A recent lawsuit in San Antonio mixes all the elements of a potboiler novel: an executive lured to a competitor, trade secrets allegedly disclosed, lawsuits galore. The plot, however, is as old as time.
Staffing Wars: One Competitive Business
I know that sounds like a fun cable series, but it’s serious business. Two companies, Maxim Healthcare Staffing Services and NuWest Group Holdings, are competitors in the staffing contracting market. Each provides medical personnel to hospitals, nursing homes, government agencies, and other medical and healthcare facilities. A flash point for competition in 2021: contracts with U.S. Immigration and Customs Enforcement (ICE).
Now let’s go back in time to 2017. Companies can do zero without the right people, and that’s where Thomas Mata came into the picture. Maxim hired him as a senior program manager in its strategic solutions division. When he was hired, he signed a noncompete agreement and a nondisclosure agreement. Oh, and guess what? He was put in charge of the ICE contracts and allegedly received Maxim trade secrets, including plans for how to obtain further ICE contracts.
In the summer of 2021, Mata applied for a promotion but didn’t get it. So, in the words of a famous country and western song, “He turned to a stranger just like a friend.” That’s right, he and NuWest got together to talk about employment. You can imagine what happened next.
Timeline Ain’t Looking Good
NuWest offered Mata a job on September 9, 2021. He accepted the same day. In its offer letter, the company cautioned him not to “bring with him any originals or copies of papers, documents, notes or other materials, whether stored electronically or otherwise, which belong to any former employer or which contain any trade secrets or confidential information of any former employer.” So far, so good.
But Mata decided to stay around Maxim until September 21 and e-mailed—to the person who would be his new boss—Maxim proposals to ICE. Sort of like battle plans delivered to the enemy before the battle begins.
Maxim apparently figured out Mata had e-mailed the information to NuWest. On October 12, NuWest received a letter from Maxim stating he was subject to a noncompete agreement and “stole” confidential and trade secret information related to Maxim’s procurement efforts on the ICE contracts. A week later, it sued NuWest and Mata under the Texas Uniform Trade Secrets Act (TUTSA). On October 20, 2021, NuWest fired Mata.
Don’t Even Think About Using Trade Secrets!
Maxim asked the court in San Antonio for a temporary injunction. What does that mean? The court holds a minitrial without a jury and decides whether to require a litigant to do something or refrain from doing something. The jury trial is conducted later, and the jury decides whether the defendant violated the TUTSA.
In this case, the judge ordered NuWest to return any trade secrets or confidential documents to Maxim, not to retain them on its “internal systems,” and refrain from “directly or indirectly using or divulging or threatening to use or divulge, for any reason, [Maxim’s] trade secrets.”
Notice the breadth of that language. Covers the waterfront, does is not? The idea is to return the competitors to the status quo, as if Mata had never left and gone to NuWest. If NuWest violates the order, it can be held in contempt of court. Maxim Healthcare Staffing Services, Inc. v. Mata and NuWest Group Holdings, LLC (W.D. Tex., January 11,2022).
Let’s unpack some of the lessons from this case.
First, if an employee leaves to go to a competitor, think about always doing a forensic audit of his computer. You hire a forensic computer specialist (not your nephew who went to IT school) to perform it. I imagine that’s what Maxim did in this case.
The auditor can determine if the departing employee downloaded confidential information and sent it to his own personal e-mail (I have seen that in practice). Or, as in this case, sent it directly to the competitor for which he went to work. It’s fairly inexpensive, and you often will strike gold. (By the way, in Texas, the auditor must be a licensed private detective.)
Second, act at once if you believe the departing employee took your confidential information/trade secrets or can’t perform his job at the competitor without relying on the information. As in this case, write the competitor and inform it of your belief. And sue.
If you sit on your rights, the court will often refuse to give you a temporary injunction. If you say something is important, then treat it as if it’s important. And this principle applies as well to how you treat your confidential information/trade secrets.
Do you limit access? Do you require a third party, such as a vendor, to sign a nondisclosure agreement if it’s given such information? Do you remind employees on their way out that they have a duty not to compete (if there is a noncompete clause) and/or not to use or disclose your propriety information? If you don’t treat the information as special, a court won’t accord it the special protection of an injunction.
Third, have very candid conversations with your lawyers about the cost of seeking an injunction. In other words, an actual range of how much it will cost, not some barroom generality that it will “be expensive.” It’s pricey because your lawyers need to drop what they’re doing, figure out all the facts, draft the lawsuit, race down to the courthouse, conduct fact-finding (such as depositions) before the hearing, and conduct the hearing. All of that takes place in about one month.
In short, if the information is that important to your company, you must act!