BarZ Adventures Inc v. Patrick, et al

Filing 146

MEMORANDUM OPINION AND ORDER granting in part 141 SEALED MOTION for Entry of Default Judgment filed by BarZ Adventures Inc. It is further ORDERED that a hearing on damages is set for 9:00 a.m. on Wednesday, September 21, 2022, at the Paul Brown United States Courthouse, 101 E. Pecan Street, Sherman, Texas 75090. Signed by District Judge Amos L. Mazzant, III on 9/6/2022. (daj, )

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United States District Court
EASTERN DISTRICT OF TEXAS
SHERMAN DIVISION

BARZ ADVENTURES INC. d/b/a BAR-Z
MOBILE DEVELOPMENT,
Plaintiff,
v.
TIMOTHY PATRICK, et al.,
Defendants.

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Civil Action No. 4:20-CV-299
Judge Mazzant

MEMORANDUM OPINION AND ORDER
Pending before the Court is Plaintiff’s Motion for Entry of Default Judgment (Dkt. #141).
Having considered the motion and relevant pleadings, the Court finds it should be GRANTED in
part.
BACKGROUND
Plaintiff BarZ Adventures Inc. d/b/a/ Bar-Z Mobile Development (“Bar-Z”) is a mobile
application developer that creates apps for municipalities, main street organizations, nonprofit
organizations, publishers, broadcasters, and specialty media. Defendant App Star, LLC (“App
Star”) is a company that sells mobile applications to local community groups to assist them in
promoting business and attractions.
Defendant Eugene Rice (“Rice”) is App Star’s owner and managing member, Defendant
Timothy Patrick (“Patrick”) is a former employee of Bar-Z. An employment agreement governed
the terms of Patrick’s employment with Bar-Z (the “Employment Agreement”). In September of
2018, Bar-Z terminated Patrick’s employment, and Patrick then joined App Star.
Bar-Z alleges Patrick stole its trade secrets when he left the company and passed these
trade secrets on to App Star. Bar-Z brought suit in Collin County District Court before this suit

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was removed on April 10, 2020. On July 8, 2021, the Court granted Bar-Z leave to file its Fifth
Amended Complaint, joining Rice individually as a defendant (Dkt. #127). The only remaining
claims are for: (1) violation of the Texas Uniform Trade Secrets Act (TEX. CIV. PRAC. & REM.
CODE § 134A.001) and Federal Defend Trade Secrets Act, 18 U.S.C. §§ 1832, 1836 (B)(3));
(2) breach of the Employment Agreement: non-compete; (3) breach of the Employment
Agreement: confidential information; (4) tortious interference with the Employment Agreement;
and (5) injunctive relief.
On January 28, 2022, Bar-Z—through a private process server—served Rice with
summons (Dkt. #135). Rice was required to serve an answer to the Fifth Amended Complaint
within twenty-one days after being served, or by February 18, 2022. As of this date, Rice has not
served or filed any responsive pleadings. Counsel for Bar-Z has not been able to communicate
with Rice.
On February 24, 2022, Bar-Z requested the clerk enter default against Rice (Dkt. #137).
On March 1, 2022, the Clerk entered default against Eugene Rice (Dkt. #139). BarZ moved for
entry of default judgment against Rice on March 10, 2022 (Dkt. #141). Rice has not responded.
LEGAL STANDARD
A default judgment is a “judgment on the merits that conclusively establishes the
defendant’s liability.” United States ex rel. M-CO Constr., Inc. v. Shipco Gen., Inc., 814 F.2d
1011, 1014 (5th Cir. 1987). It does not, however, establish the “quantity of damages” a defendant
owes. Law Funder, L.L.C. v. Munoz, 924 F.3d 753, 761 (5th Cir. 2019). “Rule 55(b)(2) of the
Federal Rules of Civil Procedure governs applications to the Court for default judgment.” Arch
Ins. Co. v. WM Masters & Assocs., Inc., No. 3:12-CV-2092-M, 2013 WL 145502, at *2 (N.D. Tex.
Jan. 14, 2013) (citing FED. R. CIV. P. 55(b)(2)).

