861 F.3d 143
5th Cir.2017Background
- MHA (medical-recruiting firm) required employees to sign non-compete, non-solicitation, and non-disclosure agreements; Bowden and Gresham were former MHA employees who left for competitor Consilium.
- Bowden’s non-compete expired; his non-solicitation remained. MHA alleged Bowden and Consilium induced Gresham to leave and that Gresham copied/deleted MHA proprietary files before departing.
- District court granted partial summary judgment validating the restrictive covenants and finding Gresham breached his non-compete; trial addressed multiple tort and statutory claims (including Texas Harmful Access by Computer and Texas Theft Liability Act).
- Jury found: Gresham liable under Texas Harmful Access by Computer ($50,000); Bowden breached non-solicitation ($2,000 award, later reduced to take-nothing under liquidated-damages clause); Consilium liable for tortious interference ($30,000) and exemplary damages of $124,000; other claims against Gresham (CFAA, trade-secret misappropriation, TTLA, fiduciary duty) received no liability or damages.
- District court entered take-nothing judgment against Bowden based on a liquidated-damages clause, awarded and offset attorneys’ fees (mandatory fees under certain statutes led to fees for both sides), and denied MHA’s post-judgment requests for injunction, return of files, and equitable extension of covenants.
- On appeal, the Fifth Circuit vacated the exemplary damages award for insufficient evidence of malice but otherwise affirmed the district court.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Exemplary (punitive) damages | Consilium acted with malice by knowingly hiring employees with covenants, proximity and founder’s MHA ties, and Bowden’s animus — warranting punitive damages | Evidence was insufficient to show specific intent to cause substantial harm beyond the willful conduct element of the torts | Vacated exemplary damages: plaintiff failed to prove malice by clear and convincing evidence; evidence of the tort alone insufficient |
| Admissibility of president’s lay testimony on damages | Smith (MHA president) may testify on lost profits, value of stolen files, and training costs based on business knowledge | Testimony lacked personal knowledge and strayed into expert territory | Affirmed admission under Fed. R. Evid. 701; even if mistaken about some valuation testimony, error harmless given other evidence of expenses |
| Consistency of verdicts / take-nothing judgment for Bowden | MHA contended liquidated-damages clause should not bar recovery or that nominal damages were due | Defendants argued clause controlled; no proof under clause’s formula so no recoverable damages | Verdicts not inconsistent; take-nothing judgment upheld—liquidated clause governs and nominal damages unavailable where harm is economic and provable |
| Attorneys’ fees and equitable relief | MHA sought broader fees (intertwined work) and fees on contract claims plus injunction/specific performance/equitable extension | Defendants maintained fees must be segregated, statutory/contract fee rules limit recovery, and injunctive relief not shown or waived | Affirmed: trial court properly required segregation and reduced fees for inadequate proof; MHA not prevailing on contract claims (no damages/equitable relief) so no contract fees; equitable remedies denied or waived; Gresham entitled to mandatory TTLA fees |
Key Cases Cited
- Versai Mgmt. Corp. v. Clarendon Am. Ins. Co., 597 F.3d 729 (5th Cir.) (business officers may testify to business valuations under Rule 701)
- Miss. Chem. Corp. v. Dresser-Rand Co., 287 F.3d 359 (5th Cir.) (company officers may testify to lost-profit calculations when they have direct knowledge)
- Tony Gullo Motors I, L.P. v. Chapa, 212 S.W.3d 299 (Tex.) (segregation rule for recoverable vs. unrecoverable attorneys’ fees; when services advance both kinds of claims, segregation not required)
- FPL Energy, LLC v. TXU Portfolio Mgt. Co., 426 S.W.3d 59 (Tex.) (liquidated-damages provisions assessed by two-prong test: difficulty of estimation and reasonable forecast of compensation)
- Safeshred, Inc. v. Martinez, 365 S.W.3d 655 (Tex.) (evidence of willful tortious conduct alone is generally insufficient to support exemplary damages)
- KB Home v. Intercontinental Grp. P’ship, 295 S.W.3d 650 (Tex.) (a zero damages award defeats prevailing-party status for purposes of fee recovery)
- Bocquet v. Herring, 972 S.W.2d 19 (Tex.) (attorneys’ fees under statute/contract are recoverable only when provided by law)
- Bagby Elevator Co. v. Schindler Elevator Corp., 609 F.3d 768 (5th Cir.) (review of exemplary damages and deference to jury while drawing all inferences for nonmovant)