Cases from Supreme Court of Texas

Supreme Court of Texas
"Treasure Map" Misappropriation Award Upheld in Texas

On March 13, 2015, the Texas Supreme Court denied review of Lamont et al v. Vaquillas Energy Lopeno, Ltd. et al, thereby upholding a $4.9 million jury award for Vaquillas in its trade secret misappropriation suit. At the center of the dispute is the seismic map of oil and gas prospects that Ricochet Energy, Inc. generated pursuant to an agreement with Vaquillas in 2003 and 2004. The seismic map, or “treasure map” as both parties had referred to it, had identified a lucrative prospect – a gas reservoir containing natural gas estimated as much as $60 million.

The instant controversy began when Thomas Lamont, a co-owner of Ricochet, separated from Ricochet in 2006, and then formed a new entity, Montecristo II, with another oil and gas investor, Rosendo Carranco in 2007. Because Lamont had continued to own a working interest in the gas prospect, after Lamont’s separation, Ricochet shared the treasure map with Lamont as a potential investor, without signing any confidentiality agreements. Montecristo II then outbid Ricochet to lease property adjacent to the gas reservoir, and depleted it, foreclosing any opportunity for Ricochet to withdraw any gas.

On appeal from the jury’s verdict in favor of Vaquillas, Lamont argued that the trade secret’s status was destroyed when Ricochet shared the treasure map with Lamont after his effective resignation date. However, the court noted that the disclosure to Lamont was in his role as a potential investor, and as such, the limited disclosure did not destroy its trade secret status. The disclosure was never meant to enable a potential investor to compete directly against Ricochet, but instead, to work with them in an investment opportunity. Further, the court noted that Ricochet took proper means to protect its trade secret, by keeping it a secret from its employees, competitors, and the public. Next, the appellate court concluded there was sufficient evidence to support a finding that Lamont and Carranco’s actions fell below the generally accepted standards of commercial morality, because they used improper means to locate the gas reservoir when they misused the map. Notably, Lamont and Carranco had never conducted any independent research, indicating their reliance on the map, which they used to enrich themselves off of Ricochet’s work and investment.

While Texas adopted a version of the Uniform Trade Secrets Act, it only took effect on September 1, 2013, and does not apply to prior misappropriation. As such, in the instant case, the appellate court relied heavily on the 3rd Restatement of Unfair Competition, which notably, is aligned with the Act. Therefore, this case is still persuasive in situations where a company must rely on common law to protect its trade secrets if it is in a state where the UTSA, or any version of the model Act, has not been adopted. Further, and more significantly, this case demonstrates that companies which did not employ confidentially or non-disclosure agreements, may still be protected in the scenario a potential business investor misuses their secrets. While certainly helpful in situations where negotiations could be stalled for such agreements, it is always better to employ these agreements, if for no other reason than it may define the scope of litigation.

Supreme Court of Texas
Texas Supreme Court to Review Jurisdictional Dismissal of Misappropriation Suit Against Russian NG Producer

In December, the Texas Supreme Court granted review of a lower Texas court's dismissal, on jurisdictional grounds, of Texas-based plaintiff Moncrief's misappropriation suit against Russian natural gas giant Gazprom. Moncrief's petition for review (available below) was filed in 2011. A record of the court's grant of review is available Here.

Supreme Court of Texas
Texas Court to Hear Arguments Over Scope of Protective Order for "Tire Trade Secrets"

On April 19, 2013, the Supreme Court of Texas agreed to hear whether a Houston trial court ordered an overly broad disclosure of Defendant's trade secrets, such that it constitutes a "constitutional taking."

In IN RE CONTINENTAL TIRE THE AMERICAS, LLC,, Plaintiffs' allege that a defect in Continental Tire the Americas' (CTA) tires is responsible for the fatal crash of Juan Hernandez, and his daughter and granddaughter. Plaintiffs are all members of the Hernandez family. CTA claims it possess trade secrets in the tire and its manufacturing process. Furthermore, the company argues that the trial court's flimsy protective order constitutes an abuse of discretion: it not only failed to protect CTA's alleged trade secrets in the present case, but allows potential litigants in other states to access the confidential information in order to promote "shared discovery." CTA claims the extent of disclosure, as proscribed by the trial court, is so egregious it constitutes a constitutional taking without just compensation.

Per CTA's brief, under Texas Rule of Evidence 507, trade secrets, even if relevant, are privileged and not discoverable, unless the requesting party makes a particularized, evidentiary showing that disclosure of the trade secrets is necessary for a fair adjudication of the case. When the requesting party satisfies that burden of proof, the trial court ordering disclosure must issue a protective order sufficient to safeguard the trade secrets from further disclosure. Tex. R. Evid. 507.

Supreme Court of Texas
Texas relaxes standards concerning consideration required to bind employees to non-competition agreements; must be “reasonably related to an interest worthy of protection”

The Texas Supreme Court held that stock options can act as appropriate consideration to bind an employee to a non-competition agreement under Texas law.

The dispute arose between an insurance company, Marsh USA, Inc., and its former managing director, Rex Cook, over whether or not stock options were enough to bind Cook to his non-competition agreement. Cook had started to work for Marsh’s direct competitor and sought to invalidate his non-competition agreement on the grounds that it was unenforceable.

Texas has a statute which dictates that restrictive covenants, such as non-competition agreements, must be ancillary to otherwise enforceable agreements. Prior to the decision in this case, this meant that an otherwise enforceable agreement must “give rise” to the employer’s interest in enforcing a non-competition agreement. The parties disagreed not only on whether or not stock options met the "ancillary to an otherwise enforceable agreement" language, but also on whether or not mere consideration consisting of stock options could "give rise" to or create the interest in restraining competition.

In eliminating the “give rise” requirement and holding that the consideration only need be “reasonably related to an interest worthy of protection, such as trade secrets, confidential information or goodwill,” the court significantly loosened standards for Texas entities seeking to enforce non-competition agreements. The court noted that Marsh satisfied this standard, as the stock options, the value of which is clearly tied to the long-term success of the company, were reasonably related to the company’s interest in its former employee not working for a competitor and in maintaining industry goodwill.