Mabrey v. Sandstream, Inc.

• Decision Date: 11 December 2003
• Docket Number: No. 2-02-351-CV.,2-02-351-CV.
• Citation: 124 S.W.3d 302
• Parties: Jim MABREY, Appellant, v. SANDSTREAM, INC., Appellee.
• Court: Texas Court of Appeals

124 S.W.3d 302

Jim MABREY, Appellant, v. SANDSTREAM, INC., Appellee.

No. 2-02-351-CV.

Court of Appeals of Texas, Fort Worth.

December 11, 2003.

Hughes & Luce, LLP and David M. Ellis, Dallas, TX, for Appellant.

Abernathy, Roeder, Boyd & Joplin, PC, Charles J. Crawford, McKinney, TX, for Appellee.

Panel A: CAYCE, C.J.; HOLMAN and GARDNER, JJ.

OPINION

ANNE GARDNER, Justice.

I. INTRODUCTION

Appellant Jim Mabrey ("Mabrey") appeals from an order granting Appellee SandStream, Inc. ("SandStream") a temporary injunction prohibiting Mabrey from, among other enumerated acts, "mak[ing] any commercial, business, or personal use" of SandStream's confidential, trade secret, and proprietary information. In three issues, Mabrey complains that the trial court abused its discretion by granting the temporary injunction because SandStream presented no evidence of a probable right to relief on its claims against Mabrey; SandStream presented no evidence of a probable, imminent, and irreparable injury pending trial on the merits; and the temporary injunction is overbroad and vague in violation of Texas Rule of Civil Procedure 683. We will affirm.

II. THE CONTROVERSY

SandStream's goal was to design the first "converged" architecture for delivering television, telephone, internet, movies, and games, integrated into one service delivered to residences through one physical medium, fiber optic networks, using an internet protocol ("IP"). SandStream's CEO, Patrick Robbins, together with another individual and Tom Wendt, a computer scientist with extensive experience in technology and business models for internet services, formed the company in September 1998.

Robbins raised investments of over forty million dollars from friends, relatives, vendors of equipment such as Cisco Systems and Nortel, and other individual investors. With those funds, SandStream's team of engineers worked for four years researching, designing, and developing technology for its multicast network operations center in Lewisville, Texas. This technology included digital IP set-top-box hardware and software, a conditional access system, an end-to-end network for IP digital packet television, high-speed internet data and voice, and integration of off-the-shelf equipment. The team also obtained content agreements with numerous cable companies, movie companies, and television networks.

Mabrey, a developer of planned residential communities, contacted SandStream in January 2002 to explore using SandStream's proposed converged services for homes in a subdivision he was developing in Denton County. SandStream presented Mabrey with a product demonstration at its facility in Lewisville. Mabrey hired engineering consultants who conducted technological and business due diligence investigations of SandStream. However, SandStream first required a nondisclosure and confidentiality agreement from Mabrey's company, Residential Broadband Services, Inc. ("RBS"). Mabrey signed that agreement on February 1, 2002.

Mabrey initially invested $120,010 in SandStream on March 21, 2002, in return for stock. He furnished "bridge" financing in April 2002 in the form of a loan of an additional $600,000, taking a senior secured position to Cisco's lien of eighteen million dollars for equipment it had sold SandStream. Ultimately, however, Mabrey did not contract with SandStream for services for his proposed residential development.

Irving Napert, an independent consultant for Sundance Square Development, was searching for telecommunications services for the Sundance Square 40-block entertainment and residential development in downtown Fort Worth. During the same time that Mabrey was working with SandStream, Napert approached SandStream to see if its technology would be suitable for Sundance Square. Napert attended a meeting and tour of SandStream's operations facility in January 2002. SandStream presented a proposal and business model to Napert.

Napert signed a nondisclosure agreement with SandStream on January 24, 2002, had subsequent meetings with SandStream representatives, and reviewed additional business models provided by SandStream. Ultimately, Napert was permitted to see all of SandStream's backup financial information supporting its business plan. However, Sundance Square's management did not enter into an agreement for SandStream's service.

SandStream had been in financial difficulty since the end of 2001. By March 2002, SandStream had missed at least two payrolls to all of its employees. On May 24, 2002, in default on its loan from Cisco and unable to meet its May payroll, SandStream laid off all but nine of fifty-two employees. SandStream is still attempting to raise capital but retains only four unpaid employees now with no engineers, and the company remains several months away from deployment of its service.

