T-N-T Motorsports, Inc. v. Hennessey Motorsports, Inc.

• Decision Date: 12 February 1998
• Docket Number: T-N-T,No. 01-97-00815-CV,01-97-00815-CV
• Citation: 965 S.W.2d 18
• Parties: MOTORSPORTS, INC., Roy Terpstra and Joe Terpstra, Appellants, v. HENNESSEY MOTORSPORTS, INC., Appellee. (1st Dist.)
• Court: Texas Court of Appeals

Page 18

965 S.W.2d 18

T-N-T MOTORSPORTS, INC., Roy Terpstra and Joe Terpstra, Appellants, v. HENNESSEY MOTORSPORTS, INC., Appellee.

No. 01-97-00815-CV.

Court of Appeals of Texas,

Houston (1st Dist.).

Feb. 12, 1998.

Rehearing Overruled March 13, 1998.

Michael K. Hurst, Marcie Lande Romick, Dallas, for Appellants.

William C. Norvell, Scott D. Marrs, Bruce Charles Morris, Houston, for Appellee.

Before TAFT, MIRABAL and SMITH, ^* JJ.

OPINION

TAFT, Justice.

This is an interlocutory appeal ¹ from the grant of a temporary injunction against appellants, T-N-T Motorsports, Inc., Roy Terpstra, and Joe Terpstra. We address: (1) whether the trial court abused its discretion in enjoining former employees from using information regarding, or working on, three types of motor vehicles they had worked on for their former employer; and (2) whether the temporary injunction is overbroad. We reform, and affirm the temporary injunction as reformed.

Facts

In 1991, John Hennessey founded Hennessey Motorsports, Inc. (appellee), which specializes in high performance upgrades for a variety of vehicles, including the Dodge Viper Roadster and Dodge Viper GTS coupe. By May 1993, appellee had designed its first custom performance and enhancement package for a Dodge Viper. ² In late August 1993, appellee hired Roy Terpstra to assist in meeting the increased demand for the Venom upgrades and to perform research and development. In April 1994, appellee hired Joe Terpstra to again meet increased demand for its products.

In 1996, the Terpstras incorporated their part-time body shop as T-N-T Motorsports, Inc. Prior to T-N-T's incorporation, the Terpstras worked for T-N-T as well as for appellee, with appellee's knowledge. During this time period and with appellee's consent, T-N-T manufactured and designed products that it sold to appellee for use in connection with the Venom upgrades. Also with appellee's knowledge, T-N-T performed engine modifications for customers other than appellee's, although not on Vipers.

On May 20 1997, the Terpstras terminated their employment without notice to appellee, and began full-time employment with T-N-T. On May 30, 1997, Roy Terpstra attended a Viper Club meeting in Florida at which he distributed T-N-T business cards and T-N-T brochures advertising the availability of high grade performance upgrades for Vipers. Roy Terpstra told a private investigator hired by appellee that the T-N-T upgrades were identical to the Venom upgrades, that he had learned how to create these packages as an employee of appellee, and that he offered the same upgrades as appellee but at a better price. He said at least three of appellee's customers had already moved their business to T-N-T. He also told the investigator that appellee was his only competitor.

In addition to using the same products and vendors, T-N-T also planned to perform the same tests and have an identical warranty on its cars as appellee, and use the same type of equipment that appellee used. T-N-T intended to use a similar name for its packages ("Serpent" instead of "Venom").

In June 1997, appellee sued appellants and successfully obtained temporary injunctive relief.

Standard of Review

The sole issue before a trial court in a temporary injunction hearing is whether the applicant may preserve the status quo, pending trial on the merits. Davis v. Huey, 571 S.W.2d 859, 862 (Tex.1978); Manufacturers Hanover Trust Co. v. Kingston Inv. Corp., 819 S.W.2d 607, 610 (Tex.App.--Houston [1st Dist.] 1991, no writ).

We limit our review of the grant or denial of a temporary injunction to determining whether the trial court clearly abused its discretion in entering the interlocutory order. Rugen v. Interactive Bus. Sys., Inc., 864 S.W.2d 548, 551 (Tex.App.--Dallas 1993, no writ); Manufacturers Hanover, 819 S.W.2d at 610. We will not substitute our judgment for that of the trial court, but will only determine whether the court's action was so arbitrary as to exceed the bounds of reasonable discretion. Rugen, 864 S.W.2d at 551. We draw all legitimate inferences from the evidence in the light most favorable to the trial court's order. Id. Because an appeal of an order granting or denying a temporary injunction is an appeal from an interlocutory order, the merits of the applicant's case are not presented for appellate review. Rugen, 864 S.W.2d at 551; Manufacturers Hanover, 819 S.W.2d at 610.

