While we patiently wait for a sequel to Dodgeball: A True Underdog Story to come out, a similar saga involving competing gym/spa establishments has been unfolding in Houston, Texas (minus the dodge ball tournament and shiny singlets) recently culminating in a lawsuit in the federal district court for the Southern District of Texas.
In this lawsuit, Life Time Fitness sued its former regional vice president, his wife, who also worked for Life Time Fitness at various times, and their newly formed company – ReNew You LLC – alleging that the VP “pilfered” proprietary business information, duplicated Life Time’s business model, and used company personnel to open a competing business. Life Time filed the complaint on January 16th and four days later obtained a temporary injunction order against the defendants ordering ReNew You to cease and desist all operations and barring it from offering or providing services provided by Life Time. In sum, Life Time has succeeded in shutting down ReNew You for now.
The complaint alleges that while working for Life Time, the VP used Life Time’s technology system, email and his personal assistant to:
(1) draft and revise detailed business plans, agendas and checklists for his new company;
(2) build proformas, budgets, forecast and financial models for his new company based on Life Time’s proformas, etc.;
(3) obtain quotes for or leasing equipment for ReNew You;
(4) develop logos for ReNew You;
(5) develop a website for ReNew You;
(6) negotiate a partnership agreement with his partner in ReNew You.
Life Time also alleged that the VP “egregiously and surreptitiously” breached the non-compete agreement by using Life Time’s time, resources, computers, proprietary information and employees to build the medi-spa and weight-loss business less than four miles away from one of Life Time’s facilities.
While the complaint doesn’t specify how Life Time eventually found out about the VP’s activities, it is clear that the VP was using Life Time’s email address to send much of communications related to establishing ReNew You. Apparently, the VP was also using his Life Time computer to create and edit many of the ReNew You documents. It is alleged that he also used his Life Time email address to email himself Life Time’s confidential information.
The complaint contains nine (typical) counts: violation of the Computer Fraud and Abuse Act (CFAA), breach of contract, breach of fiduciary duties, misappropriation of trade secrets, violation of the Texas Uniform Trade Secrets Act (TUTSA), tortious interference with prospective contracts, tortious interference with existing contracts, conspiracy, and aiding and abetting breach of fiduciary duties.
The VP’s attorneys and the VP himself have denied any improper actions. As usual, the allegations made by Life Time in its complaint remain to be proven.
TAKEAWAYS: The allegations in this case (which remain to be proven) illustrate a typical former employee/employer dispute, which often arises when an employee decides to open a business that competes with his or her former employer.
The allegations raise an issue of when is the line between preparation to compete (generally allowed under Texas law) is crossed into competition with the employer while on employer’s payroll (not permitted). In some situations, the answer to that question is clear, while in others, it requires a rigorous legal and factual analysis.
The line between fair competition and unfair competition is often in the eye of the beholder, frequently pushing the parties towards litigation as a forum for resolving what is fair. While some disputes may not be resolved outside the courtroom, many may be avoided if employees planning to compete with their former employer follow two simple steps:
(1) review their employment agreements to determine what obstacles, if any, they present to opening a competing business; and
(2) avoid actually competing with the employer or using employer’s resources to plan the new business while on employer’s payroll.
About the author
Elisaveta "Leiza" Dolghih is a business and employment litigation attorney at Godwin PC in Dallas, Texas. She represents companies and employees in litigation in federal and state courts and arbitration proceedings. She also helps clients resolve business and employment disputes before litigation arises. A significant part of her practice consists of enforcing non-compete agreements and assisting employers in prosecuting misappropriation of trade secrets by former employees and competitors. She can be contacted by email at LDolghih@GodwinLaw.com or by phone at 214.939.4458.