On August 22, 2002, SandStream sued Mabrey, Napert, a number of former employees of SandStream, and Fiber.TV, a new company formed by Napert and two of the former SandStream engineers in June and July 2002. SandStream alleged that the individual defendants formed and intended to operate Fiber.TV as a direct competitor of SandStream, with the sole purpose of improperly using SandStream's "technology, unique industry relationships, business practices, and financial and business models for Defendants' financial gain." SandStream alleged causes of action against the defendants for breach of contract, tortious interference with contract, misappropriation of trade secrets, conversion, breach of fiduciary duties, and, as to Mabrey, aiding in the breach of fiduciary duties by the other defendants. SandStream sought damages, a temporary restraining order ("TRO"), and temporary and permanent injunctive relief.¹

The trial court issued a TRO against all defendants and, after hearing evidence on SandStream's application for a temporary injunction over a period between September 9 and 26, 2002, the trial court granted SandStream a temporary injunction against most of the defendants, including Mabrey. Mabrey filed a notice of accelerated appeal.²

III. STANDARD OF REVIEW

The sole issue before the trial court in a temporary injunction hearing is whether the applicant may preserve the status quo of the litigation's subject matter pending trial on the merits.³ An applicant must plead and prove three elements to obtain a temporary injunction: (1) a cause of action against the defendant; (2) a probable right to the relief; and (3) a probable, imminent, and irreparable injury in the interim.⁴

The applicant for a temporary injunction is not required to establish that he or she will prevail upon a final trial.⁵ The merits of the applicant's suit are not presented for review.⁶ Our review is strictly limited to whether the trial court clearly abused its discretion in granting the temporary injunction.⁷ We may not substitute our judgment for that of the trial court by vacating or modifying an injunction simply because we would have decided otherwise.⁸ An abuse of discretion does not occur as long as there is some evidence to support the trial court's decision.⁹ Furthermore, an abuse of discretion does not exist where the trial court bases its decision on conflicting evidence.¹⁰ As the reviewing court, we must draw all legitimate inferences from the evidence in a manner most favorable to the trial court's order granting a temporary injunction.¹¹ Finally, we note that, where findings of fact are not requested or separately filed as in this case, the order of the trial court must be upheld on any legal theory supported by the record.¹²

IV. TRADE SECRET, PROPRIETARY, AND CONFIDENTIAL INFORMATION

Because SandStream's causes of action, as well as the order granting the temporary injunction, are based upon alleged improper disclosure and use of trade secrets and proprietary and confidential information, we look to the well-developed body of Texas law on that subject.

A. Applicable Law

In two landmark companion cases, the Supreme Court of Texas long ago defined the rights of owners of trade secrets and proprietary and confidential information.¹³ Trade secrets are in the nature of property rights that the law protects through both tort and contract principles.¹⁴ "A trade secret may be a device or process which is patentable; but it need not be that. It may be a device or process which is clearly anticipated in the prior art or one which is merely a mechanical improvement...."¹⁵ A person is liable for disclosure or use of trade secrets if he either (a) discovers the secret by improper means or (b) his disclosure or use, after properly acquiring knowledge of the secret, constitutes a breach of a confidence reposed in him.¹⁶

To determine whether a trade secret exists, we apply the test from section 757 of the Restatement of Torts, which lists six factors the supreme court has recently held are relevant but not exclusive criteria:

(1) the extent to which the information is known outside the business; (2) the extent to which it is known by employees and others involved in the business; (3) the extent of measures taken to safeguard the secrecy of the information; (4) the value of the information to him and to his competitors; (5) the amount of effort or money expended in developing the information; and (6) the ease or difficulty with which the information could be properly acquired or duplicated by others.¹⁷

B. Injunctive Relief for Trade Secret Protection

It is well-settled that, in addition to damages, injunctive relief may be granted to the owner of a trade secret.¹⁸ Injunctive relief in cases of this type is intended to protect more than just secrecy but also to protect against violence to the confidential relationship governing the acquisition of confidential information.¹⁹ Importantly, in determining whether to grant a trade secret protection by a temporary injunction, a trial court does not determine whether the information sought to be protected is, in fact and in law, a trade secret....