Case 4:16-cv-00737-ALM Document 96 Filed 08/03/17 Page 1 of 31 PageID #: 3935
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`United States District Court
`EASTERN DISTRICT OF TEXAS
`SHERMAN DIVISION
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`REALPAGE, INC.; REALPAGE VENDOR
`COMPLIANCE LLC
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`v.
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`ENTERPRISE RISK CONTROL, LLC;
`LONNIE DERDEN
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`
`
`
`Civil Action No. 4:16-CV-00737
`Judge Mazzant
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`§
`§
`§
`§
`§
`§
`§
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`MEMORANDUM OPINION AND ORDER
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`Pending before the Court is Plaintiffs’ Application for Preliminary Injunction (Dkt. #10).
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`After considering the relevant pleadings, exhibits, and argument at the preliminary injunction
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`hearing, the Court finds Plaintiffs’ motion should be granted in part.
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`BACKGROUND
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`Lonnie Derden (“Derden”) has been in the vendor compliance and tenant screening
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`industry for sixteen years. In 1999, Derden created his own company, Resident Data. Derden
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`sold Resident Data to Choice Point and became Vice President of the department at Choice
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`Point. In 2005, Derden created Compliance Depot. Derden created Compliance Depot by using
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`rules and code he found on the internet, six months of labor, and a $250,000 investment. By
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`2011, Compliance Depot had annual revenues of $6 million.
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`In 2011, RealPage Vendor Compliance LLC, a wholly owned subsidiary of RealPage,
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`Inc. (collectively “RealPage”) purchased Compliance Depot for nearly $24 million. As part of
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`the Compliance Depot purchase, Derden and RealPage entered into three agreements: (1) the
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`Asset Purchase Agreement (“APA”); (2) the Significant Owners’ Agreement (“SOA”); and
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`(3) the Employment Agreement. Each agreement contained non-competition, non-solicitation,
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`and confidentiality agreements.
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`Case 4:16-cv-00737-ALM Document 96 Filed 08/03/17 Page 2 of 31 PageID #: 3936
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`Tom Bean (“Bean”) was one of Derden’s long-time friends and colleagues. In early 2012,
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`Bean left RealPage. Around May 2012, Bean decided to create a software consulting firm, IDC
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`Software. In April 2012, Bean emailed another former RealPage employee, David Boyle
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`(“Boyle”) a “wish list” of equipment to support IDC Software’s projects. Also in April 2012,
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`Bean worked with a third former RealPage employee James Beavers (“Beavers”) to obtain a
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`quote for Dell computers, using Compliance Depot’s account number. Derden provided the
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`funding for IDC Software to purchase this equipment and software. On May 17, 2012, Bean
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`received an employer identification number from the IRS. At this time, IDC Software had two
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`projects, but focused primarily—if not exclusively—on getting “[Derden’s] core software
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`business developed.” On May 19, 2012, Bean emailed Richard Wolff (“Wolff”) and copied
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`Boyle. Bean’s email to Wolff contained several “.sql” files and instructed Wolff to “change table
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`and column names and layouts so we aren’t just copying what we did the first time.” Derden
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`agreed to pay Wolff $115,000 for this task. Over the next year, Derden was the sole source of
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`funds for operating expenses, ultimately investing $160,000 in IDC Software.
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`In December 2012, Derden created Enterprise Risk Control, LLC (“Enterprise”). In July
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`2013, Derden purchased IDC Software’s vendor compliance code and hired Bean as an
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`employee of Enterprise. At that time, Bean uploaded his code onto Enterprise’s servers. Bean
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`continued to develop Enterprise’s code until April 2017. Enterprise began marketing its product
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`to potential customers in February 2014, and to its first multi-family customer in August 2015.
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`In February 2014, RealPage caught wind of Enterprise’s new application and potential
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`misappropriation of trade secrets. RealPage sent Defendants a cease and desist letter demanding
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`assurances that Defendants were not soliciting RealPage clients and were not using RealPage
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`secrets. Defendants responded with assurances that they did mistakenly approach a RealPage
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`Case 4:16-cv-00737-ALM Document 96 Filed 08/03/17 Page 3 of 31 PageID #: 3937
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`client, but immediately backed off when they learned of the mistake. Defendants also assured
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`RealPage that they did not have any trade secret information.
