Elite Auto Body LLC, D/B/A Precision Auto Body Rey R. Hernandez Yesica Diaz And David Damian v. Autocraft Body Works, Inc., Now Known as Wasson Road Ventures, Inc. D/B/A Autocraft Bodywerks

Opinion

ACCEPTED 03-15-00064-CV 5229366 THIRD COURT OF APPEALS AUSTIN, TEXAS 5/11/2015 12:33:19 PM JEFFREY D. KYLE CLERK CAUSE NO. 03-15-00064-CV

FILED IN 3rd COURT OF APPEALS In the Court of Appeals AUSTIN, TEXAS For the Third Court of Appeals District 5/11/2015 12:33:19 PM Austin, Texas JEFFREY D. KYLE Clerk

ELITE AUTO BODY LLC, d/b/a PRECISION AUTO BODY, REY R. HERNANDEZ, YESICA DIAZ, AND DAVID DAMIAN, Appellants, v. AUTOCRAFT BODYWERKS, INC., now known as WASSON ROAD VENTURES, INC., d/b/a AUTOCRAFT BODYWERKS, Appellee.

Expedited Appeal from the 353rd Judicial District Court, Travis County, Texas, the Hon. Tim Sulak, Presiding

APPELLANTS’ REPLY BRIEF

Rick Harrison Texas Bar No. 09120000 rharrison@taubesummers.com TAUBE SUMMERS HARRISON TAYLOR MEINZER BROWN, LLP 100 Congress Avenue, 18th Floor Austin, Texas 78701 Telephone: (512) 472-5997 Telecopier: (512) 472-5248

COUNSEL FOR APPELLANTS

ORAL ARGUMENT REQUESTED IDENTITY OF PARTIES AND COUNSEL

Pursuant to Rule 38.1(a) of the Texas Rules of Appellate Procedure,

Appellant lists the following parties affected by this appeal, and their respective

counsel:

APPELLANTS APPELLEE

Elite Auto Body, LLC d/b/a Precision Autocraft Bodywerks, Inc., now known Auto Body, Rey R. Hernandez, Yesica as Wasson Road Ventures, Inc., d/b/a Diaz, and David Damian Autocraft Bodywerks

Trial and Appellate Counsel: Trial and Appellate Counsel:

Rick Harrison James Ruiz Texas Bar No. 09120000 Texas Bar No. 17385860 rharrison@taubesummers.com jruiz@winstead.com S. King Jacylyn G. Austein Texas Bar No. 24067708 Texas Bar No. 24069760 aking@taubesummers.com Jaustein@winstead.com TAUBE, SUMMERS, HARRISON, TAYLOR WINSTEAD, P.C. MEINZER BROWN, LLP 401 Congress Avenue, Suite 2100 100 Congress Avenue, 18th Floor Austin, Texas 78701 Austin, Texas 78701 Telephone: (512) 370-2818 Telephone: (512) 472-5997 Facsimile: (512) 370-2850 Facsimile: (512) 472-5248

i TABLE OF CONTENTS

TABLE OF CONTENTS ....................................................................................... ii

TABLE OF AUTHORITIES ................................................................................ iii

I. OVERVIEW ................................................................................................1

II. ARGUMENT ...............................................................................................2

A. APPELLANTS SHOW BY A PREPONDERANCE OF THE EVIDENCE THAT APPELLEE’S CLAIMS ARE BASED ON, RELATE TO, OR ARE IN RESPONSE TO THEIR EXERCISE OF THE RIGHT OF FREE SPEECH AND RIGHT OF ASSOCIATION. ..................................................................3

B. PRIVATE SPEECH IS PROTECTED UNDER THE TCPA. ............5

C. TCPA DOES NOT EXEMPT CLAIMS FOR TRADE SECRETS, UNFAIR COMPETITION OR BREACH OF FIDUCIARY DUTY BECAUSE THEY ARE BASED UPON PURPORTED TRADE SECRETS. ........................................................5

D. APPELLEE’S CLAIMS DO NOT QUALIFY FOR THE COMMERCIAL SPEECH EXCEPTION. ............................................7

E. APPELLEE’S RESPONSE BRIEF MASKS THAT IT HAS NO EVIDENCE TO COUNTER APPELLANTS’ POSITION OR MEET ITS BURDEN OF ESTABLISHING A PRIMA FACIE CASE FOR EACH ELEMENT OF ITS CLAIMS. .................................................................................................10

