence that may show whether the employee used any of these devices to copy or transfer the trade secret information and then search such devices for relevant evidence.  This should be done pursuant to a protocol devised by the examiner and a legal counsel to ensure that the evidence will later hold up in court.

Third, the company should search the employee’s emails for any evidence of trade secrets transfer.

Fourth, the company should interview its employees and/or third parties who may have relevant information.

** The company must move quickly and have an attorney supervise and coordinate the above efforts to make sure the collected evidence can later be used in court (i.e. is admissible) and to make sure the relevant communications are protected by the attorney-client privilege.

Fifth, if the company discovers evidence of trade secrets theft, it should file a lawsuit and seek a temporary injunction – a court order – prohibiting the former employee and anybody else acting on his/her behalf from using or disclosing the company’s trade secrets.  While this may be costly, this is the only effective way to stop the employee before he or she uses or discloses the trade secrets or does significant damage to the company.

Here is a real-life example where the above steps worked and helped a company stop a former employee from opening a competing business using the company’s trade secrets. 

Earlier this year, I wrote about a case that involved a Texas employer who followed the above steps and was able to obtain a temporary injunction and then a permanent injunction shutting down a competing business that a former employee opened using the gym’s trade secrets.  In that case, a Houston gym filed a lawsuit against its former regional vice president and his wife claiming that they took the gym’s confidential information and opened their own competing gym and medspa.  The gym obtained a temporary injunction against the former employee and his new company within four days of filing the lawsuit because it had emails and other electronic evidence establishing the trade secrets copying and transfer by the VP.

Just recently, the court in that case issued a permanent injunction prohibiting the former VP from opening or operating any new locations of his gym and medspa through September 2017 and from opening any gyms within a seven-mile radius of any of Life Time’s 123 existing locations, as well as employing or attempting to employ any current or former Life Time employees.

Additionally, within 20 days of the court order, the VP and his wife were required to return or destroy all of the gym’s documents and information still in their possession. After no more than 25 days, they had to provide the court with a declaration confirming that all sensitive data has been secured. Finally, between 20 and 90 days after the ruling, a forensic computer specialist “[had] the right to inspect and audit any computer systems” belonging to the VP, his wife, his business associate, and their gym to ensure that they had destroyed or permanently deleted the gym’s trade secrets.  This outcome would not have been possible, had the company  not followed the steps outlined above.

Leiza litigates unfair competition, non-compete and trade secrets lawsuits on behalf of companies and employees, and has advised hundreds of clients regarding non-compete and trade secret issues. If you need assistance with a non-compete or a trade secret misappropriation situation, contact Leiza for a confidential consultation at Leiza.Dolghih@lewisbrisbois.com or (214) 722-7108.

Fox Goes to War with Netflix Over Two Programming Executives Who Jumped Ship

160916165507-netflix-fox-logos-780x439In a move that suggests that Fox might be feeling the burn of Netflix competition, the network Goliath has recently sued the king of online streaming over hiring of its two programming executives.  In the lawsuit, Fox claims that Netflix induced these employees to breach their employment agreements with Fox and thus tortiously interfered with their contracts causing it irreparable harm. It alleges that the conduct was illegal since Neftlix knew about the employment agreements – in fact was warned by Fox about them –  but decided to poach the executives anyways.

Coming out swinging, Fox described Netflix’s actions in the complaint as follows:

Netflix is engaged in a brazen campaign to unlawfully target, recruit, and poach valuable Fox executives by illegally inducing them to break their employment contracts with Fox to work at Netflix.  This action is necessary to enforce Fox’s rights, to hold Netflix liable for its wrongful conduct, and to prevent Netflix from continuing such illegal conduct.

Fox did not sue the two executives, who are now working on drama programming development for Neftlix. However, it seeks injunctive relief against Netflix to restrain it from interfering with the executives’ employment agreements claiming that Netflix’s conduct caused it “great and irreparable harm, including loss of Fox’s ability to contract for a stable workforce, the disruption to Fox’s corporate planning, and the injury to Fox’s business reputation and goodwill.”  Thus, while the executives are not named as defendants in the lawsuit, should the court grant Fox’s injunction, the order will necessarily affect the executives’ employment with Netflix. 