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`In April 2016, RealPage received more information that Defendants might be using trade
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`secrets when a disgruntled ex-Enterprise employee, Cheryl Freudiger (“Freudiger”) approached
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`RealPage claiming that Enterprise gave her various trade secret materials. However, Freudiger
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`did not produce corroborating evidence to RealPage until August 5, 2016. In early September,
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`RealPage also received an email from one of its clients, explaining how Enterprise approached
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`with a new vendor compliance application.
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`On September 23, 2016, RealPage filed suit against Derden and Enterprise asserting
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`claims for misappropriation of trade secrets, breach of contract, and breach of fiduciary duty
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`(Dkt. #1). On December 2, 2016, RealPage served Enterprise and Derden with its first set of
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`requests for production. In its requests for production, RealPage requested, among other things,
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`all of Enterprise’s source code. Defendants produced all source code after early July 2013, but
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`denied having access to any source code from before July 2013. Defendants based their position
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`on Bean’s declaration because he was the primary developer of code before July 2013. Bean
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`swore under oath that when he left RealPage, he “did not take any of RealPage’s confidential
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`information” (Dkt. #21, Exhibit 3 at ¶ 4). On February 17, 2017, RealPage filed a motion to
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`compel production of documents (Dkt. #40) followed two weeks later by a motion to compel
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`computer images (Dkt. #49).
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`RealPage argued that there was an unexplained gap in the development of Enterprise’s
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`code. RealPage based this argument on several comments, visible in post-July 2013 code, that
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`were made as early as July 2012. However, despite being able to see these comments, the code
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`was not accessible. In response to RealPage’s motions to compel, Defendants relied again on
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`Case 4:16-cv-00737-ALM Document 96 Filed 08/03/17 Page 4 of 31 PageID #: 3938
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`Bean’s sworn testimony that he did not take any confidential information with him and did not
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`use any of RealPage’s confidential information during his employment with Enterprise
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`(Dkt. #44, Exhibit 2 at ¶¶ 6, 9, 11). Further, Bean swore that “[a]fter I transferred the earlier IDC
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`code onto [Enterprise’s] TFS server, I removed the previous work from the IDC computer I had
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`been using because it was no longer ‘my’ code or ‘IDC’s’ code – it was [Enterprise’s] code”
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`(Dkt. #44, Exhibit 2 at ¶ 8). Finally, Bean swore that he looked for remnants of Enterprise’s
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`source code from the IDC Software computer that he used before July 2013, but did not locate
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`any (Dkt. #44, Exhibit 2 at ¶ 10).
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`Seemingly at a stalemate, the Court held that it could not order Defendants to compel
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`what they did not have. However, finding that RealPage was entitled to verify Bean’s allegations
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`regarding the code’s destruction, the Court ordered Defendants to produce mirror images of
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`computers and storage devices used by Tom Bean in July 2013 (Dkt. #62 at p. 5). The Court
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`limited the examination to determine if the source code was recoverable. If the code was not
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`recoverable, the Court permitted the neutral forensic examiner to determine the details of any
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`deletions so that RealPage could adequately cross-examine at trial.
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`The forensic examination conducted on April 6, 2017, showed that Bean did not delete
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`the IDC Software code in July 2013 as he previously swore to. Instead, Bean destroyed
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`thousands of files in September 2016, after RealPage filed this suit. The forensic examination
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`also showed nearly 1,000 files deleted on April 3, 2017, after the Court ordered a forensic
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`examination. In all, nearly 100,000 files were deleted from Enterprise’s code since RealPage
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`filed suit. Although the forensic exam shows which files were deleted, it cannot show any
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`information about what the deleted code contained.
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`After the forensic examination, Defendants withdrew Bean’s two declarations, which
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`claimed that he did not take any RealPage information and that the Enterprise code was created
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`without leveraging anything from RealPage. Bean has now admitted that he took a thumb drive
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`with “everything” from RealPage and took the thumb drive home in April 2012.
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`In addition to Derden, Enterprise had six former RealPage employees: Bean, Beavers,
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`Boyle, Linda Jones (“Jones”), Shawn Davis (“Davis”), and Michele Head (“Head”). Shortly after
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`the forensic examination revealed Bean’s misrepresentations to the Court, Enterprise terminated
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`his employment. Enterprise spent approximately 9,500 development hours and $3.3 million
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`creating its current product. Today, Enterprise provides vendor risk-management and
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`credentialing services
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`to school districts,
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`restaurant chains, construction companies,
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`homeowners’ association management companies, commercial real estate, and multi-family
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`properties.
