Court Opinion

ID: 6327580
Source: CourtListenerOpinion
Date Created: 2022-03-29 10:11:10.677938+00
Date Added: 2024-06-11T09:22:27.061708
License: Public Domain

TEXAS COURT OF APPEALS, THIRD DISTRICT, AT AUSTIN

                                       NO. 03-20-00564-CV

                         Scientific Machine & Welding, Inc., Appellant

                                                  v.

                                       Kevin Rose, Appellee

              FROM THE 419TH DISTRICT COURT OF TRAVIS COUNTY
   NO. D-1-GN-18-005034, THE HONORABLE DUSTIN M. HOWELL, JUDGE PRESIDING

                             MEMORANDUM OPINION

               Scientific Machine & Welding, Inc. (Scientific) appeals from the trial court’s

order granting Kevin Rose’s motion for summary judgment on Scientific’s claims arising from

alleged theft of trade secrets. For the following reasons, we will affirm the trial court’s order.

                                         BACKGROUND

               Scientific designs and manufactures custom equipment and specialty machine

parts for other companies. Rose is a former employee and officer of Scientific. In August 2018,

Scientific filed suit against Rose, alleging that he improperly released designs and other

proprietary information to FlashParking.

               Scientific alleges that, as its employee, Rose’s “primary function was to both

develop manufacturing drawings/blueprints for Scientific to manufacture the necessary products

and to facilitate orders of the products from [Scientific’s] clients.” One of Rose’s principal duties

was to “service” FlashParking, for which Scientific designed and produced “smart stations,” i.e.,
kiosks for the processing of payments at parking lots. Scientific alleges that in 2017, it entered

into an agreement with FlashParking that “precluded the delivery of [Scientific’s] design work

for the smart stations until FlashParking tendered all required payments.”

               On May 1, 2018, Rose ceased employment with Scientific and “immediately

began working for FlashParking as a senior officer.” Shortly after, he “improperly released to

[FlashParking] design work related to the smart stations . . . in violation of the contract between

the two companies.” When he left Scientific, Rose “had in his possession a number of the

original manufacturer drawings and design work from Scientific with regards to the smart

stations and other products, as well as vendor lists and other proprietary information.” Since

leaving Scientific, Rose allegedly “has used Scientific’s trade secrets[1] for the purpose of

manufacturing and selling smart stations and other products, in competition with Scientific.”

               Scientific asserted causes of action against Rose for violating the Texas Uniform

Trade Secrets Act (TUTSA), see Tex. Civ. Prac. & Rem. Code §§ 134A.001–.008; breach of

contract; breach of an “implied contract of confidentiality”; and breach of fiduciary duties. After

answering the lawsuit and counterclaiming for attorney’s fees, Rose filed a hybrid traditional and

no-evidence motion for summary judgment as to all of Scientific’s claims. Scientific filed a

no-evidence cross-motion for summary judgment as to Rose’s claim for attorney’s fees. After a

hearing on both motions and the parties’ respective evidentiary objections, the trial court

       1
          The trade secrets that Scientific specifically identified in its live pleading are the
“manufacturing drawings and design work” for the smart stations. While Scientific alleges that
when he ceased employment with Scientific, Rose took with him “vendor lists” and “design
work” for unspecified “other products,” it does not specifically allege that those items are trade
secrets. Therefore, we use the term “drawings” to mean the “manufacturing drawings and design
work” for the smart stations (the information underlying the bulk of Scientific’s allegations); the
general term “design work” to refer to any drawings and related work product that Scientific
performed for any customer; and the term “information at issue” to encompass the drawings,
design work, and customer and vendor lists.
                                                2
overruled each party’s evidentiary objections, granted Scientific’s motion as to Rose’s attorney’s

fees, and granted Rose’s motion as to each of Scientific’s claims without specifying the grounds

for the summary judgment. Scientific perfected this appeal.

