Opinion
NO. 01-18-01117-CV
04-07-2020
LOWFOOT, INC., Appellant v. MCDAVITT GROUP, LLC AND SHIRLEY ROUSE, INDIVIDUALLY, Appellees
On Appeal from the 129th District Court Harris County, Texas
Trial Court Case No. 2018-29381
MEMORANDUM OPINION
In this contract case, an employer sued a former employee, alleging breach of a shareholder agreement that included non-compete, non-solicitation, non-interference, and confidentiality provisions. The employee moved to dismiss the suit under the Texas Citizens Participation Act ("TCPA"). After the trial court granted the employee's TCPA motion, the employer filed this appeal, challenging the trial court's ruling. Because we conclude that the employer's suit is exempt from the TCPA, we reverse and remand the trial court's order granting the motion to dismiss.
See TEX. CIV. PRAC. & REM. CODE §§ 27.001-27.011. The Texas Legislature amended certain provisions of the TCPA in 2019. Act of May 17, 2019, 86th Leg., R.S., ch. 378, §§ 1-9, § 12, sec. 27.001, 27.003, 27.005-.007, 27.0075, 27.009-.010 (to be codified at TEX. CIV. PRAC. & REM. CODE §§ 27.001, 27.003, 27.005-.007, 27.0075, 27.009-.010). The amendments became effective September 1, 2019. Id. at § 11. Because suit was filed before the effective date of the amendments, this case is governed by the statute as it existed before the amendments. See id. All our citations and analysis are to the TCPA as it existed prior to September 1, 2019.
Background
Lowfoot, Inc. ("Lowfoot") is a closely held Canadian company that provides smart meter data to consumers and retail energy providers. Smart meters record electricity consumption and relay it to electricity suppliers, such as retail energy providers, for monitoring and billing. Lowfoot's technology and processes helps retail energy providers reduce energy consumption during peak times and mitigate wholesale energy price spikes. Consumers benefit from smart meter data because it provides "almost real-time information about electricity consumption" and "enables consumers to make informed choices about their energy consumption."
McDavitt Group, LLC ("McDavitt") is a Texas limited liability company owned and operated by Shirley Rouse, its sole managing member. We collectively identify McDavitt and Rouse as "Rouse." In 2012, Rouse invested in Lowfoot's Series A fundraising round and executed a Unanimous Shareholder Agreement. Under that agreement, Lowfoot awarded Rouse 387,597 class A-1 shares. In exchange for those class A-1 shares, Rouse agreed to be bound by certain restrictive covenants, which stated in material part that she would not work for any of Lowfoot's competitors; solicit any of Lowfoot's customers, clients, suppliers or distributors; interfere with any of Lowfoot's business opportunities; or disclose any confidential or sensitive information about Lowfoot's property, business and affairs. The agreement further stated that Rouse would be bound by these provisions for two years after she stopped ceased being a shareholder of Lowfoot, or for as long as she held any of Lowfoot's shares, whichever period was longer.
The next year, Lowfoot hired Rouse as its President. In this role, Rouse was responsible for participating in additional fundraising rounds and regularly participating in quarterly shareholder and investor meetings and conference calls. During these meetings and calls, Lowfoot regularly discussed its current and future products, as well as its clients and future business strategies. In addition, Rouse was responsible for developing new business relationships, which involved reaching out to her industry contacts and soliciting them to become clients of Lowfoot. Rouse remained in this position until she separated from Lowfoot in March 2014.
In 2016, about two years after her separation from Lowfoot, Rouse became a Chief Products and Client Success Officer for Innowatts, which provides the same services within the same industries and for the same types of customers as Lowfoot. Innowatts is an energy analytics company that develops software and offers many products related to smart meter data. Rouse never told Lowfoot that she was employed by Innowatts.
Innowatts is not a party to this appeal.