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`On September 23, 2016, Plaintiffs filed suit against Derden and Enterprise asserting
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`claims for misappropriation of trade secrets, breach of contract, and breach of fiduciary duty
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`(Dkt. #1). On October 4, 2016, Plaintiffs filed their Application for Preliminary Injunction
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`(Dkt. #10). On November 7, 2016, Defendants filed their response (Dkt. #21). On June 23, 2017,
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`Plaintiffs filed a supplemental brief and exhibits (Dkts. #78–82). On July 3, 2017, Defendants
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`filed their supplemental brief and exhibits (Dkts. #86–88). On July 12, 2017, Plaintiffs filed a
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`supplemental reply (Dkt. #90). On July 13, 2017, the parties submitted joint deposition
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`submissions in lieu of several witnesses’ live testimony (Dkt. #92). On July 16, 2017,
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`Defendants filed a supplemental surreply (Dkt. #93). On July 17, 2017, the Court held an
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`evidentiary hearing. After the hearing, the parties submitted an admitted exhibit list (Dkt. #95).1
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`1 The admitted exhibit list follows the same numbering as used throughout the depositions in this case. For ease, the
`Court’s references to exhibits refer to those reflected on the admitted exhibit list (Dkt. #95).
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`Case 4:16-cv-00737-ALM Document 96 Filed 08/03/17 Page 6 of 31 PageID #: 3940
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`LEGAL STANDARD
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`A party seeking a preliminary injunction must establish the following elements: (1) a
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`substantial likelihood of success on the merits; (2) a substantial threat that plaintiffs will suffer
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`irreparable harm if the injunction is not granted; (3) that the threatened injury outweighs any
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`damage that the injunction might cause the defendant; and (4) that the injunction will not
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`disserve the public interest. Nichols v. Alcatel USA, Inc., 532 F.3d 364, 372 (5th Cir. 2008). “A
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`preliminary injunction is an extraordinary remedy and should only be granted if the plaintiffs
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`have clearly carried the burden of persuasion on all four requirements.” Id. Nevertheless, a
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`movant “is not required to prove its case in full at a preliminary injunction hearing.” Fed. Sav. &
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`Loan Ins. Corp. v. Dixon, 835 F.2d 554, 558 (5th Cir. 1985) (quoting Univ. of Tex. v. Comenisch,
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`451 U.S. 390, 395 (1981)). The decision whether to grant a preliminary injunction lies within the
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`sound discretion of the district court. Weinberger v. Romero-Barcelo, 456 U.S. 305, 320 (1982).
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`ANALYSIS
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`Before addressing the merits of RealPage’s application for preliminary injunction, the
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`Court will address Defendants’ assertion of the equitable defense of laches. To establish laches,
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`Defendants must prove that RealPage (1) delayed in asserting the rights at issue; (2) the delay is
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`inexcusable; and (3) Defendants have suffered undue prejudice because of the delay. Uptown
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`Grill, L.L.C. v. Shwartz, 817 F.3d 251, 256 (5th Cir. 2016). In the context of laches, prejudice
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`means “defendant has done something it otherwise would not have done absent the plaintiff’s
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`conduct.” Conan Props., Inc. v. Conans Pizza, Inc., 752 F.2d 145, 153 (5th Cir. 1985).
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`“The period for laches begins when the plaintiff knew or should have known of the
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`infringement.” Elvis Presley Enters. v. Capece, 141 F.3d 188, 205 (5th Cir. 1998). The Fifth
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`Circuit has devised a formula of “‘LACHES = DELAY x PREJUDICE,’ a factual calculation of
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`the trial court.” Gruma Corp. v. Mexican Rests., Inc., No. 4:09-cv-488-MHS-ALM, 2013 WL
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`12134147, at *8 (E.D. Tex. Sept. 27, 2013) (citing Armco, Inc. v. Armco Burglar Alarm Co.,
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`693 F.2d 1155, 1162 (5th Cir. 1982)). “There is no bright-line rule on how long of a delay is
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`sufficient to establish the defense of laches.” Id.