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There are three steps to obtain a default judgment under the Federal Rules of Civil
Procedure. Nestor v. Penske Truck Leasing Co., L.P., No. 4:14-CV-036-DAE, 2015 WL 4601255,
at *2 (W.D. Tex. July 29, 2015) (citing N.Y. Life Ins. v. Brown, 84 F.3d 137, 141 (5th Cir. 1996)).
First, a default occurs when a defendant does not plead or otherwise respond to a complaint within
the time required by the Federal Rules. N.Y. Life Ins., 84 F.3d at 141; see FED. R. CIV. P. 12(a).
Next, an entry of default may be entered by the clerk when the default is established by affidavit
or otherwise. FED. R. CIV. P. 55(a); N.Y. Life Ins., 84 F.3d at 141. Finally, as in this instance, a
plaintiff may apply to the court for a default judgment. FED. R. CIV. P. 55(b)(2).
“Default judgments are a drastic remedy, not favored by the Federal Rules and resorted to
by courts only in extreme situations.” Sun Bank of Ocala v. Pelican Homestead & Sav. Ass’n, 874
F.2d 274, 276 (5th Cir. 1989) (footnotes omitted); see AAR Supply Chain Inc. v. N & P Enters.,
LLC, No. 3:16-CV-2973-L, 2017 WL 5626356, at *1 (N.D. Tex. Nov. 22, 2017) (quoting Sun
Bank, 874 F.2d at 276) (explaining that default judgments “are available only when the adversary
process has been halted because of an essentially unresponsive party”) (internal quotation marks
omitted)). While “[t]he Fifth Circuit favors resolving cases on their merits and generally disfavors
default judgments,” this policy “is ‘counterbalanced by considerations of social goals, justice, and
expediency, a weighing process that lies largely within the domain of the trial judge’s discretion.’”
Arch Ins. Co., 2013 WL 145502, at *2 (cleaned up) (quoting Rogers v. Hartford Life & Accident
Ins. Co., 167 F.3d 933, 936 (5th Cir. 1999)). Rule 55(b)(2) grants district courts wide latitude in
this determination, and the entry of default judgment is left to the sound discretion of the trial
court. James v. Frame, 6 F.3d 307, 310 (5th Cir. 1993). And even though entry of a default
judgment is reviewed for abuse of discretion, Sindhi v. Raina, 905 F.3d 327, 330 (5th Cir. 2018),
because of “the seriousness of a default judgment, . . . ‘even a slight abuse of discretion may justify

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reversal.” CJC Holdings, Inc. v. Wright & Lato, Inc., 979 F.2d 60, 63 n.1 (5th Cir. 1992) (brackets
omitted) (quoting Williams v. New Orleans Pub. Serv., Inc., 728 F.2d 730, 734 (5th Cir. 1984)).
ANALYSIS
Bar-Z argues default is procedurally proper, the pleadings provide a sufficient basis to enter
default judgment, and the relief it requests is appropriate (Dkt. #141). The Court will address each
argument in turn.
I.

Whether Default is Procedurally Warranted
The Court must first consider whether a default judgment is procedurally warranted. In

making such determination, the Court analyzes six factors: (1) whether material issues of fact are
at issue; (2) whether there has been substantial prejudice; (3) whether the grounds for default are
clearly established; (4) whether the default was caused by a good faith mistake or excusable
neglect; (5) the harshness of a default judgment; and (6) whether the court would think itself
obliged to set aside the default on the defendant’s motion. Lindsey v. Prive Corp., 161 F.3d 886,
893 (5th Cir. 1998). Bar-Z argues these factors show default judgment is procedurally warranted.
A. No Issues of Material Fact Are Present
Because Rice failed to answer Plaintiff’s Fifth Amended Complaint or otherwise appear,
Rice admits Bar-Z’s well-pleaded allegations of fact, except regarding damages. Nishimatsu
Constr. Co., Ltd. v. Hous. Nat. Bank, 515 F.2d 1200, 1206 (5th Cir. 1975). Therefore, there are
no issues of material fact.
B. Default Judgment Would Not Be Harsh or Result in Substantial Prejudice
Bar-Z failed to respond to the claims asserted in this matter. Further, Rice received ample
notice of the suit, as the Court granted Bar-Z leave to file its Fifth Amended Complaint July 8,
2021, joining Rice individually as a defendant (Dkt. #127).

