Whether an injunction should issue in a particular case involves a fact-intensive analysis. A recent opinion by the Dallas Court of Appeals demonstrates how the courts may conduct this analysis in cases involving claims for misappropriation of trade secrets and violations of the Texas Theft Liability Act.
A broker/dealer investment services company hired an employee as a Vice President. The employee was paid a salary and received commissions for bringing in new clients. The employee had access to all of the company’s confidential information concerning its clients. The employee downloaded the information to his laptop. The information included clients’ social security numbers, account numbers, balances, and investment preferences.
After ten years of working for the company, the employee was terminated and went to work for another broker/dealer. The employee had retained copies of the files from his laptop. Using the contact information contained in those files, the employee sent letters to 800 clients of his former employer, asking them to transfer their accounts to his new employer.
The former employer sued its former employee for misappropriation of trade secrets, violation of the Texas Theft Liability Act, breach of contract and other claims. The company sought injunctive relief. The trial court entered a temporary restraining order prohibiting the former employee from using the files he had copied.
At the temporary injunction hearing, witnesses testified that when a registered representative changes broker/dealers, the representative’s clients remain with the original broker/dealer. The registered representative may contact the clients that he/she brought to the first broker/dealer and ask them if they would like to move to the new broker/dealer. If the client chooses to move, the client must fill out a form to do so. The registered representative does not need the client’s social security number, account balance, account number or preferences to move the client to the new broker/dealer. The former employee testified that he thought he was sending out letters only to clients he had personally developed. The former employee and the former employer each presented an exhibit with a list of materials that the former employee had copied and highlighted the materials the party believed to be confidential. The court issued a temporary injunction only on the files that the former employee believed to be confidential and proprietary. The former employer appealed the denial of the temporary injunction on the files that it wanted protected which were not protected by the temporary injunction.
The court of appeals first reviewed the evidence to determine whether the former employer had established a cause of action against the former employee and a probable right to relief sought. The evidence demonstrated that the former employer did not permit independent contractors to access the computer systems and that the former employee had accessed and downloaded files from the computer system for use in his role as an independent contractor. The court of appeals held that the former employer did establish a cause of action against the former employee. The court of appeals also determined that the former employer had established a probable, imminent, and irreparable injury. There was testimony at trial that the former employer was required by the Financial Industry Regulatory Authority (FIRA) to keep records of its clients and to safeguard that information. If the former employer failed to meet those requirements, FIRA could take action, including actions as severe as shutting down the company.
The court of appeals determined that since the former employee was allowed to contact his clients and ask them if they wanted to move to the new broker/dealer, the former employee was allowed to take and possess the files containing client names and addresses. However, the rest of the information in the files was not needed to move a client from one broker/dealer to another and therefore was confidential and proprietary. The court of appeals determined that the injunction should have extended to all information regarding clients that were not personally developed by the former employee as well as social security numbers and account information of clients that were developed by the former employee.
As this opinion demonstrates, determining whether an injunction should issue in cases involving alleged misappropriation of trade secrets and violations of the Texas Theft Liability Act requires a thorough analysis of the facts. In these types of cases, the court will look at each type and category of information to determine whether an injunction should issue.