The Houston [1st] Court of Appeals has finally resolved a long-running dispute over the application of the Texas Citizens Participation Act (Ch. 27, CPRC) to a dispute between oil and gas companies involving misappropriation of trade secrets.
Benjamin “B.J.” Reynolds, Mark Mewshaw, Wes Hobbs, and Terra Energy Partners LLC v. Sanchez Oil and Gas Corporation, Sanchez Energy Corporation, and Sanchez Production Partners LP (No. 01-18-00940-CV; issued November 30, 2023) arose from the alleged misappropriation and use of Sanchez’s trade secrets by three former Sanchez employees and their new employer, Terra. Sanchez filed suit in March 2016, asserting claims for misappropriation of trade secrets, breach of fiduciary duties, aiding and abetting fiduciary duties, breach of contract, and violation of the Harmful Access by Computer Act (Ch. 143, CPRC).
A little over two years later, Sanchez filed a second amended petition adding causes of action for assisting or encouraging breaches of fiduciary duties and assisting and participating in breaches of fiduciary duties, as well as for vicarious liability. Terra responded to the second amended petition by filing a TCPA motion to dismiss all claims except the action for violation of the Harmful Access by Computer Act. Sanchez countered that the TCPA motion was untimely because the amended petition did not constitute a new “legal action” that triggered the sixty-day deadline for filing the motion. The trial court denied the TCPA motion as untimely filed, found that Terra filed the motion solely for purposes of delay, and awarded attorney’s fees and costs to Sanchez. Terra appealed.
Initially, the court of appeals affirmed. After the court issued its opinion, SCOTX decided Montelongo v. Abrea, 622 S.W.3d 290 (Tex. 2021) and Kinder Morgan SACROC, LP v. Scurry Cnty., 622 S.W.3d 835 (Tex. 2021). Terra filed a petition for review. Without hearing oral argument, SCOTX granted review and remanded the case to the court of appeals for reconsideration in light of the new authority.
On remand, the court of appeals affirmed in part and reversed and rendered in part. Terra’s second issue asserted that Sanchez failed to prove that it owned the trade secrets at issue and therefore had no standing to pursue its claims. It argued further that since Sanchez did not establish ownership by clear and specific evidence, as the TCPA requires, it failed to make a prima facie case for each element of its claims. Following the Houston [14th] Court of Appeals, the court rejected this argument because “the TCPA burden-shifting procedure is not a proper framework to analyze [appellants’] standing” argument. The proper way to challenge standing, the court observed, is a plea to the jurisdiction or a motion for summary judgment rather than a TCPA motion, which requires the court to have jurisdiction in the first place so that it can apply the statute.
Turning to the timeliness of Terra’s TCPA motion, the court applied Montelongo and Kinder Morgan to Sanchez’s second amended petition and concluded that Sanchez pleaded new legal actions that reset the 60-day clock. The difference between Sanchez’ initial aiding and abetting claim and subsequent claims for assisting or encouraging breaches of fiduciary duties and assisting and participating in breaches of fiduciary duties, the court determined, was that Sanchez alleged that Terra’s and its former employees’ participation in the scheme was a “substantial factor in causing the breaches of fiduciary duties.” In fact, although Sanchez styled its initial petition as asserting “aiding-and-abetting” claims, it in fact stated a claim for “knowing participation in a breach of fiduciary duty.” Texas recognizes a cause of action for knowing participation, whose elements include: (1) the existence of a fiduciary duty owed by a third party to the plaintiff; (2) the defendant knew of the fiduciary duty; and (3) the defendant was aware of his participation in the third party’s breach of its duty (citations omitted). Consequently, when Sanchez added the substantial-factor allegation to its case, it stated new causes of action for aiding-and-abetting a breach of fiduciary duty and new “legal actions” for purposes of the TCPA. Terra’ motion to dismiss as to those claims was thus timely.
Terra argued further that Sanchez’s second amended petition stated a new legal action for vicarious liability. The court disagreed, observing that vicarious liability is a derivative theory, not an independent tort. Though SCOTX has not ruled on whether vicarious liability or respondeat superior constitute a legal action under the TCPA, the court concluded that it didn’t matter since Sanchez’s prior petition sufficiently alleged that “at the time of their allegedly tortious conduct, the individual appellants were employed by Terra and acted within the course and scope of their employment,” the necessary elements for a theory of vicarious liability.
Moving to whether Sanchez established by clear and specific evidence a prima facie case for its aiding-and-abetting claims, the court first ruled that to the extent that those claims were based on misappropriation of trade secrets, they were pre-empted by the Texas Uniform Trade Secrets Act. Consequently, Terra established a defense to those claims and dismissal was proper under the TCPA. To the extent that those claims were based on solicitation of Sanchez’s employees, however, Sanchez met its burden to establish a prima facie case. Sanchez produced an affidavit from one of its employees stating that Meshaw had solicited her to defect to Terra while still employed by Sanchez, thus breaching his duty. The question then became whether Terra established a defense by a preponderance of the evidence. Terra alleged that the aiding-or-abetting claims were not legally cognizable under Texas law, but the court noted that those claims still state the elements of a knowing participation claim, which is recognized in Texas. Those claims thus survived the TCPA motion to dismiss.
Finally, the court reversed the award of Sanchez’s attorney’s fees and costs and the trial court’s finding that Terra filed its TCPA motion solely for purposes of delay. Instead, the court remanded to the trial court for a determination of Terra’s attorney’s fees and costs for the parts of its TCPA motion sustained by the court of appeals.
So, after about seven years of litigation, this case is pretty much back to square one in the trial court. We know that the TCPA was sold to the legislature as a way to efficiently dismiss non-meritorious claims, but it clearly hasn’t always worked that way in practice.