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Summons on Rice was returned

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executed on January 28, 2022 (Dkt. #135). Taking the well-pleaded facts as true, Bar-Z has
asserted valid causes of action.

Bar-Z properly requested entry of judgment in his favor

(Dkt. #139). Thus, a default judgment is not unusually harsh in this case as Rice had ample
opportunity to respond after receiving notice of this action. See Cunningham v. Crosby Billing
Servs., Co., Civ. A. No. 4:18-cv-00043-ALM-CAN, 2018 WL 6424792, at *3 (E.D. Tex. Oct. 14,
2018). Moreover, because Rice’s failure to file responsive pleadings “threatens to bring the
adversary process to a halt,” Bar-Z has experienced prejudice “in pursuing its rights afforded by
law.” Ins. Co. of the West v. H & G Contractors, Inc., No. C-10-390, 2011 WL 4738197, at *3
(S.D. Tex. Oct. 5, 2011); John Perez Graphics & Design, LLC v. Green Tree Inv. Grp., Inc., No.
3:12-cv-4194-M, 2013 WL 1828671, at *3 (N.D. Tex. May 1, 2013). Accordingly, the second
factor supports a finding that default judgment is procedurally warranted.
C. Grounds for Default Judgment Are Clearly Established
The record indicates that Bar-Z successfully perfected service of process on Rice
(Dkt. #135). Nevertheless, Rice failed to respond to the Fifth Amended Complaint, the Request
for Entry of Default, and the present motion. When a defendant’s failure to respond is “plainly
willful, as reflected by [a defendant’s] failure to respond either to the summons and complaint, the
entry of default, or the motion for default,” then grounds for default are clearly established.
See Graham, 2017 WL 2600318, at *2 (alteration original). Thus, the Court finds that the grounds
for default against Rice are clearly established.
D. Default Is Not Due to Excusable Neglect or Good Faith Mistake
Again, Bar-Z properly served Rice (Dkt. #135). Rice failed to respond, let alone offer
evidence that his unresponsiveness is due to a “good faith mistake or excusable neglect.”
See Lindsey, 161 F.3d at 893. Further, nothing in the record indicates that Bar-Z has contributed

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to the delay of this action or otherwise given the Court any reason to set aside default judgment.
Plaintiff, accordingly, has met the procedural requirements for default judgment.
II.

Pleadings Demonstrate Sufficient Basis for Default Judgment
After establishing default is procedurally warranted, the Court must determine if there is a

sufficient basis for judgment. Nishimatsu, 515 F.2d at 1206. Although Rice is deemed to have
admitted the allegations set forth in Bar-Z’s Complaint in light of an entry of default, the Court
must review the pleadings to determine whether the Complaint presents a sufficient basis for relief.
Lindsey, 161 F.3d at 893. The Fifth Circuit “draw[s] meaning from the case law on Rule 8, which
sets forth the standards governing the sufficiency of a complaint.” Wooten v. McDonald Transit
Assocs., Inc., 788 F.3d 490, 498 (5th Cir. 2015) (quoting Nishimatsu, 515 F.2d at 1206). “Rule
8(a)(2) requires a pleading to contain ‘a short and plain statement of the claim showing that the
pleader is entitled to relief.’” Id. (quoting FED. R. CIV. P. 8(a)(2)). Ultimately, “[t]he factual
allegations in the complaint need only ‘be enough to raise a right to relief above the speculative
level, on the assumption that all the allegations in the complaint are true (even if doubtful in fact).’”
Id. (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007) (footnote and citations omitted)).
Bar-Z brought claims against Rice for trade secret misappropriation under the Texas
Uniform Trade Secrets Act, TEX. CIV. PRAC. & REM. CODE. § 134A.001 (“TUTSA”) and the
Federal Defend Trade Secrets Act, 18 U.S.C. §§ 1832, 1836(B)(3), along with tortious interference
with a contract (Dkt. #120).
A. Trade Secret Misappropriation
Bar-Z pleads facts sufficient to support its claims for trade-secret misappropriation under
the DTSA and the TUTSA.
The DTSA provides that “[a]n owner of a trade secret that is misappropriated may bring a