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`Defendants argue that RealPage’s claims are barred by laches because RealPage did not
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`seek legal action for over two years after receiving Defendants’ response to the cease and desist
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`letter. Defendants argue that based upon RealPage’s lack of action after its cease and desist
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`letter, Defendants invested significant time and resources, totaling $3.3 million, in developing
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`their application. RealPage argues that Defendants’ unclean hands prevents them from asserting
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`the laches defense.2 RealPage also argues that it was justified in its delay until 2016 because
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`Defendants represented in 2014 that they were not using trade secrets.
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`The Court finds that Defendants have failed to show a prima facie case of either
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`unreasonable delay or undue prejudice.3
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`RealPage did not unreasonably delay in asserting its rights. The clock for laches can be
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`stopped by a plaintiff’s act showing intent to enforce its rights, such as by sending a cease and
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`desist letter. Gruma, 2013 WL 12134147, at *8 (citing Elvis Presley Enters., 141 F.3d at 206).
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`RealPage sent Defendants a cease and desist letter on March 25, 2014, in which it raised
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`concerns about Defendants soliciting RealPage clients and providing a multi-family real estate
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`management service (Exhibit 4). RealPage demanded a comprehensive written response
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`2 Defendants respond that RealPage has never raised unclean hands and therefore waived that defense. The Court
`need not reach this issue because the Court finds that Defendants have not established a prima facie case of laches.
`3 Defendants’ cited cases do not persuade the Court. Defendants did not have to completely rebuild their
`infrastructure, RealPage did not make affirmative representations that they approved of Enterprise’s application, and
`RealPage waited only a few months to file suit. See Abraham v. Alpha Chi Omega, 708 F.3d 614, 625 (5th Cir.
`2013) (finding undue prejudice when defendant had to rebuild his business infrastructure twice because of fires);
`Conan Props., 752 F.2d at 148 (5th Cir. 1985) (finding undue prejudice when plaintiff wished defendant success,
`took a photo with defendant, and signed the photo with “best wishes”); H.G. Shopping Ctrs., L.P. v. Birney, No. H-
`99-0622, 2000 WL 33538621, at *5 (S.D. Tex. 2000) (holding twenty-year delay was unreasonable).
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`“(i) detailing the specific nature of Enterprise’s services . . ., and (ii) confirming that none of
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`Enterprise’s services is competitive to RealPage” (Exhibit 4 at p. 2). Defendants responded on
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`April 1, 2014, unequivocally denying the allegations in the cease and desist letter and describing
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`the accidental contact with one of RealPage’s (although not Compliance Depot’s) clients
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`(Exhibit 5). Defendants’ response was satisfactory. Therefore, the clock for laches did not begin.
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`Further, the clock did not start in April 2016 when Freudiger tipped off RealPage to
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`potential trade secret violations. RealPage was reasonably skeptical of Freudiger’s initial tip
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`because she was a disgruntled ex-Enterprise employee (See Exhibit 177). Freudiger did not
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`substantiate her claims with physical evidence until August 5, 2016. RealPage filed suit on
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`September 23, 2016, one week after receiving an email from a Compliance Depot client about
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`Enterprise’s sales pitch. The Court finds that this period does not constitute unreasonable delay
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`to support laches.
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`Defendants have not shown that they suffered undue harm due to the delay. Defendants
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`assert that they expended additional time and resources to develop their application based on
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`RealPage’s implied acquiescence. However, Defendants do not substantiate this assertion. While
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`Defendants claim that they expended $3.3 million in total to develop their application, they do
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`not account for how much of that money was spent during the two years before the cease and
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`desist letter. Therefore, the $3.3 million is misleading. Without any reference to what was spent
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`before April 2014, Defendants have failed to meet their burden to show undue prejudice after
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`their reliance.
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`For these reasons, Defendants fail to prove their affirmative defense of laches. The Court
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`will now address the merits of RealPage’s application for injunction.
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`A. Likelihood of Success on the Merits
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`To prevail on their motion for preliminary injunction, Plaintiffs must demonstrate a
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`substantial likelihood of success on the merits. This requires a movant to present a prima facie
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`case. Daniels Health Scis., LLC v. Vascular Health Scis., 710 F.3d 579, 582 (5th Cir. 2013)
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`(citing Janvey v. Alguire, 647 F.3d 585, 595–96 (5th Cir. 2011)). A prima face case does not
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`mean Plaintiffs must prove they are entitled to summary judgment. Byrum v. Landreth, 566 F.3d
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`442, 446 (5th Cir. 2009).
