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Goldberg v. EMR (USA Holdings) Inc.

Court of Appeals of Texas, Fifth District, Dallas

August 22, 2019

RICHARD GOLDBERG, KENNETH GOLDBERG, GEOMET RECYCLING, LLC JOSH APPLEBAUM, ALICIA MCKINNEY, ELOISA MEDINA, LEE WAKSER, SPENCER LIEMAN, MIKEL SHECHT, LAURA MYERS, HENRY JACKSON, AND KELLY COUCH, Appellants
v.
EMR (USA HOLDINGS) INC., EMR GOLD RECYCLING, LLC, GOLD METAL RECYCLERS MANAGEMENT, LLC, GOLD METAL RECYCLERS, LTD., GMY ENTERPRISES, LLC, GMY, LTD., GOLD METAL RECYCLERS-GAINESVILLE, DLLC, GOLD METAL RECYCLERS-FORT WORTH, LLC, GOLD METAL RECYCLERS-OKLAHOMA, LLC, AND GOLDBERG INDUSTRIES, INC., Appellees

          On Appeal from the 116th Judicial District Court Dallas County, Texas Trial Court Cause No. DC-17-14064

          Before Justices Myers, Brown, and Whitehill

          OPINION

          LANA MYERS, JUSTICE

         This case concerns the applicability of the Texas Citizens Participation Act (TCPA) to breach of contract and various commercial torts, including misappropriation of trade secrets and breach of fiduciary duty. See Tex. Civ. Prac. & Rem. Code Ann. §§ 27.001-.011. Appellees (Plaintiffs) sued appellants (Defendants). Defendants moved for dismissal of the claims, asserting the "legal action" was based on, related to, or in response to their communications that were protected under the TCPA. The trial court denied Defendants' motion to dismiss. Defendants bring five issues in this interlocutory appeal contending the trial court erred by denying their motion to dismiss because: (1) Plaintiffs' claims are based on, relate to, or are in response to Defendants' exercise of their right of association or free speech; (2) Plaintiffs did not establish that the commercial-speech exemption applied to their claims; (3) Plaintiffs did not offer prima facie proof of the elements of each claim to each defendant; (4) the trial court abused its discretion by failing to exclude certain evidence Plaintiffs offered; and (5) Plaintiffs failed to establish that the TCPA violates the constitutional rights to jury trial, open courts, and due process.[1] See id. § 51.014(a)(12) (authorizing interlocutory appeal from denial of motion to dismiss under TCPA). We affirm the trial court's judgment in part and reverse in part.

         BACKGROUND

         From 1976 to 2011, Kenneth Goldberg (Goldberg) co-owned and operated a scrap-metal recycling company called Gold Metal Recyclers. In 2011, Goldberg sold Gold Metal to EMR Holdings for over $100 million. After the sale, Goldberg stayed on as manager of Gold Metal, now part of EMR, and he agreed not to compete with EMR and its entities (Plaintiffs) for three years after leaving employment with the company. Goldberg signed confidentiality agreements promising not to use Plaintiffs' confidential information for the benefit of "any person" other than Plaintiffs.

         Goldberg left Gold Metal, and after waiting three years, he opened a scrap-metal recycling business, Geomet Recycling. To staff Geomet, he hired some of Plaintiffs' employees.

         Five months after Geomet went into business, Plaintiffs sued Goldberg, Geomet, and Plaintiffs' former employees who had gone to work for Geomet for violations of the Texas Uniform Trade Secrets Act (TUTSA), breach of contract, breach of fiduciary duty, tortious interference with contract, and conspiracy. Plaintiffs sought monetary damages and injunctive relief.

         Defendants moved for dismissal of the suit under the TCPA, asserting Plaintiffs' lawsuit was based on, related to, or was in response to Defendants' exercise of the right of association or free speech. Plaintiffs filed a response to the motion to dismiss, attaching numerous affidavits and exhibits purporting to show their claims were not based on Defendants' exercise of their rights and that the suit was exempt from the TCPA. Plaintiffs also asserted the evidence set forth a prima facie case for each element of their causes of action.

