Court Opinion

ID: 3118585
Source: CourtListenerOpinion
Date Created: 2015-10-16 08:05:16.041667+00
Date Added: 2024-06-11T11:45:15.561324
License: Public Domain

\ (11 rm in part: Reverse in pan : Remind: Opinion Filed I)eecmher 12, 201 2.

                                           0    In The
                                   (inurt nf Apprtki
                          Fift1! Ji!31ritt t1  Xt ü                   111t!3

                                        No. 051 2-0056%-C V

  INSTITUTIONAL SECURITIES CORPORATION and ISC GROUP, INC., Appellants

                                                  V.

                           VERNON 3. “COBY” 11001) III, Appellee

                            On Appeal from the 160th I)istrict Court
                                      i)allas County, ‘I’exas
                             FriaI (oiirt (aiise No. I)C— I 2—03279—Il

                                            OPINION
                           Before Justices Moselcy, Fillmore, and Myers
                                    Opinion By Justice Myers

        Institutional Securities Corporation and ISC Group, Inc. (ISC) appeal the partial denial of

their motion for temporary injunction against Vernon .1. “Coby’ Hood ill concerning electronic data

Hood took from ISC. ISC brings one issue contending the trial court erred in permitting appellee

to retain a portion of the data. We reverse the trial court’s temporary injunction order in part and

afflrm in part, and we remand to the trial court for entry of a temporary injunction in accordance with

this opinion.
                                                          B,( K( k01 [NI)

           lS( i’ a I oker dealer pro\idnu in\ ctiiicnt services and investment ad\ ice. In 2
                                                                                            0U 1. IS(

lined appel Ice tu sc[\ ice certain of 1Sf s exsI ng ci ments. In this role. appel lee was an cm                                      lovee ol

1St with the title ol vice president. and he recem ved a salary and benehis. Appel lee also operated

as an independent c nitractor in the role of rei.msiered represenlat ye of ISC.                                           As a reemsiered

representative. appellee worked to bring in                    fl\\   clients for ISC and was paid commissions.

           As vice president, appeflee had access to all of IS(”s computer infiwmation concerning its

clients. Appellee regularly downloaded that information onto his personal external hard drives. The

information included clients names, addresses, social security numbers. account numbers and

balances, and mnvestnient            prehrences.

           In late .() I I      15€’ terminated appel lee and escorted him from                             the building           After his

termination. appel lee asked iarvnn keton. a former 1Sf employee who worked in the same building

as 15€’. to retrieve his hard drive br him because                       it contained       personal Ii les. including music and

photographs. Felon asked appellee’s supervisor, Scott Flayes, har permission to retrieve the hard

drive. Hayes agreed but insisted on examining it first. Hayes removed all the company files from

the drive and returned it to appellee. However. appellee had copies of ISC’s computer files on

another external hard drive and two flash drives.

           After his termination from ISC, appellee went to work for another broker/dealer, lnsperity

Financial. Appellee sent tOO letters to ISC clients asking them to consider moving their accounts

to Insperity. Most ofthese letters went to clients appellee had brought to ISC’, but some of the letters

vent to clients brought to ISC by other registered representatives.

      Instituuonal Secuntjcs (orporatiOn is thc hrokcrdcaler   St. Group. inc. is a holding corporation that wholly owns institutional Securities
Corporation.
           In rvlarch 2(3 2, ISC sued appellee br misappropriation of’ trade secrets, violation of the

fixas Thell Liability Act, violations ol computer security,
                                                  3 breach of contract, and unjust

enrichment. NC sought damages, attorney’s fees, and injunctive relief. The trial court entered a

temporary restraining order prohibiting appellee from using the materials he copied from ISC’s

computer system

           The trial court held a hearing on whether to enter a temporary injunction. Witnesses testified

that when a registered representative changes broker/dealers, such as appellee changing from ISC

to Insperity, the registered representative’s clients remain with the original broker/dealer. The

registered representative may contact the clients he brought to the first broker/dealer and ask the

client to move to the registered representative’s new broker/dealer, To change broker/dealers, the

client fills out a form. The registered representative does not need the client’s social security

number, account balance or number, or investment preferences for the client to change

broker/dealers.

           Appel lee testified that when he left ISC, he spent many hours going through the downloaded

information and trying to separate his clients’ data from the data of other ISC clients. When appellee

sent the 800 letters to ISC clients asking them to change broker/dealers, he believed he was sending

them only to his clients. However, he later learned that sonic of the letters went to clients of some

of ISC’s other registered representatives. Appellee agreed that certain files and directories on the

drives contained ISC’s proprietary information for which ISC was entitled to protection.

