Opinion
NO. 01-18-00662-CV
04-28-2020
NATIONAL SIGNS, INC., Appellant v. JOHN GRAFF, Appellee
On Appeal from the 334th District Court Harris County, Texas
Trial Court Case No. 2017-57898
MEMORANDUM OPINION
National Signs, LLC. ["National Signs"] sued its former employee, John Graff, alleging that he violated non-disclosure and non-compete clauses in his employment contract by using confidential information, which he obtained while working for it, on behalf of his new employer, Al Ross Sign Group. Graff filed a motion to dismiss National Signs' claims pursuant to the Texas Citizens' Participation Act ["TCPA"]. The trial court granted Graff's motion, dismissed National Signs' claims, and National Signs filed this appeal, raising three issues challenging the trial court's final judgment of dismissal. We reverse and remand.
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, secs. 27.001, 27.003, 27.005-.007, 27.0075, 27.009-.010, Tex. Sess. Law Serv. 684, 687. The amendments became effective September 1, 2019. Id. at §§ 11-12. Because this 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 are to the TCPA as it existed prior to September 1, 2019, unless otherwise stated. For ease of reference, citation to the pre-amendment version of a section amended in 2019 will be identified as the "Former" section.
BACKGROUND
National Signs is in the business of "custom sign manufacturing" for commercial enterprises. The company was founded by Al Ross, and National Signs acquired it from Ross in 2012. Graff worked for National Signs for almost 20 years; for seven years he was its Vice President of Operations.
In 2008, Graff and National Signs entered into an employment agreement that (1) defined "confidential information," (2) restricted Graff's ability to disclose the confidential information, and (3) prevented Graff from competing with National Signs under certain geographic and time limitations after Graff's employment terminated.
Graff left his employment with National Signs in June 2017, and in August 2017, he went to work with Al Ross Sign Group, a new company formed by National Signs' original founder. In September 2017, National Signs sued Graff, seeking a temporary injunction and declaratory judgment and asserting the following causes of action: (1) breach of contract, (2) breach of contractual and common-law confidentiality obligations, (3) conversion of confidential information, (4) misappropriation of confidential information and trade secrets/violation of the Texas Uniform Trade Secrets Act, (5) violations of the Texas Theft Liability Act, (6) common-law unfair competition and misappropriation of confidential information, (7) breach of duty of loyalty, and (8) breach of fiduciary duty. National Signs also sought to recover its attorney's fees, expenses, and exemplary damages.
See TEX. CIV. PRAC. & REM. CODE §§ 134A.001-134A.008.
See TEX. CIV. PRAC. & REM. CODE §§ 134.001-134.005.
Graff filed a motion to dismiss pursuant to the TCPA, alleging globally that "National Signs' lawsuit is based on, relates to, or is in response to Graff's exercise of" the rights of free association and free speech. National Signs responded to the motion, arguing that (1) the TCPA did not apply to its claims against Graff; (2) if the TCPA were applicable, National Signs had made a prima facie showing of the elements on each claim, and (3) if the TCPA were applicable, National Signs had shown that the "commercial speech" exception applied.
The trial court "considered Defendant John Graff's Motion to Dismiss Pursuant to the [TCPA], responses, the arguments of counsel and the papers on file and GRANTED the motion in its entirety." The court dismissed all National Signs' claims against Graff and awarded Graff attorney's fees, plus conditional attorney's fees if Graff successfully defends the judgment on appeal.
National Signs brings this appeal from the trial court's final judgment dismissing its claims against Graff.
DISMISSAL UNDER THE TCPA
In three related issues on appeal, National Signs contends the trial court erred in granting Graff's motion to dismiss, arguing that the trial court erred by (1) dismissing its contractual non-compete and non-disclosure claims, which are nonetheless permitted by the Texas Uniform Trade Secret Act and the Texas Business and Commerce Code; (2) dismissing all of its claims because Graff did not show that National Signs' claims implicated his rights of free association or free speech, and (3) finding that National Signs failed to make a prima facie showing of the elements supporting each of its claims. Because we believe that the second issue is dispositive, we address it first.