         The trial court denied Defendants' motion to dismiss without stating a reason for the denial of the motion and without making findings of fact and conclusions of law. The trial court overruled all objections to the evidence submitted in the proceeding. The trial court also entered a temporary restraining order prohibiting Defendants Goldberg, Josh Applebaum, Laura Myers, "and all entities or individuals acting with them or at their direction . . . from directly or indirectly using, disclosing, replicating, or otherwise misappropriating for their own individual or collective use or benefit . . . any of Plaintiffs' Trade Secrets or Confidential Information."

         TEXAS CITIZENS PARTICIPATION ACT

         The TCPA permits a defendant to move for dismissal of a legal action that is "based on, relates to, or is in response to a party's exercise of the right of free speech, right to petition, or right of association." Civ. Prac. § 27.003(a). The statute's purpose "is to encourage and safeguard the constitutional rights of persons to petition, speak freely, associate freely, and otherwise participate in government to the maximum extent permitted by law and, at the same time, protect the rights of a person to file meritorious lawsuits for demonstrable injury." Id. § 27.002.

         Determination of a motion to dismiss under the TCPA is a three-step process. Youngkin v. Hines, 546 S.W.3d 675, 679 (Tex. 2018).[2] In step 1, the movant for dismissal has the burden of showing by a preponderance of the evidence that the legal action is based on, relates to, or is in response to the movant's exercise of one of those rights. Civ. Prac. § 27.005(b). If the movant does so, then the procedure moves to step 2, and the burden of proof shifts to the nonmovant bringing the legal action to "establish[] by clear and specific evidence a prima facie case for each essential element of the claim in question." Id. § 27.005(c). If the nonmovant meets this burden, then the procedure moves to step 3, and the burden of proof shifts back to the movant to "establish[] by a preponderance of the evidence each essential element of a valid defense to the nonmovant's claim." Id. § 27.005(d). Dismissal of a legal action under the TCPA is with prejudice to the refiling of the legal action. See LegacyTexas Bank v. Harlan, No. 05-18-00039-CV, 2018 WL 2926397, at *5 (Tex. App.-Dallas June 7, 2018, no pet.) (mem. op.); Breitling Oil & Gas Corp. v. Petroleum Newspapers of Alaska, LLC, No. 05-14-00299-CV, 2015 WL 1519667, at *3 (Tex. App.-Dallas Apr. 1, 2015, pet. denied) (mem. op.).

         The evidence considered by the trial court in determining a motion to dismiss includes "the pleadings and supporting and opposing affidavits stating the facts on which the liability or defense is based." Civ. Prac. § 27.006(a). However, the plaintiff's pleadings are usually "the best and all-sufficient evidence of the nature of the action." Hersh v. Tatum, 526 S.W.3d 462, 467 (Tex. 2017) (quoting Stockyards Nat'l Bank v. Maples, 95 S.W.2d 1300, 1302 (Tex. 1936)).

         When a party appeals the denial of its motion to dismiss under the TCPA, the appeal stays the commencement of the trial and "all other proceedings in the trial court pending resolution of that appeal." Civ. Prac. § 51.014(b).

         CONSTITUTIONALITY OF THE TCPA

         Before applying the TCPA to this case, we first consider Defendants' fifth issue, which contends the trial court erred to the extent it may have determined the TCPA is unconstitutional. In their response to Defendants' motion to dismiss, Plaintiffs asserted the TCPA violated their right to a jury trial under the Texas Constitution, violated the Texas Constitution's Open Courts Provision, and violated the Due Process and Due Course of Law Clauses of the United States and Texas Constitutions.

         Right to Jury Trial

         Plaintiffs asserted the TCPA's first and third steps, which require the trial court instead of a jury to apply the preponderance-of-the-evidence burden of proof, violate Plaintiffs' right to a jury trial. In this case, we conclude there is no violation of the right to a jury trial.