III. CONCLUSION AND PRAYER ..............................................................11

CERTIFICATE OF SERVICE ............................................................................13

CERTIFICATE OF COMPLIANCE ..................................................................13

ii TABLE OF AUTHORITIES Cases

BBB of Metro. Dallas, Inc. v. BH DFW, INC., 402 S.W.3d 299 (Tex. App.—Dallas 2013, pet. filed) ...................................................................................9

Combined Law Enforcement Assocs. Of Texas v. Sheffield, Cause No. 03- 13-00105-CV, 2014 WL 411672, at *11012 (Tex. App.—Austin, January 31, 2014, pet. filed) ....................................................................................................6

In Re Lipsky,13-0928, 2015 WL 1870073, at *7 (Tex. Apr. 24, 2015)............ 10, 11

Lippincott and Parks v. Whisenhunt, 13-0926, 2015 WL 1967025 (Tex. April 24, 2015) ...........................................................................................................5

Newspaper Holdings, Inc. v. Crazy Hotel Assisted Living, Ltd., 416 S.W.3d 71, 89 (Tex. App.—Houston [1st Dist.] 2013), reh'g overruled (Dec. 19, 2013), review denied (May 16, 2014) ........................................................8

Schimmel v. McGregor, 438 S.W.3d 847, 857–58 (Tex. App.—Houston [1st Dist.] 2014, pet. filed) .......................................................................................10

Unigard Sec. Ins. Co. v. Schaefer, 572 S.W.2d 303, 307 (Tex. 1978) ......................7 Statutes

TEX. CIV. PRAC. & REM. CODE 27.001(2)-(3) ............................................................4

TEX. CIV. PRAC. & REM. CODE § 27.001(2)–(4) ........................................................6

TEX. CIV. PRAC. & REM CODE § 27.003 .....................................................................6

TEX. CIV. PRAC. & REM. CODE § 27.005(b) ...............................................................3

TEX. CIV. PRAC. & REM. CODE § 27.005(c) ...............................................................3

TEX. CIV. PRAC. & REM. CODE § 27.010....................................................................8

TEX. CIV. PRAC. & REM. CODE § 27.010(b) .................................................. 2, 7, 8, 9

TEX. CIV. PRAC. & REM. CODE § 27.010(c)–(d) .......................................................6

iii CAUSE NO. 03-15-00064-CV

In the Court of Appeals For the Third Court of Appeals District Austin, Texas

ELITE AUTO BODY LLC, d/b/a PRECISION AUTO BODY, REY R. HERNANDEZ, YESICA DIAZ, AND DAVID DAMIAN, Appellants, v. AUTOCRAFT BODYWERKS, INC., now known as WASSON ROAD VENTURES, INC., d/b/a AUTOCRAFT BODYWERKS, Appellee.

Expedited Appeal from the 353rd Judicial District Court, Travis County, Texas, the Hon. Tim Sulak, Presiding

APPELLANTS’ REPLY BRIEF

TO THE HONORABLE THIRD COURT OF APPEALS:

I. OVERVIEW

Appellee did not file this lawsuit because Appellants stole trade secrets or

absconded with other confidential information. Appellee filed this lawsuit for one

reason—to shut down a competitive enterprise that is staffed primarily with former

employees of Appellee. Appellee is using the court system to leverage its superior

cash flow position to force Appellants into expensive purposeless litigation, and in 1 so doing intimidate and silence Appellants so as to restrict their exercise of

association and free speech in engaging in a competitive venture which could hire

Appellee’s current and former employees. This is underscored by the lack of ANY

evidence of purported trade secrets or confidential information necessary to

support Appellee’s claims for alleged trade secret misappropriation, breach of

fiduciary duty, and unfair competition. Because Appellee has no evidence to

support its causes of actions, its entire case should be dismissed.

II. ARGUMENT

Appellee’s reply brief is telling both in what it includes, and what it fails to

include. Appellee does not provide this Court with evidence to counter

Appellants’ evidence or support its own claims. Instead Appellee’s response

attempts to avoid dismissal under the TCPA by narrowing the scope of the statute,

an entirely legal attack. First, Appellee asserts that private speech is not protected

under the TCPA, then it alleges that the TCPA does not apply to causes of action

for trade secrets, unfair competition, and breach of fiduciary duty; and finally

Appellee attempts to position its claims to fit into the commercial speech exception

to the TCPA found in TEX. CIV. PRAC. & REM. CODE § 27.010(b). Appellee’s

attempt to avoid the scope of the TCPA is futile, as TCPA’s statutory language

2 urges broad application, and case law supports its application to the facts in the

underlying lawsuit.

