Mahendru, PC Settles Trade Secrets Case in Houston for $750,000.00

A husband and wife purchased a business from a terminally ill man. The company sourced and bought steel castings from foundries in China, and supplied them to customers in the railcar business. The terminally ill man developed an extensive and exclusive business relationship with Southwest Steel, a subsidiary of American Railcar Industries, a publicly traded company. Southwest Steel is based in Longview, Texas. The terminally ill man made misrepresentations to the husband and wife about the viability of the business he was selling. He failed to disclose that Southwest Steel was going to stop doing business with his company. More importantly, he failed to disclose that Southwest Steel was going to China to directly buy the castings from the same sources as his company. Obviously, that was critical, material information that any buyer would want to know to evaluate purchasing the business.

After the husband and wife purchased the business, Southwest Steel poached a key management employee from the husband and wife. Soon after this employee joined Southwest Steel, Southwest Steel stopped placing orders with the husband and wife’s company. The entire pipeline of business got cutoff, leaving the company on death’s doorstep.

The husband and wife hired me to represent them against the terminally ill man’s estate and Southwest Steel. A lawsuit was brought against the terminally ill man’s estate for breach of contract, fraud, negligent misrepresentation, and civil conspiracy. The claims against his estate were settled through a confidential settlement agreement.

As the claims with the estate of the terminally ill man were being settled, I then brought claims against Southwest Steel and American Railcar Industries for breach of contract, tortious interference with contract, trade secret misappropriation, and unfair competition. This is a classic case of misappropriation of trade secrets where a customer decides to cut out the middleman and go directly to the source. Companies routinely perceive an easy way to do this is to cherry pick a key employee of a competitor or vendor, but the law imposes duties and obligations in that business relationship on top of any contract commitments the parties have.

Once the knowledge transfer occurs with the key employee disclosing all of the confidential, proprietary, and trade secret information, the competitive advantage is lost forever. In this case, I was able to successfully settle with Southwest Steel and American Railcar Industries for a cash payment of $750,000.00.

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