         The right to a jury trial of civil actions is guaranteed by the Texas Constitution. See Tex. Const. art. I, § 15; id. art. V, § 10. Article 1, section 15 grants the right to a jury trial for those actions, or analogous actions, where a jury was available when the Texas Constitution was adopted in 1876. Barshop v. Medina Cty. Underground Water Conservation Dist., 925 S.W.2d 618, 636 (Tex. 1996); Roper v. Jolliffe, 493 S.W.3d 624, 631 (Tex. App.-Dallas 2015, pet. denied). Article 5, section 10 provides the right to have a jury resolve fact questions in "all 'causes' in a Texas district court." Barshop, 925 S.W.2d at 636; Roper, 493 S.W.3d at 634.

         Step 1 of the TCPA procedure, determination of whether the "legal action is based on, relates to, or is in response to the party's exercise of the right of free speech, the right to petition, or the right of association," is not a "cause" nor does the determination of that step resolve any substantive element of a cause or defense. Instead, it simply results in the procedural determination of whether the TCPA analysis proceeds to step 2. The right to jury trial does not attach to this step of the TCPA procedure.

         Step 2 of the TCPA analysis concerns whether the plaintiff "establishe[d] by clear and specific evidence a prima facie case for each essential element of the claim in question." Civ. Prac. § 27.005(c). If the plaintiff does not make this showing, then the trial court must dismiss the suit. Id. § 27.005(b), (c). As the supreme court explained in In re Lipsky, 460 S.W.3d 579 (Tex. 2015) (orig. proceeding), this standard requires the plaintiff to present "enough detail to show the factual basis for its claim" and "the minimum quantum of evidence necessary to support a rational inference that the allegation of fact is true." Id. at 590-91. Thus, step 2 of the motion to dismiss under the TCPA has the same effect as a no-evidence motion for summary judgment under Rule of Civil Procedure 166a(i). Rule 166a(i) does not violate a party's right to trial by jury. See Springer v. Am. Zurich Ins. Co., 115 S.W.3d 582, 585 (Tex. App.-Waco 2003, pet. denied); Lattrell v. Chrysler Corp., 79 S.W.3d 141, 150 (Tex. App.-Texarkana 2002, pet. denied). "When a party cannot show a material fact issue, there is nothing to submit to a jury, and the grant of summary judgment to the opposing party does not violate the constitutional right to a jury trial." Lattrell, 79 S.W.3d at 150. Therefore, the requirement that the plaintiff meet essentially the same standard under section 27.005(c) does not violate the right to jury trial.

         Concerning the third step, that the trial court must dismiss the legal action if the movant "establishes by a preponderance of the evidence each essential element of a valid defense," we need not determine whether this provision violates the constitutional right to a jury trial because Defendants did not attempt to prove any defenses in their motion to dismiss.

         Plaintiffs did not establish that the TCPA violates their right to a jury trial in this case.

         Open Courts and Due Process

         The Open Courts provision of the Texas Constitution, article 1, section 13, states, "All courts shall be open, and every person for an injury done him, in his lands, goods, person or reputation, shall have remedy by due course of law." Tex. Const. art. I, § 13. This is a due- process guarantee that a person bringing a well-established common-law cause of action will not be denied access to the courts arbitrarily or unreasonably. Yancy v. United Surgical Partners Int'l, Inc., 236 S.W.3d 778, 783 (Tex. 2007). Under this provision, "the legislature may not abrogate the right to assert a well-established common law cause of action unless the reason for its action outweighs the litigants' constitutional right of redress." Tex. Workers' Comp. Comm'n v. Garcia, 893 S.W.2d 504, 520 (Tex. 1995) (quoting Trinity River Auth. v. URS Consultants, Inc., 889 S.W.2d 259, 261 (Tex. 1994)). The Due Process Clause of the United States Constitution and the Due Course Clause of the Texas Constitution prohibit the government from depriving a person of life, liberty, or property without due process of law. See U.S. Const. amend. XIV; Tex. Const. art. I, § 19 ("No citizen of this State shall be deprived of life, liberty, property, privileges or immunities, or in any manner disfranchised, except by the due course of the law of the land.").

