A reversal of fortune came this summer for 12 former employees of Distribution NOW who were sued and found liable after leaving the energy sector giant for an upstart competitor in 2022.
The Fourteenth Court of Appeals threw out most of a multimillion-dollar verdict returned by a Fort Bend County jury in February 2023 and ordered DNOW, a publicly traded company, to pay more than $2 million in attorneys’ fees and costs to the former workers.
The jury had found against the ex-employees on trade secret, civil theft and fiduciary duty claims. Jurors awarded DNOW actual damages of $1.7 million for trade secret misappropriation; punitive damages and attorneys’ fees brought the verdict to nearly $9 million.
The June 26 opinion by Chief Justice Tracy Christopher also changed the legal landscape for employee-raiding claims as the court held that the Texas Uniform Trades Secrets Act preempts other claims and theories of liability that rely on the same facts.
“In an issue of first impression for this Court, we hold that the Texas Uniform Trade Secrets Act preempts other claims and theories of liability that rely on proof of the misappropriation of statutorily defined ‘trade secrets.’ This includes DNOW’s claim of conspiracy to misappropriate trade secrets and its other claims to the extent that they rely on proof of the same facts,” said Christopher.
Rachel Powitzky Steely, who led the Foley & Lardner trial team for most of the former employees, said the case serves as a roadmap for damages causation standards for future Texas trade secret misappropriation cases.
“There’s quite a bit of important information that now litigants, attorneys, in-house counsel can look to in making strategic decisions about whether or not they’re going to pursue litigation for misappropriation of trade secrets, breach of fiduciary duty and any type of anticompetitive activity,” Steely told The Texas Lawbook.
“The chief justice said if it’s the same facts for two causes of action, you don’t get two bites at the apple,” said Steely, a partner in Foley’s Houston office. “So that was the first important legal issue that came out of the court of appeals.”
DNOW has indicated it plans to seek review of the case by the Texas Supreme Court.
“We think the Texas Supreme Court will be particularly interested in the preemption holding, which the court of appeals recognized was an issue of first impression,” said AZA appellate lawyer Kelsi Stayart White, who is handling the appeal for DNOW.
Although the court of appeals found legally sufficient evidence to support the jury’s finding that Odessa businessman Toby Eoff and three other managers breached fiduciary duties to DNOW, it said the trial court erred in submitting a charge that allowed the jury to find liability based on preempted misappropriation claims and breaches of duties that were not owed. It remanded for a new trial DNOW’s breach of fiduciary duty claims against the four men.
Christopher’s 51-page opinion, which Justice Ken Wise joined, fully adopted the defendants’ proposed jury instructions for breach of fiduciary claims against departing managers in Texas. A third panel member’s term of office ended at the end of last year, after the case was argued but before it was decided.
The second big issue to come out of the case involves the instructions given to the jury. Steely said the trial court, over her objection, used a pattern jury charge designed for breach of fiduciary claims against departing managers.
“Now we have some clarity on what the jury charge is supposed to look like in an employee mobility trade secret case,” Steely said. “In this case, we had mountains of paper on whether or not there was preemption and what the jury charge looks like. [Judges are] going to be able to streamline cases in the future, which benefits all of us.”
Eoff sold his family business Odessa Pumps to DNOW for $170 million in 2015. After the sale, Eoff became a vice president at DNOW until his retirement in April 2022.
DNOW accused Eoff of establishing a competing pump sales company called Permian Pump & Valve and conspiring with other former DNOW employees to steal DNOW trade secrets and systematically poach employees to help Permian Pump & Valve.
Eoff is represented by Mark Levine of Andrews Myers.
Steely said she is excited for the law firm’s clients who made the trek from their homes in the Permian Basin to Fort Bend over the holidays and who were subjected to days on the witness stand during the three-month trial.
“The trial lasted so long because the plaintiffs kept each witness on the stand for a very long period of time,” said Steely.
“But in doing so, the issues that really jeopardize their case and actually ruin their case on appeal came up fairly early and then just stretched through trial. It became more and more apparent through trial of the problems they had legally and factually and being able to support any type of verdict,” Steely said.
According to Christopher’s opinion, the trial record contains hundreds — possibly thousands — of text messages and emails between various combinations of appellants concerning Permian’s plans to compete with DNOW. The evidence, contained in 32 boxes, was reviewed by jurors in 434th District Judge J. Christian Becerra’s court during the three-month trial.
John Zavitsanos, the AZA partner who led DNOW’s trial team, said the evidence against the former managers was strong.
“The case was remanded for a new trial,” he said. “If the Supreme Court does not take it, we will try it again and, given the overwhelming evidence, expect the same result.”
The Fourteenth Court upheld a portion of the verdict involving one ex-employee who had copied hundreds of engineering drawings from DNOW. It said that employee was 5 percent responsible for the $225,000 cost of retention bonuses, an amount totaling $11,250.
Steely said DNOW had sought $42 million in damages.
The case was argued by Stacy Obenhaus of Foley’s Dallas office. Foley’s all-female trial team included Jessica Glatzer Mason, Katherine Harrington, Taylor Appling and Gaylyn Kinsley. Geoffrey Bracken served as Foley’s attorneys’ fees expert at trial.
The case number is 14-23-00410-CV.