MERRITT HAWKINS & ASSOCIATES, L.L.C., Plaintiff-Appellee Cross-Appellant
LARRY SCOTT GRESHAM; CONSILIUM STAFFING, L.L.C.; BILLY BOWDEN; Defendants-Appellants Cross-Appellees
from the United States District Court for the Northern
District of Texas
STEWART, Chief Judge, and HIGGINBOTHAM and COSTA, Circuit
E. STEWART, Chief Judge.
dispute arises out of two employees' departure from a
medical staffing company to work for a competitor.
Plaintiff-Appellee brought claims against
Defendants-Appellants based on the alleged breach of
non-compete and non-solicitation provisions in its employment
contracts, tortious interference, and theft of computer
files. The parties now appeal and cross-appeal exemplary
damages, evidentiary rulings, allegedly inconsistent
verdicts, a take-nothing judgment, attorneys' fees, and
the denial of equitable remedies. For the reasons that
follow, we VACATE the district court's award of exemplary
damages but otherwise AFFIRM.
Merritt Hawkins and Associates, L.L.C. ("MHA")
recruits physicians to fill permanent positions at hospitals
and other healthcare organizations. Defendant-Appellant
Consilium Staffing, L.L.C. ("Consilium") primarily
places physicians in temporary positions, although it
sometimes fills permanent positions. The companies are both
headquartered near each other in Irving, Texas, and
Consilium's founder was a former partner at MHA. As a
condition of employment, MHA requires its employees to sign
contracts that include non-competition, non-disclosure, and
non-solicitation clauses. Billy Bowden worked at MHA until
September 2010, triggering Bowden's non-compete clause
for one year and his non-solicitation clause for three years.
After the expiration of his non-compete clause, Bowden began
working for Consilium. In 2012, MHA claims that Bowden
violated the non-solicitation provision by recruiting Larry
Gresham to leave MHA for Consilium. At the time, Gresham
worked at MHA as a Search Consultant, and his
responsibilities included recruiting medical specialists,
selling services, and account management. Gresham left MHA
and immediately took a similar position at Consilium. Before
leaving MHA, Gresham allegedly accessed MHA's computer
network and copied over 400 of MHA's proprietary files.
MHA claims that Gresham also deleted hundreds of files off
his work computer in an attempt to hide this alleged theft.
ensued, with MHA bringing numerous claims against Consilium,
Bowden, and Gresham (collectively "Defendants") for
breach of contract, tort, and violations of state and federal
statutes. The district court entered partial summary
judgment, finding as a matter of law that the non- compete
and non-solicitation provisions in the contracts were valid
and that Gresham had breached his non-compete agreement.
trial, Consilium sought to introduce evidence concerning a
previous breach of contract suit involving MHA, Gresham, and
a third party. Another medical staffing company, Arthur
Marshall, had sued MHA and Gresham for breach of
Gresham's non-compete contract when he left Arthur
Marshall to work for MHA. The district court excluded this
the objection of Defendants, the district court allowed Mark
Smith, MHA's president, to testify as a lay witness on
damages. While noting the difficulty of calculating damages
for the missing and stolen computer files, he explained that
"I attached a value of . . . a hundred dollars for each
item . . . . A hundred dollars is what I would need to pay
someone on an hourly basis to have them go in and attempt to
create [these files from scratch]." Next, Smith stated
that the amount MHA would spend to train a new employee was
$45, 000. He based this figure on the number of hours spent
training each new employee and the continuing training that
MHA provides its employees. Finally, Smith testified about
MHA's calculation of lost profits, which he helped
five-day trial, the jury returned its verdict. It found that
Gresham was not liable for violating the federal Computer
Fraud and Abuse Act, misappropriating MHA's trade
secrets, violating the Texas Theft Liability Act, or
breaching his fiduciary duty to MHA. The jury found that
Gresham breached his non-compete agreement and failed to
return MHA's property, but it awarded no damages for
those claims. The jury found Gresham liable, however, under
Texas's Harmful Access by Computer statute and awarded
MHA $50, 000. The jury also concluded that Bowden conspired
with Consilium to tortiously interfere with Gresham's
employment agreement but again awarded no damages. It
determined that Bowden breached his non-solicitation
agreement and awarded $2, 000 in damages. Finally, the jury
found that Consilium conspired with Bowden to tortiously
interfere with-and did tortiously interfere
with-Gresham's contract, for which it awarded $30, 000 in
damages. Finding that Consilium acted with malice, the jury
also imposed $124, 000 in exemplary damages.