         Plaintiffs argue the TCPA violates the Open Courts provision and the Due Process/Due Course Clauses because it does not permit cross-examination of affiants in steps 1 and 3 of the procedure when the movant's burden of proof is by a preponderance of the evidence. Plaintiffs appear to assert the TCPA prohibits depositions, which would make cross-examination impossible. This Court has concluded that the limited discovery permitted under section 27.006(b) includes depositions. In re Spex Grp. U.S. LLC, No. 05-18-00208-CV, 2018 WL 1312407, at *4 (Tex. App.-Dallas Mar. 14, 2018, orig. proceeding) (mem. op.); see also Lane v. Phares, 544 S.W.3d 881, 889 n.1 (Tex. App.-Fort Worth 2018, no pet.) (under section 27.006, court of appeals reviewing motion to dismiss considered deposition trial court allowed). We conclude the TCPA does not prohibit cross-examination as relevant to determination of the motion to dismiss.

         Plaintiffs also argue the TCPA violates their right to open courts because it prevents a party from obtaining discovery except under limited circumstances. Section 27.003(c) states that after a motion to dismiss is filed, "all discovery in the legal action is suspended until the court has ruled on the motion to dismiss." Civ. Prac. § 27.003(c). That section has an exception permitting discovery "as provided by Section 27.006(b)," and section 27.006(b) permits the trial court to "allow specified and limited discovery relevant to the motion [to dismiss]." Id. § 27.006(b). Several courts have concluded this statute does not violate the Open Courts provision. See Landry's, Inc. v. Animal Legal Defense Fund, 566 S.W.3d 41, 68 (Tex. App.- Houston [14th Dist.] 2018, pet. filed); Mem'l Hermann Health Sys. v. Khalil, No. 01-16-00515-CV, 2017 WL 3389645, at *16 (Tex. App.-Houston [1st Dist.] Aug. 8, 2017, pet. denied) (mem. op.); Abraham v. Greer, 509 S.W.3d 609, 615-16 (Tex. App.-Amarillo 2016, pet. denied); Combined Law Enforcement Ass'n of Tex. v. Sheffield, No. 03-13-00105-CV, 2014 WL 411672, at *10 (Tex. App.-Austin Jan. 31, 2014, pet. denied) (mem. op.). We agree with these courts and conclude that the restrictions on discovery do not violate the Open Courts provision.

         Plaintiffs also argue the TCPA violates the Open Courts provision because it requires the trial court to award a prevailing movant its costs, attorney's fees, and other expenses; and the statute also requires the trial court to award sanctions against the party bringing the legal action, "sufficient to deter the party who brought the legal action from bringing similar actions described in this chapter." Civ. Prac. § 27.009(a). The supreme court has interpreted this provision as requiring the trial court to award reasonable attorney's fees to a prevailing movant. Sullivan v. Abraham, 488 S.W.3d 294, 299 (Tex. 2016); see also Cruz v. Van Sickle, 452 S.W.3d 503, 522 (Tex. App.-Dallas 2014, pet. denied). A statute that awards a prevailing party reasonable attorney's fees or sanctions does not violate the Open Courts provision. Such a statute does not bar access to the courts "because sanctions are imposed and litigation costs are shifted only after the claims are resolved." Landry's, 566 S.W.3d at 69.

         Plaintiffs also argued in the trial court that the TCPA violates the Open Courts provision because it

interferes with a party's right to seek injunctive relief pendente lite-as in this case-where immediate relief is proper to ensure that the party has a meaningful opportunity to obtain judicial (especially equitable) relief. . . . [T]he TCPA's process-including the stay provision applicable to interlocutory appeals-unduly restricts a party's access to the Courts and impairs the assertion of legal claims.

