Texas Law Allows Legal Fee Award to Manager in Trade Secrets Row

A Texas company that offers clean-up and construction services in the wake of disasters must pay the legal expenses of a former managing member after it sued him alleging theft of trade secrets, an appeals court in the state ruled.

Restoration Specialists LLC alleged that Mark DeMattia breached his fiduciary duties and stole trade secrets shortly before the company’s 2018 sale to WyoTexGa LLC. DeMattia argues that corporate regulations and the Texas Business Organizations Code require the company to pay his legal fees, independent of his right to indemnification or allegations of wrongdoing.

The Texas Court of Appeals, Fifth District agreed with DeMattia in an opinion issued Tuesday.

Restoration alleges that DeMattia wrongfully copied or deleted the company’s project history files in the days before the sale closed. The company provides emergency services and construction to properties damaged by storms, floods, and fires.

Restoration contends that as a limited liability company, its corporate documents don’t allow for the advancement of fees to former governing members.

However, the state’s business organization law states that an LLC’s governing documents can contain provisions that permit advancement of reasonable expenses to both current and former governing members, the court said.

And as courts have made clear in previous case law, advancement of fees is required if a company’s governing documents so state, Justice Erin A. Nowell wrote for the court.

The court wasn’t convinced by Restoration’s argument that the indemnifications clause in its governing documents and its advancement clause need to be interpreted separately.

Restoration alleges that the advancement clause applies only to current members, but the indemnification clause applies to both current and former members, the court said.

It said that the language in the two clauses is read as having an “obvious relationship between the provisions” and therefore the advancement provision can be applied to former members.

The court also rejected Restoration’s arguments that the advancement clause should be declared unenforceable because DeMattia’s alleged conduct was improper and against public policy.

Justices David J. Schenck and Dennise Garcia joined the unanimous opinion.

DeMattia was represented by Munck Wilson Mandala LLP. Restoration was represented by Stolley Law PC and Cherry Petersen Landry Albert LLP.

The case is In re DeMattia, Tex. App., 5th Dist., No. 05-21-00460, 4/12/22.