Texas Non-Compete Law Blog : Texas Non-Compete Lawyer & Attorney : Robert Wood of Fell & Wood Law Firm : Trade Secrets Law in Denton, TX

In July 2001, Sysco, a distributor of food service products, issued a Request for Proposal (“RFP”). Among the companies that received the RFP were Mark III and BI.

Mark III and BI had a business relationship that involved them sharing information and customers.  Unbeknownst to Sysco, their relationship was formalized in a written contract. 

Mark III and BI submitted a joint response to the Sysco RFP.  Sysco accepted their proposal, awarding Mark III one function and BI a different function.

Sometime later, a BI employee left BI and became a Sysco manager.  The new Sysco manager then terminated several Sysco employees and replaced them with BI employees.  The manager then informed Mark III that it would no longer perform the functions awarded it under the RFP (and that BI would perform them).  BI informed Mark III that it would perform work for Sysco without Mark III’s help.

Mark III filed suit against Sysco for breach of contract, tortious interference with contracts and relationships, and aiding and abetting BI’s breach of fiduciary duty.

In support of its contract claim, Mark III pointed to language in Sysco’s letter awarding the RFP stating that “if there were any issues with either company that could not be resolved to Sysco’s satisfaction, it would be grounds for both companies to lose Sysco’s business.”  However, the court held that this language imposed no legal obligation upon Sysco to keep Mark III as one of the companies performing the work.

With respect to Mark III’s tortious interference claim, the court found that Sysco was unaware of the contractual relationship between Mark III and BI.  Thus, an essential element of a tortious interference claim could not be met.

The court also declined to accept Mark III’s invitation to recognize a claim for Sysco’s alleged “participating and assisting” BI’s breach of fiduciary duty.

From Mark III’s perspective, this case illustrates the importance of proper documentation of a business deal so that, if the deal falls through, the damaged party enjoys necessary legal protections.  Here, Mark III needed a more definite written contract with Sysco, to prevent work from being taken from Mark III and its partner in responding to the RFP, BI.

Mark III Systems, Inc. v. Sysco Corp., 2007 WL 529960 (Tex. App.—Houston [1^st Dist.] 2007).

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In our free market economy, it’s a given that competition is a good thing, right? Theoretically, yes, but courts have made it clear that competition, to be lawful, must also be “fair.”  A Texas case shed some light on the difference between fair and unlawful competition.

Renew Data Corporation ("Renew") provided computer forensic services for corporations. Renew would search its clients’ computer networks to assist them in prosecution and defense of litigation, responding to subpoenas, etc.

Shawn Strickler worked for Renew as a Director of Corporate Sales. Strickler had access to Renew’s customer lists and potential “opportunities,” and was intimately familiar with the services offered and prices charged by Renew.

Renew fired Strickler in November 2003. Shortly thereafter, Strickler became employed by one of Renew’s competitors.

A few weeks later, Strickler sent a letter to a potential customer, Computer Associates (with which neither Strickler nor his new employer had ever done any business). Strickler offered to help Computer Associates in connection with some pending government investigations.  Computer Associates indicated that it was willing to consider using Strickler, but it stated that it would also consider having Renew handle the project.

Over the next few days, Strickler, in an attempt to secure business from Computer Associates, began “subtly pointing out” to Computer Associates things he could offer that Renew could not (and he relied upon his intimate knowledge of Renew to make these distinctions). Computer Associates ultimately retained Strickler, rather than Renew, to handle the project.

Renew sued Strickler for tortiously interfering with its “prospective business relations” with Computer Associates. In response, Strickler contended that Renew could not prove one of the essential elements of the claim—that Renew had enjoyed “a reasonable probability that [it] would have entered into a business relationship” with Computer Associates.  After examining all of the evidence—including Computer Associates’ testimony that (a) it had a previous relationship with Renew and (b) had never heard of Stickler or his new employer before Strickler’s initial contact, the Court concluded that Renew could meet this element.