See Civ. Prac. § 51.014(b) (interlocutory appeal from denial of dismissal under TCPA "stays the commencement of a trial" and "stays all other proceedings in the trial court pending resolution of that appeal"). While this appeal was pending, Plaintiffs filed a motion to lift the stay under section 51.014(b) to permit them to pursue contempt proceedings in the trial court against Defendants for violating a temporary restraining order, and to pursue a temporary injunction. We granted the motion and lifted the stay to permit the trial court to hold a hearing on Plaintiffs' motion for temporary injunction and motion for contempt. The supreme court concluded this order was an abuse of discretion. In re Geomet Recycling LLC, No. 18-0443, 2019 WL 2482125, at *1, *6 (Tex. June 14, 2019) (orig. proceeding). The supreme court said the stay of trial court proceedings under section 51.014(b) did not leave Plaintiffs without a remedy during the appeal because Plaintiffs could have sought injunctive relief from this Court under Rule of Appellate Procedure 29.3. Id. at *4-5; see also Tex. R. App. P. 29.3. In light of the supreme court's opinion in In re Geomet, we conclude Plaintiffs have not shown the TCPA "unduly restricts a party's access to the courts" or that it "impairs the assertion of legal claims."

         We conclude Plaintiffs have not shown the TCPA violates the Texas or United States Constitutions. The trial court erred to the extent, if any, that the denial of Defendants' motion to dismiss was based on Plaintiffs' assertion that the TCPA is unconstitutional. We sustain Defendants' fifth issue.

         PLAINTIFFS' CLAIMS

         When Goldberg sold Gold Metal to EMR, the sale agreement contained a nondisclosure provision stating each "Seller," which included Goldberg, agreed "that all customer, prospect, and marketing lists, sales data, intellectual property, employee information, proprietary information, trade secrets and other confidential information" of Gold Metal before the sale would "be owned exclusively by EMR" after the closing of the sale. The provision also stated that each "Seller," including Goldberg, promised to treat the information as confidential and promised "not to make use of such information for its own purposes or for the benefit of any other Person."

         After the sale, Goldberg went to work for one of the Plaintiffs as its chief executive officer. His employment agreement contained a nondisclosure provision stating he agreed that he would not, even after termination of his employment, "disclose to or use for the benefit of any person, corporation or other entity, or for himself, any and all files, trade secrets or other confidential information concerning the internal affairs of [Plaintiffs], including, but not limited to, information pertaining to its clients, services, products, earnings, finances, operations, methods or other activities." This nondisclosure provision did not apply to information that was "of public record or is generally known, disclosed or available to the general public or the industry generally." The employment agreement also included noncompetition provisions in which Goldberg promised not to own or work for a competing company for one year after his employment with Plaintiffs ceased. This noncompetition provision also prohibited Goldberg from hiring any of Plaintiffs' employees for one year after he left Plaintiffs. Goldberg was also on EMR's board of directors and promised not to compete with EMR for three years after he left the board of directors.

         Plaintiffs' employees, including the other individual Defendants, received Plaintiffs' employee handbook. The handbook contained a nondisclosure provision about confidential information:

During employment at the Company, employees may acquire confidential information belonging to the Company such as, but not limited to, customer information, accounts, prospects, trade secrets, procedures, sales data, supply sources, contracts, price lists, practices, financial data, company plans, legal matters, passwords, hard copy documents, electronic files, and other specific information concerning the Company, its suppliers, its customers, and its employees. Employees are responsible for maintaining strict confidentiality of all company information. Employees should also avoid disclosure of confidential information about the Company, its customers, and its suppliers to outside parties who are not employed and/or do not have authorization to access confidential information. Employees agree that all such information is the exclusive property of the Company and that they will not at any time divulge or disclose to anyone, except in the responsible exercise of an employee's job, any such information, whether or not the information has been designated specifically as confidential. The unauthorized release or removal of such information will be viewed as grounds for discipline, up to and including termination of employment and possible legal action against employee.

         The handbook also stated that "[p]rograms and information on computers are to be treated as proprietary and confidential" and that "[e]mployees may not use computers to disclose confidential and proprietary information."