A. Applicable TCPA Law
The TCPA protects citizens from retaliatory lawsuits that seek to intimidate or silence them on matters of public concern. In re Lipsky, 460 S.W.3d 579, 584 (Tex. 2015). We construe the TCPA "liberally to effectuate its purpose and intent fully." See TEX. CIV. PRAC. & REM. CODE § 27.011(b); see State ex rel. Best v. Harper, 562 S.W.3d 1, 11 (Tex. 2018). The stated purpose of the act "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." TEX. CIV. PRAC. & REM. CODE § 27.002.
The TCPA provides a three-step process to determine whether a lawsuit or claim should be dismissed under the statute. Creative Oil & Gas, LLC v. Lona Hills Ranch, LLC, 591 S.W.3d 127, 132 (Tex. 2019); see also Former TEX. CIV. PRAC. & REM. CODE §§ 27.003 ("Motion to Dismiss"), .005 ("Ruling"). The TCPA requires that a trial court deciding a motion to dismiss "shall consider the pleadings and supporting and opposing affidavits" filed by the parties. See Former TEX. CIV. PRAC. & REM. CODE § 27.006(a).
Under the first step, a movant must show by a preponderance of the evidence that the TCPA applies. See id. § 27.005(b). The TCPA applies if the nonmovant's "legal action"—defined as "a lawsuit, cause of action, petition, complaint, cross-claim, or counterclaim or any other judicial pleading or filing that requests legal or equitable relief"—is based on, relates to, or is in response to the movant's exercise of (1) the right of free speech; (2) the right to petition; or (3) the right of association. Id.; In re Lipsky, 460 S.W.3d at 586-87.
If the movant shows that the TCPA applies, then the burden shifts to the nonmovant under the second step to establish by "clear and specific evidence a prima facie case for each essential element" of his claim. Former TEX. CIV. PRAC. & REM. CODE § 27.005(c); In re Lipsky, 460 S.W.3d at 587. If the movant meets the first step, but the nonmovant does not meet the required showing of a prima facie case, the trial court must dismiss the nonmovant's claim. See Former CIV. PRAC. & REM. CODE § 27.005. Under the third step, even if the nonmovant satisfies the second step, the court will nonetheless dismiss the claim if the movant "'establishes by a preponderance of the evidence each essential element of a valid defense' to the [non-movant's] claim." Former TEX. CIV. PRAC. & REM. CODE § 27.005(d).
If the trial court dismisses the legal action under the TCPA, the court "shall award" to the moving party:
(1) court costs, reasonable attorney's fees, and other expenses incurred in defending against the legal action as justice and equity may require; andId. § 27.009(a).
(2) sanctions against the party who brought the legal action as the court determines sufficient to deter the party who brought the legal action from bringing similar actions described in this chapter.
A nonmovant can avoid the TCPA's burden-shifting requirements by showing that one of the act's several exemptions applies. See id. § 27.010. For instance, the commercial-speech exemption removes certain commercial speech from the TCPA's protections. See id. § 27.010(b).
B. Standard of Review
We review de novo a trial court's ruling on TCPA motion to dismiss. See Better Bus. Bureau of Metro. Houston, Inc. v. John Moore Servs., Inc., 441 S.W.3d 345, 353 (Tex. App.—Houston [1st Dist.] 2013, pet. denied). In making this determination, we view the pleadings and evidence in a light most favorable to the plaintiff-nonmovant. Schimmel v. McGregor, 438 S.W.3d 847, 855-56 (Tex. App.—Houston [1st Dist.] 2014, pet. denied).