While employed by Innowatts, Rouse maintained her Class A-1 shares in Lowfoot and attended shareholder and investor meetings and calls until February 2018. At that time, Lowfoot learned that Rouse had been working for Innowatts for two years. Lowfoot also learned that Rouse was soliciting Lowfoot's clients and pitching products and ideas that she learned exclusively through Lowfoot's investor and shareholder meetings. In fact, Rouse's LinkedIn page reflected that, in her role as a Chief Products and Client Success Officer at Innowatts, Rouse was "responsible for ongoing relationships with clients and the sales of additional services to clients."
About one week after one of Lowfoot's shareholder and investor meetings that she personally attended, Rouse appeared at an industry thought-leader conference on behalf of Innowatts and at a presentation on smart communities. Rouse provided her contact information at the end of the presentation. After her presentation, Rouse admitted that she "probably offered" the audience a follow-up opportunity to see a product demonstration of Innowatts's entire platform. Rouse admittedly gave about ten other product demonstrations.
C. McArthur was one of about forty people who attended Rouse's presentation. McArthur was Rouse's former co-worker and the chief operating officer for Crius Energy, a retail energy provider. He emailed Rouse after her presentation and they spoke briefly about various social topics. Later, McArthur requested a product demonstration, and Rouse referred him to Innowatts's CEO. Innowatts's CEO conducted a product demonstration for Crius Energy. Crius Energy never became a client of Innowatts.
In 2018, Lowfoot sued Rouse, asserting violations of the Texas Theft Liability Act, breach of contract, conversion, statutory and common law trade secret misappropriation, and breach of fiduciary duty. Lowfoot sought injunctive relief and money damages. Lowfoot alleged that Rouse had (1) breached her fiduciary duty and multiple covenants in the shareholder agreement by disclosing proprietary and confidential business information with Innowatts, by directly competing with Lowfoot, and by soliciting Lowfoot's clients; (2) unlawfully appropriated and taken Lowfoot's property without Lowfoot's consent; and (3) used and disclosed Lowfoot's trade secrets in violation of both confidential and contractual relationships with Lowfoot.
Rouse answered Lowfoot's suit and asserted a general denial, a laundry list of affirmative defenses, and a counterclaim for a declaratory judgment challenging the enforceability of the restrictive covenants in the shareholder agreement. Rouse also moved to dismiss Lowfoot's suit under the TCPA, arguing that Lowfoot filed the lawsuit to limit her constitutional rights to speak and associate freely. Lowfoot then moved for and was granted the right to conduct limited discovery. After engaging in limited discovery, Lowfoot opposed the TCPA motion, arguing that the commercial-speech exemption applied and that Lowfoot had established by clear and specific evidence a prima facie case for each essential element of its claims.
Without providing its reasons, the trial court granted Rouse's TCPA motion and dismissed Lowfoot's case with prejudice to refiling. Lowfoot now challenges the trial court's ruling in this appeal.
We exercise our jurisdiction to review an appeal of the trial court's final order dismissing Lowfoot's case in its entirety. See Lehmann v. Har-Con Corp., 39 S.W.3d 191, 205 (Tex. 2001) (authorizing appellate review when final order or judgment "disposes of all claims and all parties"); Roll-N-Rock, Inc. v. Patison, No. 05-15-00164-CV, 2015 WL 5098520, at *1 (Tex. App.—Dallas Aug. 31, 2015, no pet.) (mem. op.) ("A party may appeal from an interlocutory order that grants a motion to dismiss filed pursuant to Section 27.003 only upon final judgment.").
The Texas Citizens Participation Act
A. Applicable law and standard of review
Under the TCPA, a defendant may move to dismiss 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." TEX. CIV. PRAC. & REM. CODE § 27.003(a); Creative Oil & Gas, LLC v. Lona Hills Ranch, LLC, 591 S.W.3d 127, 133 (Tex. 2019). "The TCPA's purpose is to identify and summarily dispose of lawsuits designed only to chill First Amendment rights, not to dismiss meritorious lawsuits." In re Lipsky, 460 S.W.3d 579, 589 (Tex. 2015) (citing TEX. CIV. PRAC. & REM. CODE § 27.002); see KTRK Television, Inc. v. Robinson, 409 S.W.3d 682, 688 (Tex. App.—Houston [1st Dist.] 2013, pet. denied).