         Plaintiffs' computer system, Trade 2, "contain[ed] a compilation of information of virtually all of EMR Group's commercial data, including the operational transactions that take place within EMR Group (and its related companies), as well as inventory control and virtually all aspects of the relationships with customers [suppliers] and consumers [purchasers]." Many of Plaintiffs' purported trade secrets were contained within Trade 2. When they worked for Plaintiffs, all the individual Defendants had at least some access to parts of Trade 2.

         Goldberg resigned from EMR's board of directors in September 2013, and he resigned from his CEO position in September 2014. The noncompete agreements expired by September 17, 2016.

         In May 2017, Goldberg formed a new company, Geomet, which would be competing directly with Plaintiffs.

         From November 2016 and continuing through 2017, many of Plaintiffs' employees resigned and ultimately went to work for Geomet. Many of these employees, when they worked for Plaintiffs, communicated with scrap-metal suppliers and purchasers to buy and sell the scrap metal that constituted Plaintiffs' business. When these employees went to work for Geomet, they contacted some of those same suppliers and purchasers.

         A few of the employees, before they resigned from Plaintiffs, e-mailed to their personal e-mail accounts information from Plaintiffs' computer database, including seller and purchaser lists, inventory of some of Plaintiffs' facilities, environmental reports, and information about Plaintiffs' employees. Plaintiffs considered all this information to be trade secrets. Some of the employees took cell phones, laptop computers, and computer tablets belonging to Plaintiffs with them when they resigned. Some of these items were later returned to Plaintiffs but with records of their use erased. Plaintiffs hired a company to examine these computers, phones, and tablets. The company determined that USB storage devices such as external hard drives had been attached to some of the computers and others had accessed data-storage websites.

         Plaintiffs complain that Goldberg violated his employment agreement by contacting Plaintiffs' employees and persuading them to resign and work for Geomet. Plaintiffs also complain that the individual Defendants breached the nondisclosure provisions of Plaintiffs' employee handbook by downloading information and sending it to their personal e-mail accounts or by using external hard drives and data-storage devices and websites. Plaintiffs also complain that the individual Defendants, after they went to work for Geomet, violated Plaintiffs' employee handbook by contacting scrap-metal suppliers and purchasers who were also suppliers and purchasers from Plaintiffs. Plaintiffs complain that the individual Defendants contacted some of the same people at the purchasers and suppliers with whom they did business while employed by Plaintiffs. Some of these contacts resulted in purchases and sales of scrap metal by Geomet. Plaintiffs assert that if the purchasers and suppliers had come to them instead of Geomet, Plaintiffs would have made a profit from those purchases and sales.

         Plaintiffs also complain about the Pecan House incident. Pecan House & Recycling sold scrap metal to Plaintiffs. Pecan House agreed to send one of the Plaintiffs, Gold Metal Recyclers, a load of scrap metal, and Gold Metal Recyclers made an advance payment to Pecan House for the scrap metal. According to Plaintiffs, before Pecan House delivered the scrap metal, Defendant Mikel Shecht falsely represented to Pecan House that Gold Metal Recyclers had shut down and moved its operations to Geomet. After talking to Shecht, Pecan House delivered the load of scrap metal to Geomet instead of to Gold Metal Recyclers. Defendant Henry Jackson signed for the load when it arrived.

         Plaintiffs' assertions of their damages include the lost value of the goodwill in the purchase from Goldberg, the lost sales due to Defendants' contacting the purchasers who did business with Plaintiffs, and the loss to Plaintiffs' inventory of scrap metal they would have purchased from the scrap-metal providers had Defendants not contacted Plaintiffs' suppliers and purchased it. Plaintiffs assert they would have made a profit on the scrap-metal Defendants purchased. Plaintiffs also seek disgorgement of Defendants' profits from doing business with the suppliers and purchasers. Plaintiffs also claim as damages the costs of recruiting and training new employees for the positions previously held by Plaintiffs' employees who went to work for Geomet. Plaintiffs also seek injunctive relief to bar Defendants from using or otherwise misappropriating Plaintiffs' trade secrets or other confidential information.

         COMMERCIAL-SPEECH EXEMPTION

         In their second issue, Defendants contend the trial court erred to the extent it may have applied the commercial-speech ...


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