Proving Lost Profits in a Trade Secrets Case – An Expensive Lesson from a Texas Court of Appeals

Originally published by Leiza Dolghih.

What the jury giveth, the judge may taketh away. Memes aside, any company that is thinking of filing a trade secrets misappropriation case, must be ready to prove both: that its trade secrets were taken and the amount of damages that the taking caused.

A recent ruling from the Dallas Court of Appeals demonstrates how a company’s verdict can be taken away by the court due to the party not having sufficient evidence of damages. 

In Radiant Financial v. Bagby, the company, which structures and sells fractional interests in life insurance policies referred to as life settlements, sued its former sales agent for breaching her non-disclosure agreement and trade secrets misappropriation.  Radiant alleged that Bagby persuaded 19 investors who had previously placed money into escrow with Radiant, to take their money out and invest it with a Radiant’s competitor.  In the process, she allegedly provided some of Radiant’s proprietary forms and the information filled out by the investors to Radian’t competitor.

The jury awarded Radiant $152,916 in damages, $150,000 in punitive damages, and $600,000 in attorneys fees in response to the question to “[c]onsider the profit that Radiant Financial lost” as a result of Bagby’s failure to comply with her non-disclosure agreement and misappropriation of Radiant’s trade secrets.  

The trial court, however, refused to award these damages after concluding that Radiant did not prove that the 19 investors that left would have invested with it but for Bagby’s actions. 

During  the trial, Bagby introduced evidence that: (1) the 19 investors had specific investment requirements; and (2) at the time when they left Radiant, it offered no policies that met these investors’ requirements. Radiant argued that its track record showed that it “had always been able” to find appropriate policies for its investors.  Thus, it would have been able to find appropriate policies had Bagby not taken the investors to a competitor.  The trial court rejected Radiant’s lost profits damages model finding that it would require the court to “stack assumption upon assumption,” and took away the jury damages award.  The Dallas Court of Appeals upheld the court’s decision.

Bottom Line:  Before filing a trade secrets case, the company bringing the lawsuit should always consider the following questions: (1) what damages did it suffer? (2) how does it calculate such damages? (3) how can it prove such damages in court?  While the answer might not be obvious in the beginning of the lawsuit, waiting to ask such questions until the lawsuit is well underway can result in the company spending thousands of dollars in attorney’s fees on a lawsuit where the monetary damages are speculative or non-existent.

Leiza litigates non-compete and trade secrets lawsuits in a variety of industries, and knows how such disputes typically play out for both parties. If you need assistance with a non-compete or a trade secret misappropriation situation, contact Leiza for a confidential consultation at LDolghih@GodwinLaw.com or (214) 939-4458. 

Curated by Texas Bar Today. Follow us on Twitter @texasbartoday.

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