Houston’s First District Court of Appeals affirmed a trial court’s refusal to grant a dismissal of a misappropriation of trade secrets claim based on the previous version of Texas Citizen Participation Act (TCPA) because both the right of association and the right of free speech require some showing of a public good. Newpark Mats & Integrated Services, LLC v. Cahoon Enterprises, LLC, 01-19-00409-CV, 2020 WL 1467005, at *4 (Tex. App.—Houston [1st Dist.] Mar. 26, 2020, no pet.). The plaintiff-appellee in this case Cahoon Enterprises, LLC (Cahoon) is a small, family-owned business in North Dakota that provides roustabout services including the installation and removal of mats used under the sand boxes of oil fracking sites. The defendant-appellant Newpark manufactures the matting systems that Cahoon installs.
In May 2017, Newpark hired Cahoon as an independent contractor and effectively “relied on Cahoon Enterprises to essentially manage [Newpark’s] mat rental and installation unit in the Bakken Formation [of North Dakota].” In October 2017, Newpark acquired Well Service Group, Inc. (WSG) which is located in Pennsylvania and provides similar services to those offered by Cahoon. On June 27, 2018, Ken Higley (Higley), one of WSG’s supervisors, visited Cahoon’s office in North Dakota to take inventory and audit some of Cahoon’s invoices.
Then, on June 28, 2018, Higley collected at least two boxes of Cahoon’s original business records, claiming that Cahoon’s founders were under investigation by the FBI, and kept the records for several weeks for their “team of auditors” to review. Higley then began scheduling jobs using Cahoon’s employees and equipment, claiming that because Cahoon’s founders were under investigation, he was in charge. Further it was alleged that Newpark was committing fraud and intended to use Cahoon as a scapegoat to conceal Newpark’s own breaches of contract.
Ultimately, Cahoon alleged that Newpark terminated their contracting agreement because Newpark collected Cahoon’s business records and took over management of Cahoon’s operations. Then, Newpark began operating a competing mat services business through a company co-owned by Higley. Newpark also hired Cahoon employees to support this new business.
Consequently, Cahoon sued Newpark for, among other claims, misappropriation of trade secrets in violation of the Texas Uniform Trade Secret Act (TUTSA). This claim was based on the allegation that Newpark accessed Cahoon’s customer data and disclosed its proprietary information to create a competing business. Newpark filed a motion to dismiss pursuant to the TCPA, but the trial court denied the motion as it relates to the TCPA.
On appeal, Newpark asserted that the trial court erred in not dismissing the claim because Cahoon’s claim is “based on, relates to, or is in response to” Newpark’s exercise of the right of association and the right of free speech. Regarding the right of association, Newpark claimed that the concerted efforts of managers, employees, and customers to pursue the common interest of investigating Cahoon’s billing practices should be protected. Similarly, regarding the right to free speech, Newpark alleged that its communications involve economic or community well-being and a product in the marketplace which both should be protected.
The court, relying on its decision in Gaskamp v. WSP USA, Inc, rejected Newpark’s arguments. The court found that both the right of association and the right of free speech under the TCPA require a showing of some public or community interest. Regarding the right to association, the court determines that this a private contract dispute, involving private parties, and only Newpark would benefit. Regarding the right of free speech, the court determined that the communications involved only Newpark, Cahoon, and Universal Funding Corporation (“a factoring company to whom Cahoon had assigned all its accounts receivable.”) Therefore, the court affirmed the trial court’s order dismissing Newpark’s motion to dismiss on this ground because Newpark did not show how its actions served some public or community interest.
The take-away here is that a defendant likely needs to plead some public benefit or concern when asserting that a suit relates to his exercise of either the right of association or the right of free speech under the TCPA.
*Special thanks to Kyle Markwardt for his assistance on this blog post.