As Texas Trade Secret Saga Continues, Two Sides Offer Contrasting Perspectives Where Each Stands
Our justice system strives for consistency and requires finality once the rights of the parties have been determined. To that end, the law makes clear that a plaintiff must bring all claims arising out of the same set of operative facts in the same action. A close corollary is the proposition that, while a plaintiff can plead causes of action in the alternative and a jury may award multiple remedies, the party must elect its remedy and can only recover once for a particular injury based on those facts. The rationale for these principles rests on notions of efficiency and fundamental fairness. Claims brought piecemeal and on separate tracks, but premised on the same facts, would be wasteful and burdensome on the judiciary and the parties. Moreover, such an approach would invariably result in inconsistent and conflicting rulings and jury awards. The Title Source, Inc. v. HouseCanary, Inc. saga in Texas best illustrates these principles in practice and demonstrates why they are, and must remain judicial hallmarks.
Some background is helpful: HouseCanary, an analytics firm, contracted with Title Source, a leading provider of title and settlement services, to develop a mobile application that would enable real estate appraisals to be electronically prepared in the field. When HouseCanary’s delivery of the appraisal application continued to be significantly delayed, the parties entered into an amended agreement where HouseCanary promised to provide an additional bundle of products, including valuation reports from an automated valuation model. Title Source sued HouseCanary for breach of contract for failing to deliver a completed appraisal app. HouseCanary counterclaimed, asserting misappropriation of trade secrets under the Texas Uniform Trade Secrets Act (“TUTSA”), breach of contract, fraud, unjust enrichment, quantum meruit, and intentional interference with an existing contract – all of which were premised on the same set of facts and allegedly resulted in the same injury. In March 2018, a jury rejected Title Source’s claims, finding instead that Title Source had breached the agreement and awarding HouseCanary $201.6 million. It went on to award HouseCanary a total of $706 million on the TUTSA and fraud counts. HouseCanary elected not to move forward on its breach of contract claim, instead recovering on the TUTSA and fraud claims and the trial court signed a final judgment only as to those two counts. HouseCanary was later awarded attorneys’ fees and interest for a final judgment of $740 million. Title Source moved for a new trial, but the request was denied. It then appealed.
On June 3, 2020, the Fourth Court of Appeals reversed and remanded the case for a new trial, finding that the jury was wrongly instructed on what to consider in evaluating whether the alleged trade secrets were acquired by “improper means.” The appellate court noted that it could not determine if the jury verdict was based on appropriate and relevant legal theories because, while bribery, espionage, and “breach or inducement of a breach of a duty to maintain secrecy” are included in the TUTSA definition of “improper means,” there was no evidence that Title Source used those methods to acquire the alleged trade secrets and thus they should not have been included in the jury instruction. As HouseCanary’s final judgment did not include recovery on HouseCanary’s breach of contract claims, the appellate court’s decision did not address those claims.
Title Source filed a motion for rehearing, asking the court of appeals to modify the scope of remand such that it would be clear that HouseCanary had two options on remand: “(1) elect to recover on its contract claims based on the first jury’s verdict or (2) elect to retry all of its claims because they are all inextricably intertwined[.]” In opposition, HouseCanary argued that the TUTSA and contracts claims are separable, that its fraud claim should not be remanded, and that Title Source’s issues should be addressed in a petition to the Supreme Court of Texas.
The Fourth Court of Appeals agreed with Title Source and issued a revised opinion on August 26, 2020, holding that “if HouseCanary wishes to retry its TUTSA and fraud claims on remand, it must also relitigate its contract claims” or it could choose to forego a new trial and seek to recover on its breach of contract claims instead. Reasoning that “[b]ecause HouseCanary’s TUTSA, fraud, and contract claims rely, at least in part, on the same facts and the jury found those acts caused the same damages, it is possible that a retrial of the TUTSA and fraud claim will result in a verdict that conflicts with the first jury’s contract findings[,]” the court concluded that “HouseCanary’s claims are not separable from each other without unfairness to the parties.” This result is in accord with a legion of Texas and federal authority holding that a retrial of all non-separable claims is mandated if a party desires to retry the error-infected claims. It was also not lost on the court that throughout trial HouseCanary asserted its causes of action were based on the same set of facts.
On the evening of August 26, the day the Fourth Court of Appeals handed down its opinion, HouseCanary issued a statement in which it asserted, among other claims, that:
“The Court has provided that HouseCanary may retry certain facts to a jury to address certain issues with the jury instruction.”
“As the Court also recognized, HouseCanary ‘may choose to forego a new trial and recover on the jury’s contract findings that were not successfully challenged in this appeal.’”
“The jury awarded damages of $201.6 million for those contract claims. HouseCanary is deciding how it will proceed.”
These contentions distort the opinion’s clear prose, assault common sense and good jurisprudence, and, perhaps unfortunately, evidence a litigant hoping to somehow game the system.
It is unclear what HouseCanary means when it says that it could retry “certain facts” “to address certain issues.” But what is certain is that when the decision comes back down HouseCanary will either have (1) to retry all of its claims, including all issues underlying those claims, or (2) elect to recover on the contract claims decided by the jury in the first trial. Should it take the second option, a final judgment on the contract claims would then need to be entered by the trial court.
As it is black letter law that only a final judgment can be appealed, if HouseCanary does elect to recover on its contract claims, the entry of judgment on these claims would then provide Title Source with the opportunity for post-judgment briefing and an appeal of the contract claims. This follows from the fact that, as reflected in the record, including HouseCanary’s own response brief, the trial court’s judgment and the appellate court’s opinions did not address the contracts claims, and thus Title Source did not have the ability to challenge them as part of this appeal. HouseCanary now faces a Hobson’s choice, but it is one that ensures that all claims arising from a given nucleus of facts stay on the same track and are decided by the same jury.