the jury's verdict, Defendants filed a motion for
judgment as a matter of law, MHA filed a motion to alter or
amend the judgment, and both parties moved for attorneys'
fees. Concluding that a liquidated damages provision in
Bowden's contract provided the only measure of damages
for his breach of the non-solicitation provision and that MHA
had not shown evidence of any damages under that clause's
formula, the district court entered a take-nothing judgment
in favor of Bowden. In MHA's motion to alter or amend the
judgment, it requested an injunction against Gresham, an
order for Gresham to return MHA's files, and equitable
extension of Gresham's and Bowden's restrictive
covenants. Even though the employees' contracts allowed
for such remedies, the district court denied the motion
because it concluded that MHA did not request such relief
prior to filing for reconsideration, and it failed to
demonstrate that equitable remedies were necessary. The
district court further determined that MHA was entitled to
attorneys' fees for its Harmful Access by Computer claim,
while Gresham was entitled to attorneys' fees under the
Texas Theft Liability Act. It denied MHA attorneys' fees
on its breach of contract claims because it did not recover
any damages for those claims. Ultimately, the court awarded
each party an identical amount of attorneys' fees,
canceling out the awards.
appeal, and MHA cross-appeals.
appealed and cross-appealed claims in this case are brought
under Texas law. The district court had supplemental
jurisdiction over the state law claims because they arose out
of the same case or controversy as MHA's federal law
claims. See 28 U.S.C. § 1367; Heinsohn v.
Carabin & Shaw, P.C., 832 F.3d 224, 233 (5th Cir.
2016). When reviewing the district court's evidentiary
rulings, however, we apply the Federal Rules of Evidence.
See Fed. R. Evid. 101; Washington v. Dep't
of Transp., 8 F.3d 296, 300 (5th Cir. 1993).
appeals the award of $124, 000 in exemplary damages. It
argues that the evidence presented by MHA was insufficient to
support the award of exemplary damages. We agree.
points to four pieces of evidence to justify the exemplary
damages award. First, MHA argues that it demonstrated
Consilium was aware that Gresham had a non-compete contract
with MHA but hired him regardless. Second, the jury heard
testimony that Consilium was founded by a former partner at
MHA. Third, MHA claims that the close proximity between
MHA's and Consilium's headquarters is circumstantial
evidence of malice because it shows intent and opportunity to
"raid MHA for employees." Fourth, MHA claims that
Bowden, Consilium's employee, displayed malice towards
MHA and that this malice can be imputed to Consilium through
vicarious liability. Specifically, MHA introduced evidence
that Bowden sent Gresham a text telling him to "slap
[his MHA supervisor] on the back of the head" before
leaving MHA. Bowden also testified that he had been fired
from MHA and disliked the company.
review the district court's denial of a Rule 50 motion
for judgment as a matter of law de novo. Navigant
Consulting, Inc. v. Wilkinson, 508 F.3d 277, 282 (5th
Cir. 2007) (quoting Flowers v. S. Reg'l Physicians
Servs., Inc., 247 F.3d 229, 235 (5th Cir. 2001)).
However, our review is highly deferential to the jury's
verdict. See Bagby Elevator Co. v. Schindler Elevator
Corp., 609 F.3d 768, 773 (5th Cir. 2010). We "must
review all of the evidence in the record, draw all reasonable
inferences in favor of the nonmoving party, and may not make
credibility determinations or weigh the evidence."
Casey v. Toyota Motor Eng'g & Mfg. N. Am.,
Inc., 770 F.3d 322, 326 (5th Cir. 2014).
recover exemplary damages, MHA had to prove by clear and
convincing evidence that Defendants acted with malice.
See Tex. Civ. Prac. & Rem. Code §
41.003(a)(2). Clear and convincing evidence is evidence
sufficient to "produce in the mind of the trier of fact
a firm belief or conviction as to the truth of the
allegations sought to be established." Id.
§ 41.001(2). MHA bears the burden of proof, which it
cannot meet by showing "ordinary negligence, bad faith,
or a deceptive trade practice." Id. §
41.003(b). Rather, "'malice' means 'a
specific intent by the defendant to cause substantial injury
or harm to the claimant.'" Horizon Health Corp.
v. Acadia Healthcare Co., No. 15-0819, ---S.W.3d ---,
2017 WL 2323106, at *9 (Tex. May 26, 2017) (quoting Tex. Civ.
Prac. & Rem. Code § 41.001(7)). Importantly,
"when a tort requires willful harm as a necessary
element of liability, that willfulness alone cannot also
justify a punitive damages award. . . . More is
required." Safeshred, Inc. v. Martinez, 365
S.W.3d 655, 662 (Tex. 2012). Tortious interference with a
contract requires "willful and intentional"
interference. See Holloway v. Skinner, 898 S.W.2d
793, 795-96 (Tex. 1995) (listing elements).