Takeaway:  2016 has been the year of high-profile non-compete battles in several industries. Nike, Fitbit, Lyft, and now Fox, have all been involved in lawsuits arising out of departure of key employees who ended up working for a competitor. Given the uptick in such litigation, companies should approach the process of hiring from competitors with caution and conduct their factual and legal homework before extending offers to such hires.  

TexasBarToday_TopTen_Badge_VectorGraphic

Leiza litigates non-compete and trade secrets lawsuits in a variety of industries, and has advised hundreds of clients regarding non-compete and trade secret issues. If you need assistance with a non-compete or a trade secret misappropriation situation, contact Leiza for a confidential consultation at Leiza.Dolghih@lewisbrisbois.com or (214) 722-7108.

You Got a Non-Compete Injunction, But Can You Make it Stick in Texas?

imagesLast month, the Dallas Court of Appeals ruled on two temporary injunction orders – one was affirmed (i.e. it continued to be enforce) and the other one was dissolved (i.e. it was declared void). What was the key difference? The first injunction, in HMS Holdings Corp., et al. v. Public Consulting Group, Inc., complied with all the requirements set out in the Texas Rules of Civil Procedure, but the second injunction, in Medi-Lynx Monitoring, Inc., et al. v. AMI Monitoring, Inc., did not, so it was dissolved. This means that all the hard work, time and money that went into getting ready for the temporary injunction hearing and obtaining the order from the district court judge, was all for naught. 

Businesses often seek injunctions against former employees and competitors who have violated their non-disclosure agreements or non-competition and non-solicitation agreements. In such circumstances, a temporary injunction order from a court is ideal because, if granted, it prohibits a former employee or a competitor from engaging in competitive activities or using confidential information that was shared under the non-disclosure agreement while the lawsuit between the parties goes on. Thus, a temporary injunction, provides the wronged company with immediate relief and helps prevent further damage to its business by stopping the hemorrhaging of clients, employees, or confidential information. Needless to say, when a business is loosing money due to wrongful activities of a former employee or a competitor, such an injunction order can be of paramount importance. 

In Medi-Lynx Monitoring, the injunction order was declared void by the Court of Appeals because it did not set the case for trial on the merits – an express requirement under the Texas Rules of Civil Procedure. The defendant against whom the order was entered, moved to dissolve it, and the Dallas Court of Appeals granted its motion finding that the trial court abused its discretion in granting a temporary injunction that did not set the cause for trial on the merits.  

In contrast, in Holdings Corp., the temporary injunction met all the requirements specified in the Texas Rules of Civil Procedure, and, therefore, was upheld by the Dallas Court of Appeals, event though it was challenged on other grounds.  

Takeway: A party seeking a temporary injunction from a Texas court in a non-compete or a trade secrets misappropriation case should make sure that the order contains all the bells and whistles required by the Texas Rules of Civil Procedure. 

Leiza has handled multiple temporary restraining order and temporary injunction hearings and has assisted clients in all aspects of trade secret protection, from audits to litigation. Contact Leiza for a confidential consultation at Leiza.Dolghih@lewisbrisbois.com or (214) 722-7108.

Fair v. Unfair Competition, or the Real Life Case of Globo Gym v. Average Joes

DodgeballWhile we patiently wait for a sequel to Dodgeball: A True Underdog Story to come out, a similar saga involving competing gym/spa establishments has been unfolding in Houston, Texas (minus the dodge ball tournament and shiny singlets) recently culminating in a lawsuit in the federal district court for the Southern District of Texas. 

In this lawsuit, Life Time Fitness sued its former regional vice president, his wife, who also worked for Life Time Fitness at various times, and their newly formed company – ReNew You LLC – alleging that the VP “pilfered” proprietary business information, duplicated Life Time’s business model, and used company personnel to open a competing business.  Life Time filed the complaint on January 16th and four days later obtained a temporary injunction order against the defendants ordering ReNew You to cease and desist all operations and barring it from offering or providing services provided by Life Time.  In sum, Life Time has succeeded in shutting down ReNew You for now. 