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civil action under this subsection if the trade secret is related to a product or service used in, or
intended for use in, interstate or foreign commerce.” 18 U.S.C. § 1836(b)(1). Accordingly, the
elements of a DTSA claim are “(1) ownership of a trade secret that (2) has been misappropriated
and that (3) relates to a product or service in interstate commerce.” Providence Title Co. v. Truly
Title, Inc., 547 F. Supp. 3d 585, 594 (E.D. Tex. 2021). The elements of a trade-secret
misappropriation claim under Texas law are similar. To recover for trade-secret misappropriation,
a plaintiff must show: (1) existence of a trade secret; (2) breach of a confidential relationship or
improper discovery of a trade secret; (3) use of the trade secret; and (4) damages. Tex. Integrated
Conveyor Sys., Inc. v. Innovative Conveyor Concepts, Inc., 300 S.W.3d 348, 366–67 (Tex. App.—
Dallas 2009, pet. denied).
Here, Bar-Z alleges that it owns certain trade secrets, including its marketing materials,
pricing information, source code and programming, and “application design, GUI, architecture and
functionalities,” that provide a competitive advantage in its business (Dkt. #120 ¶ 27). Bar-Z also
alleges that it took reasonable measures to keep this information secret and revealed it to Patrick
in confidence while he worked as an employee of for Bar-Z (Dkt. #120 ¶ 28). The Employment
Agreement Patrick signed stated that this information is confidential and was not to be used or
disclosed except for the benefit of Bar-Z (Dkt. #120 ¶ 40). Nonetheless, Patrick allegedly used
and disclosed Bar-Z’s trade secrets without its consent to help App Star develop competitive
applications (Dkt. #1 ¶ 28).
These alleged facts, which are deemed admitted, are sufficient to “raise [Bar-Z’s] right to
relief above the speculative level” and provide “fair notice” to Rice, as the owner of App Star, of
the trade-secret misappropriation claims against him. See Wooten, 788 F.3d at 498. Accordingly,
a sufficient basis in the pleadings exists for entry of default judgment on Bar-Z’s claims under the

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DTSA and TUTSA for trade-secret misappropriation against Rice.
B. Tortious Interference
In Texas, prevailing on a claim of tortious interference with an employment contract
requires a plaintiff to prove (1) the existence of a contract subject to interference; (2) a willful and
intentional act of interference; (3) the act was the proximate cause of plaintiff’s damages; and
(4) actual damage or loss occurred. Tex. Beef Cattle Co. v. Green, 921 S.W.2d 203, 210 (Tex.
1996). To be actionable, the interference must be intentional, meaning “the actor desires to cause
the consequences of his act, or that he believes that the consequences are substantially certain to
result from it.” Sw. Bell Tel. Co. v. John Carlo Tex., Inc., 843 S.W.2d 470, 472 (Tex. 1992). The
cause of action exists even if the employment contract is terminable at will. Sterner v. Marathon
Oil Co., 767 S.W.2d 686, 688 (Tex. 1989).
Bar-Z pleaded that Rice and App Star intentionally and willfully interfered with Bar-Z’s
Employment Agreement with Patrick without justification or excuse (Dkt. #120 ¶ 45). By
continuing to use the trade secrets and confidential information Patrick misappropriated, Bar-Z
alleged Rice and App Star interfered with Patrick’s obligation to keep Bar-Z’s information
confidential and his obligation not to compete with Bar-Z (Dkt. #120 ¶ 45). Bar-Z asserts this
interference has caused damage and will continue to cause damage to Bar-Z (Dkt. #120 ¶ 45).
Therefore, Bar-Z has sufficiently pleaded its tortious interference claim against Rice.
III.

Form of Relief
Having concluded default judgment is appropriate, the Court must determine if Bar-Z’s

requested remedies are appropriate upon the entry of default judgment.

