In a case following a familiar trade-secret set of facts, on April 28, 2020, the Texas First District Court of Appeals in Houston reversed the trial court’s grant of a motion to dismiss under the Texas Citizens Participation Act (“TCPA”) in National Signs, Inc. v. John Graff. In doing so, the First District joined the growing number of Texas Appellate Courts that have held that the TCPA, in its Pre-September 2019 amended state, does not protect private communications that are centered on competition or preparing to compete against the plaintiff.
Goldberg’s Prior Ruling
As we wrote about here, the Texas Fifth District Court of Appeals in Dallas recently held in Goldberg, et al. v. EMR (USA Holdings) Inc., et al. that communications between former employees and customers or potential customers were not subject to the Pre-Amendment TCPA because they were private communications between private parties. The Fifth District maintained this holding even though defendants’ business—a scrap metal business—dealt with issues related to health or safety, or environmental, economic, or community well-being. However, the communications themselves did not deal with such issues and were private only. In other words, to warrant TCPA protection (in its pre-September 1, 2019, form), the communications themselves must relate to a public interest.
National Signs Follows Goldberg and Addresses Right of Association Issues
The factual background in National Signs follows a familiar pattern seen in many trade-secret misappropriation cases: Al Ross (“Ross”) founded National Signs and eventually sold it. The defendant, John Graff (“Graff”), worked for Ross but then remained with National Signs after Ross sold the business. Ross went on to create a competing business with National Signs and recruited Graff, Vice President of Operations for National Signs, to work at his new, competing venture. After Graff left to work at Ross’s new competing venture, National Signs filed suit, including a claim for trade secret misappropriation and violation of restrictive covenants.
The trial court dismissed the case, granting Graff’s motion to dismiss under the Pre-Amendment TCPA. In reversing this holding, the First Circuit Court of Appeals echoed Goldberg and found that Graff’s alleged communications with Ross and his new venture which formed the basis of the trade secret claims were not subject to the TCPA as an exercise of free speech because the communications themselves did not relate to a matter of public concern. Instead, they related to pecuniary interest of private parties, i.e. they related to Ross and Graff’s competing efforts with National Signs. Such communications are thus not a matter of public concern and are not subject to the TCPA, even in its Pre-Amendment form.
In addition to aligning with the Goldberg holding, the First Circuit also addressed Graff’s argument that the TCPA applied because the suit implicated his right of association. The Court disagreed and held that the right of association must relate to a public issue, not a purely private one. Consequently, because National Signs only complained of Graff’s improper communication of its confidential material to his new employer, there was no allegation related to a community or public issue and the TCPA did not apply.
The First Circuit’s holding joins the growing chorus of other precedent that has limited the application of the Pre-Amendment TCPA based on a finding that communications relating to competing ventures, or other alleged trade-secret misappropriation related acts, are not a matter of public concern, not an exercise of free speech, and thus are not protected by the TCPA.
The September 1, 2019, amendments to the TCPA (which changes many of the definitions in the TCPA and exempts most trade secret and restrictive covenant cases from its protection) limit this opinion’s impact for cases filed after September 1, 2019. This case nonetheless provides precedent for the numerous TCPA cases still making their way through the courts that were filed before this date, and it serves as an additional reminder that the appellate courts recognized the broad application of the TCPA and sought to limit that application before the legislature finally did so as well.