Scott Fiddler Successfully Defends Clients Against Noncompete, Tortious Interference, and Misappropriation of Trade Secrets Claims

September 2, 2020 | Client Results



A seven-year dispute concluded on July 28, 2020, when the Fourteenth Court of Appeals affirmed the trial court’s take-nothing final judgment dismissing Forum US, Inc.’s lawsuit against three clients of Jackson Walker partner G. Scott Fiddler.

Background

The case centers around two main parties: Forum and Jeffrey Musselwhite, whom Forum accused of being the mastermind behind a conspiracy to steal trade secrets and position competing companies against Forum.

Musselwhite was a longtime employee of Davis-Lynch, Inc., which sold products for deepwater wells in the Gulf of Mexico, and he had served as Western Division Sales Manager. Prior to the company’s sale to Forum Energy Technologies, Inc. in 2011, Davis-Lynch made a deal with WearSox, L.P., to pay for WearSox’s thermal spray technology so that Davis-Lynch could secure its CentraLaser product to the customer’s casing pipe – as proposed by Musselwhite. Per the agreement, Davis-Lynch would pay WearSox for its thermal spray services, then raise the price of the CentraLaser combo product before selling it to customers.

Upon Davis-Lynch’s sale, Musselwhite retained his title as a division sales manager overseeing sales in Houston, Dallas, Denver, and California; directly supervised a single salesman, Audie Romero; and signed an employment agreement containing restrictive covenants, including a covenant not to compete, a non-solicitation of employees provision, and a non-solicitation of customers provision. The agreement also included a recital that Davis-Lynch, LLC was “in the business of designing, producing and selling oil field downhole cementing and related equipment.”

In 2013, Musselwhite resigned from Forum to work for noncompetitor Allied Oil & Gas Services, Inc., a portfolio company of Intervale Capital, LLC that provided cementing and acidizing services. After leaving the company, Musselwhite helped Forum by referring sales, assisting his former customers, and retaining customer and sales files—which he did not share or use for any purpose other than to help Forum. In addition, he and Romero continued to receive commissions, along with HKM Consulting, LLC, that were paid by WearSox on the sales they helped to make.

That June, Intervale purchased Antelope Oil and Manufacturing Co., LLC and hired a new executive vice-president of sales who had expressed an interest in WearSox’s assets, including the thermal spray technology used in Forum’s CentraLasers combo product. Musselwhite was not involved in introducing the two companies, and he did not participate in discussions about Antelope’s interest in WearSox’s technology. In November 2013, Antelope acquired WearSox, and the company grew at an unprecedented rate while Forum’s sales declined significantly.

After losing its foothold in the Gulf of Mexico as a result of the acquisition, Forum filed suit against Musselwhite and his new employer, Allied, as well as Antelope, Intervale, WearSox, HKM Consulting, and Romero.

Trial & Appeal

The suit, originally filed in 2013 in the 295th District Court of Harris County, alleged Musselwhite violated the restrictive covenants contained in his employment agreement and asserted various causes of action, including misappropriation of trade secrets and conversion against all defendants, and tortious interference with Musselwhite’s employment agreement against Intervale, Antelope, and WearSox. Musselwhite filed a counterclaim against Forum under the Texas Covenants Not to Compete Act, seeking his attorney’s fees.

Musselwhite moved for partial summary judgment, with Intervale, Antelope, and WearSox joining the motion, arguing that the restrictive covenants in his employment agreement—non-solicitation of employees, non-solicitation of customers, and non-compete provisions—were unenforceable because they lacked reasonable limitations and were broader than necessary to protect Forum’s legitimate interests. The trial court granted the motion and ruled that the non-compete and non-solicitation provisions were “unenforceable as written because they contain limitations that are unreasonable and impose a greater restraint than is necessary to protect any goodwill or other business interest of Plaintiff.”

Forum then proceeded to trial, where it sought nearly $10 million based on its claims for breach of the confidentiality provision, breach of fiduciary duty, misappropriation of trade secrets, civil conspiracy, and a host of other claims. After a six-week trial, the jury found that Musselwhite did not breach the confidentiality provision in his employment agreement, that Forum did not possess any trade secrets, and that a fiduciary relationship did not exist between Forum, Musselwhite, and Romero.

However, the jury found for Musselwhite on his counterclaim under the Texas Covenants Not to Compete Act, determining Forum was aware that the restrictive covenants were unreasonable at the time the contract was signed and that Forum sought to enforce the restrictive covenants to “a greater extent than was necessary to protect the goodwill or other legitimate business interest of Forum.” Accordingly, the court awarded Musselwhite his attorneys’ fees in trial court, as well as conditional attorney’s fees on appeal, related to his defense in response to Forum’s attempted enforcement of the restrictive covenants.

After the trial court entered final judgment in July 2017, Forum appealed to the Fourteenth Court of Appeals in Houston in an attempt to secure a new trial. In its appeal, Forum argued in the first two of its four issues that the trial court erred when it granted Musselwhite’s motion for summary judgment in which he argued the restrictive covenants in his employment agreement were unreasonable and therefore unenforceable. In its opinion, the court rejected Forum’s arguments contained in the first two issues and affirmed the trial court’s summary judgment, dismissing the case altogether.

Justice Jerry Zimmerer, who authored the opinion, cited a number of admissions obtained from Forum’s general counsel in deposition and included in support of Musselwhite’s motion for summary judgment that demonstrated the restrictions in the non-compete provision were “greater than necessary to protect Forum’s legitimate interests.” The opinion went on to state, “both non-solicitation provisions must comply with the same requirements covenants not to compete must meet. Neither meets these requirements.”

Lastly, the court rejected Forum’s argument that an order denying Musselwhite’s application for attorneys’ fees had modified the trial court’s July 27, 2017, final judgment, which had awarded Musselwhite attorney’s fees in the trial court and conditionally on appeal.

Houston partner Scott Fiddler, who represented Musselwhite, Romero, and HKM Consulting from the beginning of the case, noted, “Reported cases where a party has recovered attorneys’ fees for defending a claim under the Covenants Not to Compete Act are rare. It’s a very difficult standard to meet. We couldn’t be happier with the result.”

Connie Pfeiffer of Beck Redden served as lead attorney on the appeal.

The case is Forum US, Inc. v. Jeffrey Musselwhite, Audie Romero, Antelope Oil Tool & Mfg. Co., LLC, Intervale Capital, LLC, HKM Consulting, LLC and Wearsox, L.P. (No. 14-17-00708-CV).

Meet Scott

G. Scott Fiddler is a commercial litigator and labor & employment attorney with over 25 years of experience representing clients in wage & hour disputes, wrongful termination, discrimination, and non-compete agreement matters, as well as general labor & employment law. Scott is board certified in both labor & employment law and civil trial law, placing him among approximately 25 attorneys in Texas board certified in both specialties.

Meet JW

Texas born and raised more than a century ago, Jackson Walker continues to advance the world of business by helping companies of all sizes navigate today’s increasingly complex, interconnected legal landscape. With more than 400 attorneys across seven offices, we are the fourth-largest law firm in the state and have been recognized by Law360 as a “Texas Powerhouse” and an “elite law firm” that regularly provides counsel to industry-leading clients on highly complex transactions. For explore the Firm’s experience representing clients in employment litigation matters in courts and before arbitrators throughout the country, visit our Labor & Employment Litigation practice page.