Elite Auto Body LLC v. Autocraft Bodywerks, Inc.

• Decision Date: 05 May 2017
• Docket Number: NO. 03–15–00064–CV,03–15–00064–CV
• Citation: 520 S.W.3d 191
• Parties: ELITE AUTO BODY LLC, d/b/a Precision Auto Body; Rey R. Hernandez; Yesica Diaz; and David Damian, Appellants v. AUTOCRAFT BODYWERKS, INC., now known as Wasson Road Ventures, Inc. d/b/a Autocraft Bodywerks, Appellee
• Court: Texas Court of Appeals

520 S.W.3d 191

ELITE AUTO BODY LLC, d/b/a Precision Auto Body; Rey R. Hernandez; Yesica Diaz; and David Damian, Appellants

v.AUTOCRAFT BODYWERKS, INC., now known as Wasson Road Ventures, Inc. d/b/a Autocraft Bodywerks, Appellee

NO. 03–15–00064–CV

Court of Appeals of Texas, Austin.

Filed: May 5, 2017

Rehearing Overruled May 25, 2017

Rick Harrison, Waller Lansden Dortch & Davis, LLP, Shannon King, Austin, TX, for Appellants.

James G. Ruiz, Austin, TX, for Appellee.

Before Chief Justice Rose, Justices Pemberton and Field

OPINION

Bob Pemberton, Justice

This case illustrates that the Texas Citizens Participation Act (TCPA),¹ as written—and as the Texas Judiciary, therefore, is bound to apply it—can potentially be invoked successfully to defend against claims seeking to remedy alleged misappropriation or misuse of a business's trade secrets or confidential information. This is so principally because the "communications" protected by the TCPA, and which in turn can serve as the predicate for a motion to dismiss a "legal action" under that Act, are not confined solely to speech that enjoys constitutional protection. Any remaining doubts to the contrary were extinguished by the Texas Supreme Court's recent opinion in ExxonMobil Pipeline Company v. Coleman .²

BACKGROUND

The underlying litigation was initiated by appellee Autocraft Bodywerks, Inc., which describes itself as an Austin-based "auto-repair shop that offers full-service, high-end collision restoration to all makes and models of vehicles." The defendants (appellants here) consist principally of a competing auto-repair business, Elite Auto Body L.L.C. (d/b/a "Precision Auto Body") (Precision); Rey R. Hernandez, a one-time Autocraft employee who founded Precision in 2008 or 2009; and David Damian, "a production manager who had been with Autocraft for six years" before leaving in 2014 to join Precision.³ An additional Autocraft employee, Joyce Garcia, "Autocraft's office manager of nine years," also left that company to join Precision in 2014. Although not naming Garcia as a defendant, Autocraft accuses her and Damian of furnishing their new employer "confidential, proprietary, and trade secret information" they had acquired through their former "positions of trust and confidence" with Autocraft—including salary and other personnel information, financial information, "[p]roprietary compilation[s]" of "Technical Service Bulletins (‘TSBs')," and "[p]roprietary client forms, such as payment sheets and vehicle check lists." In turn, Autocraft complains, Precision and its employees have used the information to "obtain an unfair competitive advantage in the marketplace" and "to convince more employees to leave Autocraft and join [Precision]." Based on these allegations, Autocraft sought injunctive relief to restrain appellants' alleged impending or ongoing use or disclosure of Autocraft's "confidential and proprietary information and trade secrets," plus actual and exemplary damages, founded on theories of trade-secret misappropriation and violation of the Texas Uniform Trade Secrets Act,⁴ unfair competition, breach of fiduciary duty, and civil conspiracy.

Alongside the more traditional litigation responses of a general denial, affirmative defenses, and a counterclaim seeking attorney's fees for Autocraft's alleged bad-faith claim of misappropriation,⁵ appellants invoked the TCPA, seeking dismissal of Autocraft's suit on grounds that this "legal action" "is based on, relates to, or is in response to" appellants' "exercise of the right of ... association" and the "exercise of the right of free speech"⁶ in their pursuit of Precision's business. To meet their initial burden of establishing these grounds "by a preponderance of the evidence,"⁷ appellants relied on two basic theories. First, citing Autocraft's petition, appellants urged that each of Autocraft's claims "is based on, relates to, or is in response to"—in the sense of arising from or being predicated upon factually—either or both the "exercise of the right of association" or the "exercise of the right of free speech," as the TCPA defines those activities. Second, relying on affidavits from Hernandez and Damian that purport to negate any trade-secret or other protected status of the information at issue,⁸ appellants accused Autocraft of also bringing its suit as a groundless pretext calculated only to harass and chill their "association" and "speech"; i.e., with the motives characteristic of "SLAPP" litigation, as opposed to merely being subject to dismissal under the TCPA.⁹

Autocraft filed a response in opposition to the motion, attaching an affidavit from its founder and general manager.¹⁰ The chief thrust of the response and affidavit was to urge that the Autocraft information in question did in fact consist of trade secrets and other legally protected information. In turn, Autocraft urged that its claims for relief were "not a SLAPP suit" and were "no threat to [appellants'] rights to free speech [or] right of association."