The complaint alleges that while working for Life Time, the VP used Life Time’s technology system, email and his personal assistant to:

(1) draft and revise detailed business plans, agendas and checklists for his new company;

(2) build proformas, budgets, forecast and financial models for his new company based on Life Time’s proformas, etc.;

(3) obtain quotes for or leasing equipment for ReNew You;

(4) develop logos for ReNew You;

(5) develop a website for ReNew You;

(6) negotiate a partnership agreement with his partner in ReNew You.

Life Time also alleged that the VP “egregiously and surreptitiously” breached the non-compete agreement by using Life Time’s time, resources, computers, proprietary information and employees to build the medi-spa and weight-loss business less than four miles away from one of Life Time’s facilities.

While the complaint doesn’t specify how Life Time eventually found out about the VP’s activities, it is clear that the VP was using Life Time’s email address to send much of communications related to establishing ReNew You.  Apparently, the VP was also using his Life Time computer to create and edit many of the ReNew You documents.  It is alleged that he also used his Life Time email address to email himself Life Time’s confidential information. 

The complaint contains nine (typical) counts: violation of the Computer Fraud and Abuse Act (CFAA), breach of contract, breach of fiduciary duties, misappropriation of trade secrets, violation of the Texas Uniform Trade Secrets Act (TUTSA), tortious interference with prospective contracts, tortious interference with existing contracts, conspiracy, and aiding and abetting breach of fiduciary duties.

The VP’s attorneys and the VP himself have denied any improper actions. 

TAKEAWAYS:  The allegations in this case (which remain to be proven) illustrate a typical former employee/employer dispute, which often arises when an employee decides to open a business that competes with his or her former employer.

The allegations raise an issue of when is the line between preparation to compete (generally allowed under Texas law) is crossed into competition with the employer while on employer’s payroll (not permitted).  In some situations, the answer to that question is clear, while in others, it requires a rigorous legal and factual analysis.

The line between fair competition and unfair competition is often in the eye of the beholder, frequently pushing the parties towards litigation as a forum for resolving what is fair.  While some disputes may not be resolved outside the courtroom, many may be avoided if employees planning to compete with their former employer follow two simple steps: (1) review their employment agreements to determine what obstacles, if any, they present to opening a competing business; and (2) avoid actually competing with the employer or using employer’s resources to plan the new business while on employer’s payroll. 

Leiza litigates non-compete and trade secrets lawsuits on behalf of COMPANIES and EMPLOYEES in a variety of industries, and knows how such disputes typically play out for both parties. If you need assistance with a non-compete or a trade secret misappropriation situation, contact Leiza for a confidential consultation at Leiza.Dolghih@lewisbrisbois.com or (214) 722-7108.

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 Leiza.Dolghih@GodwinLewis.com.

In Texas, Non-Compete Agreements Without Time Limit Are Unenforceable

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.

Leiza litigates non-compete and trade secrets lawsuits on behalf of EMPLOYERS and EMPLOYEES in a variety of industries, and knows how such disputes typically play out for both parties. If you need advice regarding your non-compete agreement, contact Ms. Dolghih for a confidential consultation at Leiza.Dolghih@GodwinLewis.com or (214) 939-4458.

A Temporary Injunction Order Enforcing a Non-Compete Agreement in Texas Must Pass the Muster of Rule 683 or Face Dissolution

All temporary injunctions in Texas must comply with Rule 683 of Texas Rules of Civil Procedure, which requires every injunctive order to “set forth the reasons for its issuance; [] be specific in terms; [and] describe in reasonable detail and not by reference to the complaint or other document, the act or acts sought to be restrained.” A temporary injunction order that fails to meet these requirements is subject to being dissolved.

Within the last four months, at least three Texas Courts of Appeals dissolved temporary injunctions seeking to enforce non-competition agreements because they failed to comply with Rule 683.  Most recently, the First Court of Appeals in Lasser v. Amistco Separation Products, Inc. dissolved a temporary injunction order that sought to enforce contractual non-compete and non-solicitation obligations because the order was both not specific enough and overbroad. This opinion, along with Ramirez, et al. v. Ignite Holdings Ltd., et al. (see my prior post here), provide a good example of what language falls short of meeting Rule 683 requirements.