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`1. Breach of Contract
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`Under Texas law, “[t]he elements of a breach of contract claim are: (1) the existence of a
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`valid contract between plaintiff and defendant; (2) the plaintiff’s performance or tender of
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`performance; (3) the defendant’s breach of the contract; and (4) the plaintiff’s damage as a result
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`of the breach.” In re Staley, 320 S.W.3d 490, 499 (Tex. App.—Dallas 2010, no pet.). RealPage
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`claims that it can establish each element. Derden argues that the noncompete is invalid because
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`it is overly broad and that even if the covenant is valid, he did not breach the terms. The Court
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`will address each argument in turn.
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`Covenants not to compete are generally disfavored by Texas courts. Marsh U.S., Inc. v.
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`Cook, 354 S.W.3d 764, 768 (Tex. 2011). However, the Supreme Court of Texas noted that the
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`Texas Legislature enacted the Covenants Not to Compete Act to restore the well-established rule
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`in Texas that non-competition clauses “pertaining to employment were not normally considered
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`to be contrary to public policy.” Marsh, 354 S.W.3d at 733 (alteration omitted). To be
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`enforceable under Texas law, a covenant not to compete must be: (1) ancillary to or part of an
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`otherwise enforceable agreement; (2) contain reasonable limitations as to time, geographical
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`area, and scope of activity to be restrained; and (3) not impose a greater restraint than is
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`Case 4:16-cv-00737-ALM Document 96 Filed 08/03/17 Page 10 of 31 PageID #: 3944
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`necessary to protect the goodwill or other business interest of the promisee. Tex. Bus. & Comm.
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`Code Ann. § 15.50(a). Whether a noncompete is a reasonable restraint of trade is a question of
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`law for the court. Peat Marwick Main & Co. v. Haass, 818 S.W.2d 381, 388 (Tex.
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`1991); Martin v. Credit Protection Ass’n, 793 S.W.2d 667, 668–69 (Tex. 1990). Restraints are
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`unreasonable if they are broader than necessary to protect the legitimate interests of the
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`employer. DeSantis v. Wakenhut Corp., 793 S.W.2d 670, 681–82 (Tex. 1990); Henshaw v.
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`Kroenecke, 656 S.W.2d 416, 418 (Tex. 1983). Defendants do not contest the first element.
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`Therefore, the Court will analyze only the final two elements.
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`Derden and RealPage entered into three agreements surrounding the purchase of
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`Compliance Depot and Derden’s subsequent employment with RealPage: The APA, SOA, and
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`Employment Agreement.
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`Under the APA, Derden agreed that for a period of sixty months after the closing date,
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`they would not “engage in the Business” (Exhibit 76 at p. 39). “Business” means “the
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`Compliance Depot business, which provides vendor screening and compliance services”
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`(Exhibit 76 at Annex I).
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`The SOA prohibited each owner from competing for a period of sixty months following
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`the closing date. Derden promised in the SOA not to “become involved or otherwise engage,
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`directly or indirectly, in a Competing Business” (Exhibit 77 at pp. 1–2). Derden further promised
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`not to “directly or indirectly, advise . . . manage, operate, join, control, lend money or render
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`financial, technical or other assistance . . . any Competing Business” (Exhibit 77 at p. 2).
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`“Competing Business” means “the business of developing . . . databases and software
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`applications which are competitive with products or services of [RealPage], are generally
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`referred to as ‘single family or multi-tenant real estate management applications’ and are
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`generally used at apartment communities” (Exhibit 77 at p. 2).
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`Under the Employment Agreement, Derden agreed not to “use, disclose, reproduce, or
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`distribute any of [RealPage’s] Confidential Information.” (Exhibit 78. at p. 8).4 “Confidential
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`Information” does not include information that is “readily accessible to the public” or
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`information that is “a matter of common knowledge in the company’s business[,] trade[,] or
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`industry.”
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`a. Scope
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`RealPage argues that the definition of Competing Business is intentionally broad to
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`include all multi-tenant property managers, including any multi-family, mixed-use, or
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`commercial real estate managers. Derden argues that Competing Business is limited to business
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`specifically with respect to single family or multi-tenant real estate management applications
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`and to what is generally used at apartment communities by persons engaged in the operation and
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`maintenance of apartments. Derden argues the scope must be narrow because Compliance Depot
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`and RealPage were engaged only in apartments at the time of the acquisition. Thus, Derden
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`argues that a broad reading would make the noncompete invalid in scope based on RealPage’s
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`lack of justifiable economic interest. The Court agrees with Derden.