The movant bears the initial burden of showing by a preponderance of evidence that the conduct that forms the basis of the claim against her is protected by the TCPA—that is to say, that the suit is based on, relates to, or is in response to the movant's exercise of her right to free speech, association, or petition. TEX. CIV. PRAC. & REM. CODE § 27.005(b). If the movant meets this burden, then the burden shifts to the nonmovant to establish "by clear and specific evidence a prima facie case for each essential element of the claim in question." Id. § 27.005(c). Dismissal of the case is required if the nonmovant fails to meet its burden or if the movant "establishes by a preponderance of the evidence each essential element of a valid defense to the nonmovant's claim." Id. § 27.005(d); Baumgart v. Archer, 581 S.W.3d 819, 825 (Tex. App.—Houston [1st Dist.] 2019, pet. filed). In conducting our review, we consider the pleadings and evidence in a light favorable to the nonmovant. Deuell v. Tex. Right to Life Comm., Inc., 508 S.W.3d 679, 685 (Tex. App.—Houston [1st Dist.] 2016, pet. denied).
We review de novo the trial court's ruling on a TCPA motion to dismiss. See S & S Emergency Training Sols., Inc. v. Elliott, 564 S.W.3d 843, 847 (Tex. 2018). We interpret the TCPA in accordance with its express statutory language. See Jordan v. Hall, 510 S.W.3d 194, 197 (Tex. App.—Houston [1st Dist.] 2016, no pet.) (citing Galbraith Eng'g Consultants, Inc. v. Pochucha, 290 S.W.3d 863, 867 (Tex. 2009)). When construing the TCPA, as with any other statute, our objective is to give effect to the legislative intent, looking first to the statute's plain language. Lippincott v. Whisenhunt, 462 S.W.3d 507, 509 (Tex. 2015) (per curiam).
In the trial court below, Rouse was the TCPA movant, and she argued that Lowfoot's legal action was a retaliatory suit based on her exercise of the right of free speech and the right of association. Attacking the TCPA motion on multiple fronts, Lowfoot argued that its legal action was exempt under the TCPA's commercial-speech exemption and that it established a prima facie case for its legal action. When one of the enumerated exemptions to the TCPA applies, we do not engage in the two-step process of determining whether the parties met their initial TCPA burdens. Because we have determined that the commercial-speech exemption applies, we direct our analysis to that issue immediately.
B. The Commercial-Speech Exemption Applies
Section 27.010 exempts some legal actions from the TCPA. See TEX. CIV. PRAC. & REM. CODE § 27.010. For instance, as asserted here, the commercial-speech exemption excludes certain commercial speech from the TCPA's protections. See id. § 27.010(b). The party asserting the commercial-speech exemption bears the burden to prove by a preponderance of the evidence that it applies. Id. The four elements to the commercial-speech exemption are:
(1) the defendant was primarily engaged in the business of selling or leasing goods;Castleman v. Internet Money Ltd., 546 S.W.3d 684, 688 (Tex. 2018) (per curiam). We consider the pleadings and any supporting or opposing affidavits in the record to determine whether a party has met its burden on the commercial-speech exemption's elements. TEX. CIV. PRAC. & REM. CODE § 27.006(a); Dyer v. Medoc Health Servs., LLC, 573 S.W.3d 418, 424 (Tex. App.—Dallas 2019, pet. denied). We may rely on the factual allegations in a plaintiff's petition, alone, to meet the elements. See Grant v. Pivot Tech. Sols., Ltd., 556 S.W.3d 865, 889 (Tex. App.—Austin 2018, pet. denied) (citing TEX. CIV. PRAC. & REM. CODE § 27.006). We now address each element in turn.
(2) the defendant made the statement or engaged in the conduct on which the claim is based in the defendant's capacity as a seller or lessor of those goods or services;
(3) the statement or conduct at issue arose out of a commercial transaction involving the kind of goods or services the defendant provides; and
(4) the intended audience of the statement or conduct were actual or potential customers of the defendant for the kind of goods or services the defendant provides.