A. APPELLANTS SHOW BY A PREPONDERANCE OF THE EVIDENCE THAT APPELLEE’S CLAIMS ARE BASED ON, RELATE TO, OR ARE IN RESPONSE TO THEIR EXERCISE OF THE RIGHT OF FREE SPEECH AND RIGHT OF ASSOCIATION.

Courts assessing TCPA’s application undertake a two-step analysis. The

movant must first show by a preponderance of the evidence that the plaintiff’s

claim “is based on, relates to, or is in response to the [movant’s] exercise of the

right of free speech… or the right of association. TEX. CIV. PRAC. & REM. CODE §

27.005(b). If the movant is able to demonstrate that the plaintiff’s claim implicates

one of these rights, the second step shifts the burden to the plaintiff to “establish

[]by clear and specific evidence a prima facie case for each essential element of the

claim in question.” Id. § 27.005(c).

The relief Appellee seeks underscores that its claims are based on, relate to,

or are in response to the Appellants’ exercise of their rights of association and free

speech. Appellee seeks to enjoin the Appellants from disclosing or using

Appellee’s confidential information and trade secrets, or hiring Appellee’s former

employees using such information. The Appellants have presented evidence that

the information identified by Appellee is not confidential or trade secret, but rather

3 tools commonly used by businesses in the Appellants’ industry, which are essential

to communications in pursuit of their common interest of operating a competitive

automobile body repair business. Hernandez Declaration, ¶¶ 8-9 [CR 27]; Damian

Declaration, ¶ 6 [CR 30]. See TEX. CIV. PRAC. & REM. CODE 27.001(2-3). Because

the purported confidential information and trade secrets are actually basic and

commonly used elements of a body shop’s business, success by Appellee on its

claims effectively prevents Appellants from engaging in lawful business

competition and would prevent them from both communicating non-proprietary

business practices and communicating with former or current employees of

Appellee. [CR 27, 30] This underscores that the underlying claims relate to

rights of association and speech. It is akin to telling a lawyer that because her prior

firm printed off all of the cases from Lexis or Westlaw on a particular topic and

arranged them alphabetically, she cannot use cases printed from such services.

Notably, Appellee’s Response is devoid of evidence which refutes Appellants’

evidence, and fails to provide clear and specific evidence of any actual proprietary

or trade secret information. These evidentiary absences further support the

Appellants’ position that the only purpose of the lawsuit is to intimidate and

silence the Appellants, and as such are based on, relate to, and in response to their

exercise of the rights of free speech and association.

4 B. PRIVATE SPEECH IS PROTECTED UNDER THE TCPA.

Appellee’s position that private speech is not protected under the TCPA has

been rejected by the Texas Supreme Court. Lippincott and Parks v. Whisenhunt,

13-0926, 2015 WL 1967025 (Tex. April 24, 2015). Appellee states in its Response

that the TCPA does not apply to private speech, and as a result this case, which it

describes to involve private speech, would not be impacted by the TCPA.

Response at p. 13. To the contrary, the Whisenhunt Court held three days after

Appellee’s Response had been filed that the statute defines “communication” to

include any form or medium, including oral, visual, written, audiovisual, or

electronic media—regardless of whether the communication takes a public or

private form. Id. at 3. As such, the Whisenhunt Court presumed that the

Legislature intended to include both public and private communication. Id.

C. TCPA DOES NOT EXEMPT CLAIMS FOR TRADE SECRETS, UNFAIR COMPETITION OR BREACH OF FIDUCIARY DUTY BECAUSE THEY ARE BASED UPON PURPORTED TRADE SECRETS.

Appellee’s suit for injunctive relief and damages for purported trade secret

misappropriation, unfair competition, and breach of fiduciary duty is subject to

dismissal under the TCPA, just like any other claim not specifically excepted by

the statute. Appellee attempts to carve out an exception for trade secret

misappropriation and causes of actions incorporating such misappropriation on the 5 basis that such cases fall outside First Amendment concerns fails to acknowledge

that the scope the Legislature intended the TCPA address is broader than the

protections provided by the Constitution for those same rights. See Combined Law

Enforcement Assocs. Of Texas v. Sheffield, Cause No. 03-13-00105-CV, 2014 WL

411672, at *11012 (Tex. App.—Austin, January 31, 2014, pet. filed). The issue is

not whether the First Amendment may provide defenses to claims for trade secret

misappropriation and confidential business information, but rather whether such

claims are exempted from the TCPA. The Legislature could have written the

TCPA to apply only when a lawsuit is based on a party’s exercise of constitutional

rights, making the statute’s scope co-extensive with First Amendment doctrine.