At the hearing on their motion, appellants sought to present live testimony from Hernandez and Damian to further contest the information's protected status in reply to Autocraft's affidavit. The district court excluded the testimony, in the view that the TCPA confined the court's inquiry solely to the "evidence" of pleadings or affidavits that the Act explicitly references.¹¹ Without objection, however, appellants' attorney was permitted to testify as to the attorney's fees and expenses they had incurred in defending the action.

Following the hearing, the district court signed an order denying appellants' motion. This appeal ensued.¹²

ANALYSIS

Appellants bring three issues, the first of which is the most pivotal for both this case and the larger jurisprudence. In it, appellants urge that the district court erred in holding that they failed to meet their initial burden on their dismissal motion. We agree in part.

In the posture of their motion, appellants' initial burden (also described in case law in terms of demonstrating the TCPA's "applicability"¹³ ) consisted of "show[ing] by a preponderance of the evidence" (1) that Autocraft had asserted a "legal action" (2) that "is based on, relates to, or is in response to" (3) either the "exercise of the right of association" by appellants or their "exercise of the right of free speech."¹⁴ The precise meaning of the phrase "preponderance of the evidence" within the TCPA's procedural framework remains unclear,¹⁵ as do the standards by which appellate courts are to review these "preponderance-of-the-evidence" determinations by trial courts.¹⁶ We can conclude with certainty, however, that to the extent the evidence establishes material facts conclusively, our review would be limited to the de novo construction and application of the TCPA's terms.¹⁷ That proves to be the situation here.

There is no question that Autocraft's lawsuit seeking injunctive and monetary relief, or alternatively each of its component claims for such relief, is a "legal action," a term that the TCPA defines to include "a lawsuit, cause of action, petition, ... or any other judicial pleading or filing that requests legal or equitable relief."¹⁸ The remaining elements of appellants' initial burden can be met if, as appellees urge on appeal, Autocraft's claims are predicated factually on conduct that falls within either the "exercise of the right of association" by appellants or their "exercise of the right of free speech," as the TCPA defines those terms.¹⁹ The TCPA defines the "exercise of the right of association" as "a communication between individuals who join together to collectively express, promote, pursue, or defend common interests,"²⁰ while the "exercise of the right of free speech" is "a communication made in connection with a matter of public concern."²¹ Appellants have urged that Autocraft's lawsuit complains of their "exercise of the right of association," so defined, because "[a]ll of Autocraft's claims center upon [appellants'] communications as they promote and pursue their common interests in developing and maintaining a competitive auto body repair business." As for the "exercise of the right of free speech" implicated by the suit, appellants have reasoned that the suit complains of their "communications" concerning "a good, product, or service in the marketplace," subjects that are expressly included in a further TCPA definition of "matter[s] of public concern."²²

The linchpin of both the "exercise of the right of association" and the "exercise of the right of free speech" definitions (and, for that matter, also the TCPA's definition of the remaining category of protected expression, the "exercise of the right to petition") is a "communication," and it is in regard to this element that the parties have chiefly joined issue. They first dispute whether Autocraft's claims are predicated factually on any "communication." Autocraft insists that its claims seek only to remedy theft and misuse of its trade secrets and confidential information, which it views as conduct distinguishable from any "communications" or free expression. Appellants maintain that the claims implicate "communications" as that term is used in the TCPA. Underlying these respective positions are competing views regarding the meaning and scope of "communication" under the TCPA.

"Communication" is itself a defined term under the TCPA, and the definition "includes the making or submitting of a statement or document in any form or medium, including oral, visual, written, audiovisual, or electronic."²³ Applying this definition to Autocraft's live petition, Autocraft alleges some factual bases of its claims that could not be considered "communications" under the TCPA under any conceivable reading. Among these bases, Autocraft alleges that Damian breached a fiduciary duty by "misappropriating Autocraft's confidential and proprietary information, trade secrets and valuable work," conduct that in itself would not...