United States: In Trade Secret Misappropriation Case, Texas Court Of Appeals Affirms Attorney's Fees Award Approaching $220,000 Where Actual Damages Were $4,000

Earlier this month, the Texarkana Court of Appeals took the extraordinary measure of affirming an award of plaintiff attorney's fees against a defendant for willful and malicious misappropriation of trade secrets in an amount that was ultimately more than 50 times higher than the plaintiff's actual awarded damages.

Samuel D. Orbison worked for an oil and gas company, Ma-Tex Rope Company, Inc., for five years and signed an employment agreement containing a non-competition agreement, a non-disclosure agreement, and a non-solicitation agreement. During his tenure with Ma-Tex, Orbison became the coordinator of Ma-Tex's recertification department until he resigned and began working for its competitor, American Pipe Inspections, Inc. (API), in the same position he had filled with Ma-Tex. When Ma-Tex learned that Orbison had begun soliciting recertification work from Ma-Tex's customers, it sued Orbison and API for, among other claims, breach of contract and misappropriation of trade secrets.

After a bench trial, the trial court granted Ma-Tex a permanent injunction against Orbison and API and awarded Ma-Tex approximately $2,000 in damages for lost profits, $120,000 in damages for lost good will, and $4,000 in damages for unjust enrichment. In addition, the trial court's judgment provided that Ma-Tex recover from Orbison and API approximately $216,000 in attorney's fees through trial for Ma-Tex's contract and misappropriation claims.

On appeal, the court concluded that the evidence was legally insufficient to support all but the approximately $4,000 in damages awarded to Ma-Tex for unjust enrichment. As for attorney's fees, Orbison and API argued that the trial court had abused its discretion in awarding attorney's fees because it had made no finding of fact of willful and malicious misappropriation. See Tex. Civ. Prac. & Rem. Code § 134A.005(3) (providing that the trial court may award attorney's fees to the prevailing party in a claim for misappropriation of trade secrets under the Texas Uniform Trade Secrets Act if the misappropriation is "willful and malicious").¹

The court of appeals held that, although the trial court had designated its finding—that Orbison's and API's misappropriation was willful and malicious—as a conclusion of law, rather than a finding of fact, that designation was not controlling and it would be treated as a finding of fact. Thus, because the trial court entered a finding that Orbison's and API's misappropriation was willful and malicious, and there was some evidence to support it, the court of appeals did not disturb the trial court's award of nearly $220,000 in attorney's fees even though it effectively reduced Ma-Tex's actual damages to $4,000.

This case demonstrates the risk in trade secret cases that attorney's fees may eclipse the ultimate damages award. From the perspective of a potential new employer, while the actual damages from any misappropriation of trade secrets may be small, it could cost much more in attorney's fees if a court finds any misappropriation was willful and malicious.

Footnote

[1] The federal Defend Trade Secrets Act, which allows for a claim of misappropriation for trade secrets to a product or service used in, or intended for use in, interstate or foreign commerce, has a similar provision for awarding attorneys' fees for willful and malicious appropriation.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.