                                         DISCUSSION

               Scientific contends that the trial court erred in granting Rose’s motion for

summary judgment as to each of Scientific’s claims.2

TUTSA claim

               In his summary-judgment motion, Rose argued that he was entitled to judgment

as a matter of law on Scientific’s TUTSA claim because (1) Scientific is not a current “owner” of

the drawings and thus lacked standing, see id. § 134A.002(3-a) (defining “owner”); (2) the

drawings are not a “trade secret” because they could have been acquired by “proper means”

through reverse engineering, see id. § 134A.002(4), (6) (defining “proper means” and “trade

secret,” respectively); (3) Scientific failed to undertake “reasonable measures” to keep the

information at issue secret, see id. § 134A.002(6)(A); and (4) Scientific waived the trade-secret

status of the drawings by producing them during discovery without designating them

“confidential” or otherwise seeking to keep them secret under the operative protective order.

Because we conclude that traditional summary judgment on the TUTSA claim was proper under

the third ground of failure to take reasonable measures to keep the information secret, we address

only that one. See Tex. R. Civ. P. 166a(c); Tex. R. App. P. 47.1.

               TUTSA defines a “trade secret” as

       2
         Because the standard of review applying to summary judgments is well-established, we
do not recite it here. See Valence Operating Co. v. Dorsett, 164 S.W.3d 656, 661 (Tex. 2005);
see also Tex. R. Civ. P. 166a(c), (i).
                                                3
       all forms and types of information, including business, scientific, technical,
       economic, or engineering information, and any formula, design, prototype,
       pattern, plan, compilation, program device, program, code, device, method,
       technique, process, procedure, financial data, or list of actual or potential
       customers or suppliers, whether tangible or intangible and whether or how stored,
       compiled, or memorialized physically, electronically, graphically, photographically,
       or in writing if:

               (A) the owner of the trade secret has taken reasonable measures under the
                   circumstances to keep the information secret; and

               (B) the information derives independent value, actual or potential, from
                   not being generally known to, and not being readily ascertainable
                   through proper means by, another person who can obtain economic
                   value from the disclosure or use of the information.

Tex. Civ. Prac. & Rem. Code § 134A.002(6). Rose argued in his summary-judgment motion

that the information at issue does not meet the definition of a trade secret because discovery had

revealed that Scientific made no efforts—much less “reasonable efforts”—to keep the

information secret, evidenced by the following: (1) the deposition of Alan Basta, Scientific’s

owner and president, in which he averred that all work product related to the company’s projects

was available to all of Scientific’s employees at all times and was not password-protected, and

his own work email account (which he used to correspond with customers) and the company’s

vendor lists were also not password-protected;3 (2) correspondence demonstrating that third-

party vendors were provided the drawings without any restrictions, such as non-disclosure

agreements; (3) Rose’s affidavit stating that after he informed Basta he would be leaving

Scientific’s employ to work for FlashParking, Basta allowed Rose to continue working for three

days, during which time Rose had “full access” to the design work for the smart stations, related

       3
          In response to deposition questions about what efforts Scientific took to keep its alleged
trade secrets confidential, Basta responded that the company did “the usual stuff” but could not
articulate any specific measures it took, instead stating that he expected he could “rely on” Rose
and other employees to protect the information.
                                                 4
accessories, and “every other product” for any of Scientific’s clients, as well as customer and

vendor lists; and (4) despite having the opportunity under a protective order to designate the

drawings as “confidential” during this litigation, Scientific failed to do so and produced them

without such designation. See Baxter & Assocs., L.L.C. v. D & D Elevators, Inc., No. 05-16-

00330-CV, 2017 WL 604043, at *10 (Tex. App.—Dallas Feb. 15, 2017, no pet.) (mem. op.)

(concluding that evidence was legally insufficient to show that information was “the subject of

any efforts to maintain its secrecy” where employer failed to have employees sign non-compete

agreements, did not label information as “confidential” or “proprietary,” and did not protect

information through passwords or encryption).

