Texas Court Engages in Risky Business as It Tramples the First Amendment
Texas has long been a bastion of constitutional rights, but that reputation now finds itself at risk as Texas courts are eroding critical First Amendment rights. What began as a fairly limited breach of contract and fraud case took a turn toward the exceedingly bizarre when a runaway, jackpot-sized verdict of $740 million was granted in favor of the defendant.
What evidence supported this near-record verdict for the Lone Star State? That’s precisely what the public has a right to know, and it’s precisely what one Texas court has now ordered kept from the public.
Title Source, Inc., a real estate title company now known as Amrock, had originally contracted with HouseCanary, Inc. to develop and deliver a functional mobile application for preparing appraisal reports in the field. HouseCanary also promised to provide a revolutionary automated home valuation model for use by TSI’s clients. TSI was to pay HouseCanary $5 million per year for up to three years, but TSI had the right to terminate after one year. After many broken promises and HouseCanary’s failure to deliver on their contract, TSI sued HouseCanary for breach of contract and fraud in 2016.
HouseCanary counter-sued, claiming that TSI misappropriated its trade secrets. HouseCanary won at trial, resulting in the near-record verdict of $740 million, a verdict since overturned by a Texas appellate court.
Just one day after the jaw-dropping verdict, TSI’s CEO received an email from a former HouseCanary executive troubled by his conscience, who confessed that, “HouseCanary never had any proprietary anything. It’s all a lie.” Three other former HouseCanary executives also subsequently stepped forward to testify that HouseCanary’s own CEO had willfully misrepresented the capabilities of the company’s products.
Litigation has continued since then, with TSI attempting to show that the initial jury verdict was, in the words of HouseCanary’s own former executives, “based on fallacies and spin.”
Crucial to analyzing whether there was any basis for the jury verdict are trial documents and exhibits presented by HouseCanary to support its position that the company does in fact possess trade secrets.
It is strange for a company to voluntarily share what it considers trade secrets in open court, unless required. It is stranger still for a company to share its supposed trade secrets only to later spend two years trying to hide them from the public. But that’s exactly what HouseCanary has been doing.
There are procedures put forth by the parties in a protective order and in the Texas Rules of Civil Procedure for proper document sealing, but HouseCanary failed to follow them. Last year, the Texas Supreme Court affirmed the appellate court’s ruling that the documents had been improperly sealed, remanding the case to the trial court for reconsideration.
On December 7, 2021, the trial court granted HouseCanary’s amended motion to seal the trial exhibits, ignoring the findings by the appellate court and the Texas Supreme Court, plus the First Amendment.
The order from the 73rd District Court of Bexar County, Texas, says “The First Amendment does not guarantee an absolute right to obtain documents in civil matters involving private commercial parties.” In principle, this limitation is justifiable if used only to prevent the court from becoming a vehicle for legal abuse. However, in HouseCanary Inc. v. Title Source Inc. it achieves the opposite: it undermines the fair and efficient resolution of the case by allowing evidence that was submitted voluntarily to be retroactively hidden when strategically convenient.
Critical evidence — evidence HouseCanary’s former executives have since stated was a collection of misrepresentations to the jury by a CEO intent on fraud — is now unavailable to the public.
Businesses flock to Texas for its history of championing constitutional rights for individuals and businesses alike. The near-record, $740 million verdict runs the risk of permanently damaging Texas’ ability to attract investment and business. Texas courts must respect the First Amendment and allow this evidence to be available for public review and scrutiny. The future growth of Texas business may depend on it.
The court’s dubious order cites multiple prior opinions in arguing that the court can restrict access to documents in order to preserve trade secrets.
However, in none of the referenced cases had the documents already been shared without reservation or objection in open court only to later be sealed, nor was there significant public doubt as to whether there were actually any trade secrets at all. This court’s order goes well beyond past judgments and significantly limits the First Amendment right to obtain judicial documents as never before.
Due to the size of the original verdict and visibility of this case, it’s easy to see how bad actors will take advantage of the poor precedent to have trial exhibits concealed from public scrutiny. The potential for abuse is vast, and the American public will surely suffer for it in the future. The First Amendment is too important to be limited on a whim, especially without serious consideration of the implications involved.
Companies deserve to have their trade secrets protected, but weakening constitutional rights is not a viable solution. This is especially true when the company in question has undertaken actions as suspicious as HouseCanary has in this case. TSI should, and will, appeal the trial court order in hopes of unveiling the court documents. Media organizations have also filed intervenor briefs on behalf of their own First Amendment rights.
Regardless of which party one believes, we should all hope the order will be reversed and the documents will once again become available to the public.
The American judicial system thrives on transparency. Throwing away transparency on a case as sizable as this one is risky and foolish, if not outright shameful. The First Amendment must prevail, for the sake of future business growth in Texas, and for the sake of the Texas values that attract those businesses — values that celebrate the freedoms guaranteed in the Constitution, including the First Amendment.
Jason Rowe is a Houston-based litigator who was named the Top Lawyer in Houston, Texas, by Houstonia Magazine in 2016 and 2018. You can reach on Twitter @NextUpHouston.