A Houston state court on Thursday signed a mutually agreed upon temporary injunction order in a dispute between two Dallas-based competitors, tax services firm Ryan LLC and big four accounting firm Ernst & Young.
Ryan filed the lawsuit last month alleging that EY stole Ryan’s trade secrets in order to benefit a competing practice group that EY built out. The lawsuit says the trade secrets were related to methodologies, work papers and other intel for severance tax and federal royalty advisory services that Ryan provides to its energy clients, most of which are in the Fortune 500.
The lawsuit alleges EY obtained Ryan’s work papers through mutual clients “under the guise of the documents being necessary for the team to complete the audited financials for the client.”
Ryan also sued Saurabh K. Thakkar, a former employee who allegedly left Ryan to build EY’s competing federal royalty and severance practice group and did so by badmouthing Ryan to its existing clients in an effort to snag business for EY.
Thursday’s injunction order, signed by Harris County District Judge Christine Weems, bans EY and Thakkar from “retaining, using or disclosing” Ryan’s confidential work product; seeking the information from Ryan’s clients; or seeking it from current or former Ryan employees without Ryan’s written consent.
The temporary injunction follows a temporary restraining order that Ryan obtained from the court June 14. A hearing for the temporary injunction was set for Thursday, but the parties resolved the issue last week when they came to an agreed order that they proposed to Judge Weems.
“What we wanted was for EY to stop asking for and using our trade secret information,” said AZA partner Todd Mensing, Ryan’s lead lawyer in the case. “EY … resisted that time and time again in one hearing after another, but they finally agreed to that relief. We agreed that they can keep a copy to satisfy some regulatory requirements, but the main point is no one at EY can access our information anymore for audit purposes or any other.”
EY’s lawyers declined to comment.
Essential to obtaining the temporary injunction was key evidence that Ryan’s lawyers learned during the expedited discovery process, including at least 38 instances in which EY’s audit group obtained Ryan’s confidential information from no less than six clients, according to Ryan’s amended petition.
“In one of our first hearings, EY said they only had one PDF reflecting our confidential information, and that’s wrong at least 38 times over now,” Mensing said.
The amended petition also identifies another former Ryan employee, analyst Ryan Nick, who departed the firm in May to begin working in EY’s new competing practice group. Between 4:20 a.m. and 4:41 a.m. on Nick’s last day, he allegedly accessed a high volume of Ryan’s confidential, proprietary and trade secret work product. Ryan says in the lawsuit that it discovered this after forensically examining Nick’s work laptop, which also revealed that Nick had accessed a number of highly confidential research projects and protected drives in the days leading up to his departure that had no relevance to his work at the firm.
The lawsuit says both Thakkar and Nick signed employment agreements at their old firm that banned them from misappropriating Ryan’s confidential information — and, in Thakkar’s case, from competing with Ryan for three years after termination — and that both assured Ryan that they would honor their agreements when they left.
Ryan said in its lawsuit that it first became suspicious of EY once Thakkar joined its competitor, and even obtained written confirmation from EY that Thakkar was not breaching any of its restrictive covenants. Ryan even sued Thakkar in Fort Bend County in 2018 after further concerns. That dispute was resolved after EY Associate General Counsel Peter Cahill and Thakkar represented in an April 2019 letter that Thakkar “had complied and would continue to comply” with the restrictive covenants and that he had not “misused confidential information and proprietary methodologies belonging to Ryan,” the lawsuit says.
Ryan’s legal claims include misappropriation of trade secrets, tortious interference and breach of contract. The firm is also seeking damages and a permanent injunction.
“Gleaning trade secrets through financial audits, then misappropriating those trade secrets to the benefit of the audit firm’s tax practitioners, is a perfect example of why having attest services and consulting services under the same roof is a conflict of interest that deserves further regulatory scrutiny,” a written statement by Ryan claims. “Ryan prides itself on being an independent tax services provider with no attest function, which we believe allows us to put our clients’ interests first in a way some of our public accounting competitors apparently do not.”
Asked what’s next in the case, Mensing said his side will work to prove several facts.
“We’re going to begin proving that EY has severely, economically harmed Ryan by unfairly competing for severance and royalty business by using our misappropriated trade secrets, that they have illegally used our work papers to gain shortcuts in their auditing work, that they’ve interfered with our customer contracts, have defamed the quality of our work and that they’ve gotten a free pass by using our stolen trade secrets that they need to pay for.”
Mensing said it is too early in the case to know exactly how much Ryan will ask for in damages, but he assumes it would be “many millions.”
The AZA team representing Ryan also includes Monica Uddin, Foster Johnson and Paul Turkevich.
Baker Botts is representing EY, and the team includes Dallas partners Jessica Pulliam and associate Christopher Hunt and Houston partner Louie Layrisson.
The case number is 2020-35770 and its in the 281st Judicial District in Harris County.