United States: Texas Court Of Appeals Affirms Summary Judgment In Physician Staffing Case Citing Lack Of Damages Evidence

On January 4, 2023, the Dallas Court of Appeals in Texas affirmed a summary judgment in a trade secrets physician staffing case that stands as a warning to practitioners regarding (1) what constitutes sufficient damages evidence to survive summary judgment, and (2) whether something can be considered on appeal that has been sealed or subject to a confidentiality agreement.

Background

In March 2017, hospital staffing company Emergency Staffing Solutions Inc. (“ESS”) sued its two former employees, Harvey and James, for breach of their non-competition agreements by virtue of their new employment with its competitor, Concord, and solicitation of ESS's customers and employees, misappropriation of its trade secrets, tortious interference with contracts and breaches of various fiduciary duties.  Harvey and James counterclaimed for declaratory judgment alleging the non-competition agreement between the parties was unenforceable. The parties filed dueling summary judgments, with ESS seeking traditional summary judgment on the basis Harvey/James's declaratory judgment was barred as mirroring the contract, and Harvey/James seeking traditional and no evidence summary judgment because ESS had failed to make any showing of damages whatsoever. The trial court granted both parties summary judgment motions, and both parties appealed.

Analysis

In its memorandum opinion, the Appellate Court affirmed the trial court's rare grant of dueling summary judgments. Though the appeal raised several issues, most relevant to trade secrets is the Appellate Court's opinion on the nature and extent of evidence required in summary judgment proceedings. To defeat summary judgment, ESS relied upon the most common evidence seen in these cases: the client affidavit: here, by its COO. ESS's affidavit averred its damages consisted of a $25,000-$50,000 “placement fee” or “restrictive covenant buy out fee” it routinely included in contracts with physicians and hospital client to ensure compensation for their recruitment efforts, and that this fee was a reasonable royalty for Harvey/James's trade secret misappropriation that the jury should consider. The court rejected this evidence as mere conclusory statements unsubstantiated by facts, noting “…Rupe's affidavit, offers little more than a fee range basis with neither objective evidence of injury associated with any cause of action, nor an amount established with reasonable certainty.” The trial's court of summary judgment as to all of ESS's claims was therefore upheld. 

As an important aside, the court further commented on the parties incorrect assumption that certain summary judgment evidence was filed under seal where pursuant to confidentiality and protective orders designating it as confidential. In dismissing the reference to the evidence purportedly under seal, the court bluntly noted, “Without full compliance with Rule 76a of the Texas Rules of Civil Procedure, no document may be filed under seal. Confidentiality and protective orders are purely agreements between parties to identify and facilitate the exchange of confidential information subject to discovery but has no bearing on, or authority to, seal records, either in the trial court or on appeal. No clerk record was submitted under seal and therefore no action is required by this Court.”

Takeaways

When responding to a no-evidence summary judgment with a client affidavit, the prudent practitioner must ensure its summary judgment evidence is not merely conclusory but instead is premised upon underlying facts that are tied to the elements of its claims. In terms of damages, this case appears to require the focus to be on objective evidence of the alleged injury and which establishes amounts sought with reasonable certainty. Moreover, this case is a reminder that a prudent practitioner must comply with Texas Rule of Civil Procedure 76a in order to appropriately file evidence under seal; pointing to evidence shared pursuant to confidentiality agreements and even protective orders when there is no clerk record submitted under seal may not be considered.

The case citation is Emergency Staffing Solutions, Inc., Appellant v. Kevyn Harvey, Heather James, and Concord Medical Management, LLC, Appellee, No. 05-21-00148-CV, 2023 WL 33369, at *1 (Tex. App.—Dallas Jan. 4, 2023, no pet. h.).

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