But the Legislature did not. Instead it chose to cover “any legal action” that is

based on, relates to, or is in response to the party’s exercise of (1) the right of free

speech; (2) the right to petition; or (3) the right of association. See TEX. CIV. PRAC.

& REM CODE § 27.003. All three of these terms have statutory definitions

considerably broader than what constitutional law may have otherwise covered.

See id. §§ 27.001(2)–(4).

Likewise, where the Legislature intended to exempt causes of action from

the TCPA’s all-encompassing scope, it did so expressly. See id. §§ 27.010(c)–(d)

(exempting all claims for personal injury, wrongful death, survival, or breach of an

6 insurance contract). The Legislature’s omission from the TCPA of any exemption

for fiduciary duty, trade secret, or unfair competition claims means that no blanket

exception can be inferred. Unigard Sec. Ins. Co. v. Schaefer, 572 S.W.2d 303, 307

(Tex. 1978) (“When specific exclusions or exceptions to a statute are stated by the

Legislature, the intent is usually clear that no others shall apply.”) The Legislature

could easily have restricted the TCPA’s application to claims not involving trade

secret misappropriation allegations. It did not choose to do so.

Appellee’s narrow reading of the statute is inconsistent with the reach of the

TCPA. The purpose behind the statute is to prevent a party from inventing a

baseless claim and using such a claim to chill protected activity. Because Appellee

filed the claims to stop Appellants from engaging in their protected rights to

association and speech, the TCPA applies.

D. APPELLEE’S CLAIMS DO NOT QUALIFY FOR THE COMMERCIAL SPEECH EXCEPTION.

Appellee’s attempt to apply the TCPA exception found in § 27.010(b) is

meritless. The exception is inapplicable because the statements or conduct (e.g.

“proprietary and confidential information and trade secrets”) at issue involve

operational information for which the intended audience is the employees of the

respective body shops and never an actual or potential buyer or customer. The

short shrift Appellee provided this section in its Response seemingly underscores 7 the lack of faith it placed in this position. Appellee baldly asserts that the

exception applies because Appellants (1) are in business selling services, and (2)

their rights of free speech and association arise from a common interest in

developing and maintaining a business. Although § 27.010(b) identifies certain

types of legal actions that are specifically exempted from application of the

chapter, Appellee provides no legal authority or analysis in support of the

application of this section to the underlying claims in this action.

TEX. CIV. PRAC. & REM. CODE § 27.010. Subsection (b) provides that the TCPA:

[D]oes not apply to a legal action brought against a person primarily engaged in the business of selling or leasing goods or services, if the statement or conduct arises out of the sale or lease of goods, services, or an insurance product, insurance services, or a commercial transaction in which the intended audience is an actual or potential buyer or customer. Id. § 27.010(b).

Appellee’s causes of actions do not qualify for the exemption. First, the

burden of proving the applicability of an exemption from the provisions of an anti-

SLAPP statute falls on the party asserting it. Newspaper Holdings, Inc. v. Crazy

Hotel Assisted Living, Ltd., 416 S.W.3d 71, 89 (Tex. App.—Houston [1st Dist.]

2013), reh'g overruled (Dec. 19, 2013), review denied (May 16, 2014). There is

nothing in Appellee’s Response to meet this burden.

8 Second, all commercial speech is not exempted from the chapter, and each

element of the section must be met in order to qualify for the exemption. For

example, Appellee fails to identify the relationship between the parties, but the

relationship at issue must be more than a general commercial relationship. See

BBB of Metro. Dallas, Inc. v. BH DFW, INC., 402 S.W.3d 299 (Tex. App.—Dallas

2013, pet. filed) (Insufficient to establish an exemption under § 27.010(b) to

merely allege a general commercial relationship between the parties.) Further, the

legal action must arise out of a specific transaction, and the behavior complained

about must be directed towards actual or potential buyers or customers. See id. As

set forth above, the statement or conduct at issue herein is Appellants’ purported

misappropriation of alleged trade secrets, proprietary, and confidential information.

Appellee fails to provide evidence that such statement or conduct “arises out of the

sale or lease of goods, services, or an insurance product, insurance services, or a

commercial transaction in which the intended audience is an actual or potential

buyer or customer.”

Finally, the exception does not apply because the “intended audience” for

Appellants’ communications was either fellow employees engaging in the

Appellants’ operations, or potential future employees. See TEX. CIV. PRAC. & REM.