In Lasser, ACS Industries, LP hired Robert Lasser to work in sales. His employment contract contained a confidentiality and non-solicitation clause, which prohibited Lasser from copying or using for his personal benefit ACS’s “confidential information,” as defined in the employment contract. It also forbade Lasser from “directly or indirectly, or by action in concert with others, engage in the solicitation of sales of competing goods to customers of ACS” for a period of two years from the contract’s termination. ACS later sold its assets, including Lasser’s employment contract, to plaintiff, Amistco Separation Products. Lasser worked for Amistco for a year before leaving to work for a competitor.

A month after Lasser resigned, Amistco sued him for conversion (of confidential information), civil theft, and misappropriation of trade secrets. The company requested the trial court to issue a temporary and permanent injunction against Lasser ordering him to return the confidential information that he had downloaded prior to his departure, enjoining him from disclosing and using such information, and preventing him from soliciting customers.

The trial court granted Amistco’s application for temporary injunction and issued the following order:

It is . . . ORDERED Defendant Robert Lasser desist and refrain from the following:

a) [Lasser] is ordered to return to [Amistco], and to cease and desist from using, any of [Amistco’s] confidential information and trade secrets within 14 days or as otherwise agreed by counsel.

b) [Lasser] is restrained from directly or indirectly disclosing, copying or otherwise reproducing, or giving others access to any of [Amistco] confidential information and trade secrets.

c) [Lasser] is restrained from deleting any emails, texts, voice messages, instant messaging communications (to include without limitation, instant messages using Google Talk, AOL Instant Messenger, Yahoo Messenger, or any other instant messaging platform), or any other electronic files or communications from his personal or work computers, laptops, phones, electronic storage devices and/or any other electronic device, or from, damaging, selling or otherwise discarding his personal or work computers, laptops, phones, electronic storage devices and/or any other electronic device in [Lasser]’s possession.

d) [Lasser] is restrained from directly or indirectly soliciting any of [Amistco’s] customers.

In analyzing the trial court’s order, the Court of Appeals reiterated that a temporary injunction order must do two things to comply with Rule 683‘s specificity requirements: (1) it should inform the defendant of the acts he is restrained from doing, without calling on him for inferences or conclusions about which persons might well differ and without leaving anything for further hearing; and (2) it may not prohibit lawful activities.  The injunctive order in question failed to meet both of these mandates.

First, parts (a) and (b) of the order failed to “identify, define, explain, or otherwise describe” what constituted “confidential information” that Lasser was prohibited from disclosing. Thus, these provisions did not provide adequate notice to Lasser as to what conduct he was restrained from performing and left him to speculate what conduct might satisfy or violate the order.  Therefore, the Court of Appeals declared Parts (a) and (b) void.

The Court also found that Part (c) was impermissibly ovebroad under Rule 683 because it enjoined activities that Lasser had a legal right to perform, such as deleting electronic records and files unrelated to the subject of the lawsuit. Therefore, it vacated this provision.

Finally, the Court of Appeals ruled that Part (d) of the order, which restrained Lasser “from directly or indirectly soliciting any of [Amistco’s] customers” was also overbroad.  Whereas the non-solicitation clause in Lassiter’s contract prohibited him from engaging in solicitation of sales of competing goods to Amistco’s customers, the temporary injunction order enjoined Lasser from soliciting any sales to Amistco’s customers. Thus, the order precluded Lasser from engaging in lawful business of selling non-competing goods to Amistco’s customers. The Court declared this provision void as well and ordered the entire temporary injunction dissolved.

CONCLUSION: When preparing for a temporary injunction hearing, the party seeking an injunction and its attorneys should make sure that the proposed order that they would like the judge to sign is specific enough to give the other side a clear notice of what they can and cannot do once the order is entered.  At the very least, the order should define what constitutes “confidential information” or “trade secrets” that the party is seeking to protect. Sloppy and generic language can result in the injunction being void.

Furthermore, a temporary injunction order cannot prohibit lawful activities. In that regard, it should trail the language of the non-competition and non-solicitation agreement closely. While it is tempting to overreach and ask for more restrictions that the original agreement allowed (especially if the judge is willing to grant it), including such language in the order can result in its dissolution on appeal.

For more information regarding protection of trade secrets and enforcement of non-compete agreements in Texas, contact Leiza Dolghih.