Patrick Daugherty v. Highland Capital Management, L.P.
05-14-01215-CV
| Tex. App. | Aug 22, 2016Background
- Highland sued its former partner Patrick Daugherty for breaches including breach of contract, fiduciary duty, theft of trade secrets, and sought injunctive relief and attorney’s fees; Daugherty counterclaimed and also sued HERA (Highland Employee Retention Assets LLC).
- At jury trial the panel found Daugherty breached his contracts and fiduciary duty, awarded Highland $2.8 million in trial attorney’s fees but $0 in appellate fees, found Highland’s contract damages (lost profits) to be $0, and found HERA breached an implied covenant of good faith and fair dealing entitling Daugherty to $2.6 million.
- The trial court entered judgment on the verdict, including a permanent injunction barring Daugherty from using or disclosing Highland confidential information and awarding Highland $2.8 million in attorney’s fees; it also entered the $2.6 million judgment against HERA.
- On appeal Daugherty challenged the fees award and the injunction; Highland appealed the $0 appellate-fees finding; HERA appealed the finding and damages for breach of the implied covenant (Delaware law governed HERA agreement issues).
- The Court of Appeals affirmed: (1) trial attorney’s fees award to Highland was supported by pleadings and evidence; (2) the injunction was within the trial court’s discretion based on evidence of use/retention and unrecoverable/intangible harm; (3) Highland failed to preserve its appellate-fees challenge; and (4) there was sufficient evidence under Delaware law that HERA’s amendment (Section 12.1 Part B) breached the implied covenant and caused $2.6M expectancy damages.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| 1) Trial attorney’s fees to Highland ($2.8M) | Highland: pleaded contract-based fee entitlement (quotes contract, attached contract, alleged it incurred fees) and proved reasonable fees to jury | Daugherty: Highland only pleaded statutory (Chapter 38) fees; failed to tender correct jury question for contract fees; zero contract damages preclude statutory fees | Affirmed: pleadings gave fair notice of contract-fee claim; any jury-charge predication error was harmless given pleading, evidence, and jury finding of fee amount |
| 2) Permanent injunction barring Daugherty from using/disclosing confidential info | Highland: injunction authorized by contractual confidentiality provisions and evidence of continuing use/possession and unquantifiable future harm | Daugherty: zero lost-profits finding and seeking damages waived contract’s irreparable-injury presumption; insufficient evidence of imminent, irreparable harm | Affirmed: evidence of retained/used confidential materials, course of conduct, and intangible/unmeasurable harms supported imminent harm, irreparable injury, and lack of adequate remedy; contractual remedy language supported relief |
| 3) Highland’s challenge to jury’s $0 award for appellate fees | Highland: record lacked affirmative evidence justifying $0; challenge should allow new trial on fees | Daugherty: Highland failed to preserve complaint | Affirmed (no relief): Highland did not preserve appellate-fees sufficiency complaint in trial court, so appellate review denied |
| 4) HERA’s breach of implied covenant (Delaware law) and $2.6M damages | Daugherty: 2012 amendment (Section 12.1, esp. Part B allowing board to deduct "diminution in value" in its sole discretion) frustrated the original HERA purpose and deprived him of expectancy (vested, non-forfeitable units) | HERA: implied-covenant claim improper because parties could have anticipated such provisions; damage measure/causation wrong and award risks double recovery | Affirmed: Part B conflicted with HERA’s retention-purpose and allowed arbitrary deprivation of vested rights; jury reasonably awarded $2.6M expectancy damages; no double recovery shown |
Key Cases Cited
- MBM Fin. Corp. v. Woodlands Operating Co., L.P., 292 S.W.3d 660 (Tex. 2009) (Chapter 38 fees require prevailing party to recover contract damages)
- Thota v. Young, 366 S.W.3d 678 (Tex. 2012) (harmless-error standard for jury-charge/appeal issues)
- Leibovitz v. Sequoia Real Estate Holdings, L.P., 465 S.W.3d 331 (Tex. App.—Dallas 2015) (standards for injunctive relief elements)
- City of Keller v. Wilson, 168 S.W.3d 802 (Tex. 2005) (standards for reviewing legal and factual sufficiency of evidence)
- Dunlap v. State Farm Fire & Cas. Co., 878 A.2d 434 (Del. 2005) (scope of Delaware implied covenant of good faith and fair dealing)
- Gerber v. Enterprise Prods. Holdings, LLC, 67 A.3d 400 (Del. 2013) (limiting implied covenant to what parties would have proscribed at contracting)
- Nemec v. Shrader, 991 A.2d 1120 (Del. 2010) (cautious application of implied covenant; not to rewrite contract)
- Siga Techs., Inc. v. PharmAthene, Inc., 132 A.3d 1108 (Del. 2015) (expectation damages principle under Delaware law)
- ATP Tour, Inc. v. Deutscher Tennis Bund, 91 A.3d 554 (Del. 2014) (fee-shifting provisions are facially valid but enforceability depends on adoption/use circumstances)