Fox v. Tropical Warehouses, Inc.

• Decision Date: 20 November 2003
• Docket Number: No. 2-03-113-CV.,2-03-113-CV.
• Citation: 121 S.W.3d 853
• Parties: Jeff FOX, Individually and d/b/a Freshwater Fish, Inc., Appellant, v. TROPICAL WAREHOUSES, INC., Appellee.
• Court: Texas Court of Appeals

121 S.W.3d 853

Jeff FOX, Individually and d/b/a Freshwater Fish, Inc., Appellant, v. TROPICAL WAREHOUSES, INC., Appellee.

No. 2-03-113-CV.

Court of Appeals of Texas, Fort Worth.

November 20, 2003.

Rehearing Overruled January 8, 2004.

Hayes, Coffey & Berry, P.C. and Michael R. Lipscomb, Denton, for Appellant.

Grace A. Weatherly, R. William Wood, Denton, for Appellee.

Panel B: LIVINGSTON, DAUPHINOT, and HOLMAN, JJ.

OPINION

TERRIE LIVINGSTON, Justice.

Introduction

This is an interlocutory appeal from the trial court's grant of a temporary injunction. See Tex. Civ. Prac. & Rem.Code Ann. § 51.014(a)(4) (Vernon Supp.2004). Appellant Jeff Fox, individually and doing business as Freshwater Fish, Inc., appeals from the trial court's order enjoining him and his agents, servants, employees, attorneys, and all those acting on his behalf ("representatives") from (1) altering, destroying, or using information contained in a rolodex and computer that he removed from appellee Tropical Warehouses, Inc.'s premises and (2) selling tropical freshwater fish within Texas to Wal-Mart or Petco. In four issues, Fox contends that the trial court abused its discretion in granting the temporary injunction because (i) the items Tropical Warehouses, Inc. (TWI) seeks to enjoin Fox from using are not trade secrets, (ii) there is no evidence Fox used any trade secrets of TWI to gain a competitive advantage over TWI, (iii) there is no evidence TWI has suffered any irreparable harm, and (iv) TWI has not shown the absence of an adequate remedy at law. We modify the temporary injunction and affirm it as modified.

Factual and Procedural Background

TWI is a freshwater tropical fish wholesaler. Its owner, Danny Martinez, has been in the freshwater tropical fish business for approximately thirty years. TWI has been selling fish to Wal-Mart stores since 1978 and to Petco for the last 6 or 7 years. As of January 2003, Wal-Mart and Petco comprised over 99.9 percent of TWI's business.

In 1991, TWI hired Fox as its general manager. As general manager, Fox had access to TWI's financial information, including pricing and sales figures, contact information, and details of its operation. Fox was TWI's sole contact with the Petco buyers and had authority to give discounts and special offers to Petco without prior approval. Two-thirds of Fox's income was derived from TWI's sales to Petco.

In December 2002, Fox told Martinez that Petco was demanding a ten percent discount on fish as a mortality allowance. At Martinez's direction, Fox negotiated a five percent discount with Petco. In mid-January 2003, Martinez began an analysis of the Petco account to determine the difference in the prices he was charging to Petco and Wal-Mart. Fox supplied Martinez with at least some of the pricing information used in the analysis. Martinez and his son supplied pricing information for the analysis as well.

In February 2003, a day before Martinez completed the analysis, Fox told Martinez that Petco had demanded an additional fifteen percent price reduction. Based on that information and his completed analysis, which showed that the prices TWI was charging Petco were 19 to 23 percent less than the prices it was charging Wal-Mart, Martinez decided he could not sell fish to Petco with the additional discount. At Martinez's direction, Fox sent Petco an email stating that "Danny/TWI has decided not to match the current offer on the table." He did not show Martinez the email before he sent it. Martinez contends that he told Fox he wanted to review any communication with Petco before Fox sent it and that his intention was to try to negotiate a more favorable price with Petco rather than simply discontinuing business with them.

In mid-February, Fox gave his notice of resignation; his last day of work was February 27, 2003. He took a rolodex and computer from the office with him. Fox had purchased the computer, but he kept it at TWI and used it in connection with his work there. The rolodex and computer contained contact information for TWI's customers; the computer also contained purchasing information, payroll reports, prices, sales data, vendor and supplier information, loss rates, and business history for TWI.

On February 21, 2003, Fox incorporated Freshwater Fish, Inc., which began selling fish to Petco at the discounted price Petco had demanded from TWI. Fox began organizing the business while still employed by TWI. On March 17, 2003, TWI filed suit against Fox, individually and doing business as Freshwater Fish, Inc., for misappropriation of trade secrets. In its petition, TWI requested temporary and permanent injunctive relief. On April 3, 2003, after a hearing, the trial court signed an order granting TWI a temporary injunction.

