Providence Title Co. v. Truly Title, Inc.
| Citation | 547 F.Supp.3d 585 |
| Decision Date | 01 July 2021 |
| Docket Number | Civil No. 4:21-CV-147-SDJ |
| Parties | PROVIDENCE TITLE COMPANY v. TRULY TITLE, INC., et al. |
| Court | U.S. District Court — Eastern District of Texas |
Chase Tyler Cobb, Haley Mowdy Owen, Seth Michael Roberts, William Scott Hastings, Locke Lord LLP, Dallas, TX, for Providence Title Company.
Alison Rae Ashmore, John Clayton Sokatch, Christopher David Kratovil, Dykema Gossett PLLC, Dallas, TX, for Truly Title, Inc., Graham Hanks.
Russell Alan Devenport, Brittani Wilmore Rollen, Rory Michael Divin, Sarah Margaret Kline, McDonald Sanders, PC, Fort Worth, TX, for Tracie L. Fleming, Mark J. Fleming, Kim Sheets-Sheffield.
Providence Title Company ("Providence") and Truly Title, Inc. ("Truly") are competitors in the Texas title insurance market. In 2019, Truly and Providence unsuccessfully negotiated Truly's potential acquisition of Providence. Afterward, Truly successfully recruited a number of Providence's senior employees in North Texas, including Tracie Fleming, Mark Fleming, and Kim Sheets Sheffield. The departure of these key employees was accompanied by an exodus of Providence personnel to Truly from several of Providence's North Texas offices.
Providence maintains that the actions of Truly, Truly's president of Texas operations—Graham Hanks, the Flemings, and Sheffield associated with these events went well beyond free market competition, embracing instead the misappropriation of Providence's trade secrets, Truly's violation of nonsolicitation and nondisclosure agreements, Sheffield and the Flemings’ breach of fiduciary duties, and the Flemings’ joint breach of a shareholders’ agreement. Based on these allegations, Providence asserts various causes of action against Truly, Hanks, the Flemings, and Sheffield, including claims asserted against all defendants under the Defend Trade Secrets Act ("DTSA") and the Texas Uniform Trade Secrets Act ("TUTSA"), a breach-of-fiduciary-duty claim against the Flemings and Sheffield, and a claim against the Flemings for alleged breaches of the shareholders’ agreement. Providence has also filed a motion for a preliminary injunction, seeking to enjoin Tracie and Mark Fleming from working for Truly, all Defendants from soliciting Providence employees and customers, and all Defendants from using Providence's alleged trade secrets. Defendants have filed motions to dismiss, contending that the Court lacks subject-matter jurisdiction over Providence's lawsuit.
Before the Court are Providence's Motion for Preliminary Injunction, (Dkt. #8), Truly and Graham Hanks's Motion to Dismiss for Lack of Subject-Matter Jurisdiction, (Dkt. #19), and Tracie Fleming, Mark Fleming, and Kim Sheets Sheffield's 12(b)(1) Motion to Dismiss, (Dkt. #28). The Court held a hearing on the motions.
(Dkt. #56, #57, #63). Having considered the filings, the arguments and evidence presented at the hearing, and the applicable law, the Court concludes that the motions to dismiss should be DENIED and the motion for preliminary injunction should be GRANTED in part and DENIED in part .
Providence is a title company operating only in Texas. Truly is a title company, operating in multiple states, that expanded into Texas in 2019. Providence asserts that, shortly after Truly's expansion into the Texas title market, the president of Truly's Texas operations, Defendant Graham Hanks, initiated discussions with Providence about the acquisition of Providence's business.
Providence and Truly engaged in acquisition negotiations throughout 2019 before ultimately deciding to cease such negotiations. To facilitate the parties’ negotiations, Providence provided Truly with information regarding Providence's business, including customer lists, employee-salary data, and information regarding the profitability of Providence's offices. To protect this information's confidentiality, Providence and Truly entered into nondisclosure and nonsolicitation agreements.
According to Providence, after the breakdown in the parties’ negotiations, Truly began to use the information Providence provided to solicit Providence's employees and customers. Specifically, Providence alleges that less than one year after Providence and Truly ceased their acquisition talks, Truly began discussing with Defendants Tracie Fleming and Mark Fleming the possibility of their leaving Providence to work for Truly. At the time, Tracie Fleming was Providence's President and Mark Fleming was Providence's team lead for Providence's operations in Johnson County, Texas. Unknown to Providence, Truly had entered into employment agreements with Tracie Fleming and Mark Fleming by December of 2020. The agreements provided that Tracie Fleming would serve as Truly's Executive Vice President and Area Manager over the Greater Fort Worth Texas Area and that Mark Fleming would serve as a Senior Vice President. Providence did not learn of Truly's agreements with Tracie and Mark Fleming until the Flemings actually resigned from their positions with Providence approximately two months later.
