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Lei v. Natural Polymer International Corp.

Court of Appeals of Texas, Fifth District, Dallas

June 21, 2019

PINGHUA LEI, JIE ZHU, AND CHIUNG YING "JOANN" CHEN, Appellants
v.
NATURAL POLYMER INTERNATIONAL CORPORATION AND NPIC SHANGHAI CO., LTD., Appellees

          On Appeal from the 199th Judicial District Court Collin County, Texas Trial Court Cause No. 199-01725-2018

          Before Justices Myers, Osborne, and Nowell Opinion by Justice Osborne

          OPINION

          LESLIE OSBORNE JUSTICE.

         Appellants Pinghua Lei, Jie Zhu, and Chiung Ying "Joann" Chen appeal the trial court's order denying their motion to dismiss under the Texas Citizens Participation Act. Tex. Civ. Prac. & Rem. Code § 27.001-.011 ("TCPA"). They also appeal the trial court's award of attorney's fees and court costs to appellees Natural Polymer International Corporation and NPIC Shanghai Co., Ltd. (together, "NPIC"), [1] based on a finding that the motion to dismiss was frivolous. Id. § 27.009(b). We affirm the trial court's order.

         Background

         NPIC manufactures and distributes natural pet treat products. Lei, Zhu, and Chen are former employees of NPIC who now work for Gambol USA, NPIC's direct competitor in the North American pet treat market. At the time they left NPIC, Zhu was NPIC's Research and Development Director, Lei was a Research and Development Food Scientist, and Chen was a Quality Control Manager.

         In its operative petition, NPIC pleaded that:

• Its business is "highly competitive";
• Its expertise in developing the formulas, manufacturing specifications, and manufacturing processes necessary to make its products "has taken many years to develop and fine-tune";
• Lei, Zhu, and Chen "were granted access to highly confidential trade secrets by virtue of their respective positions at NPIC";
• Gambol USA, where Lei, Zhu, and Chen are now employed, is a direct competitor of NPIC in the North American pet treat market;
• Gambol USA is a new wholly-owned subsidiary of Gambol China, "already a major force in the pet treat market in China and other markets," and Lei, Zhu, and Chen have joined Gambol USA "in an apparent attempt to jump start the new competitor using NPIC's trade secrets and confidential information"; and
• Lei and Zhu took NPIC s trade secrets and confidential information with them and provided it to Gambol USA, in violation of their non-disclosure and noncompetition agreements with NPIC.

         NPIC also pleaded that it is "one of a select few in its industry that has successfully managed to mass produce and market natural pet treats using injection molding," which has enabled it "to develop some of the premier brands in the natural pet products industry." It has developed a four-step design and manufacturing process involving "trade secrets that give NPIC a competitive advantage and are valuable to a competitor," including (1) raw materials used; (2) sourcing of high quality raw materials; (3) precise measurements for each formula ingredient; (4) mixing technique and timing for mixing the formula ingredients; (5) heating temperatures and times; (6) precise injection molding specifications; and (7) drying temperatures and times. NPIC "enforces stringent quality control measures" for its design and manufacturing process. NPIC alleged that its specifications for the extrusion and soft treat manufacturing process constitute trade secrets "that NPIC expends significant resources to develop, document, and protect." NPIC further alleged that it "expends significant resources to develop, document, and protect trade secrets pertinent to the robotic automation of its manufacturing processes and its extensive food safety and quality control measures." NPIC also pleaded that it has developed and documented trade secrets "pertinent to the processes and procedures it has implemented in its efforts to obtain SQF Level 3 certification, the highest food safety and quality control certification in the industry issued by the Safe Quality Food Institute."

         Because their positions with NPIC required access to some or all of NPIC's trade secrets to properly fulfill their job duties, NPIC required Lei, Zhu, and Chen to sign a noncompetition agreement and a nondisclosure agreement. Zhu signed the agreements in 2008, Chen in 2010, and Lei in 2011. The nondisclosure agreement required Lei, Zhu, and Chen to refrain from disclosing or using NPIC's proprietary information as defined in the agreement.

         Lei, Zhu, and Chen resigned from NPIC in October and November of 2017 and took positions with Gambol USA. Lei is Gambol USA's Research and Development Manager/Senior Scientist, Zhu is Gambol USA's Chief Operating and Technology Officer, and Chen is a "QC manager." NPIC has pleaded that Zhu and Lei "transferred massive amounts of NPIC information, including NPIC's entire R&D folder maintained on its password-protected network drive, to their own electronic storage devices just prior to leaving NPIC," plugged these electronic storage devices into their Gambol USA-issued laptops and transferred the information, and also transferred the information to other electronic storage devices. The R&D folder "contains voluminous amounts of highly confidential and valuable" trade secrets.

         NPIC alleged causes of action for breach of contract against Zhu, Lei, and Chen, and causes of action for misappropriation of trade secrets, unfair competition by misappropriation, breach of fiduciary duty, and conversion against Zhu and Lei. NPIC pleaded for actual damages and equitable relief.

         Zhu, Lei, and Chen filed a motion to dismiss under the TCPA, asserting that NPIC's claims were based on, related to, or in response to a list of ten "TCPA-protected 'communications'":

1. The noncompetition and nondisclosure agreements between NPIC and appellants;
2. Appellants' signatures on those agreements;
3. Communications between and among appellants and Gambol USA;
4. Zhu's "confirm[ation] in his deposition that he reports directly to Gambol China's CEO";
5. Zhu's alleged "regular correspond[ence] with [Gambol China's ...

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