United States: Texas Court Of Appeals Rules That Mere Suspicions Of Trade Secret Misappropriation Are Insufficient To Trigger The Discovery Rule

Applying new Texas Supreme Court precedent, a Texas Court of Appeals recently held that a six-year-old cease-and-desist letter alleging trade-secret misappropriation did not constitute proof of knowledge for purposes of the discovery rule. By allowing for the accrual date of this claim to be deferred, the court appears to have made it easier for trade-secret plaintiffs to overcome the statute-of-limitations defense in the future.

According to the opinion issued by the First Court of Appeals in Houston, Garner Environmental Services, Inc. ("Garner") provides disaster-response training and related services. In 2008, Garner's then-vice president quit, formed a competing company called First in Rescue, Safety and Training, LLC ("FIRST"), and hired several Garner employees. In January 2009, Garner sent FIRST a letter accusing it of wrongfully using Garner's customer lists, contacts, and other trade secrets to solicit Garner's customers. Garner based these allegations solely on the fact that, shortly before sending this letter, Garner had learned that a client scheduled to attend one of Garner's training classes switched at the last minute to attend a class held by FIRST instead. Later that month, FIRST responded that it had not stolen Garner's trade secrets because Garner's customer lists and contacts were readily available to the general public, could be replicated from memory, and were therefore not confidential information in the first instance. FIRST's letter also pointed out that none of the former Garner employees had entered into non-compete or non-solicitation agreements while employed by Garner, so they were not prohibited from contacting Garner's customers. Apparently, this mollified Garner because it did not file suit against FIRST at this time.

Fast-forward nearly five years: In late 2013, FIRST filed suit against a former employee that had gone to work for another competitor. At an unspecified time in 2014, after reviewing documents the employee had filed in that suit, Garner determined that FIRST had unlawfully used Garner's confidential information. So, in July 2015—more than six years after sending the initial cease-and-desist letter in January 2009—Garner filed suit against FIRST asserting, inter alia, a claim for misappropriation of trade secrets. FIRST filed for summary judgment, arguing that all of Garner's claims were barred by the statute of limitations because it discovered or should have discovered the nature of its injury in January 2009. Garner argued in response that the discovery rule applied and, as such, limitations did not begin to run until it discovered the injury in 2014 when it reviewed the documents filed in connection with the lawsuit FIRST's former employee had asserted against a third party. The trial court granted FIRST's motion and dismissed Garner's claims with prejudice.

On appeal, the sole issue before the Court of Appeals was when Garner discovered, or in the exercise of reasonable diligence should have discovered, the nature of its injury. Under the discovery rule, the accrual of a claim is deferred until the injured party learned of, or in the exercise of reasonable diligence should have learned of, the wrongful at causing the injury. Garner argued that the court of appeals was bound by the Texas Supreme Court's recent decision in Southwestern Energy Production Co. v. Berry-Helfand, 491 S.W.3d 699 (Tex. 2016), which involved the discovery rule in the context of trade-secret misappropriation. In that case, the court held that surmise, suspicion, and accusation, even if sufficient to make one aware of a potential for misuse of trade secrets, are not facts that in the exercise of reasonable diligence would lead to the discovery of theft of trade secrets. Furthermore, the Southwestern court held that the defendant asserting the limitations defense "ha[d] not identified any evidence revealing what [the plaintiff] would have discovered had she made further inquiry."

Finding "no meaningful differences between Southwestern and this case," the Garner court noted that although Garner alleged in its January 2009 letter that FIRST had stolen its trade secrets, it had no facts to support these allegations other than mere suspicion that FIRST was competing with Garner's clients. As in Southwestern, accusations were insufficient to establish knowledge of injury, the discovery rule applied. The Court of Appeals further noted that FIRST did not explain why it is entitled to have Garner's statements of accusation construed as proof of knowledge while having its own statements of denial construed as "lawyer posturing" upon which Garner could not reasonably rely. The court thus rejected FIRST's attempt to have its cake and eat it too.

FIRST also argued that Garner could have discovered the injury had it conducted presuit depositions under Texas Rule of Civil Procedure 202, which it did not do. In order to take a presuit deposition under Rule 202, the petitioner must show that there is a reason that the deposition must occur before the anticipated lawsuit is filed, and not after. The Court of Appeals, however, reiterated that Garner lacked any proof of its suspicions and thus had no basis to establish that FIRST had any information in its possession that could justify a Rule 202 deposition. A petitioner is also entitled to conduct a Rule 202 deposition if it demonstrates that the likely benefit of the requested deposition to investigate a potential claim outweighs the procedure's burden or expense. The Court of Appeals stated: "To allow a rule 202 deposition in th[is] situation would require the other party to reveal the confidential information in their possession," which the court concluded was too heavy a burden on FIRST. Thus, FIRST failed to establish a date (prior to Garner's stated discovery date in 2014) by which Garner knew or, with reasonable diligence, could have discovered the nature of its injury. Accordingly, the Court of Appeals reversed the judgment of the trial court, and remanded for further proceedings.

The take-away from this case is that potential plaintiffs who, although suspicious, lack concrete proof that a potential defendant has misappropriated its trade secrets, will, on account of the Southwestern and Garner decisions, likely find it easier to assert the discovery rule to defer the accrual date of its misappropriation claim. Moreover, according to Garner, such potential plaintiffs will find it difficult, if not impossible, to meet their burden to establish the necessity of the information to be entitled to conduct a Rule 202 presuit deposition. It remains to be seen, however, if this case might decrease the use of Rule 202 depositions in trade-secret cases. Still, the boot-and-suspenders approach of attempting a Rule 202 deposition may be the better course to preserve the legal rights of a potential misappropriation plaintiff.

Garner Envtl. Services, Inc. v. First In Rescue, Safety & Training, LLC, 01-16-00388-CV, 2016 WL 7671377 (Tex. App.—Houston [1st Dist.] Dec. 22, 2016, no. pet. h.)

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.