93 F. Supp. 3d 624
S.D. Tex.2015Background
- McGowan & Co., an Ohio corporation, sued former Dallas branch manager Roger Bogan and Texas entities (SBI, UMI, Baldwin) alleging breach of a signed Trade Secrets & Special Terms Agreement, misappropriation of trade secrets, tortious interference, unjust enrichment, and breach of duty of loyalty. Bogan left McGowan in August 2011 and began working for UMI/SBI in Texas.
- Bogan signed the Agreement in Texas in March 2006; the Agreement contains an Ohio choice-of-law clause (¶20) and provisions restricting disclosure/use of confidential information and trade secrets (¶¶5–6), a non-disparagement clause (¶7), a devotion-of-time clause (¶36), and an attorneys’ fees provision (¶27).
- Case was removed from Ohio federal court and transferred to the Southern District of Texas; transferee court applies Ohio choice-of-law rules (i.e., Northern District of Ohio’s rules) for choice-of-law analysis.
- Major disputes of fact concern whether: (a) the Agreement is enforceable (unconscionable or overbroad), (b) Bogan actually used McGowan trade secrets/confidential information or solicited clients while employed, and (c) the existence and measure of damages tied to any breaches.
- Court applied Ohio law to the contract claim (finding the parties’ Ohio choice-of-law clause enforceable) and Texas law to the tort claims (finding Texas has the most significant relationship). Several tort-based claims were dismissed because they were pleaded only under Ohio statute or conflicted with applicable Texas law.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Choice of law for contract claim | Ohio law should govern under the Agreement's governing-law clause | Set aside clause because Texas public policy disfavors non-competes; Texas law should apply | Enforced Ohio choice-of-law clause; Ohio law applies to breach-of-contract claim |
| Enforceability/unconscionability of Agreement | Agreement is valid and enforceable | Agreement procedurally unconscionable (signed after hiring, no negotiation) | Agreement not procedurally unconscionable; generally enforceable under Ohio law |
| Scope and enforceability of ¶6 (Non-Compete/Use of Confidential Info) | ¶6 properly restricts misuse of trade secrets/confidential info | ¶6 is an unenforceable non-compete and/or overbroad definition of trade secrets | ¶6 construed as nondisclosure-style covenant; enforceable to the extent it protects trade secrets/confidential info; factual disputes on what information is protected remain |
| Attorneys’ fees recovery | Plaintiff seeks fees under Texas Code §38.001 and contract ¶27 | Defendants argue ¶27 unenforceable or unconscionable; Texas statutory claim improper if Ohio law governs | Texas statutory claim dismissed as moot; under Ohio law ¶27 permits recovery of fair, reasonable fees if McGowan prevails |
| Breach of contract (acts alleged: solicitation, diverting business, failing to devote time, disparagement) | Bogan breached ¶¶5,6,7,36; evidence: emails, production analyses, admissions | Bogan denies misuse of confidential info; says communications were authorized or based on public/prior contacts; disputes timing/extent of UMI employment and damages | Genuine disputes of material fact exist as to breach and damages; summary judgment denied for both sides; plaintiff must file a more definite statement on damages |
| Tort claims (misappropriation, unjust enrichment, breach of duty of loyalty/fiduciary duty, tortious interference) | Alleges misappropriation and tort interference by Bogan and the Texas entities | Defendants contest elements and applicable law; argue some claims duplicative/ preempted by contract | Texas law governs torts: OUTSA statutory misappropriation claim dismissed (pleaded only under Ohio statute); unjust enrichment dismissed (contract governs); breach-of-duty claim treated as fiduciary-duty claim under Texas — triable issues remain; tortious interference claims deferred for lack of focused briefing and require more definite statement |
| Defendants’ counterclaim (Rule 11 fees) | N/A (Defendants asserted counterclaim seeking fees under Rule 11) | N/A | Counterclaim dismissed with prejudice: Rule 11 does not create independent cause of action; no basis for sanctions as claims were not frivolous |
Key Cases Cited
- Celotex Corp. v. Catrett, 477 U.S. 317 (summary judgment standard)
- Ferens v. John Deere Co., 494 U.S. 516 (transferor court choice-of-law rules apply after §1404(a) transfer)
- Jarvis v. Ashland Oil, Inc., 17 Ohio St.3d 189 (Ohio enforces contractual choice-of-law under Restatement §187 except in narrow circumstances)
- Tele-Save Merch. Co. v. Consumers Distrib. Co., Ltd., 814 F.2d 1120 (discussing Ohio deference to contractual choice-of-law)
- Raimonde v. Van Vlerah, 42 Ohio St.2d 21 (Ohio reasonableness test for employee non-compete covenants)
- Wilborn v. Bank One Corp., 121 Ohio St.3d 546 (Ohio upholds one-sided fee-shifting clauses as enforceable subject to reasonableness)
- Allied Indus. Scrap, Inc. v. OmniSource Corp., 776 F.3d 452 (Sixth Circuit applying Ohio law on fee-shifting enforcement)
- Pilgrim v. Univ. Health Card, LLC, 660 F.3d 943 (factors for determining state with most significant relationship for torts under Ohio choice-of-law)
- Ultraflo Corp. v. Pelican Tank Parts, Inc., 926 F. Supp. 2d 935 (Texas common-law duty not to use former employer's trade secrets/confidential information)