              In its response, Scientific identified the following as evidence of the “reasonable

measures” it took to keep the information at issue secret: (1) an “Employee Training Attendance

Record” that Rose and other employees signed acknowledging their attendance at a training

session, to which was appended a two-page memo entitled “Compliance With the Quality

Management System”; (2) a statement in Basta’s affidavit that he had instructed then-employee

Rose “not to remove any schematics/blue prints and instructions” from Scientific’s site, that

Rose had “agreed” not to remove them or disclose them to others, and that Basta informed Rose

that “such documents were confidential”; and (3) a letter of intent (LOI) that Rose signed on

behalf of Scientific, which gave FlashParking the “exclusive” right to the drawings after its

purchase of 500 smart stations but purportedly “precluded” transfer of the drawings until after

that purchase. As to the training-attendance record and attached memo, nothing therein creates a

genuine issue of material fact as to any measures that Scientific took to keep any information

secret—it does not mention confidentiality, secrecy, privacy, or proprietary information and does

                                                5
not address any procedures for safeguarding Scientific’s information.4        Rather, the memo

addresses quality-control issues. As for the LOI, the mere provision therein to which Scientific

points—that “all design work performed by” Scientific “will become the exclusive property of

[FlashParking] after an agreed upon number of units have been purchased”—does not create a

genuine issue of material fact about any reasonable measures that Scientific took to safeguard

the secrecy of the drawings.

               Finally, the statements in Basta’s affidavit that he informed Rose that

“schematics/blue prints and instructions for any components” of products for all customers were

“confidential” and that he was not to remove them from Scientific’s site do not create a genuine

issue of material fact about whether Scientific took reasonable measures to keep any information

secret, in light of Basta’s testimony that the information at issue was available to any employee

at any time and was not password-protected. Furthermore, in his affidavit Basta averred that he

instructed Rose that “when there was a need to send design work” to vendors, he should send it

via email or by hardcopy, albeit with “as limited included information as needed.” Permitting

Rose to send design work to third parties without requiring those parties to keep the information

confidential is not consistent with taking reasonable measures to safeguard alleged trade secrets.

And Scientific cites no evidence of enforceable non-disclosure agreements it entered into with

any party, including Rose, and has identified no internal documents designating the information

at issue as confidential. On this record, and viewing the evidence in the light most favorable to

Scientific, no reasonable factfinder could conclude that Scientific took “reasonable measures

       4
         The memorandum does state that Scientific will endeavor to “safeguard” any “Customer
property”—that is, protect it from loss or damage and the like—but such policy is not relevant to
whether Scientific took measures to safeguard its own trade-secret or confidential and proprietary
information from disclosure to others.
                                                6
under the circumstances” to keep the information at issue secret. See Tex. Civ. Prac. & Rem.

Code § 134A.002(6); Baxter & Assocs., 2017 WL 604043, at *10; see also Buck v. Palmer,

381 S.W.3d 525, 527 (Tex. 2012) (“Undisputed evidence may be conclusive of the absence of a

material fact issue, but only if reasonable people could not differ in their conclusions as to that

evidence.”); cf. Snowhite Textile & Furnishings, Inc. v. Innvision Hospitality, Inc., No. 05-18-

01447, 2020 WL 7332677, at *7 (Tex. App.—Dallas Dec. 14, 2020, no pet.) (mem. op.)

(determining that company’s requiring employees to sign non-disclosure agreements and limiting

employees’ access to password-protected software that ran on internal network and was loaded

only on internal computers constituted legally sufficient evidence of reasonable measures to keep

information secret). We overrule Scientific’s first issue.

Breach-of-fiduciary-duty claim

               As to Scientific’s breach-of-fiduciary-duty claim, Rose asserted that he was

entitled to summary judgment as a matter of law because the claim is preempted by TUTSA,

see Tex. Civ. Prac. & Rem. Code § 134A.007, and that, in any event, Scientific produced no

evidence of any of the elements of its claim, see Tex. R. Civ. P. 166a(i); see also First United

Pentecostal Church of Beaumont v. Parker, 514 S.W.3d 214, 220 (Tex. 2017) (listing elements

of claim for breach of fiduciary duty). We will address Rose’s no-evidence challenge first. See

Ford Motor Co. v. Ridgway, 135 S.W.3d 598, 600 (Tex. 2004).