C. TCPA's Application to National Signs' Claims
To obtain dismissal under the TCPA, Graff had the initial burden to demonstrate that the TCPA applied to National Signs' claims. This burden required Graff to show by a preponderance of the evidence that (1) National Signs' "legal action" (2) "is based on, relates to, or is in response to" (3) an exercise of the right of free speech or the exercise of the right of association. Gaskamp v. WSP USA, Inc., No. 01-18-00079-CV, 2020 WL 825729, at *8 (Tex. App.—Houston [1st Dist.] Feb. 20, 2020, no pet. h.) (en banc) (op. on reh'g); see Former TEX. CIV. PRAC. & REM. CODE § 27.005(b). In issue two, National Signs contends the trial court erred in finding that Graff had met this initial burden.
There is no issue regarding whether this is a "legal action."
There is no issue regarding the right of petition.
1. Right of Association
In his motion to dismiss, Graff claimed that National Signs' suit is based on, relates to, or is in response to Graff:
owning, managing, operating, controlling, being employed by, participating in, or being connected in any manner with the ownership, management or control of any business of a similar type or character as National within 100 miles of National [Signs'] Houston office;
inducing or soliciting any National [Signs'] employees to terminate their employment with National [Signs][.]
Graff further argued in his motion to dismiss that, based on these allegations in National Signs' petition, "Graff's right of association is clearly implicated and the TCPA applies."
At the time this suit was filed, the TCPA defined the "exercise of the right of association" as "a communication between individuals who join together to collectively express, promote, or defend common interests." Former TEX. CIV. PRAC. & REM. CODE 27.001(2). The issue in this case is whether any of the communications between Graff and his new employer, Al Ross Sign Group, are communications to "express, promote, or defend common interests." Id.
At the motion to dismiss hearing, Graff relied on Elite Auto Body LLC v. Autocraft Bodywerks, Inc., 520 S.W.3d 191, 205 (Tex. App.—Austin 2017, pet. dism'd), to argue that, "in a situation where somebody is bringing a lawsuit on trade secrets, confidential information, that necessarily implies free speech and association here." Graff further argues on appeal that "there is no requirement under the TCPA that the communication for an association have a public purpose" to satisfy the "common interest" element of the right of free association.
In Elite Auto Body, the court, without an extensive discussion of the issue, concluded that the "common interest" element of the right of association was satisfied by the private interests being advanced through the alleged tortfeasors' tortious conduct. See Gaskamp, 2020 WL 826729, at *9 (summarizing holding in Elite Auto Body, 520 S.W.3d at 205).
In Gaskamp, however, this Court declined to adopt such an expansive reading of the "common interest" element of the right of association. Id. at *10-13. After considering the ordinary meaning of the word "common," the purpose of the TCPA's statutory scheme, and recent amendments to the TCPA that defined "common interests" as those "relating to a governmental proceeding or a matter of public concern," this Court concluded that, "with respect to the pre-amendment version of the TCPA, the proper definition of 'common' in the phrase 'common interests' is 'of or relating to a community at large: public.'" Id. Because the allegations in Gaskamp "involved misappropriating . . . trade secrets and conspiring to commit related torts, [and] benefitted only the five alleged tortfeasors," and there were no allegations in the nonmovant's petition of any "public or community interests," the movants did not meet their burden of showing, by a preponderance of the evidence, that the nonmovant's suit was based on, related to, or was in response to an exercise of the movants' right of association. Id. at *13.
See Act of May 17, 2019, 86th Leg., R.S., ch. 378, § 1, sec. 27.001(2), 2019 Tex. Sess. Law Serv. 684, 684 (emphasis added).
The same is true in this case. National Signs' claims are all based on Graff's misappropriation of confidential information, as that term is defined in the employment contract, and the sharing and communication of that confidential information with Graff's new employer, Al Ross Sign Group. No "public or community interests" is alleged. As such, Graff did not meet his burden of showing, by a preponderance of the evidence, that National Signs' suit was based on, relates to, or is in response to an exercise of his right of association.
