X

Thank you for sharing!

Your article was successfully shared with the contacts you provided.
Click here for the full text of this decision FACTS: Frank Sands, a CPA in Plano, sold his accounting practice to James C. Buys & Associates and included a covenant not to compete in the sales agreement. James Buys immediately moved the clients that the corporation obtained from Plano to an office in Colleyville, but also bought two other accounting practices that remained in Plano. Buys hired Sands as an independent contractor to work on special projects. Later, Sands became a full-time employee of the corporation, managing the Plano office, where several other employees and three independent contractors worked. Around 20 of Sands’ former clients, who had been transferred with his other former clients to Colleyville, asked to be transferred back to the corporation’s Plano office so that Sands could again service them. At this time, Sands was also marketing himself in a way that generated 25 clients for the corporation. Buys died in June 2004. Sands made an offer to Buys’ estate to buy the Plano office. He also advised Buys’ widow that he was going to start his own practice even if his offer was not accepted. Sands resigned from the corporation, effective Aug. 31. Meanwhile, the estate had been negotiating with other CPAs to sell them the Plano office’s assets. The estate got a temporary restraining order against Sands, barring him from the Plano office on Aug. 20, and preventing him from taking anything from the office except his personal time logs. Buys’ estate sued Sands for misappropriation of trade secrets and confidential information, and for breach of the original covenant not to compete. The trial court entered a temporary injunction against Sands, prohibiting him from contacting, soliciting or accepting any business from the corporation’s clients with whom Sands had any contact during his employment (and independent contractor status) with the corporation. HOLDING: Reversed and rendered. Reviewing the temporary injunction, the court found that the estate had not established a probable right to recovery on its underlying misappropriation of trade secrets claim. The court found the client information could be characterized as a trade secret, but that before something can truly be a trade secret, there must be a substantial element of secrecy. The court thus applies six criteria from In Re: Bass, 113 S.W.3d 735 (Tex. 2003), to see if that element of secrecy is found here. First, the record showed that the identities of many of the Plano office’s clients were known outside the corporation’s business because many of the clients knew each other. Second, the identities and addresses of the Plano office’s clients were completely available to Sands and all other employees and independent contractors in the Plano office. Plus, the independent contracts were practicing accountants who worked only part-time for the corporation. Third, the corporation made few, if any, efforts to guard client identities. For example, at Buys’ instruction, the computers in the Plano office were left on 24 hours a day, and the information on them was accessible from the corporation’s other offices. Fourth, there was some evidence that the clients’ names would have been valuable to the corporation’s competitors. Fifth, the record showed that the corporation expended little, if any, money, time or resources in developing or compiling a list of its clients. And sixth, there was evidence that information regarding the clients’ identities could be properly acquired by others fairly easily. Finding that only the fourth element weighs in favor of finding the client identity lists to be trade secrets, the court reversed the temporary injunction and renders judgment denying the estate’s request for a temporary injunction. OPINION: Cayce, C.J.; Cayce, C.J., Livingston and McCoy, JJ.

Want to continue reading?
Become a Free ALM Digital Reader.

Benefits of a Digital Membership:

  • Free access to 3 articles* every 30 days
  • Access to the entire ALM network of websites
  • Unlimited access to the ALM suite of newsletters
  • Build custom alerts on any search topic of your choosing
  • Search by a wide range of topics

*May exclude premium content
Already have an account?

 
 

ALM Legal Publication Newsletters

Sign Up Today and Never Miss Another Story.

As part of your digital membership, you can sign up for an unlimited number of a wide range of complimentary newsletters. Visit your My Account page to make your selections. Get the timely legal news and critical analysis you cannot afford to miss. Tailored just for you. In your inbox. Every day.

Copyright © 2020 ALM Media Properties, LLC. All Rights Reserved.