               To support its claim, Scientific identifies evidence of the following actionable

conduct of Rose: (1) he released the drawings to FlashParking, (2) he solicited vendors of

Scientific both while an employee and afterwards, and (3) he removed customer and vendor

lists from Scientific. However, as to each of these alleged acts, we conclude that no-evidence

                                                 7
summary judgment was proper because Scientific did not come forth with legally sufficient

evidence of any damages proximately caused by such conduct. See Tex. R. Civ. P. 166a(i);

Merriman v. XTO Energy, Inc., 407 S.W.3d 244, 248 (Tex. 2013). The only evidence Scientific

offered in support of damages is that it spent time and resources on the smart-station design work

for FlashParking, that the value of such work was over $100,000, and that Rose testified that the

cost to reverse engineer the design work would be $4,225.5 We first conclude that such evidence

is not relevant to Rose’s alleged solicitation of vendors and appropriation of customer and

vendor lists and does not, therefore, constitute legally sufficient evidence to support damages as

to such conduct.

               As to Rose’s alleged disclosure of the drawings to FlashParking, Scientific’s

business records attached to its response to Rose’s summary-judgment motion show that

FlashParking ultimately purchased the requisite 500 units (within a few months of Rose leaving

Scientific’s employ) and, therefore—pursuant to the LOI—the drawings became FlashParking’s

exclusive property. Because Scientific and FlashParking agreed that the drawings would become

FlashParking’s exclusive property upon a condition that did, in fact, occur, Scientific’s citation

to the amount it spent on the design work, without more, does not constitute legally sufficient

evidence of any damages it incurred because such costs were necessarily contemplated by

the LOI and the parties’ negotiation thereof. In other words, Scientific incurred those costs

       5
          In his affidavit, Rose averred that Scientific’s design work for the smart stations it
produced for FlashParking began with FlashParking providing Scientific a “life size” model of
the kiosk “made out of plywood and particle board”—a “simple, wooden box with holes for the
attachment of component pieces.” Then, “[t]o produce the fabrication and assembly drawings,”
Scientific’s staff (overseen by Rose) “made visual observations and took measurements” of the
wooden prototype and entered the measurements into a computer-aided design-and-drafting
(CADD) program. Scientific did not controvert this evidence of the origin of the smart-station
design.
                                                8
because of the LOI and FlashParking’s purchase of smart-station units, not because of Rose’s

alleged acts. Accordingly, the trial court properly granted no-evidence summary judgment on

Scientific’s claim for breach of fiduciary duty.

Breach-of-contract claim

               In his summary-judgment motion, Rose asserted that Scientific could produce no

evidence of any of the four elements of its breach-of-contract claim. See USAA Tex. Lloyds Co.

v. Menchaca, 545 S.W.3d 479, 502 n.21 (Tex. 2018) (listing elements). We agree that there is

no evidence of the first element (the existence of a valid contract) and therefore address only

that one.

               As evidence of a valid contract, Scientific cites the following items attached to its

summary-judgment response: (1) the “Employee Training Attendance Record,” which Scientific

calls an “Employment Agreement”; (2) Basta’s affidavit, allegedly confirming an oral contract

between Rose and Scientific regarding the treatment of proprietary information; and (3) the LOI.

However, these items do not constitute legally sufficient evidence of a valid contract between

Rose and Scientific.

               The training attendance record is merely an acknowledgment that Rose signed

confirming he had attended the quality-control company training. The memo appended thereto

explains Scientific’s commitment to a “Quality Management System” and expectation that

employees adhere to it, but it does not contain any mutual promises exchanged between Rose

and Scientific, not to mention any promise by Rose that he would keep any drawings or other

company information secret from people outside the company. Cf. Federal Sign v. Texas S.

Univ., 951 S.W.2d 401, 408–09 (Tex. 1997) (explaining that consideration, or “a bargained for

                                                   9
exchange of promises,” is necessary element of valid contract and that “[a] contract that lacks

consideration, lacks mutuality of obligation and is unenforceable”), superseded by statute as

stated in Nazari v. State, 561 S.W.3d 455 (Tex. 2018). Accordingly, the training attendance

record constitutes no evidence of a valid contract to support Scientific’s claim.

               We conclude similarly as to the cited portions of Basta’s affidavit, in which Basta

avers that, while Rose was a Scientific employee, Basta “instructed” Rose not to “remove any

schematics/blue prints and instructions” related to customer projects, and Rose “agreed that he

would neither remove” such information “nor disclose any such documents” to others. We

disagree with Scientific that such testimony evidences an enforceable “oral contract” between

Rose and Scientific regarding the treatment of proprietary information for the same reason

we determined the training attendance record does not—the alleged oral contract lacks

consideration. See id. Taking Basta’s averment as true that Rose orally promised not to disclose

Scientific’s proprietary information, Basta did not promise anything to Rose in exchange.

