The case of Pike v. Tex. EMC Management, LLC, 17-0557, 2020 WL 3405812 (Tex. June 19, 2020), revolved around the breakup of a limited partnership which was originally created to produce a new cement product. Ultimately, the Texas Supreme Court determined that the technology-supplying partner was not entitled to a permanent injunction for misappropriation of trade secrets under the Texas Uniform Trade Secret Act (TUTSA), reversing the decision of the appellate court.
Vladimir Ronin (Ronin) developed a new way of producing concrete with less Portland cement, an important and expensive product in concrete production. His process included mixing slag and microsilica (byproducts of steam and alloy production) with Portland cement in vibrating ball mills. Ronin called his material “energetically modified cement” (EMC) and patented his process of mixing this product in vibrating cylinders. Ronin went into business with Atle Lygren (Lygren), and the two formed EMC Cement BV, a Dutch holding company with the exclusive rights to the EMC technology.
While promoting EMC, Ronin met Dan Walker (Walker), a chemical engineer and owner of Few Ready Mix, a concrete company in Jasper, Texas. Walker thought they could replace the Portland cement with Texas fly ash (a byproduct of coal power plants) so Walker shipped some to Ronin to test. After Ronin received positive test results and Walker signed a confidentiality agreement, the two began producing a product called CemPozz (containing ninety-five percent fly ash and five percent Portland cement) in Jasper.
In 2005, Walker met an investor named William Tobin Wilson (Wilson) and the two formed a limited partnership with Ronin and Lygren called Texas EMC Products (the Partnership) to produce and sell the CemPozz product in Texas. The make-up of the Partnership was:
- General Partner: Texas EMC Management, LLC (EMC Management)
- Members: Walker, Lygren, and Ronin
- Ownership share: 1%
- General Manager and Plant Manager: Clinton W. “Buddy” Pike, Sr. (Pike)
- Class A limited partner: EMC Cement BV
- Ownership share: 49.5%
- Class B limited partners: Walker, Walker’s family, and Wilson
- Ownership share: 49.5%
The partnership agreement required that the Class B limited partners secure financing for the Partnership. EMC Cement BV then gave the Partnership exclusive license to use its patents to produce and commercialize products in Texas.
Between 2006 and 2010, the Partnership never made a profit. In January 2011, Wilson met with Ronin and Lygren to discuss dissolving the Partnership. When Ronin and Lygren refused to dissolve the Partnership, Walker and Wilson refused to loan any more money to the Partnership. Consequently, the Partnership defaulted on a loan that it had secured at its inception. Lygren threatened to sue the bank after receiving a foreclosure notice so Walker and Wilson paid the balance of the loan on May 2, 2011.
The next day Few Ready Mix held a foreclosure sale of the Partnership’s Property. A company called VHSC Cement purchased the property and the remaining interest in the bank loan. VHSC was formed less than a week before the foreclosure sale and was affiliated with two people who had been involved in prior negotiations with Ronin and Lygren to purchase the EMC technology. Prior to the foreclosure sale, Walker and Wilson had conversations with these two people and did not inform Ronin or Lygren.
VHSC hired Pike to be its president and also hired other Partnership employees. For six weeks after the May foreclosure, the plant continued to produce Ronin’s patented product through his vibrating ball mills without modification. After six weeks, VHSC stopped using Portland cement and instead mixed lime with fly ash in its products. Eventually VHSC removed the vibrating ball mills and replaced them with reactors of its own design.
The Partnership, EMC Management, and EMC Cement BV filed suit against Pike, Walker, Wilson, VHSC Cement, and Few Ready Mix for, among other things, misappropriation of trade secrets. The trial court rendered judgment on the jury’s verdict, awarding EMC Cement $1.5 million for misappropriation of trade secrets, but the trial court denied the plaintiffs request for injunctive relief. On appeal, EMC Cement BV contended that the trial court abused its discretion in refusing to grant its request for a permanent injunction, and the appellate court agreed. In appealing to the Texas Supreme Court, VHSC specifically challenged the appellate court’s decision to grant EMC Cement BV’s request for injunctive relief.
Originally, the trial court denied EMC Cement BV’s request for a permanent injunction because it found that VHSC was not using any of the claimed trade secrets, it discontinued using those secrets shortly after the foreclosure sale, removed any of EMC Cement BV’s equipment modifications, and began using different materials and milling equipment. The trial court concluded “(1) there was no evidence EMC Cement BV was facing imminent harm, and (2) the final judgment provided EMC Cement BV with an adequate remedy at law, as the actual damages for misappropriation of trade secrets were based solely on future income.” In reversing the trial court’s decision, the appellate court determined that the trial court abused its discretion by denying the request for injunctive relief because EMC Cement BV satisfied all of the requirements for a permanent injunction. The appellate court supported this decision by finding that the trial court’s findings of fact regarding the VHSC’s non-usage of the trade secrets were not supported by legally sufficient evidence and the jury was only asked about past losses.
Ultimately, the Texas Supreme Court struck a course closer to that of the trial court and reversed the appellate courts decision on this issue. The court concluded that EMC Cement BV failed to prove that it had no adequate remedy at law for the misappropriation of its trade secrets. Specifically, the court noted that the trial court correctly determined that the jury instruction accounted for any future income stream, and the plaintiffs offered expert testimony projecting the Partnership’s future lost earnings in order to determine its lost market value. Therefore, the EMC Cement BV had an adequate remedy at law, and the trial court did not abuse its discretion in denying EMC Cement BV’s request for a permanent injunction.
The key takeaway here is that a permanent injunction will often not be an available remedy when a plaintiff also offers evidence of its future damages.