CODE § 27.010(b) (limiting exception to those communications “in which the

9 intended audience is an actual or potential buyer or customer”). None of the

intended audiences are buyers or customers of any goods or services that

Appellants are selling.

Courts have declined to apply the commercial-speech exception in

circumstances where the ultimate audience was not a potential buyer or customer.

See Schimmel v. McGregor, 438 S.W.3d 847, 857–58 (Tex. App.—Houston [1st

Dist.] 2014, pet. filed) (refusing to apply commercial-speech exception to

attorney’s comments because “ultimate intended audience” was city government,

which was not “a ‘potential buyer or customer’” of his legal services). Appellee

has not met its burden of proving that the commercial speech exception applies.

E. APPELLEE’S RESPONSE BRIEF MASKS THAT IT HAS NO EVIDENCE TO COUNTER APPELLANTS’ POSITION OR MEET ITS BURDEN OF ESTABLISHING A PRIMA FACIE CASE FOR EACH ELEMENT OF ITS CLAIMS.

Despite spending seven pages on the section relating to Appellee’s burden to

establish a prima facie case for each element of its claims, Appellee spends less

than a page and a half describing its purported evidence. Even that synopsis

emphasizes that the only support Appellant has to bolster its opinion consists of

conclusory, bare, baseless opinions. As the Supreme Court recently stated, the

TCPA requires more. In Re Lipsky,13-0928, 2015 WL 1870073, at *7 (Tex. Apr.

24, 2015). A plaintiff must provide sufficient detail to show the factual basis for 10 its claim. Id. In the In Re Lipsky matter, the Plaintiff attempted to support its claim

in general terms in an affidavit that included “bare, baseless opinions” that were

not based on “demonstrable facts and a reasoned basis.” Id. at 9 (“Although the

affidavit states that Range “suffered direct pecuniary and economic losses,” it is

devoid of any specific facts illustrating how Lipsky’s alleged remarks about

Range’s activities actually caused such losses.”) As identified in Appellants’ Brief

Appellee failed to provide the quantum of evidence necessary to satisfy TCPA’s

requirement of clear and specific evidence requirement to support any of its causes

of actions. Instead Appellee’s Response focuses on distractions for the Court,

including whether circumstantial evidence is sufficient to meet its burden, and

whether in the absence of the trial court ruling on Appellants’ objections the

content of Appellee’s defective affidavit waived the underlying

objections. Appellants challenge the Court to find any evidence (circumstantial or

otherwise) that supports the elements of Appellee’s causes of action. It does not

exist.

III. CONCLUSION AND PRAYER

Appellee seeks injunctive relief that will directly impede the Appellants’

exercise of their rights of association and speech. Appellee asks for this relief

without providing any evidence that its underlying causes of action have any

11 substance. This is the type of meritless action that the TCPA is intended to

prohibit, and as such Appellants ask the Court to reverse the trial court’s order

denying the Motion to Dismiss, order that all of Appellee’s claims in this matter

shall be dismissed, award the Appellants their attorneys’ fees and expenses, and

grant them such other and further relief to which they show themselves justly

entitled.

Respectfully submitted,

TAUBE SUMMERS HARRISON TAYLOR MEINZER BROWN, LLP

By: /s/ Rick Harrison Rick Harrison Texas Bar No. 09120000 S. King Texas Bar No. 24067708 aking@taubesummers.com 100 Congress Avenue, 18th Floor Austin, Texas 78701 Telephone: (512) 472-5997 Facsimile: (512) 472-5248

ATTORNEYS FOR APPELLANTS

12 CERTIFICATE OF SERVICE

I hereby certify that a true and correct copy of the foregoing document has this 11th day of May, 2015, been forwarded to counsel of record via electronic service as follows:

James Ruiz Texas Bar No. 17385860 jruiz@winstead.com Jacylyn G. Austein Texas Bar No. 24069760 Jaustein@winstead.com WINSTEAD, P.C. 401 Congress Avenue, Suite 2100 Austin, Texas 78701 Telephone: (512) 370-2818 Facsimile: (512) 370-2850

ATTORNEYS FOR APPELLEE

/s/ Rick Harrison Rick Harrison

CERTIFICATE OF COMPLIANCE

I certify that this brief complies with the word limit of Tex. R. App. P. 9.4(i)(2)(B) because this brief contains 2,385 words, excluding the parts of the brief exempted by Tex. R. App. P. 9.4(i)(1).

/s/ Rick Harrison Rick Harrison

Dated: May 11, 2015 13