               Finally, the LOI does not constitute evidence of a valid contract between Rose

and Scientific for the simple reason that it is not a contract between Rose and Scientific;

moreover, it does not contain any mutual promises or obligations between the two parties.

Rather, to the extent that it constitutes an enforceable agreement, the agreement is between

Scientific and KleverLogic (FlashParking’s predecessor), which Rose and Basta signed in their

representative capacities for Scientific. The LOI, therefore, does not constitute any evidence of a

valid contract between Rose and Scientific to support the first element of Scientific’s claim for

breach of contract.

               Accordingly, the trial court did not err in granting Rose no-evidence summary

judgment on Scientific’s breach-of-contract claim.

                                                10
Breach-of-implied-contract-of-confidentiality claim

               In his summary-judgment motion, Rose argued that a cause of action for “breach

of an implied contract of confidentiality” does not exist under Texas law because, to the extent

that there is a duty to keep an employer’s information confidential, such duty is fiduciary rather

than contractual in nature. See Mabrey v. SandStream, Inc., 124 S.W.3d 302, 316 (Tex. App.—

Fort Worth 2003, no pet.) (“Even apart from any written contract, a fiduciary relationship

arises from an employment relationship forbidding an employee from using trade secrets or

confidential or proprietary information in a manner adverse to the employer.”); see also Hyde

Corp. v. Huffines, 314 S.W.2d 763, 770 (Tex. 1958) (noting that “in the area of confidential

relationships,” party who discloses another party’s trade secret or confidential information may

be subject to tort liability apart from breach of any express agreement for which party may be

liable). Rose further argued that Scientific was attempting to recast its cause of action for breach

of fiduciary duty as a contractual claim—dubbing it a claim for breach of an “implied contract of

confidentiality”—to avoid preemption under TUTSA. Although we did not need to reach the

preemption issue in our discussion of Scientific’s claim for breach of fiduciary duty, we agree

with Rose that Scientific may not maintain its cause of action for “breach of an implied contract

of confidentiality” because Scientific has not cited any Texas cases recognizing such cause of

action, and we have found none.6 Our precedent dictates that this Court should not recognize a

       6
         Scientific cites Lamons Metal Gasket Company v. Traylor, 361 S.W.2d 211, 212–13
(Tex. App.—Houston 1962 writ ref’d n.r.e.), as support for its contention that such cause of
action exists, but the cause of action at issue in that case was wrongful interference with contract
rights. While in dicta that court stated,

       The law will imply as part of the contract of employment an agreement not to
       disclose information which the employee receives as an incident of his
                                                11
new cause of action “in the first instance.” Anderson v. Archer, 490 S.W.3d 175, 177 (Tex.

App.—Austin 2016), aff’d, 556 S.W.3d 228 (Tex. 2018). In the absence of recognition by the

Supreme Court of Texas or the legislature, we conclude that a common-law cause of action for

“breach of an implied contract of confidentiality” does not exist in Texas. See Hampton v.

Equity Tr. Co., 607 S.W.3d 1, 5 (Tex. App.—Austin 2020, pet. denied) (declining to recognize

new common-law cause of action for aiding and abetting fraud); Anderson, 490 S.W.3d at

177 (declining to recognize new cause of action for interference with inheritance rights).

Accordingly, the trial court did not err in granting Rose summary judgment on Scientific’s claim

for breach of an implied contract of confidentiality.

                                         CONCLUSION

               We affirm the trial court’s summary-judgment order.

                                              __________________________________________
                                              Thomas J. Baker, Justice

Before Justices Baker, Triana, and Smith

Affirmed

Filed: March 23, 2022

       employment, if the employee knows that his employer desires such information
       kept secret, or if, under the circumstances, he should have realized that secrecy
       was desired,

it did not hold that such a cause exists or base its holding on such statement. Moreover,
Scientific has not identified any valid employment contract between it and Rose.
                                                 12