A Texas Court of Appeals reversed a jury verdict for the plaintiff on claims of trade secret misappropriation under the Texas Uniform Trade Secrets Act (TUTSA) and fraud. The Court reversed the misappropriation verdict because the jury form commingled valid and invalid theories of liability, and reversed the fraud verdict because the jury instructions permitted a finding of liability under theories that were closely related to trade secret misappropriation and therefore preempted by TUTSA, as well as theories that were not. The Court ordered a new trial on both claims. Title Source, Inc. v. HouseCanary, Inc., Case No. 04-19-00044-CV (Tex. App. – San Antonio June 3, 2020) (Watkins, J.).

Title Source (TSI) provides title insurance, property valuations and settlement services. HouseCanary is a real estate analytics company. TSI hired HouseCanary to build an iPad application for its appraisers to use. The app would be based on HouseCanary’s automated valuation models (AVM). The parties’ agreement specifically prohibited TSI from reverse-engineering or attempting to discover HouseCanary’s source code or confidential information. Nonetheless, and despite its assurances to the contrary, TSI sought and used HouseCanary’s proprietary information to develop its own AVM. The parties’ contract required HouseCanary to maintain a certain “hit rate” (a metric of accuracy), but TSI’s employees took steps to purposely drive down the hit rate (including searching for an appraisal of the supposed street address: “Wiping a Vendor Wipes the fee”). The parties’ contract originally provided for a per-appraisal royalty to be paid to HouseCanary; the parties later amended the agreement to provide for a flat fee in exchange for TSI’s promise to deliver valuable historical valuation data (which it did not deliver).

TSI sued HouseCanary for breach of contract and fraud, alleging that HouseCanary had failed to deliver the app as promised. HouseCanary counterclaimed for breach of contract, fraud, unjust enrichment, quantum meruit and misappropriation of trade secrets under TUTSA. The jury rejected all of TSI’s affirmative claims and found in favor of HouseCanary on its misappropriation, fraud and breach of contract claims. TSI moved for a new trial, which the trial court denied. HouseCanary elected to recover on its misappropriation and fraud claims. The trial court entered judgment in favor of HouseCanary and awarded almost $740 million. TSI appealed.

HouseCanary’s TUTSA Claim

On appeal, TSI argued that the verdict was insufficiently supported by evidence and that two questions on the jury form commingled valid and invalid theories of recovery (Casteel error). The first question involved ownership of trade secrets. The Texas Court of Appeals held that sufficient evidence had been presented to sustain the finding of trade secret ownership, and that TSI had waived its objection based on the alleged Casteel error.

The second question asked the jury whether TSI misappropriated HouseCanary’s trade secrets, and the corresponding instruction provided that misappropriation could be found on either a “use” or an “acquisition by improper means” theory. The Court found that there was enough evidence to sustain a verdict on the “use” theory, but that the jury instructions regarding “acquisition by improper means” was overbroad, [...]

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