Horizon, the Texas Supreme Court recently upheld a
finding of malice where each of the defendants, former
members of Horizon's upper-management, "specifically
intended to cause substantial injury or harm to
Horizon." Horizon, 2017 WL 2323106, at *10.
These former employees (1) staggered departure in a way
intended to deprive Horizon of leadership and funnel
information to its competitor, (2) created a business plan
predicated on stealing a large number of clients from their
former company, and (3) stole documents and trade secrets
from their former company and immediately used them to
solicit clients. Horizon, 2017 WL 2323106, at
*10-13. Similarly, this court has upheld exemplary damages
for tortious interference and misappropriation of trade
secrets under Texas law where one company (1) attempted to
"'conquer and dominate' the market, " (2)
strategically hired away key employees, such as top managers
and technicians, (3) and compelled the hired parties to
upload and use confidential client contact information.
Nova Consulting Grp., Inc. v. Eng'g Consulting
Servs., Ltd., 290 F.App'x 727, 730, 741 (5th Cir.
2008); see also Bagby, 509 F.3d at 773 (upholding
exemplary damages for tortious interference where an employee
was hired for the express purpose of undercutting a
competitor's contract and where the defendant
deliberately misled a client about its ability to cancel a
contract and fabricated evidence).
in those cases, the only argument and evidence that MHA
presented to the jury on the issue of exemplary damages was
that Consilium intentionally breached the non-compete
contract. MHA claimed that "the circumstances of this
case [were] quite egregious, that everything was intentional,
[Consilium] knew [MHA] had these agreements . . . and they
breached them anyway." However, this is the exact type
of argument that the Texas Supreme Court explains is
insufficient to show malice when an element of the underlying
cause of action is willful harm. See Safeshred, 364
S.W.3d at 662; Horizon, 2017 WL 2323106, at *9
("evidence of the tort itself, with little more" is
an improper basis for awarding exemplary damages). Even
drawing all inferences in favor of MHA, see Casey,
770 F.3d at 326, the additional evidence MHA points to is
insufficient to show that Consilium acted with specific
intent to cause substantial harm to MHA. The proximity of the
two businesses, without more, does not lead to the conclusion
that Consilium acted with malice towards MHA. And the fact
that Consilium's founder was a partner at MHA was not
raised for the purpose of showing that MHA engaged in a
strategic plan of hiring away MHA employees to harm it, but
rather to show that Consilium was aware that MHA's
employees had non-compete agreements. Moreover, MHA has never
claimed that Consilium induced Gresham to steal or use its
proprietary information, and the district court granted a
motion in limine-not appealed here-that excluded all evidence
of other MHA employees leaving for Consilium.
to MHA's vicarious liability argument, Texas will hold an
employer "liable for exemplary or punitive damages
because of the acts of [its] agent, but only if: (a) the
principal authorized the doing and the manner of the act, or
(b) the agent was unfit and the principal was reckless in
employing him, or (c) the agent was employed in a managerial
capacity and was acting in the scope of employment, or (d)
the employer or a manager of the employer ratified or
approved the act." Fisher v. Carrousel Motor Hotel,
Inc., 424 S.W.2d 627, 630 (Tex. 1967). MHA, however,
neither adduced evidence in support of a vicarious liability
theory of recovery nor made a vicarious liability argument to
the jury. Even if the jury concluded that Bowden targeted
Gresham because of a desire to harm MHA, his personal animus
towards MHA cannot support vicarious liability because it has
not been alleged that he did anything more than induce
Gresham to leave MHA. Therefore, MHA has failed to articulate
how Bowden putting Gresham in contact with Consilium's
recruitment staff evidences specific intent to cause MHA
"to suffer substantial injury that [is]
'independent[ly] and qualitatively different' from
the compensable harms associated with the underlying causes
of action." Horizon, 2017 WL 2323106, at *10
(quoting Safeshred, 365 S.W.3d at 662).
these reasons, we conclude that the award of exemplary
damages must be vacated.
appeal the district court's decision to allow the lay
testimony of Mark Smith, MHA's president of eight years
and a twenty-six year employee, on the issue of damages.
Consilium argues that Smith should not have been allowed to
testify about (1) lost profits, (2) the value of computer
files taken or deleted by Gresham, and (3) training expenses
because "virtually none of [his testimony] was based . .
. on his ...