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`The APA prevents Derden from engaging in the “Business,” while the SOA prohibits
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`Derden from being involved in a “Competing Business.” Business is defined broadly to mean
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`“the Compliance Depot business, which provides vendor screening and compliance services”
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`(Exhibit 76 at Annex I). “Competing Business” has a narrower definition, and thus is the center
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`of the parties’ dispute.
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`4 The Employment Agreement also contained a three-year covenant not to compete and non-solicitation agreement,
`which is not in dispute.
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`The definition of Competing Business uses parallel phrases beginning with “are” and
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`coordinated with the conjunction “and.” Phrases joined by coordinating conjunctions are usually
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`treated as a single, compound unit. ConocoPhillips Co. v. U.S. E.P.A., 612 F.3d 822, 839
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`(5th Cir. 2010) (citing Sidney Greenbaum, The Oxford English Grammar 233 (1996)). In a
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`series of three phrases, “[t]he comma is often omitted on the assumption that it is not necessary,
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`since the co-ordinator is sufficient to signal the coordination.” Greenbaum, The Oxford English
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`Grammar 234.
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`Based on this construction, Competing Business has three elements, each of which must
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`be met. First, the software application must be “competitive with products or services of
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`[RealPage].” Second, the software application must be “generally referred to as ‘single family or
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`multi-tenant real estate management applications.’” Third, the software application must be
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`“generally used at apartment communities by personnel engaged in the operation . . . of
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`apartment units.”
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`The plain language of the SOA limited Competing Business to single family or multi-
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`tenant apartment applications. The word “generally” does not expand this definition because the
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`inclusion of “apartment units” at the end of the third element shows that this was limited to
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`apartments.
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`The scope of the noncompete is reasonable. RealPage had a protectable economic interest
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`in preventing competition for a reasonable amount of time from the multi-family, vendor
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`compliance industry. RealPage had an interest in protecting its $24 million purchase, which
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`included all of the intellectual property and associated goodwill of Compliance Depot. To
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`protect this, RealPage could reasonably limit Derden and others associated with Compliance
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`Depot from developing a similar application or selling their expertise in such development for a
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`reasonable period.
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`RealPage did not have a protectable economic interest in any broader definition. At the
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`time of the acquisition, Compliance Depot was largely in the multi-family, apartment complex
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`industry (Jason Lindwall (“Lindwall”) Dep. at 44:12–16). RealPage did not work for school
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`districts, the sports industry, or manufacturing (Lindwall Dep. at 45:9–21). RealPage’s
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`involvement in the commercial real estate industry was too small for Lindwall to recount.
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`RealPage cannot have a protectable interest in industries where it does not sell any products.
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`Redi-Mix Sols., Ltd. v. Express Shipping, Inc., No. 6:16-cv-298-RWS-KNM, 2016 WL 7634050,
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`at *8 (E.D. Tex. Dec. 2, 2016) (holding that the covenant prohibiting employee from contacting
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`customers relating to industries which he did not participate was unreasonable); Weber Aircraft,
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`L.L.C. v. Krishnamurthy, No. 4:12-cv-666, 2014 WL 12521297, at *8 (E.D. Tex. Jan. 27, 2014)
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`(holding employer had no protectable interest in geographic area where employer did not sell
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`any products); Elec. Data Sys. Corp. v. Powell, 524 S.W.2d 393, 398 (Tex. Civ. App.—Dallas
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`1975, writ ref’d n.r.e.) (holding appropriate remedy is to restrain the employee from working in
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`the same computer field in which he was associated while employed). Therefore, RealPage’s
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`noncompete is limited to the multi-family, apartment complex industry.5
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`b. Breach
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`
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`RealPage argues that Derden breached the agreements by funding and directing IDC
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`Software to create a vendor compliance application—before the expiration of the noncompete—
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`which could be used in the multi-family industry. RealPage also argues that Derden breached his
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`5 For the same reason, the definition of “Business” in the APA would be limited to the multi-family, apartment
`complex industry because that is what Compliance Depot was engaged in at the time.
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`Case 4:16-cv-00737-ALM Document 96 Filed 08/03/17 Page 14 of 31 PageID #: 3948
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`confidentiality agreement by using RealPage’s confidential information to develop IDC
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`Software’s competing application.