Tracie Fleming is also a Providence shareholder. When she acquired Providence stock, she signed Providence's shareholders’ agreement, which included a noncompete provision. Providence maintains that the noncompete provision was effective upon Tracie Fleming's resignation and that her present employment with Truly is in breach of the provision. Providence also contends that Mark Fleming is subject to the noncompete provision because, as Tracie Fleming's spouse, he signed the shareholders’ agreement to bind his community-property interest in her shares. Providence argues that, in working for Truly, Mark Fleming is also in breach of the noncompete provision of the shareholders’ agreement.
Defendant Kim Sheets Sheffield, another one of Providence's team leads, also left Providence to work for Truly. Before leaving Providence, Sheffield sent a text message to Graham Hanks, informing him of the base salaries and commission percentages for five employees in her office, including herself. Tracie Fleming also sent a text message to Hanks informing him of recent increases in revenue brought in by Providence's Johnson County offices. Providence alleges that Truly was then able to use this information along with the files Providence provided during the acquisition negotiations—information Providence considers trade secrets—to aid in the solicitation of Providence's employees and customers. Providence also alleges that Sheffield and the Flemings assisted Truly in soliciting Providence employees and customers. In the roughly two months between Tracie Fleming's agreeing to work for Truly and her departure from Providence, nineteen additional employees left Providence for Truly.
Following these events, Providence filed suit, asserting a number of claims against Truly, Hanks, Tracie Fleming, Mark Fleming, and Sheffield. Providence contends that (1) all Defendants have misappropriated Providence's trade secrets in violation of the DTSA and the TUTSA, (2) the Flemings and Sheffield breached fiduciary duties to Providence and were aided and abetted in doing so by Truly and Hanks, (3) Truly breached nonsolicitation and nondisclosure agreements with Providence, (4) the Flemings breached a shareholders’ agreement, and (5) all defendants engaged in a civil conspiracy. In addition to monetary damages, Providence also seeks injunctive relief, including a preliminary injunction preventing the Flemings from working for Truly, all Defendants from soliciting Providence employees and customers, and all Defendants from using Providence's alleged trade secrets. Defendants contend that the Court lacks subject-matter jurisdiction over Providence's lawsuit and have filed dismissal motions under Rule 12(b)(1).
Before addressing the merits of Providence's request for preliminary injunctive relief, the Court must first ensure that it has subject-matter jurisdiction. See Gohmert v. Pence , 510 F.Supp.3d 435, 438–39 (E.D. Tex. 2021), aff'd , 832 F.App'x 349 (5th Cir. 2021) (per curiam). Providence maintains that the Court has federal-question jurisdiction under 28 U.S.C. § 1331 over Providence's DTSA claim and supplemental jurisdiction under 28 U.S.C. § 1367 over Providence's state-law claims. Defendants argue that Providence has failed to adequately allege, and that the evidence shows that Providence cannot plausibly allege, that its purported trade secrets are "related to a product or service used in, or intended for use in, interstate or foreign commerce" as required by the DTSA. 18 U.S.C. § 1836(b)(1). According to Defendants, the DTSA's interstate-commerce requirement is a limitation on the jurisdiction of federal courts, and Providence's failure to adequately plead the required nexus to interstate commerce deprives the Court of subject-matter jurisdiction over Providence's DTSA claim.1 Defendants also contend that if the Court lacks jurisdiction over the DTSA claim, then the Court lacks supplemental jurisdiction over Providence's state-law claims.
The DTSA provides that "[a]n owner of a trade secret that is misappropriated may bring a civil action under this subsection if the trade secret is related to a product or service used in, or intended for use in, interstate or foreign commerce." 18 U.S.C. § 1836(b)(1). Thus, the elements of a DTSA claim are (1) ownership of a trade secret that (2) has been misappropriated and that (3) relates to a product or service in interstate commerce. See N. Am. Deer Registry, Inc. v. DNA Sols., Inc. , No. 4:17-CV-00062, 2017 WL 2120015, at *6 (E.D. Tex. May 16, 2017). Defendants maintain that Providence has failed to adequately plead the interstate-commerce element of its DTSA claim. Although dismissal motions premised on a plaintiff's alleged failure to adequately plead the elements of a cause of...
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