1. Rouse was primarily engaged in the business of selling or leasing goods or services
The first Castleman element "requires the defendant to be primarily engaged in the business of selling goods or services, not primarily engaged in the act of selling." Rose v. Sci. Mach. & Welding, Inc., No. 03-18-00721-CV, 2019 WL 2588512, at *5 (Tex. App.—Austin June 25, 2019, no pet.) (mem. op.) (citing TEX. CIV. PRAC. & REM. CODE § 27.010(b)). In Rose, the court held that a "high-level executive of a company that primarily designs and sells manufactured items to customers is also 'primarily engaged' in that type of business." Id. Similarly, in Gaskamp v. WSP USA, Inc., --- S.W.3d ----, No. 01-18-00079-CV, 2020 WL 826729, at *17 (Tex. App.—Houston [1st Dist.] Feb. 20, 2020, no pet. h.), this Court held that the first Castleman element was met because the employee worked for company that offered similar services to her former employer.
In its pleadings, Lowfoot averred that when it hired Rouse as its President, her responsibilities included, but were not limited to, developing new business relationships and soliciting retail energy provider contacts to become clients of Lowfoot. Lowfoot further pleaded that Rouse remained in the energy analytics industry when she joined Innowatts and performed similar duties at Innowatts. Lowfoot provided evidence showing that Rouse's sales-related activity included attending an industry thought-leader conference, giving a presentation on smart communities for Innowatts, and offering product demonstrations.
Along with these pleadings, Lowfoot relied on the unsworn declaration of P. Playfair, the Chief Executive Officer of Lowfoot who was familiar with Rouse before she resigned. See TEX. CIV. PRAC. & REM. CODE § 132.001(a) (providing that an unsworn declaration may be used in lieu of an affidavit). Playfair attested that Rouse served as his mentor. He admired Rouse's "experience and knowledge of the energy analytics industry" and "valued her feedback and advice during the shareholder meetings." According to Playfair, Rouse actively voiced new ideas about "developing new products or targeting new markets to expand Lowfoot's presence and reach in the market." Innowatts provided evidence that, after Rouse joined Innowatts, she updated her LinkedIn profile and listed her titled as a Chief Product and Client Success Officer. In her deposition testimony, Rouse admitted that as a Chief Product and client Success Officer, she was "responsible for ongoing relationships with clients and the sale of additional services to clients." When combined with the pleadings, this evidence is more than sufficient to establish that Rouse was primarily engaged in the business of selling smart meter data services.
Rouse counters that the first Castleman element is negated as a matter of law because she "did not sell anything" and Innowatts's CEO gave the product demonstration to Crius Energy. This argument fails for at least two reasons. First, even if we were to disregard the affirmative evidence that Rouse has pitched or sold services on behalf of Innowatts, there is no rule requiring a completed transaction before the nonmovant can claim the commercial-speech exemption. In contrast, even a proposed transaction will suffice. See Castleman, 546 S.W.3d at 690 (holding that the exemption applies to commercial speech which does "no more than propose a commercial transaction"); Clean Energy v. Trillium Transp. Fuels, LLC, No. 05-18-01228-CV, 2019 WL 3212145, at *5 (Tex. App.—Dallas July 9, 2019, no pet.) (mem. op.) (holding that the exemption applied even though no commercial transaction was completed). Second, the exemption can apply even though Rouse merely facilitated a product demonstration for Crius Energy at McArthur's request as Innowatts's employee. See Rose, 2019 WL 2588512, at *5 (holding that employee who performed tasks on behalf of the company was primarily engaged in the business of selling or leasing goods or services). While Rouse minimizes the content of their conversation with McArthur, the end result is that Rouse arranged to have her employer's product demonstrated to McArthur, who was in a position to purchase that product instead of Lowfoot's competing product. And no matter how the commercial transaction was proposed—whether through Rouse or Innowatts's CEO—the plain text of the commercial-speech exemption requires us to consider whether the movant is "engaged in the business" of selling goods or services. See TEX. CIV. PRAC. & REM. CODE § 27.010(b).