Abuse of Discretion

In points of error one through five, appellants challenge the sufficiency of the evidence supporting the trial court's findings that appellee demonstrated (1) substantial probability of success on the merits, (2) probable injury in the interim, (3) substantial risk of imminent harm, (4) substantial risk of irreparable injury, and (5) absence of any adequate remedy at law. In point of error six, appellants complain the court erred as a matter of law in determining that appellee met the requisite elements of preliminary injunctive relief. In points of error seven through 12, appellants challenge the trial court's findings regarding appellee's confidential information, and assert no identifiable "trade secrets" exist that might be subject to misappropriation.

The basis of appellee's underlying suit is that, by virtue of their employment with appellee, the Terpstras acquired confidential information, ³ which they then used to compete directly with appellee. Appellee sued appellants alleging misappropriation and conversion of confidential information, breach of fiduciary duty, breach of contract, breach of confidential relationship, tortious interference with prospective relations, civil conspiracy, fraud or fraudulent concealment, and negligence or negligent misrepresentation.

Appellants' concerns are for their right to earn a livelihood in their area of expertise in competition with their former employer. Appellants invoke the free enterprise system as a basis for limiting the general right of former employees to wide-open competition with former employers only where employers have obtained: (1) covenants not to compete; or (2) confidentiality agreements. See MPI Inc. v. Dupre, 596 S.W.2d 251, 254 (Tex.Civ.App.--Fort Worth 1980, writ ref'd n.r.e.). We deal here with a third exception to the general rule, which is one designed to protect the trade secrets of a former employer in the absence of a confidentiality agreement.

A. Trade Secrets

Certain duties, apart from any written contract, arise upon the formation of an employment relationship. Miller Paper Co. v. Roberts Paper Co., 901 S.W.2d 593, 600 (Tex.App.--Amarillo 1995, no writ). One of those duties forbids an employee from using confidential or proprietary information acquired during the relationship in a manner adverse to the employer. Id. This obligation survives termination of employment. Id. Although this duty does not bar use of general knowledge, skill, and experience, it prevents the former employee's use of confidential information or trade secrets acquired during the course of employment. Id. at 600-601; American Precision Vibrator Co. v. National Air Vibrator Co., 764 S.W.2d 274, 278 (Tex.App.--Houston [1st Dist.] 1988, no writ).

When a claim of improper disclosure or use of trade secrets arises from a confidential relationship, the injured party is not required to rely upon an express agreement that the offending party will hold the trade secret in confidence. Gonzales v. Zamora, 791 S.W.2d 258, 265 (Tex.App.--Corpus Christi 1990, no writ). However, the employer must show that the information was, in fact, a trade secret. American Precision, 764 S.W.2d at 279.

A trade secret may consist of any formula, pattern, device, or compilation of information that is used in one's business, and which gives one an opportunity to obtain an advantage over competitors who do not know or use it. Computer Assoc. Int'l, Inc. v. Altai, Inc., 918 S.W.2d 453, 455 (Tex.1996); Rugen, 864 S.W.2d at 548. "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 that a good mechanic can make." K & G Oil Tool & Serv. Co. v. G & G Fishing Tool Serv., 158 Tex. 594, 314 S.W.2d 782, 789 (1958). When money and time are invested in the development of a procedure or device that is based on an idea which is not new to a particular industry, and when that certain procedure or device is not generally known, trade secret protection will exist. K & G Oil Tool, 314 S.W.2d at 785; Gonzales, 791 S.W.2d at 264. Further, when an effort is made to keep material important to a particular business from competitors, trade secret protection is warranted. Rugen, 864 S.W.2d at 552; Gonzales, 791 S.W.2d at 265. Items such as customer lists, pricing information, client information, customer preferences, buyer contacts, market strategies, blueprints, and drawings have been shown to be trade secrets. Miller Paper, 901 S.W.2d at 601; American Precision, 764 S.W.2d at 278.

The word "secret" implies that the information is not generally known or readily available. Rugen, 864 S.W.2d at 552; Gonzales, 791 S.W.2d at 264. Courts have refused to give trade secret protection when the material or procedure sought to be protected has been publicly disclosed. Gonzales, 791 S.W.2d at 264. The mere fact that knowledge of a product may be acquired through inspection, experimentation, and analysis does not preclude protection from those who would secure that knowledge by unfair means. K & G Oil Tool, 314 S.W.2d at 788; Weed Eater, Inc. v. Dowling, 562 S.W.2d 898, 901 (Tex.Civ.App.--Houston [1st Dist.] 1978, writ ref'd n.r.e.).

Appellants assert that they are merely utilizing general knowledge and expertise acquired through years of experience within the automotive industry, both prior to and during their tenure with appellee. They also contend that a lack of secrecy prevents appellee's alleged...