But, Strickler asked on appeal (after a jury verdict against him), “What is wrong with me contacting a potential customer and telling them that we can do the job better?”  How is that wrongful?

Of course, not all competition is wrongful—only “unfair” competition is wrongful.  To prove a claim for tortious interference with “prospective” business relations, a plaintiff must prove that an independently tortious or wrongful act by the defendant prevented the relationship from occurring.   To meet the “independently tortious or wrongful” standard, the defendant need not have committed a criminal act; rather, his conduct must merely be actionable under a different recognized tort.

The court found that Strickler had committed the tort of breach of fiduciary duty, and that this satisfied the “independently tortious or wrongful” element necessary to also make a tortious interference claim.  Significantly, the court noted that Strickler’s post-termination conduct constituted a breach of his fiduciary duty to his former employer, Renew.  The evidence showed, for example, that Strickler had, after his termination by Renew, used and disclosed the latter’s confidential information (including its pricing information) in an attempt to obtain Computer Associates’ business.  The court held that Strickler’s post-termination breach of his fiduciary duty to Renew (which conduct was committed by Strickler to maximize his chance of getting Computer Associates’ business rather than Renew) satisfied the “independently tortious or wrongful” element of the tortious interference claim.

Lessons learned:

1.  As this case illustrates, former employees who are not bound by enforceable non-compete agreements must nevertheless compete fairly, and they can be liable in tort if they fail to do so.

2.  Strickler’s interference with a “prospective” (not actual) business relationship was actionable because, in the course of seeking to obtain the business (and thereby keep Renew from getting it), he committed an independent wrong (breach of his fiduciary duty to Renew).

3.  One’s fiduciary duty can last even beyond the termination of employment, as Strickler found out here.


Renew Data Corporation v. Strickler, No. 03-05-00273-CV, 2006 WL 504998 (Tex. App.—Austin Mar. 3, 2006, no pet.).


 

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In situations in which an employee leaves one company and goes to work for another, a tortious interference claim may be asserted against the departing employee or the new employer. Tortious interference claims come in two types:  tortious interference with (an existing) contract, and tortious interference with prospective business relations.
 
A tortious interference with contract claim has the following elements: (a) a valid contract; (b) willful and intentional interference with the contract; (c) interference that proximately causes the plaintiff's injury; and (d) actual damage or loss.
 
A tortious interference claim can arise if a third party induces another's employee to breach his contract of employment for the purpose of obtaining the employee as his own or with the intent to injure the former employer. However, it must be shown that the third party's interference was the proximate cause of the breach of the relationship, and there is no actionable wrong if the employee acted on his own initiative.  A plaintiff must show that the defendant knowingly induced the employee or took an active part in persuading the employee to leave his job with the former employer. Courts have held that it is not enough that the new employer reaped the advantages of a broken contract after the contracting party had withdrawn from the commitment on his own volition; it is incumbent upon the plaintiff to show that the new employer actually caused or brought about the interference. Terminable-at-will contracts may be the subject of a tortious interference claim.
 
Another type of tortious interference claim can arise when a third party tortiously interferes with a noncompete agreement between an employer and its employee.  An employer who believes that its ex-employee has violated her noncompete agreement may, in addition to suing the employee to enforce the noncompete agreement, sue the "new" employer for tortious interference.

Another type of claim typically asserted in these situations is tortious interference with prospective business relations.  The elements are (a) there was a reasonable probability that the plaintiff would have entered into a business relationship with a third person; (b) intentional interference with the relationship; (c) the defendant's conduct was independently tortious or unlawful; (d) the interference proximately caused the plaintiff's injury; and (e) the plaintiff suffered actual damage or loss. The plaintiff does not have to prove that the contract would have been made but for the interference. The plaintiff only must show that the formation of a contract was reasonably probable.  These claims often arise with respect to prospective customers or employees.

 

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