2. Rouse made statements or engaged in the conduct on which the claims are based in her capacity as a seller or lessor of those goods or services
The second Castleman element requires Lowfoot to show that its claims were based either on a statement Rouse made in her capacity as a seller of analytic services, or on conduct in which she engaged as a seller of those services. To make this determination, we review the context in which the conduct was performed. See Rose, 2019 WL 2588512, at *5 (reviewing context in which communications were made to determine whether defendant made them in capacity as seller or lessor). Beginning with conduct, Lowfoot pleaded that through her employment with Innowatts, Rouse has "breached multiple provisions of the Shareholder Agreement . . . by directly competing with Lowfoot." Moreover, Lowfoot's evidence shows that Rouse attended industry conferences, gave presentations to prospective clients in the energy analytics industry, and arranged for product demonstrations. As for statements, Lowfoot pleaded that Rouse has "breached multiple provisions of the Shareholder Agreement by disclosing proprietary, confidential and highly valuable business information . . . and by soliciting Lowfoot's clients."
In her brief and deposition testimony, Rouse asserts that the second Castleman element fails because she denied making "any type of sales pitch for Innowatts," and therefore "there is simply no evidence to establish that she acted in a sales capacity or communicated with anyone in a sales capacity." This assertion is unavailing. With Rouse's admission that she "probably" offered to demonstrate her employer's product to around forty consumers and retail energy providers, Lowfoot has established that, more likely than not, Rouse engaged in the subject communications or conduct in her capacity as a seller of goods or services. In addition, Lowfoot has established that its claims are based in part on statements made in Rouse's capacity as a seller of energy analytics services because it pleaded a breach of the non-solicitation provision. See Hieber v. Percheron Holdings, LLC, 591 S.W.3d 208, 213 (Tex. App.—Houston [14th Dist.] 2019, pet. denied).
3. Rouse's statements or conduct at issue arose out of a commercial transaction involving the kind of goods or services that Rouse provides
For the third Castleman element, Lowfoot was required to show that the statement or conduct at issue arose out of a commercial transaction involving the kind of services that Rouse provides. The conduct claim (i.e., working for a competitor in breach of a non-compete agreement) arises out of a commercial transaction that Rouse provides (i.e., energy analytics services). The statements claim (i.e., soliciting Lowfoot's customers and using Lowfoot's confidential information) likewise arises out of a commercial transaction involving the sale of surveying services. See Callison v. C & C Pers., LLC, No. 09-19-00014-CV, 2019 WL 3022548, at *6 (Tex. App.—Beaumont July 11, 2019, pet. filed) (mem. op.) ("Utilizing confidential or proprietary information from a previous employer while working for a new employer to target and secure the same customers satisfies this element.").
4. The intended audience of the statements or conduct were actual or potential customers of Rouse for Rouse's kind of goods or services that Rouse provides
Finally, for the fourth Castleman element, Lowfoot was required to show that the intended audience of Rouse's statements and conduct was an actual or potential customer for the kind of services that Rouse provides. Again, Lowfoot established through its pleadings and its evidence that, since joining Innowatts, Rouse has targeted one of Lowfoot's existing customers (i.e., Crius Energy). And Rouse concedes that she, individually, has done several product demonstrations of Innowatts's product and that she "probably" made an offer to an entire room of industry members to demonstrate Innowatts's product to them as well.
Viewing the pleadings and TCPA record evidence in a light favorable to Lowfoot, we conclude that Lowfoot has established by a preponderance of the evidence that its lawsuit is exempt from the TCPA under the commercial-speech exemption. See Grant, 556 S.W.3d at 889. We need not address the parties' remaining arguments because the commercial-speech exemption applies.
Conclusion
Having concluded that the commercial-speech exemption applies, we reverse and remand for additional proceedings not inconsistent with this opinion.
Sarah Beth Landau
Justice Panel consists of Justices Keyes, Landau, and Countiss.