2. Right of Free Speech
In his motion to dismiss, Graff also claimed that National Signs' lawsuit was based on the exercise of his right to free speech. The definition of "exercise of the right to free speech" is "a communication made in connection with a matter of public concern." TEX. CIV. PRAC. & REM. CODE § 27.001(3). At the time this suit was filed, a "matter of public concern" included an issue related to: (a) health or safety, (b) environmental, economic, or community well-being, (c) the government, a public official or public figure, or (d) a good, product, or service in the marketplace." Former TEX. CIV. PRAC. & REM. CODE § 27.001(7).
In his motion to dismiss, Graff asserted that his communication of confidential information to Al Ross Sign Group, though internal communications within the company, were nonetheless "matters of public concern" because they were related to "a good, product, or service" in the marketplace.
This Court also addressed this issue in Gaskamp, in which we stated:
Contrary to Appellants' reading of the statute, "not every communication related somehow to one of the broad categories set out in section 27.001(7) always regards a matter of public concern." "The words 'good, product, or service in the marketplace' . . . do not paradoxically enlarge the concept of 'matters of public concern' to include matters of purely private concern." "[T]he 'in the marketplace' modifier suggests that the communication must have some relevance to a public audience of potential buyers or sellers." Although the Supreme Court of Texas has "previously held that private communications are sometimes covered by the TCPA[,] . . . [t]hese prior cases involved environmental, health, or safety concerns that had public relevance beyond the pecuniary interests of the private parties involved."Gaskamp, 2020 WL 826729, at *13 (internal citations omitted). Because "the internal communications among [the movants] and the other tortfeasors—through which they allegedly misappropriated, shared, and used [the nonmovant's] trade secrets, breached their fiduciary duties, and conspired to further their business venture—had no potential impact on the wider community or a public audience of potential buyers or sellers," this Court concluded that the movants did not carry their burden of showing their internal communications were "made in connection with a matter of public concern." Id. "[T]he communications had no public relevance beyond the pecuniary interests of the private parties." Id.
The same is true in this case. Even though internal communications between company employees—here, Graff and his co-workers at Al Ross Sign Group—might be protected by the TCPA, see ExxonMobile Pipeline Co. v. Coleman, 512 S.W.3d 895, 901 (Tex. 2017), those internal communications must nonetheless relate to a matter of public concern. See id. Graff's communications with other employees of Al Ross Sign Group "had no public relevance beyond the pecuniary interest of the private parties." See Gaskamp, 2020 WL 826729, at *13. As such, the communications do not involve "a matter of public concern" as required by Former Civil Practices and Remedies Code section 27.001(7)(E). Thus, Graff did not meet his burden of showing, by a preponderance of the evidence, that National Signs' suit was based on, relates to, or is in response to an exercise of his right of free speech.
CONCLUSION
We conclude that the communications between Graff and Al Ross Sign Group—through which Graff allegedly breached his non-compete and non-disclosure agreements, converted and misappropriated confidential information and trade secrets, violated the Texas Uniform Trade Secrets Act and the Texas Theft Liability Act, and breached other common-law duties—are not protected under the TCPA as either an exercise of Graff's right of association or an exercise of his right of free speech. Accordingly, we sustain National Signs' second issue on appeal. In light of our disposition of National Signs' second issue, we need not address their remaining issues, and decline to do so. See Sullivan v. Tex. Ethics Comm'n, 551 S.W.3d 848, 856 n.6 (Tex. App.—Austin 2018, pet. denied) ("Because we hold that the TCPA does not apply, we do not reach the second step in the TCPA analysis of whether [the nonmovant] met its burden to prove a prima facia case."); see also TEX. R. APP. P. 47.1
Having sustained National Signs' second issue on appeal, we reverse the trial court's judgment and remand for further proceedings.
Sherry Radack
Chief Justice Panel consists of Chief Justice Radack and Justices Kelly and Goodman.