           During the temporary injunction hearing, each side presented as an exhibit the list of

   2
       Sec rox. Civ. PRM. & REM, CODE ANN.        I 340() I   -   005 (West 2011).

       Sec TEN. PENAL CODE ANN.   §   33.02 (West Supp. 2012).

                                                                           —3—
directories removed from appellee’s hard drive, highlighting the materIals believed to be iSt’s

proprietary inlbrmation that should be subject to protection. The court determined that the materials

hiizhlighted on appellee’s exhibit should he protected. The   court   found that appellee’s use of these

matci ials u ill c’posc [NC J to prolcssional liabilit claims and iegulatoi sanctions loss of good

will, business disruption, and loss ot office stability. Ihe damarte and potential damage from the

exposure to these losses is not subject to mathematical calculation” The court ordered appellee to

destroy or return to 1St all the materials highlighted on appellee’s exhibit. the court also ordered

that if appellee does not destroy or return the materials, then appelLee must preserve the electronic

storage devices and may access only the materials not highlighted on his exhibit.

        1St appeals the denial ofa temporary injunction on the materials 1St wanted protected that

were not protected by the temporary injunction.

                                    STANDARD OF REVIEW

        In its sole issue, 1St contends the trial court erred by permitting appellee to retain a portion

of the data he downloaded from ISC’s computers without ISC’s consent. The decision to grant or

deny a temporary injunction lies within the trial court’s sound discretion; that discretion can be

reversed on appeal only if we are convinced that it represents a clear abuse of discretion Amend v.

WaLvon, 333 S.W3d 625, 627 (Tex. App.—Dallas 2009, no peL). When we review a trial court’s

order on an application for temporary injunction, we cannot substitute our judgment for that of the

trial court even if we would have reached a different conclusion. Id.          Instead, we review 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 is so arbitrary that it exceeds the bounds of reasonable

discretion. ld. A trial court does not abuse its discretion by denying an application for temporary

injunction if the applicant failed to prove one of the requirements for a temporary injunction. Id.
        The purpose of a temporary mjtmction is to preserve the status quo of the litigation’s subject

matter pending a trial on the merits. Butnaru r. Ford Motor Co, 84 S.W.3d I 98, 204 (Tex. 2002).

Id. A temporary injunction is an extraordinary remedy and does not issue as a matter of right. An

applicant for temporary injunction must plead and prove (1) a cause of action against the detendant,

(2) a pi oh ihic iight to the i die I sought md 3)   i   pi ohable imminent md it rrpai thu. injut in the

interim. id    An injury is irreparable if the injured party cannot he compensated adequately in

damages or if the damages cannot be measured by any certain pecuniary standard.                  Id.   To

demonstrate probable injury or harm, an applicant must show an injury for which there can be no real

legal measure of damages or none that can he determined with a sufficient degree of certainty.

Marketshare i1ccom, LL. C. v. Ericsson, Inc., 198 S.W.3d 903, 925—26 (Tex .App.—DaHas 2006,

no pet )   At a tcmporary injunction hearing the trial eouit eonideis whether the applicant has

shown a probability of success and irreparable injury, Id. at 922.

                                             ANALYSIS

        In this case, the trial court granted the temporary injunction to the extent appellee agreed the

computer data was ISC’s proprietary information entitled to protection, The issue is whether ISC

established that the trial court abused its discretion in not entering a temporary injunction as to the

remainder of the data ISC claimed to be proprietary.

        ISC pleaded that appellee violated section 33.02(a) of the Texas Penal Code by knowingly

accessing ISC’s computers and computer system without ISC’s effective consent. See TEx. PENAL

CODE ANN.     § 33.02(a) (West Supp. 2012). Section 143.001 of the Texas Civil Practice and
Remedies Code creates a cause of action for a person who is injured or whose property is injured by

an intentional or knowing violation of chapter 33 of the Texas Penal Code. TEX. Civ. PRAC. & REM.

CODE ANN.   § 143.001 (West 2011). A prevailing plaintiff under section 143.001 is entitled to actual
damages and reasonable attorney’s fies. id.                         § 143.002, Section 33.002 of the Texas Penal Code
states. “A person commits an offense if the person knowingly accesses a computer, computer

network, or computer system without the effective consent of the owner.                                           INAL
                                                                                                                  3
                                                                                                                  I          § 33.02. A
person acts without effective consent                  it   the consent was “Used for a purpose other than that for which

the consent was civen.” Id.                § 33,() 1(1 2)( F).
            ISC presented evidence that appellee was permitted access to ISC’s computer system in his

role as a vice president of ISC. ISC also presented evidence that its registered agents, who were

independent contractors and not employees, were not permitted access to the computer system. The

evidence bethre the trial court showed appellee knowingly accessed ISC’s computer system and

downloaded its tiles to maintain a list of his customers for his business as a registered representative.