Bar-Z requests a

permanent injunction enjoining Rice from using distributing or disclosing in anyway any of BarZ’s confidential and/or proprietary information and requiring the removal of all applications that

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were developed based on Bar-Z’s information from the Apple App store and/or Google Play and
the deletion of all content (Dkt. #141 at p. 10). Bar-Z also requests $740,929.81 in actual damages,
and exemplary damages that are twice the amount of actual damages (Dkt. #141 at pp. 10–11).
Finally, Bar-Z requests $426,851.50 in attorney’s fees (Dkt. #141 at p. 11). In support of its
request, Bar-Z submits the Declarations of Daniel C. Bitting, a partner at the law firm representing
Bar-Z, and Carrie Little, the Vice President and Chief Financial Officer of Bar-Z (Dkt. #141,
Exhibits 32, 33).
In awarding relief, a court should generally not award damages without first conducting a
hearing. United Artists Corp. v. Freeman, 605 F.2d 854, 857 (5th Cir.1979). However, if the
amount of damages is a “liquidated sum or one capable of mathematical calculation,” a hearing is
not required. Id. (citation omitted). James v. Frame, 6 F.3d 307, 310 (5th Cir. 1993). Further,
federal Rule of Civil Procedure 54(c) provides that a default judgment must not differ from or
exceed what is demanded in the pleadings. See FED. R. CIV. P. 54(c); see also Meaux Surface
Prot., Inc., v. Fogleman, 607 F.3d 161, 172 (5th Cir. 2010).
Here, the Court finds that in accordance with Rule 55(b)(2), a hearing should be conducted
with respect to damages. See FED. R. CIV. P. 55(b)(2)(B). At the hearing, the Court will hear
argument and consider evidence on Bar-Z’s request for damages under the DTSA and TUTSA.
Further, Bar-Z shall also be prepared to present evidence and facts in support of its argument that
Rice willfully violated the TUTSA, and, as such, Bar-Z is entitled to punitive damages. See TEX.
CIV. PRAC. & REM. CODE § 134A.005(3). That said, the Court finds it appropriate to award the
injunctive relief Bar-Z requests.
The Fifth Circuit favors permanent injunctions for most misappropriation of trade secrets
cases. See Metallurgical Indus. Inc. v. Fourtek, Inc., 790 F.2d 1195, 1208 (5th Cir. 1986). Under

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the DTSA, “a court may grant an injunction to prevent any actual or threatened
misappropriation . . . on such terms as the court deems reasonable.” 18 U.S.C. § 1836(b)(3)(A)(i).
The TUTSA likewise provides that “[a]ctual or threatened misappropriation may be enjoined if
the order does not prohibit a person from using general knowledge, skill, and experience that
person acquired during employment.” TEX. CIV. PRAC. & REM. CODE § 134A.003(a).
Accepting the facts alleged here as true, a reasonable likelihood exists that Rice will engage
in, or threaten to engage in, future misappropriation and dissemination of Bar-Z’s trade secrets.
To prevent such harm, Bar-Z is entitled to permanent injunctive relief. Accordingly, the Court
will grant Bar-Z’s request and enjoin Rice from using, distributing, or disclosing in anyway any
of Bar-Z’s confidential and/or proprietary information and requiring the removal of all applications
that were developed based on Bar-Z’s information from the Apple App store and/or Google Play
and the deletion of all content. Consistent with the TUTSA, this injunction will not prohibit Rice
from using general knowledge, skill, and experience that Patrick acquired during his relationship
with Bar-Z. TEX. CIV. PRAC. & REM. CODE § 134A.003(a).
CONCLUSION
It is therefore ORDERED Plaintiff’s Motion for Entry of Default Judgment (Dkt. #141) is
hereby GRANTED in part. Bar-Z is entitled to a default judgment against Rice on liability, but
the Court declines to award damages until after a hearing is conducted.
It is further ORDERED that a hearing on damages is set for 9:00 a.m. on
Wednesday, September 21, 2022, at the Paul Brown United States Courthouse, 101 E. Pecan
Street, Sherman, Texas 75090.
It is further ORDERED that Rice is permanently enjoined from using, distributing, or
disclosing in anyway any of Bar-Z’s confidential and/or proprietary information and requiring the

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removal of all applications that were developed based on Bar-Z’s information from the Apple App
. store and/or Google Play and the deletion of all content
The clerk is directed to mail a copy of this Order to Defendant Eugene Rice at 5057 Keller
Springs Road, Suite 300, Addison, Texas 75001.
IT IS SO ORDERED.
SIGNED this 6th day of September, 2022.

___________________________________
AMOS L. MAZZANT
UNITED STATES DISTRICT JUDGE

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