Standard of Review

To be entitled to a temporary injunction, the applicant must plead a cause of action and show a probable right to recover on that cause of action and a probable, imminent, and irreparable injury in the interim. Butnaru v. Ford Motor Co., 84 S.W.3d 198, 204 (Tex.2002). A probable right of recovery is shown by alleging a cause of action and presenting evidence tending to sustain it. Miller Paper Co. v. Roberts Paper Co., 901 S.W.2d 593, 597 (Tex.App.-Amarillo 1995, no writ). An injury is irreparable if damages would not adequately compensate the injured party or if they cannot be measured by any certain pecuniary standard. Butnaru, 84 S.W.3d at 204; see T-N-T Motorsports, Inc. v. Hennessey Motorsports, Inc., 965 S.W.2d 18, 24 (Tex.App.-Houston [1st Dist.] 1998, no pet.).

The purpose of a temporary injunction is to preserve the status quo until a trial on the merits. Butnaru, 84 S.W.3d at 204; Walling v. Metcalfe, 863 S.W.2d 56, 58 (Tex.1993). "Status quo is defined as `the last, actual, peaceable, noncontested status which preceded the pending controversy.'" Universal Health Servs., Inc. v. Thompson, 24 S.W.3d 570, 577 (Tex.App.-Austin 2000, no pet.) (quoting Transp. Co. v. Robertson Transps., Inc., 152 Tex. 551, 261 S.W.2d 549, 553-54 (1953)).

In an appeal from an order granting or denying a temporary injunction, the scope of review is restricted to the validity of the order granting or denying relief. Walling, 863 S.W.2d at 58; Thompson, 24 S.W.3d at 576. Whether to grant or deny a request for a temporary injunction is within the trial court's discretion, and we will not reverse its decision absent an abuse of discretion. Butnaru, 84 S.W.3d at 204; Walling, 863 S.W.2d at 58. Accordingly, when reviewing such a decision, we must view the evidence in the light most favorable to the trial court's order, indulging every reasonable inference in its favor, and determine whether the order was so arbitrary that it exceeds the bounds of reasonable discretion. Thompson, 24 S.W.3d at 576; CRC-Evans Pipeline Int'l, Inc. v. Myers, 927 S.W.2d 259, 262 (Tex.App.-Houston [1st Dist.] 1996, no writ). A trial court does not abuse its discretion if it bases its decision on conflicting evidence and evidence in the record reasonably supports the trial court's decision. Davis v. Huey, 571 S.W.2d 859, 862 (Tex.1978); Myers, 927 S.W.2d at 262.

Trade Secret Protection

In his first two issues, Fox contends that the information TWI seeks to protect does not constitute a trade secret and that there is no evidence he used any of the information to gain a competitive advantage over TWI. In her ruling from the bench, the trial judge found that TWI's price lists, sales reports, and certain of its business records contained on Fox's computer, including a yearly payroll sales comparison report and several reports specific to Wal-Mart's stores and fish sales, some of which were prepared by Wal-Mart, were entitled to trade secret protection until trial.

A trade secret is "`any formula, pattern, device or compilation of information which is used in one's business and presents an opportunity to obtain an advantage over competitors who do not know or use it.'" In re Bass, 113 S.W.3d 735, 739 (Tex.2003) (quoting Computer Assocs. Int'l, Inc. v. Altai, Inc., 918 S.W.2d 453, 455 (Tex.1996)). The supreme court has identified six nonexclusive relevant criteria a court should consider in determining whether information is entitled to trade secret protection: (1) the extent to which the information is known outside the holder's business; (2) the extent to which it is known by employees and others involved in the holder's business; (3) the extent of the measures taken by the holder to guard the secrecy of the information; (4) the value of the information to the holder and its competitors; (5) the amount of effort or money expended by the holder in developing the information; and (6) the ease or difficulty with which the information could be properly acquired or duplicated by others. Id. Information generally known and readily available is not protectable, but the fact that information is discoverable by lawful means does not deprive its owner of protection from one acquiring it by unfair means. Gonzales v. Zamora, 791 S.W.2d 258, 264-65 (Tex.App.-Corpus Christi 1990, no writ). Even in the absence of an enforceable nondisclosure agreement, a former employee may not use confidential information or trade secrets the employee learned in the course of his employment for his own advantage and to the detriment of his employer. Rugen v. Interactive Bus. Sys., Inc., 864 S.W.2d 548, 551 (Tex.App.-Dallas 1993, no writ).

When deciding whether to grant or deny a request for a temporary injunction, the trial court does not decide whether the information sought to be protected is a trade secret; rather it determines whether the applicant has established that the information is entitled to trade secret protection until a trial on the merits. Ctr. for Econ. Justice v. Am. Ins. Ass'n, 39 S.W.3d 337, 343 (Tex.App.-Austin 2001, no pet.); see T-N-T Motorsports, Inc., 965 S.W.2d at 23-24. That an order is issued granting trade secret protection does not mean the protected...