The download o data from the computer system without ISC’s consent could constitute a violation

of section 33.02(a) of the Penal Code. We conclude ISC established a cause of action against

appellee under section l43.0() I of the Civil Practice and Remedies Code and a probable right to the

relief sought.
       4

           We next consider whether ISC established a probable, imminent, and irreparable injury from

the trial court’s failure to enjoin appellee from using the computer files. The testimony showed ISC

was required by the Financial Industry Regulatory Authority (FINRA) to keep adequate records of

the identity of its clients and their transactions and to safeguard that information from inappropriate

use. Hayes testified that ISC’s violation of FINRA regulations could result in FINRA taking action

from a cautionary letter to the shutting down of ISC and the barring if its employees from the

industry.

      i iavmg found SC established a cause ofacnon and probable right to reltef for violations of computer security, we do not address whether isc
established any of ts other causes of action or a probable right to relief under them See Morkershure Telecom. 198 5.W.3d at 922 (“The party
seekmg an injunction must have at least one valid legal theory to support a probable right to recover”)
           Most of the data listed on ISC’s exhibit that was                  not   included in the temporary injunction was

client lists and client data.                  hayes testified that a registered representative who changes

broker/dealers       is   permitted to contact the clients he brought to the first broker/dealer and ask them

if they want to move with him to the new broker/dealer. Therefore, as a registered representative,

appellee was allowed to maintain a list ot the names and addresses of the clients he brought to ISC,

and his retention and use of this information to contact those clients did not constitute a risk of a

probable, imminent, and irreparable injury. However, the data appellee downloaded that                                            Was    not

subject to the injunction also contained more sensitive information, including the clients’ social

security numbers and account balances, which Hayes testified was not necessary for appellec to

contact his clients and ask them to complete the form to change broker/dealers, Hayes testified that

this information was proprietary to the hrokcrdealer, and that FINRA required ISC to keep and

protect the information. Appellee did not present any evidence that this information was necessary

for him to contact the clients and request them to till out a form to change broker/dealers. Nor did

appellee present evidence that ISC was not required to protect the information from disclosure. As

Hayes testified, violation of FIN RA’s regulation could result in punitive measures against it, which

the trial court found was an irreparable injury.

           We conclude the trial court’s injunction should have extended to all information of clients

that were not brought to ISC by appellee as ISC ‘s registered representative and should have extended

to the social security numbers and account information of all clients who were brought to ISC by

appellee as a registered representative. We sustain ISC’s sole issue to the extent it requested

protection of that information.

      Two Items on 1SC’s exhibit not included in the iniunction are “Rollovers” and ‘VisionExport” The record contains no explanation of what
these materials consist.
                                          (O( LISION

       \Ve revei’c the   tcmporaiV innnction   to the extent   it   does   not   protect all data pertaining to

clients who were not brought to I S( by appel lee as a registered representative and to the extent it

does not protect the social security numbers and account inlbrmation of clients who were brought

to ISC by appeilee as a registered representative. In all other respects, we affirm the temporary

injunction.   We remand to the trial court br entry ot a temporary injunction in accordance with this

Opinion.

                                                       LANA MYERS
                                                       JUSTICE

1 2O5SI*Pt)5

                                                 —8—
                                  QnairL        Lit   AppitIi
                         3Fi1tIi Oi;tric1       ut             at   tiat1a

                                         JUDGMENT
I N S TI TI I I ON A I. SE C U RI 1’ I F S             Appeal &om the I 60th District Court oF
(( )RPORATI( N AND ISC GROUP, INC.,                    I )allas County. lexas. (Tr.Ct.No. Cause No.
Appellants                                             DC 1 2032794 I).
                                                       Opinion delivered 1w Justice Myers, Justices
No. 05. I 20056$CV             \‘.                     Moseley and Fillmore participating.

VERNON 3. “COI3Y” FlOOD Ill, Appellee

         In accordance with this Court’s opinion ot this date, we REVERSIi the temporaryinjunction
order to the extent it does not protect all data pertaining to clients who were not brought to ISC by
appellee as a rcnstered representative of appellant Institutional Securities ( orporation and to the
extent it does not protect the social security numbers and ac count inlormation ot clients who \vere
brought to lS( 1w appel lee as a registered representative oF appellant Institutional Securities
Corporation. In all other respects. we A[’F’l RI the temporary injunction. We RFMAN1) to the
trial court br entry of a temporary in)Imetion in accordance with this opinion. It is OR I)1RLI) that
appel hints Institutional Securities Corporation and ISC Group. Inc. recover their costs ot this appeal
Irom appellee Vernon .1. “Cobv’’ Hood Ill.

Judgment entered December 12, 2012.

                                                       LANA MYERS
                                                       JUSTICE