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`
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`Derden argues that an employee has a constitutional right to prepare to compete with his
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`employer before leaving his employer. Derden also argues that he did not solicit any of
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`RealPage’s customers, let alone multi-family clients of RealPage. Further, Derden argues that
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`developing an application that could be used, but was not used, in the multi-family industry is
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`not a violation of the noncompete.
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`Derden and RealPage agreed to a noncompete that included “developing . . . databases
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`and software applications which are competitive with products and services of [RealPage].” This
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`restriction lasted for sixty months. Derden does not object to the noncompete’s time restriction.
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`While Derden is correct in his claim that “to resign from one’s employment and go into business
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`in competition with one’s former employer is, under ordinary circumstances, a constitutional
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`right,” this case is not an ordinary circumstance. See Ledel v. Bill Hames Shows, Inc.,
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`367 S.W.2d 182, 184 (Tex. Civ. App.—Fort Worth 1963, no writ) (referring to “ordinary
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`circumstance” as one where the employer did not protect itself “for a reasonable time and within
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`a reasonable area from such competition in the event the employer-employee relationships
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`should be discontinued.”).
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`Here, Derden signed a noncompete agreement that specifically prohibited development of
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`competitive applications. Derden’s noncompete was not premised on actual loss of customers to
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`RealPage. Derden became involved directly in a Competing Business by advising, managing,
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`and lending money or financial assistance to IDC Software, which created a competing
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`application well before the noncompete expired. During the hearing, Derden admitted that the
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`IDC Software application was capable of servicing the multi-family industry before the
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`Case 4:16-cv-00737-ALM Document 96 Filed 08/03/17 Page 15 of 31 PageID #: 3949
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`noncompete expired. Therefore, Derden developed a competitive application during the
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`restricted period, in violation of the noncompete.
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`Derden claims that he should not be held accountable for Bean’s actions because Bean
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`acted outside the scope of his employment. However, whether Bean took RealPage’s trade
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`secrets is irrelevant for breach of the noncompete. All that matters is that Derden “engage[d] in
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`the Business” or “in a Competing Business.” Derden promised not to direct someone to create a
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`competing application. Nevertheless, Derden admitted that he hired IDC Software to create a
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`vendor compliance application that could be used for servicing apartment complexes. IDC
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`Software created that application. Whether Bean used trade secrets to accomplish this task does
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`not matter. Bean created the type of application that Derden intended for him to create, and that
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`application competed with RealPage. Therefore, Derden directed Bean to create a competing
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`application, in violation of Derden’s noncompete.
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`
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`The only remaining question for the Court is whether Derden could cloak his
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`“development” of a new application under the guise of a school district application in order to
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`avoid the noncompete, only to market the same application to the multi-family industry shortly
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`after the noncompete expired.
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`
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`The only case cited by either party regarding development of a multi-faceted application
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`is Marcus v. Baker, 221 S.W.2d 575, 576 (Tex. Civ. App.—El Paso 1949, no writ), cited by
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`Derden. However, this case is inapposite. In Marcus, the buyer bought a deli located in the City
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`Market. Id. at 575. As part of the sale, the seller agreed to not open a competitive business for
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`one year and within one mile of the City Market location. Id. Five months later, the buyer closed
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`the City Market location and built a supermarket—which included a deli—a mile and a half
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`Case 4:16-cv-00737-ALM Document 96 Filed 08/03/17 Page 16 of 31 PageID #: 3950
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`from the City Market. Id. at 575–76. The seller then opened another deli within one mile of the
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`City Market location. Id. at 576.
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`
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`The court held that the new deli did not violate the noncompete because the City Market
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`deli was the only business subject to the restrictive covenant. Id. Once the City Market closed,
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`no business could be competitive with it. Id. Therefore, although the new deli was within the
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`restricted area, other terms of the agreement rendered its existence harmless. Id.
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`
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`Here, the evidence indicates that Defendants were developing an application that could
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`be used in the multi-family industry immediately on May 5, 2016 (See Exhibits 88, 90). Derden
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`admitted as much during the hearing. The Court does not need to analyze whether an application
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`with a collateral use would be a violation of the noncompete because Defendants developed
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`their application with the multi-family industry in mind. It was not simply an afterthought.
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`RealPage has shown a likelihood of success on its breach of contract claim against Derden.
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`2. Misappropriation of Trade Secrets
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`A claim for misappropriation of
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`trade se